RBI says Rs3 lakh cr loans under ECLGS carry ‘zero’ risk

MUMBAI: The Reserve Bank of India (RBI) has informed the banks and financial institutions that the credit facilities under the Emergency Credit Line Guarantee Scheme (ECLGS) will not attract capital charge as they are guaranteed by National Credit Guarantee Trustee Company (NCGTC).

The Rs3 lakh crore ECLGS is the biggest fiscal component of the Rs20-lakh crore Self-Reliant India Mission package announced by the Finance Minister Nirmala Sitharaman last month.

The RBI direction will help the banks and financial institutions to assign zero per cent risk on the credit facilities extended under this scheme to the extent of guarantee coverage.

This means that that the lenders need not have to allocate additional capital with respect to these loans, which otherwise would have required the lenders to assign capital to the tune of around 10 per cent of the loan amount sanctioned under the scheme.

In fact, this makes the ECLGS loans a blessing to the banks in a way, as on the one hand, banks can put into use their surplus funds to generate interest income and on the other, the banks or the financial institutions need not have to worry about the repayment of these loans as they carry the credit guarantee from government.

According to banking experts, very rarely banks get opportunity to carry assets with zero risk. The largest portion of zero-risk assets on the balance sheet of banks are the bonds issued by the Central and state governments.

As per Basel norms, the banks are required to maintain a minimum capital adequacy ratio (including the capital conservation buffer) of above 10 per cent.

The finance ministry on Friday said public sector banks have disbursed Rs21,028.55 crore under the Rs3-lakh crore ECLGS for the MSME sector.

“Public sector lenders have sanctioned in total loans worth Rs40,416 crore under the 100 per cent ECLGS for the micro, small and medium enterprises (MSMEs), starting June 1,”a report said.

The largest participant in the scheme so far is the market leader State Bank of India (SBI) that has sanctioned Rs15,950.49 crore and disbursed Rs 10,667.29 crore as on June 18.


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