Micro, small and medium enterprises (MSMEs) can look forward to a four-year loan with a one-year moratorium at 9.25% under a government-guaranteed emergency funding scheme. All small business borrowers with outstanding credit of up to Rs 25 crore as on February 29, 2020, which were not more than 60 days overdue on loans, and with an annual turnover of up to Rs 100 crore, are eligible for this emergency credit.
The government on Wednesday cleared additional funding of up to Rs 3 lakh crore through an emergency credit line guarantee scheme (ECLGS), which was announced by finance minister Nirmala Sitharaman on Sunday as part of the ‘Atmanirbhar Bharat’ package. The scheme is expected to be operationalized by lenders soon after guidelines are issued by the finance ministry.
The finance minister will hold a video conference meeting with chiefs of public sector banks and of Nabard, Sidbi and the National Housing Bank to review the flow of credit in the wake of the announcement of various schemes by the government.
The amount of Guaranteed Emergency Credit Line (GECL) funding to eligible MSME borrowers — either in the form of additional working capital term loans (in case of banks and financial institutions, or FIs), or additional term loans (in case of NBFCs) — would be up to 20% of their entire outstanding credit up to Rs 25 crore as on February 29, 2020.
Under the scheme, the government-promoted National Credit Guarantee Trustee Company (NCGTC) will provide a 100% credit guarantee to lenders for emergency loans they provide to eligible MSMEs to battle the financial challenges arising out of Covid-19. Interest rates under the scheme have been capped at 9.25% for banks and FIs, and at 14% for NBFCs.
The Cabinet approved setting aside a corpus of Rs 41,600 crore, spread over the current and next three fiscals. The guarantees will be available for emergency loans until the notification of the scheme up to October 31, 2020, or till an amount of Rs 3,00,000 crore is sanctioned, whichever is earlier.
In an interaction with the Confederation of Indian Industry, Sitharaman said that credit availability for additional term loans and the working capital loans were intended to reach all MSMEs, and hence the government has provided a guarantee to banks to overcome hesitation in lending. “When the government provides full and partial guarantees with a special purpose vehicle post-lockdown, the bank hesitation has been addressed,” she said.