Presentation on 3Lakh Crore scheme of Government of India

1. SMEsFundingOptions
29th May2020
CA.SudhaG.Bhushan

2. • MSME
• What is an MSME
• How the definition of MSME has changed? Are
you an MSME?
• If you are an MSME – Are you registered as
MSME to avail various benefits.
• Benefits available
• Priority sector Lending
• Protection from delayed payment
• others
• Funding
• Under Covid 19
• Government stimulus package
• Subordinated debt
• Otherwise
• Treds
TopicsofDiscussion
2

3. WhatisMSME….?
MSME stands for Micro, Small, and Medium Enterprises.
3
Classification Micro Small Medium
Mfg. Enterprises Investment < Rs 25 lac Investment < Rs 5 Cr. Investment < Rs 10 Cr.
Service Enterprises Investment < Rs 10 lac Investment < Rs 2 Cr. Investment < Rs 5 Cr.
Classification Micro Small Medium
Existing and Revised Definition of MSMEs
Existing MSME Classification
Criteria : Investment in Plant and Machinrey or Equipment
Manufacturing &
Services
Investment < Rs 1 Cr. &
Turnover < Rs 5 Cr.
Investment < Rs 10 Cr. &
Turnover < Rs 50 Cr
Investment < Rs 20 Cr. &
Turnover < Rs 100 Cr.
Revised MSME Classification
Composite Criteria : Investment and Annual Turnover

4. BenefitsAvailable
4

5. MajorBenefits
• Protection against Payments (Delayed Payments)
• Subsidy on Patent Registration:
• Mandatory 25 percent procurement from MSMEs by CPSEs
• Interest Subvention Scheme
• Mandatory registration on TReDS
• Priority Lending
5

6. StimulusPackage
6

7. OverallStimulusPackage
7

8. Part1
• Pradhan Mantri Garib Kalyan Package
• Automatic collateral free loans: INR 3 trillion (~ US$ 40 billion)
• Subordinated debt for MSMEs: INR 200 billion (~ US$ 2.67 billion)
• Fund of funds for MSMEs: INR 500 billion (~ US$ 6.67 billion)
• Global tenders to be disallowed upto Rs 200 crores
• Rs. 2500 crore EPF Support for Business & Workers for 3 more months
• EPF contribution reduced for Business & Workers for 3 months- Rs 6750 crores Liquidity Support
• Rs 30,000 crore Special Liquidity Scheme for NBFCs/HFCs/MFIs
• Rs 45,000 crore Partial Credit Guarantee Scheme 2.0 for NBFCs
• Rs. 90,000 Cr. Liquidity Injection for DISCOMs
• Extension of Registration and Completion Date of Real Estate Projects under RERA
• Rs 50,000 crores liquidity through TDS/TCS rate reduction
8

9. Part2
• Direct Support to Farmers & Rural Economy provided post COVID
• Liquidity Support to Farmers & Rural Economy provided post COVID
• Support for Migrants and Urban Poor during last 2 months
• MGNREGS support to returning Migrants
• Labour Codes - Benefits for Workers
• Free Food grain Supply to Migrants for 2 months
• Technology Systems to be used enabling Migrants to access Public Distribution System (Ration) from any Fair
Price Shop in India by March 2021 - One Nation One Ration Card
• Affordable Rental Housing Complexes (ARHC) for Migrant Workers / Urban Poor
• Rs. 1500 crores Interest Subvention for MUDRA-Shishu Loans
• Rs 5000 cr Special Credit Facility for Street Vendors
• Rs 70,000 crore boost to housing sector and middle income group through extension of CLSS
• Rs 6000 crore employment push using CAMPA funds
• Rs 30,000 crores Additional Emergency Working Capital Funding for farmers through NABARD
• Rs 2 lakh crore Concessional credit boost to 2.5 crore farmers through Kisan Credit Cards
9

