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The Union Cabinet on Wednesday approved the ₹3 trillion of emergency credit guarantee system for the non-banking financial companies (NBFCs) and micro, small and medium-sized enterprises (Msmes).
The funding is a part of the ₹$ 20 billion economic package announced by the minister of finance, Nirmala Sitharaman for the sectors hit by the coronavirus.
Under the program, the entire amount of the funds in the form of a guarantee emergency credit line (GECL) installation shall be provided with a 100% guarantee of loans to state-owned National Credit Guarantee Trustee Company Limited (NCGTC) to the lenders. In this sense, the Union government will provide ₹41,600 crore, spread over the current and in the next three years. NCGTC not charge any deposit guarantee of credit institutions.
The scheme is expected to provide an incentive to banks, NBFCs to provide additional funds for the Msmes, providing them with a guarantee of 100% of the losses sustained by the lenders due to any such breach. It will also provide support to small businesses struggling to meet their operational liabilities due to the national security lock.
Interest rates under the scheme will be limited to 9.25% for banks and 14% for NBFCs. The plan will cover only the borrowers with outstanding credit limit of up to ₹25 crore as on 29 February, and have a turnover of up to ₹100 million rupees. The tenor of the loan under the scheme shall be four years, with a moratorium period of one year on the principal amount. Also include borrowers with up to 60 days after fees, and to cover the working capital and term loan facilities.
“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% of their total outstanding credit of up to ₹25 crore as on February 29, 2020,” an official statement said.
The scheme would be applicable to all loans sanctioned under GECL installation from the date of the announcement of the plan as of October 31, or until an amount of ₹3 trillion dollars is sanctioned under the scheme, whichever occurs first.
“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, providing incentives to Mlis (member lending institutions) to provide additional credit of up to ₹$ 3 billion to the sector, at low cost, thus allowing Msmes to meet its operational liabilities and restart their business,” the statement added.
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