To help small borrowers hit by the second wave of coronavirus pandemic, finance minister Nirmala Sitharaman Recently, several economic relief measures have been announced. The government will provide a credit guarantee scheme to scheduled commercial banks for loans to non-banking financial companies (NBFCs) and micro finance institutions (MFIs). This much-awaited loan facility will enable lenders to offer loans up to Rs 1.25 lakh to 25 lakh small borrowers, explained Sitharaman.
For small borrowers, the central government has capped interest rates on loans from banks at the existing marginal cost of funds based lending rate (MCLR) plus 2 per cent. The interest rate will be at least 2 per cent less than the maximum rate set by the Reserve Bank of India (RBI). The tenure of such loans will be fixed up to 26 months.
The Finance Minister asked the institutions to focus on giving new loans instead of repayment of old loans. All borrowers (including defaulters up to 89 days) will be eligible for this scheme.” Borrowers should be as per extant RBI guidelines such as number of lenders, borrower being a member of Joint Liability Group (JLG), ceiling on household income and loans,” the finance minister said.
He said the guarantee cover for funding provided by MLIs to MFIs or NBFC-MFIs would be till March 31, 2022 or till the issue of guarantee of Rs 7,500 crore, whichever is earlier. “Guaranteed up to 75% of the default amount for 3 years through the National Credit Guarantee Trustee Company,” he further mentioned.
“The attack of the second wave and the impact of the lockdown were severe, especially for contact-oriented businesses such as travel and tourism and small businesses. The travel and tourism sector is important for earning foreign exchange in case of international tourism. The announcement made by the government is at the right time and in the right direction. MSMEs, MFIs and the small and unorganized sector are the biggest job creators. Given the increasing pace of vaccination across the country, the measures will help boost growth. The announcement of health infrastructure sectors will help strengthen the fight against the pandemic, said Nish Bhatt, founder and CEO of Millwood Cane International, an investment consulting firm.
The government has also increased the limit of Emergency Credit Line Guarantee Scheme (ECLGS) to Rs 4.5 lakh crore from the existing Rs 3 lakh crore. Launched in 2020 as a part of the Atma Nirbhar Bharat package, the ECLGS scheme aims to provide 100 per cent guaranteed coverage to banks, non-banking financial institutions (NBFCs) and other lending institutions to enable them to do business in emergency situations. To be able to extend credit. Institutions that have suffered due to the Covid-19 pandemic.
“The measures announced have been targeted at the most affected areas. The extension of additional amount for guaranteed MSME loans is also welcome as the second wave has further impacted the MSMEs which were recovering from the impact of the first wave. PwC India Partner and Leader Economic Advisory Services, Ranan Banerjee said, capping of rates for micro-finance loans and them at MCLR plus 2 per cent will help in demand creation.
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