Total lending to SMEs estimated at Rs 18 trillion of which NPAs account for 15% approx. Regular accounts around Rs 15.3 trillion. 20% funding works out to around Rs 3 trillion. The Broad size of the lending package announced by the FM.

Loans to be provided to standard accounts with moratorium of 12 months and repayment within 36 months thereafter.

The loan will be a max of 20 pc of the outstanding balance as on 29.02.2020 (strangely) andnot 31.03.2020 when the loans would have been fully drawn. Example-Assuming that the collateralized existing cash credit limit was Rs 100 and you had withdrawn Rs 75 as on 29.02.2020 you will only get Rs. 15 as an additional loan without any requirement of collateral. Most of the loans by banks are over collateralized usually. So the incremental risk is negligible. Rs. 300000 crores is the total guarantee limit set aside no cash outflow at present. Contingent liability as far as the government is concerned. No immediate fiscal impact on the government. To be funded out of existing liquidity made available by RBI. Defaults as may be, against the new loan happens after 1 year of moratorium. Interest of course will accrue and be payable for this period of moratorium.

NPA on the extra 20% loan will only take place after 18 months broadly (12+6-including one year moratorium). At that time the government will need to fund 15% of Rs 3 trillion i.e. Rs 45000 crores (considering that the % NPA are at the same level as above). This will happen in the fiscal year 21-22. Of course it remains to be seen as to how much money will go down to the SMEs under the scheme.

It may help banks to lend with some comfort. With so many banks undergoing mergers not sure how this will push lending significantly.

However many of the micro and small units do not avail of facilities from the banking system. This segment will be left out of the entire scheme. Broad figures indicate that out of the estimated 6Crores MSMEs only some 4.0 million SMEs connecting into the formal banking system will benefit.

CGTMSE has very strict terms for claim settlement (check whether proper due diligence has been done at the time of the proposal, whether right follow ups and monitoring happened, whether collection efforts were well organized etc). This often leads to disputes in claim settlement which make NBFCs averse to using CGTMSE. My view is that the private sector banks and the NBFC sector is likely to avoid lending against this scheme given past experience unless the CGTMSE norms for claim settlement are made more realistic and flexible.

The waiver of guarantee fee is a plus of course.

All said, this is a good effort to force banks to lend. We can only keep our fingers crossed.

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