Non-MSMEs to get cheap, govt-guaranteed loans too – The Economic Times

Clipped from: https://economictimes.indiatimes.com

While the scheme has been broadly referred to as the MSME guarantee scheme, the terms of coverage are quite broad and will include other businesses as well.

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 Rs 3-lakh-crore emergency credit line guarantee scheme if they have bank loans, but for below Rs 25 crore.

While the scheme has been broadly referred to as the MSME guarantee scheme, the terms of coverage are quite broad and will include other businesses as well.

This will be a major relief for retail-facing businesses with fixed obligations who have seen their top line disappear because of several weeks of lockdown. While banks have been cautious in lending to this segment because of the uncertainty of future cash flows, the government guarantee will provide them with the confidence to provide loans.

One of the conditions for the guarantee is that the banks will not have a credit risk spread for the borrower. As a result, many banks are providing loans at 7.5%. This is despite interest rate being capped at 9.25% for banks and 14% for non-banking finance companies.

“This scheme has been expanded to include all business enterprises, anyone with loan limit up to Rs 25 crore, it does not have to be only MSME. It can be even a term loan and should be outstanding as on February 29,” said Union Bank MD & CEO Rajkiran Rai. He added that the bank was expecting to disburse nearly Rs 10,000 crore of loans under this scheme. The bank has an MSME portfolio of close to Rs 50,000 crore.

Since the loans are backed by a sovereign guarantee, banks are expecting that the RBI will not require them to assign any risk weightage to these. This would mean that even after lending Rs 3 lakh crore to small businesses, the capital requirement for banks will not increase. Most banks are expecting to disburse around 20% of their loans under this scheme to the MSME segment.

Under the scheme notified by the government, 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 under the MUDRA scheme, in the form of a Guaranteed Emergency Credit Line (GECL) facility. For this purpose, a corpus of Rs 41,600 crore shall be provided by the government, spread over the current and the next three financial years.

One of the eligibility criteria is that the loan should not be more than 60 days past due. Loans provided under the scheme will have a tenure of four years with a moratorium period of one year on the principal amount.

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