10. Part3
• Amendments proposed in the Essential Commodities Act, 1955 (ECA)
Better price realisation by attracting investments and making agriculture sector competitive.
Deregulation of agricultural foodstuff, including cereals, edible oils, oilseeds, pulses, onions and potato. Stock limit
will be imposed only under very exceptional circumstances such as national calamities, famine, with surge in prices
of agricultural produce. For food processing and exporters, limits will be linked to capacity and export demand.
• Legal framework for agriculture produce price and Quality Assurance to be implemented
Risk mitigation for farmers, assured returns, quality standardization.
Facilitative legal framework will be created that will enable farmers to engage directly with processors,
aggregators, large retailers, exporters, etc. in a fair and transparent manner.
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11. Part4
• Policy reforms to fast-track investment and upgradation of industrial infrastructure
• Coal sector reforms – End of Government Monopoly
• Mining sector reforms
• Defence production
• Aviation sector
• Power Sector
• Atomic energy related reforms
• Social infrastructure
• Space - Private sector to be a co-traveller
11

12. Part5
• Additional allocation of funds for Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS)
or reforms
• Health reforms and initiatives
• Policy reforms to facilitate technology driven education with equity and technology systems
• Relaxation in IBC matters
• Decriminalisation of offences under the Companies Act, 2013 (2013 Act)
• Improving fund raising opportunities for Indian companies
• Ironing out certain procedural aspects of Indian corporate laws
• Public Sector Enterprise (PSE) policy
• Proposal to link enhanced borrowing by states to specific reforms
12

13. StimulusPackage–RelatedtospecifictoMSME
13

14. Funding
14

15. • Emergency Credit Line Guarantee
Scheme
• Subordinate Debt for Stressed MSMEs
• Equity infusion for MSMEs through
Fund of Funds
• Others
15
Liquidity Infusion directly to MSMEs

16. EmergencyCreditLine
GuaranteeScheme
16

17. EmergencyCreditLineGuaranteeScheme(ECLGS)
OperationalGuidelines
CREDIT PRODUCT
For which guarantee would be given
‘Guaranteed Emergency Credit Line
(GECL)’
1717

18. • To provide 100% guarantee coverage for the GECL,
which shall be a pre-approved sanction limit of up
to 20% of loan outstanding as on 29th February,
2020 to eligible borrowers,
• in the form of additional working capital term loan
facility (in case of banks and Financial Institutions),
and additional term loan facility (in case of NBFCs)
from all Member Lending Institutions (MLIs)
• to eligible Business Enterprises / Micro, Small and
Medium Enterprise (MSME) borrowers,
• including interested PMMY borrowers , in view of
COVID-19 crisis, as a special Scheme.
18
Purpose of scheme

19. PURPOSE OFTHE SCHEME
Provide 100% guarantee coverage for the
GECL
Be a pre-approved sanction limit of up to 20% of loan
outstanding as on 29th February, 2020
To eligible borrowers
In the form of additional working
capital term loan facility (in case of
banks and Financial Institutions)
In the form Additional
term loan facility (in case
of NBFCs)
FROM
all Member Lending
Institutions (MLIs)
TO
Eligible Business
Enterprises / Micro, Small
and Medium Enterprise
(MSME) borrowers,
including interested
PMMY borrowers
1919

20. • All MSME borrower accounts with combined
outstanding loans across all MLIs of up to Rs. 25 crore as
on 29.2.2020, and annual turnover of up to Rs. 100 crore
in FY 2019-20.
• The Scheme is valid only for existing customers on the
books of the MLI.
• Borrower accounts should be classified as regular,
SMA-0 or SMA-1 as on 29.2.2020. Accounts classified as
NPA or SMA-2 as on 29.2.2020 will not be eligible under
the Scheme.
• The MSME borrower must be GST registered in all
cases where such registration is mandatory. This
condition will not apply to MSMEs that are not required
to obtain GST registration.
• Loans provided in individual capacity will not be
covered under the Scheme.
20
Eligibility Criteria

21. 2121
Eligibility Criteria
Nature of the
activity/facility
Scale of
business
Existing
customer of
the MLI and
Performance
of the loan
Size of the
existing facility
Turnover for
FY 2019-20
GST
registration

