RBI tells banks to assign 'zero' risk for emergency loans to MSME

The Reserve Bank of India on Sunday said lending institutions should assign zero% risk weight on the credit facilities extended under the Emergency Credit Line Guarantee Scheme to MSME borrowers announced by the government in the wake of COVID-19 pandemic.

The government in May introduced the Emergency Credit Line Guarantee Scheme (ECLGS) for providing 100% guarantee coverage for additional working capital term loans (in case of banks and financial institutions) and additional term loans (in case of NBFCs) up to 20% of their entire outstanding credit up to Rs 25 crore as on February 29, 2020.

The credit facility is guaranteed by the National Credit Guarantee Trustee Company (NCGTC).

"As credit facilities extended under the scheme guaranteed by NCGTC are backed by an unconditional and irrevocable guarantee provided by Government of India, it has been decided that Member Lending Institutions shall assign zero percent risk weight on the credit facilities extended under this scheme to the extent of guarantee coverage," the RBI said in a notification.

Lending institutions include, banks, eligible NBFCs and HFCs, and All India Financial Institutions (SIDBI, NHB, NABARD, EXIM Bank).

In a separate release, the RBI said the central government has re-nominated Natarajan Chandrasekaran as a part-time non-official Director on the Central Board of Reserve Bank of India, for a further period of two years beyond March 3, 2020, or until further orders.

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