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Nirmala Sitharaman assures credit guarantee for MSME to boost economy,20 lakh Cr relief package announced

FM Nirmala Sitharaman on Wednesday had announced guarantee-less automatic loans worth Rs 3 lakh crore to MSMEs as part of the overall Rs 20 lakh crore Covid-19 relief package to uplift the economy.

The Indian government will stand as the guaranteer to banks and NBFCs on the principal and interest amount in lending to MSMEs will help banks save as much as Rs 30,000 crore, SBI said in its latest Ecowrap report on Thursday. Finance Minister Nirmala Sitharaman on Wednesday had announced the collateral-free automatic loans worth Rs 3 lakh crore to MSMEs as part of the overall Rs 20 lakh crore Covid-19 relief package to uplift the economy. “As the lender will get 100% credit guarantee on principal and interest which will save the capital of around Rs 25000 – Rs 30000 crore for banks (zero risk weights),” the report said.

“Whenever any exposure to a business is guaranteed or owned by the government, the risk weight for such assets is low. Hence, banks will be in a better position to lend much more of the same capital. Even banks, which have got very low capital, can lend freely. That’s the major incentive for this because many assets may not survive in a downturn. But if the lender is assured, then there is more comfort to finance businesses. However, we have to see whether there is a viable proposition to lend,” VG Kannan, Former Chief, Indian Banks Association told Financial Express Online.

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