This is expected to specifically support the small and medium non-banking financial companies-microfinance institutions (NBFC-MFIs) which are facing difficulty to run their businesses in the absence of bank funding.
The scheme comes into force immediately and will cover all loans sanctioned by banks till June 30 this year.
“The launch comes at a critical juncture. While portfolio quality has improved, with PAR 31-90 days declining to 1.6% from 3.2% a year ago, constrained liquidity continues to impact growth and outreach,” said Alok Misra, chief executive at Microfinance Industry Network, a self regulator for the sector.
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“The scheme is expected to catalyse bank lending by restoring lender confidence, improving credit flow, and supporting sustainable sectoral growth, while upholding customer protection and responsible finance principles,” he said.
According to the operational guidelines, banks will have to cap lending rate under the scheme at 2% over one-year marginal cost of fund-based lending rate or over the external benchmark rate. NBFC-MFIs or the non-profit MFIs, in turn, will have to lend at a rate 1% below the average rate of their lending rates in the past six months. ET highlighted these details in its report on March 16. On December 17 last year, ET first broke that the government was working on the scheme to ease the stress that the sector has been going through over the past two years.
The government mandated that the maximum tenure of loan carrying credit guarantee will be for three years including one year of moratorium. Banks will have to ensure that at least 5% of their total loan amount under the scheme are sanctioned to small NBFC-MFIs having portfolio size below Rs 500 crore, while at least 10% should reach to medium size NBFC-MFIs having portfolio between Rs 500 crore and Rs 2000 crore.
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The maximum amount of loan which can be sanctioned to NBFC-MFIs is capped at 20% of their respective assets under management, subject to a maximum of Rs 100 crore for small entities, Rs 200 crore for medium size lenders and Rs 300 crore to large ones.
The funding provided by banks under the scheme will be partially guaranteed by National Credit Guarantee Trustee Company. The partial guarantee will be 70% of the amount in default for large NBFC-MFIs, 75% for medium entities and 80% for small ones.