Micro enterprises were largest beneficiaries of ECLGS: Study

Micro enterprises have been the largest beneficiaries of the government’s Emergency Credit Line Guarantee Scheme (ECLGS) with most loans being granted to the category across public and private lenders, found a study conducted by the National Institute of Bank Management (NIBM).

The survey of 1,722 firms found that till August 26, most borrowers availed the scheme for short-term liquidity support up to three months rather than business growth, indicating the funds are likely to be used for repayment of supplier dues and to restart operations, the report said.

The study found that the scheme resulted in reduced borrowing costs for all firms with public sector banks (PSBs) offering loans at the lowest cost.

The lender-wise breakup of the average rate of interest under the scheme showed PSBs charged about 7.5% while private banks charged close to 9.1% against the ceiling of 9.25% for banks whereas nonbanking financial companies (NBFCs) charged about 14%, which was the ceiling rate for them under the scheme, it said.

In May, as part of the Atmanirbhar Bharat package, finance minister Nirmala Sitharaman had announced the Rs 3 lakh crore ELGS scheme aimed at providing liquidity to micro, small and medium enterprises till October 31.

The average loan amount sanctioned under the scheme was Rs 1.68 lakh against an average disbursal of Rs 1.42 lakh, suggesting a utilisation rate of 84%, the report said. However, a large proportion of borrowers (80%) received a small share of the total loans (30%), it added.

PSBs and NBFCs focused on the loans ranging between Rs 50,000 to Rs 5 lakh while private banks majorly serviced higher amounts of Rs 5 lakh and above, the report said.

This implied that the below Rs 50,000 loan category was left largely unserviced with PSBs, private lenders and NBFCs allocating only 2.29%, 0.25% and 0% of total loans disbursed under the scheme to this loan band, respectively, it said.

Further, the report noted that while lenders focused retail trade and the services sector, a very small fraction of the loans have been allocated for manufacturing activities, “which may hurt output growth and employment in the short run”.

The NIBM highlighted that many borrowers did not utilise the scheme as, “Most respondents observe that the amount disbursed is inadequate,” it said. To address this issue, the NIBM suggested increasing the borrowing limit for micro enterprises to 50% of total outstanding credit from 20% to reduce the unequal distribution and improve the effectiveness of the scheme.

It also suggested another loan aimed at augmenting growth during the unlock phase. “With the unlock process underway, throughout the country, a second loan may be given to improve business volumes and support growth prospects,” it said.

Micro enterprises were largest beneficiaries of ECLGS: Study Micro enterprises were largest beneficiaries of ECLGS: Study Reviewed by TechCO on 10/02/2020 Rating: 5

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