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Medium scale companies may be given credit risk cover

The Credit Guarantee Fund Trust for Micro and Small Enterprises, run by the government and financial institution Sidbi, has floated a consultation paper to banks, where it has estimated that it will get business of around Rs 4,000 crore during the first year.

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Last Updated: Jan 21, 2020, 10.53 AM IST
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Under the guarantee scheme, the trust provides a cover of up to 85% of the credit facility to micro enterprises for credit up to Rs 5 lakh and 50% to small enterprises with credit up to Rs 1 crore.
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(This story originally appeared in on Jan 21, 2020)
NEW DELHI: The government is looking to provide credit guarantee to midsized companies to access more and cheaper funds, enlarging the scope of the existing scheme, which is restricted to micro and small enterprises.

The Credit Guarantee Fund Trust for Micro and Small Enterprises, run by the government and financial institution Sidbi, has floated a consultation paper to banks, where it has estimated that it will get business of around Rs 4,000 crore during the first year. It has also said that the fund has sufficient corpus to meet the requirement of medium-sized companies.

The government classifies entities with investment in equipment of over Rs 2 crore but under Rs 5 crore as medium enterprises, while those with investment below Rs 2 crore are classified in the two other buckets — micro and small.

“The proposed inclusion of medium enterprises will resolve the issue of units becoming ineligible on its upgradation to medium category from small category on investment in plant and machinery/ equipment,” the consultation paper said, while adding that it will help create more jobs and boost exports.

Under the guarantee scheme, the trust provides a cover of up to 85% of the credit facility to micro enterprises for credit up to Rs 5 lakh and 50% to small enterprises with credit up to Rs 1 crore. In case of medium sector units, the plan is to provide a guarantee on the lines of small enterprises with a cap of credit facility up to Rs 2 crore.

The guarantee helps banks provide loans since the trust settles the claims in case of a default. Sources said the government is also discussing the possibility of providing a guarantee for a second time in case businesses repay the first loan, a facility that is currently not offered.

Till last March, nearly 35 lakh accounts had been given guarantee approvals for Rs 1.7 lakh crore. During the last financial year, over 4.3 lakh loans for an amount of over Rs 30,000 had received the risk cover.

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