Give us too the benefit of credit guarantee scheme: urban co-op banks to FM

Urban co-operative banks (UCBs) have petitioned Finance Minister Nirmala Sitharaman, saying they too should get the benefit of a government scheme which provides 100 per cent guarantee to lenders on the additional loans they extend to businesses, including micro, small and medium enterprises (MSMEs), whose operations have been disrupted by the pandemic.

According to the guidelines drawn up by state-owned National Credit Guarantee Trustee Company (NCGTC), which administers the Emergency Credit Line Guarantee Scheme (ECLGS), additional funds sanctioned by its member lending institutions under the Guaranteed Emergency Credit Line (GECL) will get 100 per cent guarantee coverage.

While all scheduled commercial banks (SCBs), financial institutions (FIs) and non-banking finance companies (NBFCs) will get the benefit of ECLGS cover on incremental loans, UCBs have been denied the same.

The ECLGS has been formulated to encourage lenders, who turned risk averse in the wake of the economic slowdown and nationwide lockdown, to extend emergency credit line to business enterprises and MSMEs up to 20 per cent of the total loan outstanding as on February 29, 2020.

‘Not fair’

In a letter to the Finance Minister, Jyotindra Mehta, President, National Federation of Urban Co-operative Banks and Credit Societies (NAFCUB), emphasised that UCBs finance MSMEs in a big way, with their outstanding loans to these enterprises amounting to ₹82,000 crore.

“Since the loan sizes of the micro and small enterprises financed by UCBs are generally small, the number of such enterprises helped by the urban banks is very significant...The UCB sector is regulated by the Reserve Bank of India in the same manner as the commercial banks are regulated,” Mehta said.

Hence, it is not fair to deny them the benefit of ECLGS coverage, he added.

Financially sound

Mehta underscored that UCBs are by and large financially sound, with 1,199 entities out of 1,544 UCBs rated as top-ranking -- with ratings of A and B -- as per the CAMELS (capital adequacy; asset quality; management; earnings; liquidity; and systems and control) rating model.

As per the RBI’s Report on Trend and Progress of Banking in India 2018-19, the UCB sector’s gross non-performing assets (GNPAs) were at 7.1 per cent of their gross advances, against SCBs’ 9.1 per cent. Further, the sector’s net NPAs were at 2.6 per cent of their net advances, against SCBs’3.7 per cent

The provisioning coverage ratio (PCR) of UCBs was at 65.6 per cent, against SCBs’ 61 per cent.

“UCBs, therefore, are well qualified to be included in all the schemes of Government of India,” said Mehta.

The government guarantee scheme is applicable to all loans sanctioned under GECL up to October 31, 2020, or till an amount of ₹3-lakh crore is sanctioned under the scheme, whichever is reached earlier.

Business enterprises and MSMEs with outstanding loan of up to ₹25 crore as on February 29, 2020, and turnover of up to ₹100 crore in FY20,get additional financing under the scheme.

The Interest rate charged under the scheme is capped at 9.25 per cent for banks and 14 per cent for NBFCs. The maximum tenure of the loans is four years from the date of disbursement. There is a 12-month moratorium period on the principal amount.