The Union Cabinet on Wednesday approved additional financing of up to Rs 3 trillion at a concessional rate of 9.25% through the Emergency Credit Line Guarantee Scheme (ECLGS) for the hard-hit MSME sector. affected by the coronavirus crisis.
The ECLGS was the second largest component of the comprehensive Rs 21 trillion package announced by Finance Minister Nirmala Sitharaman last week.
Under this scheme, 100% guarantee cover will be provided by the National Credit Guarantee Trustee Company (NCGTC) for additional financing of up to Rs 3 trillion to eligible MSMEs and interested mudra borrowers in the form of an emergency guaranteed line of credit (GECL). facility, according to an official statement.
For this purpose, a corpus of Rs 41,600 crore will be provided by the Indian government spread over the current financial year and the next three financial years, he said.
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The Cabinet, led by Prime Minister Narendra Modi, also approved that the scheme would be applicable to all loans sanctioned under the GECL facility during the period from the date of announcement of the scheme until October 31 or until that an amount of 3,000 billion rupees be sanctioned. under the GECL, whichever comes first.
The ECLGS was formulated as a specific response to the unprecedented situation caused by Covid-19 and the resulting lockdown, which has severely affected manufacturing and other activities in the MSME sector, according to the statement.
The program aims to alleviate the economic distress faced by around 4.5 million MSMEs by providing them with additional financing of up to Rs 3 trillion in the form of a fully secured emergency line of credit.
The main objective of the program is to engage member credit institutions (MLIs) such as banks, financial institutions (FIs) and non-bank financial companies (NBFCs) to increase access and enable the availability of facilities additional funding for MSME borrowers. , in view of the economic distress caused by the Covid-19 crisis, by providing them with a 100% guarantee for the losses suffered by them as a result of the non-repayment of GECL financing by borrowers. Regarding eligibility, he said that all MSME borrower accounts with outstanding credit of up to Rs 25 crore as of February 29 that were less than or equal to 60 days past due by that date, i.e. regular, SMA 0 and SMA 1 accounts, and with an annual turnover of up to Rs 100 crore would be eligible for GECL funding under the scheme.
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The amount of GECL financing to eligible MSME borrowers, either in the form of additional term loans for working capital (in the case of banks and FIs) or additional term loans (in the case of NBFCs) would be up to 20% of their total outstanding credit. up to Rs 25 crore as of February 29, 2020.
All financing provided under GECL will be backed by a 100% credit guarantee by NCGTC to MLIs under ECLGS, he said, adding that the term of the loan in the under the program will be four years with a one-year moratorium on the principal amount.
No guarantee fees will be charged by the NCGTC to Member Credit Institutions (MLIs) under the program and interest rates under the program will be capped at 9.25% for banks and FIs, and at 14% for NBFCs.
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Considering the critical role of the MSME sector in the economy and job creation, the proposed program is expected to provide much needed relief to the sector by incentivizing MLIs to provide additional credits of up to Rs 3 trillion to the sector Low cost. , thus allowing MSMEs to meet their operational obligations and restart their activities, he said.
By helping MSMEs to continue operating in the current unprecedented situation, the program is also expected to have a positive impact on the economy and support its recovery, he added.