NBFCs seek relaxation in the Covid Emergency Credit guarantee scheme

Non-bank lenders have sought relaxation in norms that require borrowers to mandatorily furnish their permanent account numbers (PAN) or audited books for availing a Covid-specific credit lifeline, arguing that the majority of their small- and medium-sized customers either do not file income-tax returns or maintain formal accounts.

In a two-page letter to the National Credit Guarantee Trustee Corporation (NCGTC), the finance industry development council (FIDC) has sought changes to the Covid Emergency Credit Line Guarantee Scheme. At present, the scheme requires PAN as mandatory information, in the absence of which the borrower will be excluded.

Non-bank lenders have proposed that the corporation accept form 60 instead as an alternative document. Banks normally allow borrowers to submit form 60 declaration in the absence of PAN.

These lenders have also argued that the profile of borrowers they lend to do not maintain books of accounts; hence they want the corporation to allow a simple declaration in respect of turnover threshold to participate in the scheme.

“We request you to allow acceptance of Form 60 as an alternative document where the customers do not have PAN, and allow declaration from the borrower stating that the turnover does not breach the limit prescribed in the Operational Guidelines of the Scheme,” the request made to the corporation suggests.

Non-bank lenders have argued that while they have provided moratoriums to their customers, the extended lockdown and the resultant slowdown in economic activities have impacted the customer profile. And it would take quite a while for these customers to return to normalcy and deploy their assets and earn revenue and pay the instalments.

On May 21, the Cabinet had approved funding of up to Rs 3 lakh crore at a concessional rate of 9.25% through the Emergency Credit Line Guarantee Scheme (ECLGS) for the MSME sector. Under the scheme, 100% guarantee coverage is being provided by NCGTC for additional funding to eligible MSMEs and interested micro borrowers in the form of a guaranteed emergency credit line. Since then, non-bank lenders have sent multiple representations to the finance ministry and credit guarantee corporation that aims to benefit small and micro borrowers.

“ECLGS has not been able to percolate to the micro entrepreneurs of the country. The scheme needs to be augmented and if these two conditions can be waived, it will drive deep inclusivity for the liquidity starved entrepreneurs,” said Manish Jaiswal, CEO, Magma Housing Finance.

“The real cash crunch is normally at the bottom end of the supply chain that gets muscled down by corporates through severely stretched receivables. So far, we have been able to offer ECLGS only to a fractional sub-0.5% of our customers; we eagerly await waiver of these two liquidity transmission bottleneck conditions,” Jaiswal said.

In the past two months, more than Rs 1.36 lakh crore has been sanctioned under the scheme by banks and NBFCs, while Rs 87,227 crore could be disbursed out of the sanctioned line.

As per the MSME Ministry, over 60 million unincorporated non-agricultural MSMEs are engaged in various activities, ranging from manufacturing, trading and services in the country. The micro sector enterprises account for 99.4% of the total MSMEs operating in the country.