Non-MSMEs will also benefit from cheap government guaranteed loans

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MUMBAI: Many businesses like hotels, restaurants and service providers – other than micro, small and medium enterprises (MSMEs) – will be eligible to receive funding under the Emergency Line of Credit Guarantee program of Rs 3-lakh-crore if they have bank loans, but for less than Rs 25 crore.
Although the scheme has been widely referred to as the MSME Guarantee Scheme, the terms of coverage are quite broad and will include other companies as well.
It will be a major relief for retail companies with fixed bonds that have seen their sales wiped out due to several weeks of foreclosures. While banks have been cautious in lending to this segment due to the uncertainty of future cash flows, the government collateral will give them the confidence to make loans.
One of the conditions of the guarantee is that the banks do not have a credit risk spread for the borrower. As a result, many banks give loans at 7.5%. And this despite the interest rate cap at 9.25% for banks and 14% for non-bank finance companies.
“This program has been expanded to include all businesses, anyone with a loan limit of up to Rs 25 crore, it does not have to be MSME only. It may even be a term loan and is expected to be outstanding by February 29, ”said Rajkiran Rai, Managing Director and CEO of Union Bank. He added that the bank expected to disburse nearly Rs 10,000 crore in loans under this program. The bank has an MSME portfolio of nearly Rs 50,000 crore.
Since the loans are backed by a sovereign guarantee, banks expect the RBI to impose no risk weight on them. This would mean that even after lending Rs 3 lakh crore to small businesses, the capital required for banks will not increase. Most banks expect to disburse around 20% of their loans under this program to the MSME segment.
Under the government-notified scheme, 100% guarantee coverage will be provided by the National Credit Guarantee Trustee Company Limited (NCGTC) for additional funding of up to Rs 3 lakh crore to eligible borrowers, including those in the MUDRA program, in the form of a guaranteed emergency line of credit (GECL). To this end, a corpus of Rs 41,600 crore will be provided by the government, spread over the current fiscal year and the next three fiscal years.
One of the eligibility criteria is that the loan must not be more than 60 days past due. Loans granted under the program will have a term of four years with a one-year moratorium period on the principal amount.


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