Government’s revival strategy of Rs 3 trillion for SMEs observes a slow start

India’s plan to support small businesses, affected due to COVID-19, with Rs 3 trillion ($39.5 billion) in loans has started off at a slow pace as banks are disbursing only a tiny fraction of the available funds.

As per the data released by Finance Ministry, the lenders have paid out only Rs 122 billion which is hardly 4% of the sum earmarked. The approved loans worth is Rs 242.60 billion since the third week of May.    

As per a senior Finance Ministry official, according to the feedbacks of the industry, the scheme is facing several problems, and the government is trying to convince bankers to implement the scheme in “letter and spirit”.

However, a senior banker at a public bank also said there had been a clear lack of demand because of the country’s lockdown.

“Businesses don’t want to avail themselves of it so the traction has been low,” he said.

India last month unveiled the fully-guaranteed government-backed loan scheme for small businesses, which account for nearly a quarter of India’s economy and employ hundreds of millions of workers, according to government estimates.

New Delhi has been urging banks to lend more to these firms which have been hit by the more than two-month lockdown to rein in the spread of the virus. However, lenders worry about defaults.

As per bankers, there is “constant monitoring” by the government and pressure to approve more loans.

“We are pushing hard and have contacted the borrowers but we have not heard back from most,” said another banker at a state-owned lender.

Banks are also cherry-picking better placed companies as recovering such loans, even though they are government-backed, is not an easy task, said a third banker.