West Asia conflict: The PM Narendra Modi-led government is working up a new credit guarantee scheme worth up to Rs 2 lakh to Rs 2.5 lakh crore to help sectors impacted by the ongoing crisis in West Asia due to the conflict between Iran, Israel, and the USA. The proposed scheme, modelled on the Covid-era Emergency Credit Line Guarantee Scheme (ECLGS), aims to ease funding access for companies grappling with higher input and logistic costs, ET reported, citing people familiar with the matter.
This comes as the government is initiating measures to tackle the adverse economic impact of the geopolitical tensions. The scheme, which could provide guarantees up to Rs 2-2.5 lakh crore, being finalised by the Department of Financial Services, is likely to be unveiled within the next 15 days, they said.
The government has also initiated an exercise to gauge the war's economic impact.
A government official, speaking to ET, said, "This is being worked out. The idea is to reassure the industry in view of the uncertainties imposed by the war."
The official further stated that there was, however, no immediate concern, but the government is being pre-emptively preparing to cushion any stress on the economy.
One of the persons with knowledge of the matter, as reported by ET, said the officials have reached out to the industry seeking details of the impact on production and asked it to flag issues on a real-time basis that require immediate government attention.
The new scheme is likely to be modelled on the Emergency Credit Line Guarantee Scheme (ECLGS) launched during the Covid-19 pandemic in May 2020. The scheme is expected to provide collateral-free loans backed by government guarantees, particularly targeting Micro, Small and Medium Enterprises (MSMEs). This is to ensure easier access to funds and prevent liquidity stress.
A senior bank executive said delinquencies have not spiked yet, but for some sectors, including export-oriented units, signs of rising stress are visible.
Noting that most sectors are likely to be covered through the war-focused Guaranteed Emergency Credit Line, or GECL, the senior bank executive said, "This will be a timely intervention, and even if the war ends this month, normalisation can take up one quarter or more."
According to the latest data available, guarantees amounting to Rs 3.62 lakh crore were issued under ECLGS, benefiting 11.9 million borrowers, which averages Rs 3 lakh guarantee cover per account.
Interest rates under GECL were capped at a maximum of 9.25 per annum for banks and at 14 per cent for non-banking finance companies, reported ET.
State Bank of India, in its research report in 2022, stated that MSME loan accounts worth 1.8 trillion were saved from slipping into non-performing assets, and over 1.35 million MSME units survived due to the ECLGS.
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