The Union Budget 2019 brought in a slew of measures for the MSME segment. One of the highlights being the allocation of INR 350 crore for a 2% interest subvention for MSMEs, who are GST registered, on fresh or incremental loans. In addition to that a dedicated online portal to enable in-principle approval for MSME loans up to INR 5 crore in 59 minutes from Public Sector Banks has been created for MSMEs. This was announced last year in early November and was recapitulated in the Union Budget 2019.

The nature of the loan is collateral free as the portal is directly linked to the Credit Guarantee Fund Trust for Micro and Small Enterprises scheme and the only things required to register are:

• GST number
• Income tax returns in XML format
• Bank statements for the last six months
• Details of the director/owners (basic, personal, educational and ownership details)
  
  

The business loan amount ranges from INR 1 lakhs to INR 5 crore and the rate of interest levied will start from 8%. Post approval of application, the loan will be sanctioned within 7-8 working days. Applicants are not required to pay any registration fee which is an added bonus in the scheme.

Also read: Union Budget 2019-20: Focus on foreign investment, infrastructure and farming sector

Easy access to finance being the most critical requirement for the long term development of SMEs especially at micro-entrepreneurial levels, these measures may give the MSME sector a much needed boost and a ray of hope to ease their financial issues.

We asked some of our members as to what do they think of the allocation of INR 350 crore for a 2% interest subvention for MSMEs and how the PSB loans in 59 minutes scheme can benefit MSMEs.  Here is what they had to say:

Jayant  Kumar Tewari, President and founder of Out-Sourced CFO feels that the interest subsidy of 2% would provide respite to SMEs who can get their loans sanctioned easily. He shared, “While the 2% interest subvention is certainly welcome the challenge to obtain a loan still remains. The 59 min scheme only provides an in-principle approval, and the applicant's banker / referral banker is not mandated to sanction / disburse the loan based on the in-principle sanction. The fact of the matter is that a ‘fundable’ SME / MSME business - not on paper but in operations, will still manage bank finance, with or without the scheme. A non-fundable (operationally non-profitable) business can NEVER hope to access bank finance. Operational losses MUST be funded by equity - to expect banking assistance is to fail to understand its role.”

Lester Fernandes, Managing Director and CEO of BUDSTA Analytics & Insights Pvt. Ltd. too opines that 2% interest subvention for GST registered MSMEs on fresh or incremental loans is definitely a great idea but fears that the major challenge remains in the implementation process.

He says, “It is a welcome move to enable the nascent startup and MSME stages of company formation and development. The challenge seems to be in the implementation though. How do MSME/startups approach the various lenders when there is a product under research & development and it may take multiple years to come to fruition with no guaranteed success in the market at the end of it? What about the remainder of the interest which will be borne by the MSME themselves? It might make more sense to have an incubator setup where entrepreneurs can develop on government approved centres and have a fixed income to cover their risk and access to capital to bring others onto the startup bandwagon.”

When asked if he had applied for a loan under the PSB loans in 59 minutes scheme, Lester replied, “I have applied for the PSB loans in 59 minutes scheme. The first challenge is how long the startup has been in existence - 1 year at least. Second challenge is the revenues accrued - mine was 0 for services rendered in the Indian market as Proof of Concept with the promise of downstream revenues much later. My startup was rejected for the 1 year clause - eagerly waiting to mount that hurdle in September this year before reapplying. My thoughts though lean toward the other MSMEs/startups who are likely to lean the most for loans in their first year of existence itself. I personally believe Venture Capitalists/ Investors risk capital might be a better motivator than the Government budget allocation of INR 350 crore.”

Also read: Budget 2019: Highlights for startups & MSMEs

Ravi Kariya, Director of Ebizfiling India Private Limited shared that even though he has never applied for a loan under the PSB loans in 59 minutes scheme, some of his clients have and their experience reveals an entirely different face of the scheme.

Ravi says, “We have never availed PSB 59 loans. However, based on feedback that we have from our clients, we have understood that this portal is just working for collecting information and primary data from the borrower. It largely then depends on the financials and other parameters only. It ultimately is up to the bankers to decide considering their own criteria, whether to extend loans or not. Role of this scheme is only limited to gathering information and nothing else. As for my views on MSME interest subvention, it may be noted that there are similar schemes such as CGTMSE or MUDRA loans etc. available. Such an allocation for interest subvention is good, however, government should think of setting up infrastructure and facilitating trade/service exchange more. Bankers have been openly denying extending MUDRA loans based on the NPA rates they have attached with them. We have to see how far this interest subvention scheme goes!"

For Chandra Prakash Bhartiya, Managing Director of Jagdamba Polymers Private Limited, all these measures have been taken for the micro or small sized manufacturing service enterprises and would do little to ease the financial condition of the medium sized enterprises.

He says, “This scheme was announced by the PM long back in a program at Vigyan Bhawan. This seems to be the confirmation of the same. Only INR 1.5 crore has been given on the 2% interest subvention for GST registered SMEs on fresh or incremental loans.  For a medium sized company, the loan amount may vary from somewhere around INR 4-5 crore. Hence, in my opinion, SMEs won’t be greatly benefited by this scheme.  Coming to the loans under 59 minutes, I haven’t tried it personally but many of my friends have and they said that they could get the loan but had to go through an extensive formality.”

Jaimin Doshi, founder of Colors Polymers, remains hopeful that the government would take the necessary steps to revive the MSME community in India. He shares, “MSMEs were desperately looking for some rejuvenation from this budget as the entire segment was facing tremendous slowdown since quite some time. As announced in 2019 budget: MSMEs getting 2% interest subvention for less than INR 1 crore is very much appreciated. Hope applying for this scheme is made easier, because according to me there are so many schemes by the government but people don't know how to take benefit of these schemes. The increase in price of petrol and diesel will affect every aspect of the business and all the people at every segment. This could have been avoided. I wish and hope that government takes care of MSMEs on a timely basis and does whatever it takes to revive them as MSMEs would generate lots of new jobs and they have capability to make our economy bigger and stronger.”

Sripal Bachawat, Director of C-square Info Solutions Pvt Ltd however shares that the loans under the PSB loans in 59 minute scheme can be availed easily basis your MSME certificate. He says, “You can get the loan easily sanctioned if you have an MSME certificate. Additionally you can get up to INR 2 crore on business guarantee. We had availed this loan earlier. You just need to check with your bankers.”

Amidst the bitter-sweet experience and the mixed reviews, it now remains to be seen if the current government can actually deliver on the promises made to the MSME community.

Share your thoughts on the comments section below on what do you think of these initiatives?

Also read: Decoding the Budget

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Disclaimer: This article features inputs shared by featured members. GlobalLinker does not necessarily endorse the views, opinions & facts stated by the members.