By Badish Jinda, President, Federation of Punjab Small Industries Associations (FOPSIA)
The MSMEs in India are in worst position and one of the main reason for this is high lending rates by banks. The government schemes such as CGTMSE are failed in this regard.
FOPSIA have investigated the truth of CGTMSE scheme of Government of India and found that how the government have managed to amend the figures with a fake data to show their performance on higher side. 93% Micro Small Units under this scheme are below 10 Lac and that is the law of RBI to give the loans upto 10 Lac without collateral. But banks are minting money on the name of this scheme from such borrowers.
The CGTMSE scheme was launched in year 2000 for promoting the banks to ensure more lending to the MSE’s under the guarantee of government of India through the corpus reserved under CGTMSE.
In the year 2010 RBI ordered the banks for not colleting any collateral from MSME’s for the loans upto 10 Lacs, and further order the banks to convert all such loans to Credit Guarantee Scheme. Thus the data of Credit Guarantee Scheme started increasing.
On 2nd November 2018, Prime Minister announced loans up to 1 crore to MSME’s in 59 minutes but the position of the scheme already in place for collateral free loans is as under.
• Instead of claims of loans upto 1 crore the average loan amount to per Micro Small borrower is 4.41 Lac.
• From 28 Lakh total loans the Loans to Micro Small Manufacturers is merely 9 Lac persons.
Whereas the number of Small Scale Service & Business Enterprises is 18 Lac, The banks are considering all commercial vehicles loans to this category for enhancing the data of Credit Guarantee Scheme.
• In Credit Guarantee Scheme 39% loans are upto 1 Lac, 22% from 1 Lac to 2 Lac, 19% from 2 Lac to 5 Lac, 13% from 5Lac to 10 Lac. So from total CGS the 93% is under mandatory rule from RBI because Banks can not take collateral from MSE’s. Beside this 4% loans are from 10 Lac to 25 Lac. 2% from 25 Lac to 50 Lac. And less than 1% from 50 Lac to 1 Crore.
This clearly proves from the data as upto 2010 the amount of loan sanctioned under of this scheme was 4800crores and after the orders of RBI in 2010 the amount increased to 1.28 Lac crore in next seven years. But RBI very cunningly told the banks to convert all collateral free loans to Credit Gurantee Scheme and due to this the Credit Gurantee trust is earning around 850 crores per year from the borrowers upto 10 Lac.
It is mandatory for the Banks to consider all loans upto 10 Lacs without collateral but banks doing the frauds by black mailing the borrowers and taking collateral from them. Banks illegally force the borrowers to sign an affidavit that the borrower doesn’t want to pay the guarantee fee so his loans should be considered with collateral.
• Punjab again failed to get the benefit of this scheme as merely 2.3% of the total loans given in Punjab by Banks under this scheme. As from 28 Lac beneficiaries of this scheme only 61864 belongs to Punjab. And from total amount of 1.28 Lac crores distributed under this scheme the Banks in Punjab merely distributes 3242 crores.
So in the scheme 93% loans are mandatory as per RBI guidelines for the Banks and only 7% are taking benefit of this scheme.
But by taking undue benefit of this scheme the Banks are charging 1% per annum from the MSE’s taking loans upto 5 Lac and 1.50% for 5 Lac to 10 Lac.
• The Micro Small units in India are already suffering due to high interest rates of Banks.
• India stands at number 101 in Banks lending rates as the average lending rate in India is 9.75% whereas India’s arch rival China have 4.3%, European Union have 1% to 3%, Canada 2.9%, USA 4.3% and even Pakistan have 7% banks lending rate. But if we calculate the final rate of interest in India including credit gurantee fee and processing charges than the raking of India is 143 among 189 countries of world in interest rate on lending.
• Further the Banks are forcing the MSME’s to pay the interest from 10.5% to 13% beside this they are charging 1% to 1.5% Guarantee fees for availing loans under Credit Guarantee Scheme. The Banks are also charging 1% renewal fee. So for the Micro Small Units such loans up to 10 Lacs cost more than 15%. Which is the main reason of sickness for MSE’s in India.
FOPSIA has suggested the following to the Prime Minister, Ministry of MSME, RBI and Ministry of Banking:
The Government must bring down the interest rates for MSE’s and for an effective growth the rate should be at par with China.
Banks should not Charge any guarantee fee for loans upto 10 Lacs because these loans are mandatory to give without collateral as per the guidelines of RBI. Beside this Banks wont be able to take the illegal undertakings from the borrowers for not paying the annual Guarantee fee.
The CGTMSE should only be kept reserved for Micro Small Enterprises and other loans such as commercial vehicles loans should not be covered under this scheme.
The distribution of loans should be fair in all the states and it should be the duty of Banks to ensure equal distribution per enterprise in all the states.