Government Tweaks Emergency Credit Facility For Small Businesses
A man counts Indian rupee notes in Kolkata, India. (Photographer: Brent Lewin/Bloomberg)

Government Tweaks Emergency Credit Facility For Small Businesses

The government has decided to tweak its emergency credit guarantee scheme to provide longer term relief to a wider section of small business borrowers. The extent of government support, however, remains restricted to the Rs 3 lakh crore in guarantees first promised under the scheme first announced in May 2020. About 85% of this has been already utilised.

In an announcement on Sunday, the government said:

  • The scheme will now cover up to Rs 2 crore in loans to hospitals, nursing homes, clinics to set up oxygen generation plants. The interest rate for these loans will be capped at 7.5%.
  • The civil aviation sector is also now eligible to access loans under the scheme.
  • The tenure of loans already availed under the scheme has been extended to five years from four years earlier.
  • Those who have already availed loans under the scheme can get additional assistance of up to 10% of outstanding dues as of Feb. 29, 2020.
  • A specification announced in a previous round, where hospitality, travel and tourism, leisure and sporting sectors could access the scheme only if they had outstanding credit of less than Rs 500 crore has been removed.

The scheme will be valid till September 2021 or till guarantee amount of Rs 3 lakh crore is exhausted, said the government in a release. Disbursements under the scheme are permitted till December 2021, it added.

Smaller hospitals across the country have expressed the need to add capacity and are seeking financial support, according to SBI Chairman Dinesh Kumar Khara.

“As the capacities increase, these borrowers will also avail working capital loans. The banking system will remain quite open to help the healthcare system according to their needs,” Khara said.

Sunil Mehta, chief executive officer of the Indian Banks Association, said the scheme has room left for about Rs 45,000 crore in guarantee support. Rs 2.54 lakh crore in loans have been sanctioned under the scheme and Rs 2.4 lakh crore disbursed, Mehta said.

Addressing a press conference soon after the government’s announcement, Dinesh Khara, chairman of State Bank of India, said that the second wave of Covid infections has led to a lot of disruption in business activity, especially for MSMEs.

MSMEs were in need of some support and succor, Khara said. After RBI announcements on restructuring and the Covid loan book on May 5, the government has also extended the ECLGS scheme, said Khara adding that the modified provisions under the ECLGS scheme should help push up the Covid loan book of banks.

Banks should be able to lend up to Rs 2000 crore with the expanded scheme, Khara said.

Also read: RBI Reopens Covid-19 Restructuring Scheme For Retail, Small Business Borrowers

Banking Measures Amid Second Wave

Detailing other steps taken to provide financing support to consumers and businesses, Khara said that public sector banks have finalised three sets of products to push up lending to sectors covered under the Covid loan book. The RBI, in April, had announced incentives to prompt increased bank lending to sectors impacted by the new wave of Covid infections, including the healthcare sector.

The RBI had also reopened one-time restructuring for retail and small business borrowers.

According to Khara:

  • Specific loan products for setting up oxygen plants, business loans for healthcare entities, and unsecured credit for Covid treatment have been announced.
  • Banks have come out with a template for restructuring retail and small business loans for all banks.
  • Loans under Rs 10 lakh will follow a standard restructuring plan.
  • For loans between Rs 10 lakh to Rs 10 crore, a separate template is being finalised.
  • For loans above Rs 10 crore, banks will follow a common outreach programme and take their own decisions.

A number of lenders have already sent out bulk messages to all eligible customers to inform them about the restructuring option, Khara said.

Banks are still asking for further relief.

Requests have been made to the Reserve Bank of India to reconsider a moratorium on payments for the April-June quarter, Mehta of IBA said. The RBI will review the matter and take a call, he said.

Also read: Private Bank CEOs Pitch For Moratorium, Large Corporate Restructuring

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