The government will offer 100 per cent credit guarantee cover on ₹3-lakh crore worth of loans that banks and non-banking finance companies (NBFCs) are expected to give to businesses, including micro, small and medium enterprises (MSMEs), which have been badly hit due to the pandemic.

The guarantee, which is being given as businesses need additional funding to meet operational liabilities, buy raw material and restart business, comes in the backdrop of banks turning risk averse. They will re-start now lending without the fear of loans turning non-performing. The guarantee can be availed till October 31.

With the government also deciding to launch a ₹30,000-crore Special Liquidity Scheme and a ₹45,000-crore ‘Partial Credit Guarantee Scheme 2.0’ to provide funding support for NBFCs, including housing finance companies (HFCs) and microfinance institutions (MFIs), these companies are expected to step up lending on the back of the guarantee.

The government guaranteed loans will be given to 45 lakh units so that they can resume business activity and safeguard jobs. They will have a 4-year tenor, with moratorium of 12 months on principal repayment. There will be no guarantee fee and no fresh collateral will be taken.

Since the loans are 100 per cent guaranteed by the government, the interest rate to be charged will be capped. However, the scheme of collateral-free automatic loans for businesses did not specify the ceiling on interest rates.

Under the scheme, banks and NBFCs will offer emergency credit line to businesses of up to 20 per cent of entire outstanding credit as on February 29.

Borrowers with up to ₹25 crore outstanding and ₹100 crore turnover are eligible for loans under this scheme.

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