Credit and Finance to MSMEs: The cabinet, chaired by PM Modi, on Wednesday announced the approval to additional funding of up to Rs 3 lakh crore to MSMEs and interested MUDRA loan borrowers through the introduction of Emergency Credit Line Guarantee Scheme (ECLGS). The lenders including banks, financial institutions and NBFCs, will be provided with complete guarantee cover by the National Credit Guarantee Trustee Company Limited (NCGTC) for giving loans to MSMEs in the form of a Guaranteed Emergency Credit Line (GECL) facility, a statement by the Cabinet said. ECLGS has been launched to support MSMEs in the manufacturing and other activities impacted by the Covid pandemic. The government will provide a corpus of Rs 41,600 crore for the scheme over the current and coming three financial years.
Rs 3 lakh crore collateral-free loan support to MSMEs was announced by the Finance Minister Nirmala Sitharaman in the first of the five tranches of the economic package last week. Under the ECLGS scheme, MSMEs with outstanding credit of up to Rs 25 crore as on February 29, 2020, and with an annual turnover of up to Rs 100 crore would be eligible for GECL funding. The loan tenor will be four years with a moratorium period of one year on the principal amount, the statement said. The interest rate will be capped at 9.25 per cent for banks and financial institutions and at 14 per cent for NBFCs on loans given under the scheme.
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The scheme, according to the Cabinet, would be applicable to all loans sanctioned under GECL during the period from the date of its announcement till October 31, 2020, or till Rs 3 lakh crore is sanctioned under the GECL, whichever is earlier. With complete guarantee cover given under the scheme by the government, banks will save “capital of around Rs 25,000 – Rs 30,000 crore,” SBI had said in its Ecowrap report last week.
Nirmala Sitharaman had said that with the collateral-free loan scheme 45 lakh MSME units will be able to resume business and safeguard jobs through this support. The outstanding bank credit to micro and small enterprises was Rs 10.95 lakh crore as on February 28, as per the RBI’s April bulletin.