22. 22
 Scheme is meant only for business loans. Hence, the nature of activity
carried by the entity must be a business, and the facility must be for the
purpose of the business.
 A LAP loan was granted to a business entity. The loan was granted against a self-owned house, but the purpose of the
loan was working capital for the retail trade business carried by the borrower. Will this facility be eligible for GECL?
Nature of Activity

23. 23
 means all Business Enterprises / MSME institution borrower accounts with
outstanding loans of up to Rs. 25 crore as on 29.2.2020,
 and annual turnover of up to Rs. 100 crore in FY 2019-20.
In case accounts for FY 2019-20 are yet to be audited/finalized, the MLI may rely
upon the borrower’s declaration of turnover.
The Scheme is valid for existing customers on the books of the MLI.
Borrower accounts should be less than 60 days past due as on 29th February,
2020 in order to be eligible under the Scheme.
“Eligible borrower”

24. Eligible Borrowers
All Business Enterprises
/MSME borrower accounts
combined outstanding loans
across all MLIs of up to Rs. 25
crore as on 29.2.2020
Annual turnover of up to Rs.
100 crore for FY 2019-20
AND
Loans provided to Business
Enterprises / MSMEs constituted as
Proprietorship, Partnership,
registered company, trusts and
Limited Liability Partnerships (LLPs)
Business Enterprises / MSMEs
would include loans covered
under Pradhan Mantri Mudra
Yojana extended on or before
29.2.2020, and reported on the
MUDRA portal.
2424

25. Eligible Borrowers
Loans having
co-applicant,
only those
existing loans
where entity is
the primary co-
applicant
Days Past Due
status as on
29.2.2020 to be
checked across
MLIs from
credit bureau.
Valid for existing
customers on the
books of the MLIs.
Borrower accounts
should be less than
or equal to 60 days
past due as on 29th
February, 2020
It is not necessary
that the existing
loans of the
borrowers should
be covered under
the existing
NCGTC or
CGTMSE Scheme.
Business Enterprises /
MSME borrower must
be GST registered in all
cases where such
registration is
mandatory. This
condition will not
apply to Business
Enterprises / MSMEs
that are not required
to obtain GST
registration.
2525

26. NOT ELIGIBLE
Loans provided in individual capacity Business Enterprises / MSME borrower accounts
which had NPA or SMA-2 status as on 29.2.2020
An ‘opt-out’ option should be provided to the eligible Business Enterprises / MSME borrowers to
enable them to choose whether they wish to opt out of the GECL facility.
2626

27. 27
My EMIs are due on 10th of each month. On 10th Feb., 2020, the borrower had two missing EMIs, viz., the one due on 10th
Jan. 2020 and the one due on 10th Feb., 2020. Is the Borrower an Eligible Borrower on 29th Feb., 2020?
The manner of counting DPD is – we need to see the oldest of the instalments/principal/interest due on the reckoning date.
Here, the reckoning date is 29th Feb. On that date, the oldest overdue instalment is that of 10th Jan. This is less than 59
DPD. Hence, the borrower is eligible.
My EMIs are due on the 1st of each month. The borrower has not paid the EMIs due on 1st Jan. and 1st Feb., 2020. Is the
Borrower an Eligible Borrower on 29th Feb., 2020?
On the reckoning date, the oldest instalment is that of 1st Jan. 2020. Since the reckoning date is 29th Feb., we will be
counting only one two dates – 1st Jan and 29th Feb. The time lag between the two adds to exactly 59 days. The borrower
becomes ineligible if the DPD status is more than 59 days. Hence, the borrower is eligible.
Performance of the loan

28. “Member Lending Institution(s)” (MLI)
NBFC: "Non-Banking Financial Company” means a non-banking
financial company as defined in clause (f) of section 45-I of the
RBI Act, 1934 and which has its principal business as defined by
RBI and has been granted a certificate of registration under sub-
section (1) of section 3 of the Act.
All NBFCs which have been in operation for 2 years as on 29th
February, 2020 would be eligible under the Scheme.
Financial Institutions: As
defined in sub-clause (i) of
clause (c) of Section 45-I of
Reserve Bank of India Act.
Banks: All
Scheduled
Commercial Banks.
2828

29. 29
• DURATION• DATE OF COMMENCEMENT
Shall come into force from the date
of issue of these guidelines by
NCGTC.
The period from the date of issue of
these guidelines by NCGTC to
31.10.2020, or till an amount of Rs
3,00,000 crore is sanctioned under
the GECL, whichever is earlier.

