Emergency credit for MSMEs: Interest rate capped at 9.25-14%

Our Bureau New Delhi | Updated on May 20, 2020 Published on May 20, 2020

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The interest for this programme is capped at 9.25 per cent and 14 per cent

Micro, Small and Medium Enterprises will get guaranteed emergency credit at interest rates of up to 9.25 per cent from banks. This is a part of a scheme approved by the Cabinet on Wednesday.

Apart from this, six other measures under ‘Atmanirbhar Bharat Abhiyan,’ also got the Cabinet’s nod, including post factor approval for providing free food grains to migrants.

Cheaper credit for MSMEs

The Cabinet gave its nod to ‘Emergency Credit Line Guarantee Scheme.’ This will enable additional funding of up to ₹3 lakh to eligible MSMEs and interested MUDRA borrowers. 100 per cent guarantee coverage will be provided by National Credit Guarantee Trustee Company Limited (NCGTC).

Interest rates under the Scheme will be capped at 9.25 per cent for banks and FIs, and at 14 per cent for NBFCs. The loan will be provided for four years with moratorium of one year on the principal amount. As on date, various banks charge interest between 10.55 to 16.25 per cent while for NBFC, rate of interest ranges between 10 to 30 per cent.

For Guaranteed Emergency Credit Line (GECL), the Government has provided a corpus of ₹41,600 crore, which will be spread over four years starting with the current fiscal. The scheme would be applicable to all loans sanctioned under the GECL facility during the period from the date of announcement of the scheme to October 31, or till an amount of ₹3 lakh crore is sanctioned under the GECL, whichever is earlier.

All MSME borrower accounts with outstanding credit of up to ₹25 crore as on February 29, 2020, which were less than or equal to 60 days past due as on that date, and with an annual turnover of up to ₹100 crore would be eligible for GECL funding under the scheme.

The amount of GECL funding to eligible MSME borrowers either in the form of additional working capital term loans (in case of banks and FIs), or additional term loans (in case of NBFCs) would be up to 20 per cent of their entire outstanding credit up to ₹25 crore as on February 29.

Special Liquidity Scheme for NBFC/HFC

A new Special Liquidity Scheme for Non-Banking Financial Companies (NBFCs) and Housing Finance Companies (HFCs) to improve their liquidity position will involve the creation of a Special Purpose Vehicle (SPV) with equity contribution of ₹5 crore from the government.

Beyond that, there is no financial implication for the government until the Guarantee involved is invoked.

However, on invocation, the extent of government liability would be equal to the amount of default subject to the guarantee ceiling. The ceiling of aggregate guarantee has been set at ₹30,000 crore, to be extended by the amount required as per the need.

The SPV would issue securities as per requirement, subject to the total amount of securities outstanding not exceeding ₹30,000 crore to be extended by the amount required as per the need.

The securities issued by the SPV would be purchased by RBI and proceeds thereof would be used by the SPV to acquire the debt of at least investment grade of short duration (residual maturity of upto 3 months) of eligible NBFCs / HFCs.

Other decisions

The Cabinet has approved:

* Interest rate structure for emergency credit line

* Creation of SPV for Special Liquidity Scheme for NBFCs/HFCs

* Subsidy of ₹3,109.52 crore for free food grains for migrants

* ₹10,000 crore scheme for formalisation of Micro food processing Enterprises (FME)

* Extension of Pradhan Mantri Vaya Vandana Yojana (PMVVY) up to 31st March, 2023 for further period of three years beyond 31st March, 2020.

* ₹20,050 crore for Pradhan Mantri Matsya Sampada Yojana

Published on May 20, 2020

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