Urban Co-operative Banks Demanded 100 Guarantee over MSME Loans

As part of Government's commitment towards MSME credit, the government provides for guarantees to commercial banks, financial institutions and NBFCs for lending to MSMEs through the National Credit Guarantee Trust Company (NCGTC) and its various funds. However, as of now, Urban Co-Operative Banks are not included in the list of institutions that are eligible for getting guarantees under the Govt. of India schemes.

Urban co-operative banks (UCBs) have demanded a 100 per cent guarantee over the loans extend to businesses, including Micro, Small and Medium Enterprises (MSMEs). In a detailed letter written to Finance Minister Nirmala Sitharaman Co-operative Banks expressed their demands.

In a letter to Finance Minister, the National Federation of Urban Co-operative Banks and Credit Societies Ltd. (NAFCUB), said ''UCBs are important and significant institutions that finance MSME sector. UCBs' outstanding loans to MSMEs amount to Rs 82,000 crore.''

NFCCUB president Jyotindra Mehta said that the UCB sector is regulated by the Reserve Bank of India (RBI) in the same manner as the commercial banks are regulated.

''It is not fair to keep them away from the benefits being offered by the government, when the UCB sector is regulated by RBI in the same manner as the commercial banks are regulated”, he added.

Mehta further said that UCBs are by and large financially sound. Out of 1540 UCBs, 1199 banks are CAMELS rated A and B, as per RBI, which are the ratings for satisfactorily run banks.

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.

UCBs also have a better provision cover for NPAs. The provisioning coverage ratio (PCR) of UCBs is 66 per cent, while that of SCBs is 61 per cent. UCBs therefore, are well qualified to be included in all the schemes of the government.

The Union Cabinet headed by Prime Minister Narendra Modi, earlier this month, had cleared Rs 3 lakh crore to MSME and interested MUDRA borrowers by way of Emergency Credit Line Guarantee Scheme (ECLGS).

The 100% guarantee scheme at a concessional rate of 9.25% for MSMEs under the Rs 3 lakh crore scheme was the second-biggest component of the Rs 20 lakh-crore package announced last week.

Currently, the rate of interest on loans given by banks to MSMEs varies from 9.5% to 17%, depending on the risk perception.

Under the Scheme, 100% guarantee coverage to be provided by National Credit Guarantee Trustee Company Limited (NCGTC) for additional funding of up to Rs 3 lakh crore to eligible MSMEs and interested MUDRA. borrowers, in the form of a Guaranteed Emergency Credit Line (GECL) facility.