Pre-Budget Memorandum: Loans of less than 59 minutes to non-starter MSME units in Karnataka, industry body says in memo to FM

BENGALURU: Kassia, Karnataka’s small business body, has called for the effective implementation of the ‘loans of less than 59 minutes’ scheme for the micro, small and medium enterprise sector.

The initiative remains only on paper in Karnataka, the industry body said in a pre-budget memorandum to Finance Minister Nirmala Sitharaman.

“It is barely possible to access loans under this scheme as banks put up hurdles after giving their acceptance in principle online. It should be mandatory for banks to post statistical information on loans disbursed under the program on notice boards,” Kassia said.

The industry body suggested that the government task the State Level Bankers Committee (SLBC) with monitoring progress under the scheme.

Sitharaman had, in his first budget in July 2019, announced some plans to rescue the MSME sector from distress. These included access to loans of up to Rs 1 crore in 59 minutes through a dedicated online portal.

The industry body, while thanking the government for introducing the scheme, said there was a need to simplify things and speed up the process if MSME units were to benefit.

Most of the requests from the industry body this time concerned the difficulty of accessing adequate and timely credit facilities from banks and other financial institutions.

Approval of loans, both term and working capital, by banks is delayed and this puts great pressure on industrial units, according to the memorandum. Kassia urged the Minister of Finance to order banks to display in their branches information about financial products available to the MSME sector.

The industry body said complex collateral requirements at banks made it difficult for small and medium-sized units to access loans and pointed out that transaction costs at banks were also very high.

The fees levied for the annual renewal of SME loans by banks represent a heavy burden. In the majority of cases, according to the memorandum, the working capital limits provided by the banks are not adequate and they are further reduced after the banks recover the interest. This triggers a vicious cycle, according to the memorandum.

Banks grant a moratorium period of 6 to 12 months for the repayment of the principal. In most cases, units would not start operations within this time frame due to lack of funds and depleted working capital. The developer is trying to borrow money from foreigners, which will push it into more debt, the memorandum says, while seeking a longer moratorium period of two to three years.

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