NBFC industry body Finance Industry Development Council (FIDC) has written to the finance minister Nirmala Sitharaman to include individuals who take loans for purchase of vehicles that are put to commercial use as eligible borrowers under the emergency credit line guarantee scheme (ECLGS). Under this scheme, 100 per cent guaranteed coverage is provided to all lenders to enable additional funding to the extent of Rs 3 trillion to smaller business enterprises.
The FIDC in its letter has said, more than 75 per cent of customers take loans in their individual names as they do not have any business establishment or partnerships and conduct their business in individual names.
Recently the National Credit Guarantee Trustee Company (NCGTC), which is entrusted with running the ECLGS scheme, in a notification issued to the scheduled commercial banks and the NBFCs clarified that all eligible borrowers, such as micro, medium and small enterprises (MSMEs) that are constituted as proprietorship, partnership, registered company, limited liability partnerships, trusts and society or any other legal entity including individuals in the case of loans covered under MUDRA scheme, who have availed loans against vehicles for commercial purposes are eligible for assistance under the ECLGS scheme.
FIDC in its letter has said, most of the loans given by NBFCs to individuals to purchase vehicles that are put to commercial does not get refinanced under the MUDRA scheme as the loan amount is more than Rs 10 lakh or the interest spread is higher than mandated, to cover the higher operating costs and credit losses.
“However, all these loans are disbursed exclusively for purchase of vehicles used for commercial purposes and create employment in the informal sector”, the letter further said.
In a meeting held last month between the finance minister and representatives of NBFCs as well as private banks, NBFCs had raised the same issue with the minister and had requested for the need to include individuals who own vehicles that are put to commercial use, small traders and businessmen who borrow on individual names in ECLGS scheme as they are a part of the MSME network so that they can avail working capital loans that will enable the whole MSME ecosystem to be kick-started.
Under the ECLGS scheme, as of July 1, public sector banks have sanctioned Rs 63,234.94 crore, out of which Rs 33,349.13 crore has been disbursed. Loans under the scheme has been sanctioned to more than 30 lakh MSMEs and amount has been disbursed to almost 1.25 million of them.
Currently, business enterprises/MSMEs with an outstanding loan of upto Rs 25 crore as on February 29,2020 and turnover upto Rs 100 crore in FY 19-20 are termed as eligible borrowers under the ECLGS scheme. Under the scheme, the government will provide guarantee for any losses suffered by banks due to non-payment by the borrowers for all loans sanctioned till October 31, 2020, or till the time the limit of Rs 3 trillion is reached, whichever is earlier. The cap on interest rate for banks is at 9.25 per cent, whereas for NBFCs, it is 14 per cent per annum.