CB’s fresh credit guarantee, interest subsidy scheme for COVID-hit biz from 1 July

• Rs. 150 b under new initiative
• 80% guarantee for smaller loans and 50% for large loans
• Rs. 180 b additional liquidity with banks following 3% SRR cut by Central Bank 
• Urges banks to lend to vulnerable enterprises focusing on viability and cash flows than collateral

The Monetary Board of the Central Bank, at its meeting on Friday decided to implement a Credit Guarantee and Interest Subsidy Scheme to accelerate lending by banks to businesses adversely affected by the COVID-19 pandemic. 

This scheme, which will be launched on 1 July, will operate in parallel with the Saubagya COVID-19 Renaissance Facility and the new Facility approved by the Monetary Board under Section 83 of the Monetary Law Act, within the already announced threshold of Rs. 150 billion.

Under this scheme, the Central Bank will provide a credit guarantee to banks, ranging from 80% for smaller loans to 50% for relatively large loans, enabling banks to grant loans to address working capital requirements of the affected businesses. 

With the Central Bank absorbing a significantly higher percentage of the credit risk, banks can extend their lending to vulnerable businesses focusing on the viability and cash flows of such businesses rather than collateral.

Banks are expected to use their own funds, particularly the additional liquidity of close to Rs. 180 billion provided by the Central Bank through the cumulative reduction in the Statutory Reserve Ratio (SRR) of 300 basis points thus far during the pandemic period, to grant loans at 4% to businesses. The Central Bank will provide an interest subsidy of 5% to cover the cost of funds of banks.

Central Bank said operating instructions on this scheme will be issued to banks in due course.