Govt To Roll Out Rs 2.5 Lakh Crore Credit Guarantee Scheme Amid West Asia Crisis

The central government is likely to roll out a Rs 2.5-lakh-crore credit guarantee scheme in the coming days to support sectors impacted by the West Asian crisis, Moneycontrol.com reported, citing two government officials.

The proposed scheme will expand the existing Emergency Credit Line Guarantee Scheme (ECLGS) framework, which was introduced in 2020 to aid MSMEs during the Covid-19 pandemic.

Under the new plan, businesses availing loans backed by the National Credit Guarantee Trustee Company (NCGTC) are likely to receive a 90% credit guarantee. This means that in the event of a default, the government would absorb most of the losses incurred by lenders.

The scheme is expected to remain valid for four years, with around Rs 100 crore in coverage

earmarked for various sectors and sub-sectors, the report said. It has already been sent for Cabinet approval and could get the green light in the coming days.

“The idea is to extend support across sectors, including aviation, MSMEs and other businesses facing liquidity pressures. The aviation sector, in particular, requires targeted support at this stage given the impact of the ongoing Iran crisis and the resulting disruptions in routes, costs and operations,” a second government official told Moneycontrol.com.

In its earlier version, the ECLGS did not require borrowers to provide additional collateral. Interest rates were capped at 9.25% for banks and 14% for NBFCs, along with a one-year moratorium on principal repayment, though interest payments continued during that period.

Citing data from the Department of Financial Services, the report noted that about 1.19 crore guarantees were issued under the scheme, of which nearly 1.13 crore were extended to MSMEs.

“The ECLGS scheme has been effective in supporting businesses during stress periods, but the current situation requires a significant scale-up. We are looking at enhancing both the scope and the overall limit so that a wider set of sectors and enterprises can access guaranteed credit more easily,” one of the officials told Moneycontrol.com.