ECLGS scheme stopped Rs 2 trn MSME loans from turning bad: SBI report

Launched by govt during pandemic, it also helped save 16.5 million jobs

Around 12 per cent (Rs 2.2 trillion) of the outstanding MSME credit has been saved from slipping into bad loans because of the Emergency Credit Line Guarantee Scheme (ECLGS) launched by the government during the pandemic, thus saving 16.5 million jobs till November, 2022, according to estimates by the State Bank of India.

“Of the 1.46 million MSME (Micro, Small and Medium Enterprises) accounts that have been saved due to the ECLGS, almost 93.8 per cent were in the micro and small category. The trading sector (Kirana shops, etc.) has benefitted the most, followed by food processing, textiles and commercial real estate”, the report by the Economic Research Department of SBI said.

A similar report by SBI released in January 2022 claimed MSME loan accounts worth Rs 1.8 trillion (14 per cent) were saved from turning bad during the period till November 2021, preventing 15 million workers from turning unemployed.

ECLGS was launched in May, 2020 aimed to support eligible MSMEs and business enterprises in meeting their operational liabilities and restarting their businesses. Under the scheme, 100 per cent credit guarantee is extended to the lending institutions for loans extended by them under the scheme to eligible borrowers. The admissible guarantee limit under the scheme has been increased from Rs 4.5 trillion to Rs 5 trillion.

The MSME units are becoming larger with the rise in economic activity, increasing their ability to raise capital through (non-bank) debt markets.

“Beginning FY22, there is evidence of MSME units getting bigger with several units crossing the threshold of Rs 250 crore turnover and turning mid-sized corporates by the new definition of MSME units. This reveals integration of MSME units with a larger value chain as PLI (Production Linked Incentive) activity is getting momentum,” the report noted.

In 2020, the government notified the revised criteria for classification of MSMEs, shifting from investment in plant and machinery to investment and turnover.

According to the SBI report, Udyam Assist Platform (UAP) which was recently notified has the potential to bring 50 million Informal Micro Enterprises (IME) into the formal ambit and priority sector lending by banks. “Nudging IMEs into the ambit of formal credit mechanism will result in smaller firms that are mostly self-employed to get registered. (This) will boost employment, ensure credit expansion (and) lay forth architecture for formal credit mechanism,” it added.

The report said MSME units that had staged a smart recovery post pandemic are edible oil, printing, consumer durables, pharmaceuticals, jute, aviation, and many others, whereas the sectors of cement, petrochemicals, fertilisers, telecom and road have still not fully recovered from the pandemic.

Delhi, Karnataka, Tamil Nadu and Maharashtra are some of the states that have recovered from the pandemic in terms of credit outstanding to MSME sector as on March 31, 2022 from their pre-pandemic level (March 31, 2018). “These are mostly the states where prevalence of Covid case was very high,” the report said.

Chattisgarh, Madhya Pradesh and Punjab are the states where the MSME credit outstanding was already lower than Mar-18 level before the pandemic hit. “However, almost all states are on the path of recovery and will soon cross the pre-pandemic level by the end of 2022-23,” the report claimed.

The report said that loan guarantee schemes by the government for extending credit to MSME sector needs further overhaul. “Multitude of Credit Guarantee Schemes currently are in vogue resulting in somewhat avoidable complexities directly concerning MSMEs. For example, both CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises) and NCGTC (National Credit Guarantee Trustee Company) offer the credit guarantee product for MSMEs, though the guarantee structure and features are different”, it said.