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Distressed Assets Fund To Provide Rs 20,000 Crore Guarantee To MSMEs

Distressed Assets Fund To Provide Rs 20,000 Crore Guarantee To MSMEs
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New Delhi, June 24: Union Minister Nitin Gadkari on Wednesday launched the Credit Guarantee Scheme for Sub-ordinate Debt to provide Rs 20,000 crore of guarantee cover to two lakh micro, small and medium enterprises.

 The funding scheme to help the distressed MSME sector entails a sub-debt facility to the promoters of those operational MSMEs that are distressed or non-performing assets (NPAs). It is also called the 'Distressed Assets Fund — Sub-ordinate Debt for MSMEs'.

 According to the scheme, the guarantee cover worth Rs 20,000 crore will be provided to the promoters who can take debt from the banks to further invest in their stressed MSME units as equity.

 "It was being felt that the biggest challenge for stressed MSMEs was in getting capital either in the form of debt or equity. Therefore, as part of Atmanirbhar Bharat package, on May 13, 2020, Finance Minister (Nirmala Sitharaman) had announced this scheme of sub-ordinate debt to the promoters of operational but stressed MSMEs," an official statement said.

 After completion of the necessary formalities including approval of the Cabinet Committee on Economic Affairs and consultation with the finance ministry, SIDBI and the Reserve Bank of India (RBI), the scheme was formally launched by Gadkari in Nagpur.

 The scheme seeks to extend support to the promoters of the operational MSMEs that are stressed and have become NPAs as on April 30, 2020.

 Promoters of the MSMEs will be given credit equal to 15 per cent of their stake (equity plus debt) or Rs 75 lakh, whichever is lower.

 The promoters will in turn infuse this amount into the MSME unit as equity and thereby enhance the liquidity and maintain debt-equity ratio.

 Ninety per cent guarantee coverage for this sub-debt will be given under the scheme, whereas the remaining 10 per cent would come from the promoters concerned.

 There will be a moratorium of seven years on payment of principal amount, whereas maximum tenor for repayment will be 10 years.

 "It is expected that this scheme would provide much-required support to around two lakh MSMEs and will help in reviving the economic activity in and through this sector. It will also help in protecting the livelihoods and jobs of millions of people who depend on them," the statement said.

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