Credit and Finance for MSMEs: The Rs 20,000-crore Credit Guarantee Scheme for Subordinate Debt (CGSSD) launched in June 2020 is yet to pick up pace. The scheme, intended to support stressed MSMEs or non-performing asset (NPA) accounts, has been able to extend guarantees amounting to Rs 81.78 crore to 756 borrowers only as of December 31, 2021, according to the MSME Ministry’s 2021-22 annual report. Hence, “the proposal for modification in the scheme guidelines is in progress,” the report added. The government had initially envisioned support to 2 lakh MSMEs under the scheme till March 31, 2021, but later extended the tenure till March 31, 2022, “on the basis of the requests received from the stakeholders,” the government had said last year in a statement.

To provide guarantee coverage for loans given to the promoters of the eligible MSME units, the government had contributed Rs 4,000 to set up a Distressed Assets Fund, of which only Rs 157.41 crore was released to the Credit Guarantee Trust for Micro and Small Enterprise (CGTMSE) in March 2021 that operates CGSSD, according to the report. Overall, the government had targetted to guarantee loans to the tune of Rs 20,000 crore. The scheme provides funds for the revival of MSME accounts that have become Special Mention Account (SMA)-2 or NPA as of April 30, 2020. While 90 per cent guarantee coverage cover comes from the scheme, the remaining 10 per cent is contributed by the promoter under the scheme. 

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SMAs signal incipient stress in the unit that leads to defaults in debt servicing. While SMA-0 are accounts with payments partially or wholly overdue for 1-30 days, SMA-1 and SMA-2 accounts have payments overdue for 31-60 days and 61-90 days respectively. Subordinate debt is referred to subordinated debenture or junior securities, a type of unsecured loan or bond that ranks below other senior loans or securities in terms of claims on assets or earnings. 

CGSSD was introduced only a month after the government had launched the Emergency Credit Line Guarantee Scheme (ECLGS) in May 2020 to provide collateral-free guaranteed loans to existing MSME borrowers. Sunil Mehta, Chief Executive Officer of Indian Banks’ Association had told Financial Express Online last year that in comparison to CGSSD, ECLGS turned out to be more MSME-friendly. “Instead of opting for restructuring, people (MSMEs) preferred ECLGS as it offered ready credit to remain afloat for the next two to three years and also an option for ECLGS beneficiaries to go for restructuring as well. It was like a ready plate of food that you can have versus the subordinate debt which was like you can starve for some time and create your resistance,” said Mehta.