SUBORDINATED DEBT FOR STRESSED MSMES

Business Enterprises are navigating through a broad range of interrelated issues that span from keeping their employees and customer safe, shoring-up cash and liquidity, reorienting operations in view of the prolonged lockdown across economy.

- Pushkar Kumar Sinha

To tide over this situation Reserve Bank of India, Government and other regulatory bodies among others have announced various dedicated schemes, regulatory packages & relief measures for business units affected by COVID-19 pandemic.

"Distressed Asset Fund - Subordinated Debt for Stressed MSMES" is one such scheme to extend support to the promoter(s) of the operational MSMEs which are stressed, viz SMA-2 and NPA accounts as on 30.04.2020 and eligible for restructuring as per RBI guidelines on the books of the Bank. For availing the sub-debt, the unit must be in running condition and operational.

MSME units such as Individuals / Proprietorship, LLP, Partnership, Private Limited Company or registered company are eligible to be covered under the scheme.

As a special dispensation, Reserve Bank of India has permitted to reckon the funds infused by the Promoters in their MSME units through loans availed under this scheme as equity/ quasi equity from the promoters for debt-equity computation.

"Distressed Assets Fund" of Rs. 4000 crore has been created by Government of India for providing guarantee coverage to the loans given / credit extended to the promoters of the eligible MSME units under the scheme.

Financial assistance has to be provided under the scheme by way of sub-debt facility extended by the lending institution to the Promoters of the MSME units upto 15% of promoter's stake or Rs. 75 lakh whichever is lower. Only one personal loan account shall be opened in the name of promoters, subject to maximum quantum of finance of Rs.75.00 Lakh for MSME beneficiary unit.

This personal loan shall not exceed the original debt of the beneficiary. Further, the Equity shall be calculated on the basis of the last available audited balance sheet of a Financial Year. There is moratorium period of 7 years on payment of principal whereas maximum repayment period will be 10 years.