30. 30
Nature of account and Tenor of Credit under the Scheme

31. NatureofaccountandTenorofCreditundertheScheme
 A separate loan account should be opened for the borrower, distinct from the existing loan account(s).
 The tenor of loans provided under GECL shall be for a tenor of four years from the date of disbursement. No pre-
payment penalty shall, however, be charged by the MLIs in case of early repayment.
 Moratorium period of one year on the principal amount shall be provided, during which interest shall be payable.
 The principal shall be repaid in 36 installments after the moratorium period is over.
 Pre-payment of facilities to be allowed at no additional charge to the borrower.
 The account may be operated in combination with applicable Interest Subvention Scheme(s) as far as feasible
 RBI’s approval has been solicited for keeping risk weight for loans provided under GECL at zero.
3131

32. 32
outstanding loans across all MLIs of up to Rs. 25 crore as
on 29.2.2020

33. outstanding loans across all MLIs of up to Rs. 25 crore
as on 29.2.2020
Whether the threshold limitof outstandingcreditof Rs. 25crores,will have tobe
seen across all the lenders, the borrower is currently dealing with, or with one
singlelender?
The Scheme specifically mentions that the limit of Rs. 25 crores shall be ascertained
consideringtheborroweraccountsofthebusinessenterprises/MSMEswithcombined
outstanding loans across all MLIs. For the purpose of determining whether the
combined exposure of all MLIs is Rs 25 crores or not, the willing MLI may seek
information about other loans obtained by the borrower.
3333

34. outstandingloansacrossallMLIsofuptoRs.25crore
ason29.2.2020
ForthethresholdlimitofoutstandingcreditofRs.25crores,arewe
capturingonlyeligibleborrowingsoftheborrower,oralldebt
obligations?
Logically,allbusinessloans,thatis,loans/workingcapitalfacilitiesorother
fundedfacilitiesavailedforbusinesspurposesshouldbeaggregated.For
instance:
Unfundedfacilities,say,L/Csorguarantees,donothavetobeincluded.
Non-businessloans,say,carloans,obtainedbytheentitydonothaveto
beincludedasthesamearenotforbusinesspurposes.
3434

35. outstandingloansacrossallMLIsofuptoRs.25crore
ason29.2.2020
ForthethresholdlimitofoutstandingcreditofRs.25crores,arewe
capturingonlyeligibleborrowingsoftheborrower,oralldebt
obligations?
Logically,allbusinessloans,thatis,loans/workingcapitalfacilitiesorother
fundedfacilitiesavailedforbusinesspurposesshouldbeaggregated.For
instance:
Unfundedfacilities,say,L/Csorguarantees,donothavetobeincluded.
Non-businessloans,say,carloans,obtainedbytheentitydonothaveto
beincludedasthesamearenotforbusinesspurposes.
3535

36. outstandingloansacrossallMLIsofuptoRs.25crore
ason29.2.2020
Iftheborrowerdoesnothaveanyexistingcreditfacilityason29th
February,2020,willitstillbeabletoavailfreshfacility(ies)underthis
Scheme?
LookingattheclearlanguageoftheScheme,itseemsthatexistenceofan
outstandingfacilityisaprerequisitetoavailcreditfacilityunderthe
Scheme.TheintentoftheSchemeistoprovideadditionalcreditfacilityto
existingborrowers.
3636

37. Someexamplesontheeligibility oftheborrowers
Name of the
Borrower
Overall
Outstanding of the
Borrower across
MLIs
(INR Crore)
Overall
Outstanding of
the Borrower
with MLI (INR
Crore)
DPD of borrower
as on 29th Feb
2020 (Days)
Turnover as per
latest available
financials (INR
Crore)
Borrower A 30 15 30 90 Not eligible
Borrower B 30 15 62 90 Not eligible
Borrower C 25 25 59 75 Eligible
Borrower D 15 10 0 80 Eligible
Borrower E 20 10 0 125 Not eligible
3737

