Govt. unveils relief measures to support affected SMEs

The Government has unveiled a comprehensive relief package to assist Small and Medium-sized Enterprises (SMEs) grappling with financial hardships caused by recent economic upheavals.

The SME sector, contributing over 50% to the country’s GDP, has been severely impacted by events such as the 2019 Easter Sunday Attack, the COVID-19 pandemic, and the 2022 economic crisis. 

From April 2019 to September 2024, approximately 494,000 loans, totaling Rs. 886 billion, were classified as non-performing loans (NPLs). The relief measures aim to provide breathing space for affected SMEs while ensuring banking sector stability. 

Eligibility Criteria 

To qualify for the relief package, SMEs must: 

- Hold credit facilities classified as NPLs on or after April 1, 2019. 

- Engage with the respective Relief Banking Unit and submit required documents by March 31, 2025. 

Specific Reliefs 

Relief measures are categorized based on the aggregate capital outstanding of loans as of December 15, 2024: 

1. Loans less than Rs. 25 million: Borrowers entering a restructuring plan will have a relief period of 12 months. 

2. Loans between Rs. 25–50 million: Relief period is 9 months. 

3. Loans exceeding Rs. 50 million: Relief period is 6 months. 

Interest waivers on unpaid interest and reductions in outstanding capital are offered based on the settlement period, ranging from 20% to 65% depending on the loan category and timeline. 

General Reliefs 

1. Suspension of legal actions under the Parate Execution Act until March 31, 2025. 

2. Provision of working capital loans for eligible SMEs with credible revival plans. 

3. Relaxation of adverse credit records as the sole reason for declining new loan applications. 

4. Development of a reporting modality for restructured credit facilities. 

5. Transparency in providing a detailed breakdown of loan components to SMEs. 

Additional Relief Measures 

The Ministry of Finance has proposed further measures, including: 

- A cap on interest rates for restructured loans under Rs. 50 million, aligning with the Average Weighted Prime Lending Rate (AWPR) plus a reasonable margin. 

- Loan repayment periods extended to a maximum of 10 years. 

- Renaming “Business Revival Units” to “Relief Banking Units.” 

- Suspension of legal actions for specified durations based on loan categories. 

- Transparent mechanisms for grievance handling regarding auction disputes. 

Policy Support for SMEs 

To ensure long-term SME sector resilience, the government plans to: 

1. Establish an SME Advisory Committee under the Ministry of Industries. 

2. Introduce a scorecard mechanism to enhance SMEs’ financial accessibility. 

3. Launch the National Credit Guarantee Institution Limited (NCGIL) to provide credit guarantees and mitigate collateral issues starting January 2025.