The Centre’s guarantee on nearly Rs 3 lakh crore of loans to micro, small and medium enterprises (MSMEs) will likely encourage bankers to revive credit flow to a sector that provides livelihood to millions of Indians. Bankers said a Government of India (GoI) guarantee reduces the risk weights on these loans, making them more confident of getting their money back and increasing the comfort in lending. Finance minister Nirmala Sitharaman announced that Rs 3 lakh crore of collateral-free loans will be offered to MSMEs for up to 20 per cent of their loan outstanding at the end of February. Borrowers with up to Rs 25-crore outstanding loans and Rs 100-crore turnover will be eligible for a fouryear loan with a moratorium of 12 months on principal repayment. The government will provide 100 per cent credit guarantee to banks and NBFCs on principal and interest. The scheme can be availed until October 31 and MSMEs will not be required to offer any fresh collateral. The government believes 4.5 million units can resume business activity and safeguard jobs.

(Economic Times)