The Union Cabinet Wednesday approved additional funding of up to Rs 3 lakh crore through the Guaranteed Emergency Credit Line (GECL) for the MSME sector hit hard by COVID-19 pandemic. For this purpose, a corpus of Rs 41,600 crore shall be provided by the central government spread over the current and the next three financial years to provide guarantee against loan losses. Interest rates under the Scheme are capped at 9.25 per cent for banks and financial institutions and at 14 per cent for non-banking financial companies (NBFCs).
The National Credit Guarantee Trustee Company (NCGTC) will provide 100 per cent guarantee against losses on loans advanced to eligible micro, small, and medium enterprise (MSMEs) and MUDRA borrowers under the scheme which is open till October 31. All MSME borrower accounts with outstanding credit of up to Rs 25 crore as on February 29 — which were less than or equal to 60 days past due as on that date, and with an annual turnover of up to Rs 100 crore — would be eligible for GECL funding. They can get up to 20 per cent fresh loans of their entire outstanding credit.
The NCGTC will not charge any guarantee fee from the member lending institutions. “By supporting MSMEs to continue functioning during the current unprecedented situation, the Scheme is also expected to have a positive impact on the economy and support its revival,” the Centre said.
Further, a new Special Liquidity Scheme for NBFCs and HFCs was also approved. Under the scheme, a large public sector bank would set up an SPV to manage a stressed asset fund which would issue interest bearing special securities guaranteed by the Government of India, to be purchased by Reserve Bank of India only.
The SPV would issue securities subject to the total amount of securities outstanding not exceeding Rs 30,000 crore. The funds raised would be used by the SPV to acquire the debt papers of at least investment grade of short duration (residual maturity of up to 3 months) of eligible NBFCs/HFC.
“The direct financial implication for the Government is Rs 5 crore, which may be the equity contribution to the Special Purpose Vehicle (SPV). Beyond that, there is no financial implication for the Government until the Guarantee involved is invoked,” the government said.
The Cabinet also relaxed the norms of the Partial Credit Guarantee Scheme and extended its time period in order to widen the coverage to include a larger number of NBFCs, HFCs (housing finance companies) and MFIs (microfinance institutions). Guarantee of up to 20 per cent of first loss will be provided to state-owned banks for purchase of bonds or commercial papers of NBFCs, MFIs and HFCs having a credit rating of AA or below, including unrated paper with original maturity of up to one year.
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