Finance Minister Nirmala Sitharaman announced Rs 20,000 crores of subordinated debt benefit for stressed Micro, Small and Medium Enterprises (MSMEs). This was part of the Atma Nirbhar Bharat Abhiyan to provide a stimulus to the economy amidst the Coronavirus outbreak.
Subordinated debt is an unsecured loan or bond which ranks below other securities or senior loans with respect to the claims on assets or earnings. Here, the government will provide a contribution of Rs 4,000 crore to Credit Guarantee Trust Fund for Micro and Small Enterprises (CGTMSE). Further, CGTMSE will provide partial credit guarantee support to the banks. As a result of this, stressed and NPA MSMEs will immediately get benefit. It is an equity support to Stressed MSMEs .
Ministry of MSME,Govt of India has introduced Distressed Assets Fund – Subordinated debt for stressed MSMEs.The features of the scheme are as under:
1. Introduction: Ministry of Micro, Small and Medium Enterprises, has framed a Scheme for the purpose of providing guarantees in respect of credit facilities extended by eligible and registered scheduled commercial banks to borrowers in Micro, Small and Medium Enterprises (MSMEs). The scheme will be operationalized through a special window created for this purpose under Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).
2. The Purpose of the Scheme is to provide guarantee coverage for the CGSSD to provide Sub-Debt support in respect of restructuring of MSMEs. 90% guarantee coverage would come from scheme/ Trust and remaining 10% from the concerned promoter(s). The objective of the scheme is to provide personal loan through banks to the promoters of stressed MSMEs for infusion as equity / quasi equity in the business eligible for restructuring, as per RBI guidelines for restructuring of stressed MSME advances.
3. Credit Guarantee Fund Trust for Micro and Small Enterprises set up by Government of India and SIDBI with the purpose of guaranteeing credit facility(ies), extended by the Member Lending Institution to the eligible borrowers. A fund of Rs 4000 crore created by Government of India for providing guarantee coverage to the loans given/ credit extended to the promoters of the eligible MSME units under the scheme.
4. Under the scheme, Promoter(s) of the MSME unit will be given credit facility equal to 15% of their stake in the MSME entity ( equity plus debt) or Rs 75 lakhs which ever is lower as per last audited balance sheet.
5. MSMEs whose account have been standard as on 31.03.2018 and have been in regular operations, either as standard accounts or as NPA Accounts during the financial year 2018-19 and financial year 2019-20 are eligible for equity support under the scheme. The scheme is valid for MSME units which are stressed viz., SMA2 and NPA accounts as on 30.04.2020.
6. Credit Guarantee Scheme for subordinate debt has been launched by CGTMSE under which guarantee coverage would be provided to scheduled commercial banks for facilitating support to MSMEs. The guarantee coverage for Subordinated debt shall be 90%.The promotes shall bring in 10% of the subordinated debt amount as collateral.
7. The scheme would be applicable to subordinated debt sanctioned under CGSSD for a maximum period of 10 years from guarantee availment date or March 31, 2021 whichever is earlier or till the amount of Rs 20000 crores of Guarantee amount is approved.
8. Maximum tenor for repayment will be for 10 years. There will be moratorium of 7 years for payment of Principal. Till the 7th year only interest will be paid. The principal shall be repaid with in maximum period of 3 years after completion of moratorium.
9. Security: the sub debt facility sanctioned by MLIs will have second charge on the assets financed under existing facilities for the entire tenor of sub debt facility.
10. Interest and Guarantee fee: Banks are free to decide the spread over the external bench mark rate as per their approved policies. Guarantee fee will be 1.50% per annum on the guaranteed amount on outstanding basis. Guarantee fee shall be borne by the borrowers as per the arrangements between the borrower and the MLIs.
11. Fraud accounts and wilful defaulters will not be considered under the scheme.MSME Account where the legal / recovery proceedings are underway are eligible under the scheme on the basis of viability of the MSMEs as per RBI guidelines on restructuring.
12. Borrower has existing limits with more than one bank, the CGSSD can be availed through one lender only.
Declaration from the borrower regarding its banking arrangements and that it has not availed any loan under the scheme from other lenders to be obtained by the lending MLI.
