India is considering a proposal to guarantee as much as Rs 3 trillion of loans to small businesses as part of a plan to restart its economy, which is reeling under the impact of a 40-day lockdown, people with knowledge of the matter said.
Under the proposal, small firms will be eligible to borrow an additional 20% of their credit limit, the sources said, asking not to be identified as the discussions are private. The extra debt will be fully backed by Prime Minister Narendra Modi’s administration, they said. The government will set up a special fund to pay for any defaults, they added.
The government and regulators are slowly coming out with programs as everyone, from companies to fund managers, struggle under the world’s biggest lockdown, which has halted manufacturing and wiped out consumption. With the economy set to contract for the first time in four decades, PM Modi’s endorsement is the only way to make it attractive for banks, which are concerned about rising delinquencies, to lend to small businesses.