RBI may allow discounts on MSME loans
Published : Friday, 29 May, 2020 at 11:09 PM Count : 210
The Reserve Bank of India (RBI) is in favor of reducing the weight of risk on loans given to small and medium enterprises by banks under the government's 3 trillion guarantee scheme, a top RBI official said. Following the announcement by Finance Minister Nirmala Sitharaman, the Union Finance Ministry rejected the proposal as part of the direction of the project.
Currently, medium, small and micro enterprises (MSMEs) carry 20% of the risk weight.
The move, which serves as another compromise to save the battlefield for millions of donors that employs millions of Indians, comes after the government agreed to fully guarantee defaulted loans. According to the official quoted above, who spoke on condition of anonymity, the unconditional government guarantee gives the RBI enough leeway to remove the risk weight of these loans, leaving more capital for banks to capitalize on.
The central bank determines the risk weight of each type of loan based on its default potential. The weight of risk in government bonds is zero, on the other hand it can be as high as 100% in the case of nding to real estate developers. The bank adjusts the asset value accordingly according to the weight of risk. The more risky the asset, the greater the risk and the lower the value. The low risk weight means that the bank has to set aside less capital than these loans.
The latest move by the RBI is to encourage banks to issue new credit to these orrow borrowers without the pressure of raising additional capital against them.
Credits under this government scheme will be secured by National Credit Guarantee Trust Co. Ltd. (NCGTC) in the form of Guaranteed Emergency Credit Line (GECL) facility. The guarantee cover will be available up to 20% of the credit limit of up to ₹ 25 crore till February 22 for additional working capital and term loan facility.
The term of the loan under this scheme will be four years, with a deferment period of one year in the original amount. NCGTC will not charge any guarantee fee.
If extended by banks and financial institutions, the interest rate on this project will be 9.25% and the rate offered by NBFC will be 14%.-Internet