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Businesses, including micro, small and medium enterprises (MSMEs), with an annual turnover of ₹100 crore, are likely to get emergency credit at 175 basis points lower than the capped interest rate.
“PSBs have come forward to provide additional working capital term loans at 7.5 per cent interest rate, much below the maximum cap of 9.25 per cent, which will benefit MSMEs in these difficult times,” said a tweet from the Finance Minister’s Office.
Since most banks have adopted repo rate as the external benchmarking tool for determining the rate of interest on new loans given on or after October 1, 2019, it may not be difficult for banks to implement this scheme. Also, the new credit loan is fully guaranteed for principal as well as interest repayment.
The ₹3-lakh crore Guaranteed Emergency Credit Line (GECL) for business enterprises/MSMEs intends to provide cheaper and easy working capital credit. The scheme, which has been made operational now, caps the interest rate at 9.25 per cent (for banks and financial institutions) and 14 per cent (for NBFCs). As on date, various banks charge interest of 10.55 to 16.25 per cent, while for NBFCs the rate of interest ranges between 10 per cent to 30 per cent.
Under the scheme, a one-year moratorium on the principal amount is offered, but interest is payable during the moratorium period. The principal is to be repaid in 36 instalments after the moratorium period is over. It will be a pre-approved sanction limit of up to 20 per cent of the loan outstanding as on February 29 to eligible borrowers.
It will in the form of additional working capital term-loan facility (in case of banks and financial institutions), and additional term-loan facility (in case of NBFCs) in view of the Covid-19 crisis as a special scheme. This will also include Mudra borrowers. Eligibility includes annual turnover of up to ₹100 crore and outstanding loan up to ₹25 crore (should be less than or equal to 60 days past due) on the prescribed date. A borrower could get credit up to ₹5 crore.
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