As the Union government awaits the Reserve Bank of India’s (RBI’s) decision to give forbearances to weaker banks to resume lending to micro, small and medium enterprises (MSMEs), it will launch a massive outreach programme to MSMEs starting Friday.
Prime Minister Narendra Modi will launch the government’s “MSME support and outreach” programme in the national capital that will go on for 100 days, in the run-up to the general elections due in April-May next year.
In the first phase, the government plans to reach out to 78 MSME clusters across the country. Bank officials will be stationed in these locations to provide loans to MSMEs, through the government’s newly launched web portal, www.psbloansin59minutes.com. Loans in the range of Rs 1-10 million will be sanctioned within 59 minutes through this portal.
The portal is for securing loan approvals from Small Industries Development Bank of India, and five public sector banks (PSBs) — State Bank of India (SBI), Bank of Baroda, Punjab National Bank, Vijaya Bank, and Indian Bank.
Illustration by Ajay Mohanty
On the first day, banks are likely to sanction 300 proposals to potential MSME borrowers in less than one hour through the web portal, sources said.
Modi will interact with MSMEs from five select districts through video conferencing and with four-five corporates registered on the Trade Receivables Electronic Discounting System (TReDS) platform, which facilitates the financing of trade receivables of MSMEs through multiple financiers. The Prime Minister will also address hundreds of MSMEs and bank executives present at Vigyan Bhawan in Delhi.
“There is a need to support the MSMEs, but the way in which this scheme is being implemented when the general elections are approaching is nothing short of an election stunt, since there is no planning and potential of borrower is not examined,” said general secretary of Maharashtra State Bank Employees Federation, Devidas Tuljapurkar said.
Industry leaders said the government’s outreach programme is needed to boost trade and industry’s confidence. “Timely, easy and adequate finance is lifeline for the SME sector — the most powerful engine of economic growth,” Assocham President B N Goenka said.
Through the newly launched web portal, the turnaround time of loan processing will reduce from 20-25 days to 59 minutes, according to the finance ministry. Subsequent to this in-principle approval, the loan will be disbursed in 7-8 working days. The government has raised concerns with the RBI on a potential lending freeze to MSMEs due to a majority of public sector banks’ inability to lend to MSMEs and the potential liquidity crunch among the non-banking financial companies, after the IL&FS crisis.
Eleven of 21 PSBs are under the Reserve Bank of India’s Prompt Corrective Action (PCA) framework. It restricts their ability to lend to MSMEs, as these banks are unable to lend to companies below BBB-rating as these are treated as riskier loans. “Lending to MSMEs by banks under the PCA is a key issue behind the government’s request to the RBI to ease the framework,” said a PSB chief executive, requesting anonymity.
The government has written a letter to the RBI governor, saying the lending restrictions on banks under the PCA has stifled the MSME sector and the economy. The government nominees have also presented this view to the RBI board in its meeting on October 23.
The RBI uses the PCA as an early warning tool and banks breaching a certain threshold in terms of non-performing assets or capital adequacy or losses are brought under this framework.