38. 38
Interest

39. InterestRateofCreditundertheScheme
For Banks and FIs, lending rate linked to one of the external benchmark
rates prescribed by RBI +1% subject to a maximum of 9.25% per annum.
For NBFCs, the interest rate on GECL shall not exceed 14% per annum
Since the additional pre-approved facility is to be provided to existing
customers, no additional processing fee shall be charged by MLIs to
borrowers.
No penal interest due to any non-compliance of the already accepted
covenants on the existing credit facilities may be charged on additional
loans during the sanction time.
3939

40. 40
Security and cash Flows

41. Security
 The additional WCTL (in case of banks and FIs)/ Term loan (in case of NBFCs) facility granted under
GECL shall rank pari passu with the existing credit facilities in terms of cash flows and security, with
charge on the assets financed under the Scheme to be created within a period of three months
from the date of disbursal.
 No additional collateral shall be asked for additional funding under GECL
4141

42. Security
Say the primary loan is a working capital loan given to a business and has a residual tenure of 24 months. The
loan is secured by a mortgage of immovable property. Now, GECL facility is granted, and the same has a tenure of
48 months. After 24 months, when the primary loan is fully discharged, can the borrower claim the release of the
collateral, that is, the mortgage?
4242

43. Security
Say the primary loan is a working capital loan given to a business and has a residual tenure of 24 months. The
loan is secured by a mortgage of immovable property. Now, GECL facility is granted, and the same has a tenure of
48 months. After 24 months, when the primary loan is fully discharged, can the borrower claim the release of the
collateral, that is, the mortgage?
Not at all. The grant of the GECL facility is a grant of an additional facility, with the same collateral. Therefore, until
the GECL loan is fully repaid, there is no question of the borrower getting a release of the collateral.
4343

44. Cash Flows
The Scheme provides that the primary facility and the GECL facility shall rank pari passu, in terms of cash flows.
What is the meaning of pari passu sharing of cashflows?
4444

45. Cash Flows
The Scheme provides that the primary facility and the GECL facility shall rank pari passu, in terms of cash flows.
What is the meaning of pari passu sharing of cashflows?
The sharing of cashflows on pari passu basis should mean, if there are unappropriated payments made by the
borrower, the payment made by the borrower should be split between the primary facility and the GECL facility on
proportionate basis, proportional to the respective amounts falling/fallen due.
4545

46. 46
Guarantee

47. LoanAmounteligibleundertheGuaranteeCoverage
 In the form of additional working capital term loan facility (in case of banks and Financial Institutions), and
additional term loan facility (in case of NBFCs) would be up to 20% of their total outstanding loans up to Rs. 25
crore as on 29th February, 2020.
 Total Outstanding Amount would comprise of the on-balance sheet exposure such as outstanding amount
across WC loans, term loans and WCTL loans. Off-balance sheet and non-fund based exposures will be
excluded.
 MLIs are expected to check with credit bureau the overall outstanding of the borrower to assess the overall
additional loan amount eligible for sanction under the Scheme.
 MLIs would be required to open a separate account for Credit Facility extended through the Scheme
 Loans extended through PMEGP, PMMY etc. would be categorized under that scheme as earlier. WCTL/Term
Loans under this Scheme shall be over and above the existing loan.
4747

48. Cont.…
 In case a borrower has existing limits with multiple lenders, GECL may be availed either through one
lender or multiple lenders depending upon the agreement between the borrower and the MLI.
 In case the borrower wishes to take from any lender an amount more than the proportional 20% of the
outstanding credit that the borrower has with that particular lender, a No Objection Certificate (NOC)
would be required from all other lenders.
 No NOC will, however, be required if the GECL availed from a particular lender is limited to the
proportional 20% of the outstanding credit that the borrower has with that lender.
 MLIs are expected to have simple and enabling criteria to assess the borrower eligibility. Since the loans
are being provided to existing borrowers it is expected that the time required for due diligence would be
minimal in nature. MLIs should work towards enabling access of this facility to all the eligible borrowers
by educating borrowers regarding the Scheme and steps to avail credit under the Scheme.
4848

