Under this program, 100% guarantee coverage will be provided by the National Credit Guarantee Trustee Company (NCGTC) for additional funding of up to Rs 3 lakh crore to eligible and interested MSMEs.
borrowers, in the form of a guaranteed emergency line of credit (GECL), according to a statement.
To this end, a corpus of Rs 41,600 crore will be provided by the Indian government, spread over the current fiscal year and the next three fiscal years, he said.
The cabinet headed by Prime Minister Narendra Modi also approved that the program would apply to all loans sanctioned under the GECL facility during the period from the date of the program’s announcement to October 31 or until that an amount of Rs 3 lakh crore crore be sanctioned under the GECL, whichever comes first.
The ECLGS was framed as a specific response to the unprecedented situation caused by COVID-19 and the resulting lockdown, which severely affected manufacturing and other activities in the MSME sector, the statement said.
The program aims to alleviate the economic distress faced by around 45 lakh MSMEs by providing them with additional funding of up to Rs 3 lakh crore in the form of a fully secured emergency line of credit.
The main objective of the program is to encourage member credit institutions (MLIs) such as banks, financial institutions (FIs) and non-bank financial corporations (NBFCs) to increase access and enable the availability of credit facilities. additional financing for MSME borrowers. , given the economic distress caused by the COVID-19 crisis, by providing them with a 100% guarantee for any loss they may suffer due to the non-repayment of GECL financing by borrowers.
Regarding eligibility, he said, all MSME borrower accounts with outstanding credit of up to Rs 25 crore as of February 29 which were less than or equal to 60 days past due on that date, ie regular, SMA 0 and SMA 1 accounts, and with an annual turnover of up to Rs 100 crore would be eligible for GECL funding under the program.
The amount of GECL funding to eligible MSME borrowers, either in the form of additional term loans for working capital (in the case of banks and FIs), or additional term loans (in the case of NBFCs) would amount to up to 20% of all their outstanding loans. up to Rs. 25 crore as of February 29, 2020.
All financing provided under GECL will be provided with 100% credit guarantee by NCGTC to MLIs under ECLGS, he said, adding that the duration of the loan under the program will be four years with a one-year moratorium period on the principal amount.
No guarantee fees will be charged by NCGTC to member credit institutions (MLIs) under the program and interest rates under the program will be capped at 9.25% for banks and FIs, and 14 % for NBFCs.
Considering the essential role of the MSME sector in the economy and in job creation, the proposed program is expected to provide much needed relief to the sector by incentivizing MLIs to provide additional credit of up to Rs 3 lakh crore to the low-cost sector, thus enabling MSMEs to meet their operational obligations and restart their activities, he said.
By helping MSMEs to continue operating during the current unprecedented situation, the program is also expected to have a positive impact on the economy and support its recovery, he added.