₹3 lakh crore credit guarantee scheme may be launched this week

Credit Guarantee Scheme worth ₹3-lakh crore for MSMEs, announced as part of ₹20 lakh crore economic package, is likely to become operational later this week.

The ₹3 lakh crore collateral-free loans for small businesses will be offered by banks at attractive rate of 9.25 per cent, a senior official of a public sector bank told PTI. Currently, rate of interest on loans given by banks to MSME sector varies from 9.5 per cent to 17 per cent, depending on the risk perception.

At the same time, the official said, interest rate will be capped at 14 per cent for the loans provided by non-banking finance companies (NBFCs). After approval from the government, the scheme is expected to be launched later during the week.

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To provide relief to the small business, Finance Minister Nirmala Sitharaman on May 13 as part of first tranche of ₹20 lakh crore comprehensive economic package announced an additional working capital finance of 20 per cent of the outstanding credit as on February 29, 2020, in the form of a term loan at a concessional rate of interest will be provided.

This will be available to units with up to ₹25 crore outstanding and turnover of up to ₹100 crore whose accounts are standard.

The units will not have to provide any guarantee or collateral of their own, she had said, adding the amount will be 100 per cent guaranteed by the central government providing a total liquidity of ₹3 lakh crore to more than 45 lakh micro, small and medium enterprises (MSMEs).

Under the scheme, loans will have a 4 year tenor with moratorium of 12 months on the principal repayment. The last date for availing the scheme has been fixed as October 31, 2020.

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MSME sector is considered as the backbone of country’s economy as the sector contributes over 28 per cent of the GDP and more than 40 per cent of exports, while creating employment for about 11 crore people, second highest after agriculture.

Other scheme to help the stressed MSME sector also included ₹20,000 crore subordinate debt for stressed or loan defaulting MSMEs, which could benefit 2 lakh such businesses. A fund of funds for MSME is also being created, which will infuse ₹50,000 crore equity in MSMEs with growth potential.

The government also changed the definition of MSMEs to allow units with higher investment as well as introduced turnover criteria to allow more companies to remain small businesses to get fiscal and other benefits.