49. ExamplestocalculatetheloanamountcoveredundertheGuarantee
coverage:-
Name of the
Borrower
Overall
Outstanding
of the
Borrower
across MLIs
(INR Crore)
Overall
Outstanding
of the
Borrower
with MLI
(INR Crore)
Total
Maximum
Loan Amount
allowed under
the scheme
(INR Crore)
Total
Maximum
Loan Amount
allowed
without NOC
for MLI
(INR Crore)
A B C= 20% of A D= 20% of B
Borrower A 20 15 4 3
Borrower B 5 2 1 0.4
Borrower C 25 25 5 5
Borrower D 15 10 3 2
4949

50. Guarantee Fee
Extent of the
Guarantee Coverage
 No Guarantee Fee shall be
charged from the MLIs by
NCGTC for the Credit
facilities provided under
the Scheme.
 The Trustee Company shall
Provide 100% Guarantee
coverage on the
outstanding amount for
the credit facility provided
under the Scheme as on
the date of NPA.
5050

51. Invocation of
guarantee
The Member Lending Institutions
(MLIs) are required to inform the
date on which the account was
classified as NPA within 90 days
of the account being classified as
NPA
The Trustee Company shall pay 75%
of the guaranteed amount within 30
days of preferring of eligible claim
by the lending institution, subject to
the claim being otherwise found in
order and complete in all respects.
The balance 25% of the
guaranteed amount will be paid
on conclusion of recovery
proceedings or till the decree
gets time barred, whichever is
earlier.
5151

52. Appropriation of amount realized by the lending institution
in respect of a credit facility after the guarantee has been
invoked
 Post invocation of the guarantee claim, if any recoveries are made in the account, MLIs shall
first adjust such recoveries towards the legal costs incurred by them for recovery of the
amount and shall thereafter remit to NCGTC the balance recoveries.
5252

53. Few Questions
 What is the meaning of the term “business enterprise” which is defined as one of the Eligible
Borrowers?
 One of the Eligible Borrowers is an MSME. Is it necessary that the entity is registered i.e. has a
valid Udyog Aadhaar Number, as required under the MSMED Act?
 For the borrowers to give a self-declaration of turnover for FY 2019-20, is there a particular
form of declaration?
 Is the Scheme restrictive as to the nature of the existing facility? Can the GECL be different
from the existing facility?
 Is there a relevance of the residual tenure of the primary facility? For example, if the primary
facility is maturing within the next 6 months, is it okay for the MLI to grant a GECL for 4 years?
5353

54. TradeReceivableselectronic
DiscountingSystem(TReDS)
54

55. Cont.….
• An online electronic platform and an institutional mechanism for factoring of trade
receivables of MSME sellers.
• It enables discounting of invoices through an auction mechanism to ensure prompt
realisation of trade receivables.
• RBI had released Guidelines for setting up of and operating TReDS on December 3,
20142 (‘Guidelines’).
• The Guidelines outline the requirements and the basic tenets of operating as a
TReDS platform and also prescribes the eligibility criteria for entities desirous of
setting up and operating such a system.
5555

56. The buyer sends purchase
Order to MSME seller
Financers registered will
Quote their bids against the
factoring unit
Factoring unit to be tagged
as ‘financed’ once the bids
are accepted by MSME’s and
the payment of fund
The seller deliver goods with
invoices / bills of exchange
Each module for a factoring
unit which could be entire
bill amount / in multiple of
pre determined face value
fore financers
On due date corporate
buyers will pay to the
financers
The MSME seller creates a
‘factory unit’ on TReDS
The ‘factory units 'are
verified by the corporates
buyers and TReDS provides a
filtering platform
Unfinanced factoring unit
to be settled with the
corporate buyer outside
the TReDS platform.

57. Questions??
5757

58. ThankYou
Sudha Bhushan
+91 9769033172
sudha@taxpertpro.com
www.taxpertglobalsolutions.co.in
58