SMEs ask DoP to take steps to get collateral free loans from banks to recover from pandemic induced liquidity crisis

Mumbai, April 11, 2022:

Pharma small and medium enterprises (SMEs) have appealed to the department of pharmaceuticals (DoP) to take steps to ensure that they get collateral free loans from banks to help them in funding their businesses in the wake of the liquidity crisis induced by the Covid-19 pandemic.

SMEs account for 30-40 per cent of the Indian pharmaceutical industry's revenue. There are difficulties to avail SME loans as a result of a strict collateral protocol and higher rate of interest. SMEs may not have the property to substantiate the criteria to avail a loan. SMEs therefore avail of unsecured business loans from lenders bearing high interest and EMIs which further leads to major cash flow problems and ultimately high cost of credit. There should not be any demand for collateral from the SMEs, said Indian Drug Manufacturers’ Association (IDMA) in a representation to DoP joint secretary Dr N Yuvaraj.

The entrepreneurs keep devising new strategies and plan expansion of their existing business, but still a large number of entrepreneurs require financial knowledge to steer their business in the right direction. Also, the MSMEs are not in position to make crucial business decisions related to SME loans. Thus, optimum viable interest rate necessary for availing the loan, stated the industry body.
 
However, in May 2020 the Union finance ministry introduced the Emergency Credit Line Guarantee Scheme (ECLGS) which was the dedicated fully guaranteed and collateral-free additional credit support for Covid-hit MSMEs, Mudra borrowers in addition to individual loans for business purposes. Borrowers with total outstanding loans of up to Rs. 50 crore in any sector and up to Rs. 500 crore for those in the hospitality, travel and tourism, leisure, and sporting sector classified as regular, SMA-0, or SMA-1 accounts as of February 29, 2020, are eligible for ECLGS loans. SMAs are special mention accounts that show signs of developing stress resulting in the borrower defaulting in servicing the debt. While SMA-0 are accounts having 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. Credit available is up to 20 per cent (up to Rs. 100 crore) of MSMEs total outstanding credit up to Rs. 500 crore. The ECLGS was extended to March 2023 with an increase in guarantee coverage to Rs. 5 lakh crore.
 
Despite collateral-free additional credit support for Covid-hit MSMEs, a significant number of MSMEs reeling under aftershocks of Covid-19 pandemic are not able to avail the loan under ECLGS due to technical issues.
 
“No doubt ECLGS is a good move as at least Rs. 2.36 lakh crore loan has already been disbursed. This means it has benefitted some MSMEs. Also, it doesn’t cater to SMA-2 accounts and hence not many MSMEs have benefitted so far. Collateral free loan will help SMEs, left out of ECLGS, in funding their businesses,” said Amit Chawla, secretary, MP Small Scale Drug Manufacturers Association.  Pharmabiz