MSMEs will get emergency loans guaranteed by the government over 4 years at 9.25%


MUMBAI: Micro, Small and Medium Enterprises (MSMEs) can expect a four-year loan with a one-year 9.25% moratorium under a government-guaranteed emergency funding program . All small business borrowers with outstanding credit of up to Rs 25 crore as of February 29, 2020, who were no more than 60 days overdue on loans, and with annual turnover of up to Rs 100 crore, are eligible for this emergency credit.
On Wednesday, the government authorized additional funding of up to Rs 3 lakh crore through an Emergency Line of Credit Guarantee Program (ECLGS), which was announced by Finance Minister Nirmala Sitharaman on Sunday. as part of the “Atmanirbhar Bharat” package. The program is expected to be operationalized by lenders soon after the release of the guidelines by the Ministry of Finance.
The Minister of Finance will hold a videoconference meeting with heads of public sector banks and Nabard, Sidbi and the National Housing Bank to take stock of credit flows following the announcement of various programs by the government .
The amount of guaranteed emergency line of credit (GECL) funding to eligible MSME borrowers – either in the form of additional term loans for working capital (in the case of banks and financial institutions, or FIs) , or additional term loans (in the case of NBFCs) – would be up to 20% of all of their outstanding credit up to Rs 25 crore as of February 29, 2020.
Under this program, the government-promoted National Credit Guarantee Trustee Company (NCGTC) will provide 100% credit guarantee to lenders for emergency loans they provide to eligible MSMEs to tackle financial challenges arising from of Covid-19. Interest rates under the scheme were capped at 9.25% for banks and FIs, and 14% for NBFCs.
The Cabinet approved the setting aside of a corpus of Rs 41,600 crore, spread over the current fiscal year and the next three fiscal years. The guarantees will be available for emergency loans until notification of the program until October 31, 2020 or until an amount of Rs 3,000,000 crore is sanctioned, whichever comes first.
In an interaction with the Confederation of Indian Industry, Sitharaman said that the availability of credit for an additional term loan and a working capital loan was intended to reach all MSMEs, and therefore the government provided a guarantee to banks to overcome reluctance to lend. “When the government provides full and partial guarantees with a special purpose vehicle after the lockdown, the bank’s reluctance has been lifted,” she said.


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