The Government may include cooperative banks as member lending institutions (MILs) under the Emergency Credit Line Guarantee Scheme (ECLGS) for the MSME sector. ECLGS is part of the government’s Rs 20-trillion financial package to help the poor, and small businesses overcome the COVID-19 crisis, by providing them additional funding of up to Rs 3 trillion.
MSME Minister Nitin Gadkari said a decision would be made by the finance ministry soon. He said the finance minister explained that due to the dual regulation and supervision, cooperative banks are not included as member lending institutions under Emergency Credit Line Guarantee Scheme. “However, data regarding their financial position is being collected from scheduled state cooperative banks and urban cooperative banks to include them as MLIs for the scheme, in consultation with the Reserve Bank of India (RBI), depending on availability of headroom of the scheme,” Gadkari said.
Cooperative institutions play an essential role in financial inclusion in both rural and urban India. An RBI report had stated there were 1,551 urban cooperative banks as on 31 March 2018 and 96,612 rural cooperative banks (RCBs) as on 31 March 2017, with RCBs accounting for 65.8 per cent of the total asset size of all cooperative banks.
The government, in May, had explained that the objective of Emergency Credit Line Guarantee Scheme is to provide an incentive to MLIs, that is, banks, financial institutions and NBFCs to increase access to, and enable the availability of additional funding facility to MSME borrowers. This is in light of the economic distress brought about by COVID-19 pandemic. MSMEs would be given 100 per cent guarantee for any losses suffered by them due to the non-repayment of the GECL funding by borrowers.
Nitin Gadkari said cooperative banks could be allowed to lend under the scheme since disbursement is only Rs 1.2 trillion, compared to the target of Rs 3 trillion. In February, the Center had decided to include non-scheduled urban and district central cooperative banks in three big-ticket schemes to facilitate access to finance for the MSME sector. The schemes included credit guarantee fund trust for micro and small enterprises, credit linked capital subsidy scheme and interest subvention.
