Finance minister Nirmala Sitharaman on Tuesday asked state-run banks to help businesses with loan requirements, even as credit growth is expected to plunge this fiscal as the national lockdown had brought economic activity to a near halt.
In a meeting with heads of state-run banks, Sitharaman also asked lenders to continue their focus on sanctioning loans to small businesses, under the recently announced emergency credit line guarantee scheme (ECLGS).
“PSBs to continue focus on sanction and reaching out to eligible MSMEs. To also target meeting credit needs of other businesses,” finance ministry’s department of financial services said in a tweet.
In the meeting over video conference, Sitharaman reviewed credit extended by lenders, including a detailed analysis of the recently announced emergency credit line guarantee scheme, loan sanctioned, potential beneficiaries, number of borrowers contacted, as well as the status of disbursal of loans.
ECLGS is part of the government’s Rs 20 lakh crore financial package to tide over the Covid-19 crisis.
This collateral-free loan is expected to enable small businesses to pay for salaries, rent and restocking. It will also provide an incentive to banks and non-bank lenders to offer additional funding facility to small borrowers, by providing them 100% guarantee for any loan default.
The guarantee cover will be available for additional working capital and term loan facilities up to 20% of the outstanding credit limit up to ₹25 crore as on February 29.
“Finance minister complimented PSBs (public sector banks) on rapid traction for achieving sanctions of ₹20,000 crore under ECLGS. Also advised to maintain proactive outreach at branch level and keep forms for ECLGS simple and formalities at minimum,” the tweet said. As of June 5, ₹8,320 crore have been disbursed.
A senior official at a public sector bank said that while loans for small businesses are being sanctioned under the ECLGS scheme, credit demand continues to remain subdued, as a lot will depend on how soon economic activity picks up.
The sharp decline in economic activity due to the coronavirus outbreak may drag credit growth to a multi-decade low of 0-1% in 2020-2, according to Crisil.
The credit rating agency said the crisis and its economic impact—such as lower capex demand and discretionary spends—are unprecedented, which will slow credit offtake.