Key Takeaways
- The government has increased the limit of Mudra loan to Rs 20 lakh to boost the MSME sector.
- A credit guarantee scheme will be introduced to provide guarantee cover up to Rs 100 crore to each applicant.
- Public Sector Banks will develop a new credit assessment model based on digital footprints to make credit more accessible to MSMEs.
New Delhi: In a big push to the MSME sector, the government on Tuesday increased the limit of Mudra loan to Rs 20 lakh from existing Rs 10 lakh and announced a package that covers financing, regulatory changes and technology support for MSMEs to help them grow and also compete globally.
“This budget provides special attention to MSMEs and manufacturing, particularly labour-intensive manufacturing,” Finance Minister Ms Nirmala Sitharaman said while Presenting the Budget 2024-25 and proposed several measures in support of this sector.
The budget proposes term loans for MSMEs to purchase machinery and equipment without collateral or third-party guarantee. A credit guarantee scheme will be introduced, pooling credit risks for MSMEs.
Giving more details, the Union Finance Minister said that a separately constituted self-financing guarantee fund will provide, to each applicant, guarantee cover up to Rs 100 crore, while the loan amount may be larger. The borrower will have to provide an upfront guarantee fee and an annual guarantee fee on the reducing loan balance.
To make credit more accessible to MSMEs via a new, independent, and in-house mechanism, Ms Sitharaman proposed that Public Sector Banks (PSBs) will build their in-house capability to assess MSMEs for credit, instead of relying on external assessment.
They will also take a lead in developing or getting developed a new credit assessment model, based on the scoring of digital footprints of MSMEs in the economy.
“This is expected to be a significant improvement over the traditional assessment of credit eligibility based only on asset or turnover criteria. That will also cover MSMEs without a formal accounting system,” stated the Union Finance Minister.
The Finance Minister also proposed a new mechanism for facilitating continuation of bank credit to MSMEs during their stress period. While being in the ‘special mention account’ (SMA) stage for reasons beyond their control, MSMEs need credit to continue their business and to avoid getting into the Non-Performing Assets (NPA) stage.
Credit availability will be supported through a guarantee from a government promoted fund, the Minister proposed.
As many as 24 SIDBI branches in MSME clusters are proposed for easier and direct credit access, she added.
