Cabinet approves rs 3 lakh crore line of emergency credit for small businesses; loans to 9.25% rate of



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NEW DELHI: The Union Cabinet on Wednesday approved additional funding of up to rs 3 lakh crore at a concessional rate of 9.25 per cent through the Line Of Emergency Credit Guarantee System Of (ECLGS) for the MSME sector hard hit by the coronavirus of the crisis.
The ECLGS was the second-largest component of the Rs 21 lakh crore comprehensive package announced by the minister of finance, Nirmala Sitharaman last week.
Under this scheme, 100 per cent of warranty coverage will be provided by National Credit Guarantee Trustee Company (NCGTC)for additional funding of up to rs 3 lakh crore to eligible Msmes and stakeholders MUDRA of the borrowers, in the form of a guarantee emergency credit line (GECL) of the facility, an official statement said.
For this purpose, a corpus of Rs 41,600 crore shall be provided by the government of India is spread over the current and the next three years, he said.
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The Cabinet headed by Prime Minister Narendra Modi also approved that the scheme would be applicable to all loans sanctioned under GECL of the Premises during the period from the date of announcement of the plan to October 31, or until an amount of rs 3 lakh crore crore is sanctioned under the GECL, whichever occurs first.
The ECLGS has been formulated as a specific response to the unprecedented situation caused by COVID-19 and the consequent blocking of security, which has severely impacted the manufacturing and other activities in the MSME sector, according to the release.
The plan aims to mitigate the economic problems faced by around 45 lakh Msmes, providing them with an additional funding of up to rs 3 lakh crore in the form of a fully guaranteed line of emergency credit.
The main objective of this plan is to provide an incentive for the members of the lending institutions (Mlis), like banks, financial institutions (FIs) and non-banking financial companies (NBFCs) to increase access to, and enable the availability of additional funds from the facility to the MSME borrowers, in view of the economic difficulties caused by the COVID-19 of the crisis, providing 100 percent guarantee the losses suffered by them due to the lack of payment of the GECL funding on the part of the borrowers.
With respect to eligibility, you stated, all the MICRO borrower accounts with outstanding credit of up to Rs 25 crore as on 29 February, which were less than or equal to 60 days past due, as of that date, that is to say, 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.
The amount of GECL financing of eligible MSME borrowers, either in the form of additional working capital term loans (in the case of banks and financial intermediaries), or additional term loans (in case of NBFCs) would be up to 20 percent of all of their outstanding loans of up to Rs. 25 crore as on February 29, 2020.
All of the funds provided under GECL will be provided with a 100% guarantee of credit for NCGTC to Mlis under ECLGS, he said, adding, the tenor of the loan under the program shall be four years, with moratorium period of one year on the principal amount.
There is No Guarantee the Rate will be charged for NCGTC of the members lending Institutions (Mlis) under the scheme and the interest rates under the scheme will be limited to 9.25% for banks and financial intermediaries, and in 14 per cent for NBFCs.
In view of the fundamental role of the MSME sector in the economy and in the provision of employment, the proposed scheme is expected to provide much-needed relief to the sector, by incentivising Mlis to provide additional credit up to rs 3 lakh crore for the sector at low cost, thus allowing Msmes to meet its operational liabilities and restart their business, ” he said.
Through the support to small businesses to keep functioning during the current unprecedented situation, the scheme is also expected to have a positive impact on the economy and help its recovery, he added.

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