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Rs 3 lakh crore MSME loan scheme: PSBs struggle to improve actual disbursals; will private banks come on board?

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A month after Union Finance Minister Nirmala Sitharaman launched the mega Rs 3 lakh crore loan scheme for micro, small and medium enterprises (MSMEs), the response remain muted. There is a significant difference between amount sanctioned and the actual amount disbursed so far.

In fact, on a cumulative basis, only half of the amount sanctioned is disbursed till 16 June. PSB bankers are now on an overdrive to make the scheme work under directions of the government. However, low demand scenario is limiting the actual disbursals. Banks are also concerned about the likelihood of these loans going bad in a slowing economy.

Under the scheme, existing MSME borrowers of PSBs can get additional funds of upto 20 percent of their loan outstanding as on February 29. Government will provide complete guarantee to banks on these loans including the interest amount. This was announced as part of the Rs 20 lakh crore economic package to fight Covid-19 induced economic slowdown.

State-run banks, which are under heavy pressure to disburse loans, have disbursed Rs18, 306 crore against the sanctioned amount of Rs36,486 crore till 16 June. The sanctioned amount is about 12 percent of the total scheme mount (Rs 3 lakh crore) and the disbursed amount, roughly about 6 percent. “What is working against the scheme is the poor demand scenario. Why would companies borrow now if there is no business?,” said a banker on condition of anonymity.

Who gave how much?

Among the public sector banks, State Bank of India (SBI), country’s top lender by assets, has done maximum cumulative sanctions till June 16, at Rs 15,317 crore. Against this, the bank has disbursed Rs9,489 crore loans. SBI has disbursed this amount to 91690 accounts. The next big sanction amount is from Bank of Baroda, which has sanctioned Rs4,560 crore loans of which Rs1,255 crore is disbursed. Canara Bank has cumulatively sanctioned Rs3,683 crore loans of which disbursed amount is Rs1,619 crore loans. Punjab National Bank has cumulatively sanctioned Rs 3371 crore loans of which Rs1187 crore has been disbursed.

Except these banks, all other PSBs have sanctioned less than Rs 3000 crore and, logically, disbursed even lesser amount. The lowest cumulative sanction figure is by Punjab and Sind Bank at Rs 200 crore, which so far disbursed Rs 157 crore. Among the states, the highest amount disbursed is in Tamil Nadu--around Rs 2251 crore against total sanctions of Rs 3616 crore. The lowest is in Lakshadweep, at Rs25 lakhs against sanctions of Rs41 lakhs.

Private banks not on board yet

The MSME loan scheme was originally meant for PSBs. However, the government now wants private sector banks too to come on board. These lenders are yet to come on to the picture. Recently during a review of the scheme, the finance ministry is reportedly asked bankers on the possibility of participating private banks in the scheme.

Some of the larger lenders like HDFC Bank and ICICI Bank has exposure to MSME clients and small businesses. However, private banks are generally not keen to push loans aggressively to MSMEs at this stage since they don’t see viability in the present scenario.

“This is a good business, no doubt. But here also the problem is the demand,” said a official with a private bank. “Right now, there is no activity outside. Very difficult to push loans unless there are quality borrowers come to us for capital,” said the banker who didn’t want to be named.

Scheme turning to a loan mela?

However, for public sector banks do not have the luxury not to lend under a government scheme. According to senior bankers and industry officials, banks are on an overdrive to push the scheme. Officers are told to get maximum number of loan sanctions done from all eligible borrowers even though many of these sanctions do not translate into actual sanctions.

Banks are, hence, making phone calls to all MSME borrowers and offering loans under pressure from the top management. Some banks have a system of pre-sanctioned loans as well. This is despite the worry that many of these loans may not come back. Companies are not yet back on track after the prolonged lockdown since there is no demand for non-essential goods yet. Absence of workforce is also creating problems for MSMEs and SMEs (small and medium enterprises) to get back to normal activity.

“Private banks will be very cautious in lending to MSMEs even if they are asked to because there is very less demand for working capital. These banks will have to answer their shareholders about their credit decisions later,” said Siddarth Purohit, analyst at SMC Global Securities.

Some banks are also encouraging customers to use the scheme to pay up earlier dues. This would mean that customers are not getting any fresh money in hand to revive their business. Also, the 20 percent limit is a constraint to borrow enough money to meet their business needs. Small MSMEs typically borrow Rs 2-Rs 10 lakhs. If the borrower outstanding amount as on February 29 is too low, then the eligible amount will not be enough to meet their business needs.