NBFCs looking for an emergency line of credit for individuals

MUMBAI: Non-bank lenders have called for the inclusion of personal loans under the government-sponsored Covid emergency credit program, as more than two-thirds of loans to small and small businesses are made under the names of individuals and not within the framework of corporate structures.

Failure to allow individuals to benefit from the guarantee, the program could not benefit the targeted segment and could be cornered by the largest with better financial strength.

“More than 75% of our clients take out loans on their behalf because they do not have a business establishment or partnership,” said a letter to the Minister of Finance from the industry body Finance Industry and Development Council. “ They conduct their business on their own behalf. We ask that you consider including all loans to individuals for the purchase of vehicles, including construction equipment and taxis, registered for business purposes as eligible for ECLGS assistance. . ”

In a letter dated July 2, the National Credit Guarantee Trustee Company, the nodal body implementing the credit guarantee system, clarified that only car loans covered by the Mudra program were eligible for this benefit.

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

“While the proposed inclusion would help NBFCs maintain asset quality, any potential abuse of the system could also be nipped in the bud,” said an NBFC executive. “ There are many entities in small towns where they do business with everything on behalf of the developer. ”

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

Separately, the banks and NBFCs have also urged the finance ministry to allow ECLGS to cover clients whose loans have either been securitized or transferred directly to banks. Lenders had demanded that they be allowed to extend this system to borrowers from banks and NBFCs who lacked capital and could not extend credit even to high-grade customers. This, they say, would allow an efficient flow of liquidity to marginalized small borrowers.

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

The latest data from the Ministry of Finance shows that banks sanctioned loans worth 1.1 lakh crore as of July 1, of which Rs 52,255.53 crore were disbursed under the line of credit guarantee scheme. emergency (ECLGS) of Rs 3-lakh crore (ECLGS) for the MSME sector.

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