Indian Non-bank lenders (NBFCs) have sought inclusion of loans to individuals under the government sponsored Covid emergency credit scheme as more than two third loans of tiny and small enterprises are availed under the name of individuals and not under the corporate structures.

In the absence of not bringing individuals under the guarantee, the programme could not benefit the intended segment and might be cornered by those bigger ones with better financial strength.  “More than 75% of our customers take loans in their individual names as they don’t have any (registered) business establishment or partnerships.  They conduct their business in their individual names” a statement made by the Finance Industry and Development Council in a letter to the Finance Minister.

On May 21, the Cabinet had approved additional funding of up to Rs 3 lakh crore at a concessional rate of 9.25% through Emergency Credit Line Guarantee Scheme (ECLGS).

Under the scheme, 100% guarantee coverage are being provided by National Credit Guarantee Trustee Company (NCGTC) for additional funding of up to Rs 3 lakh crore to eligible MSMEs and interested Micro Units Development and Refinance Agency (MUDRA) borrowers in the form of a guaranteed emergency credit line (GECL) facility.

Separately banks and NBFCs have also urged the finance ministry to allow the ECLGS to cover customers whose loans have either been securitised or directly assigned to banks. Lenders had requested that they be allowed to extend this scheme to borrowers of those banks and NBFCs that were capital starved and unable to extend credit to even customers with a good rating. This, they say, would allow effective flow of liquidity to small and marginalised borrowers.

The government had announced this credit-guarantee scheme to encourage banks and NBFCs to lend to micro, small and medium enterprises (MSMEs) that are badly hit by the Covid-19 pandemic and the lockdown.

Source: India Economic Times news