India plans ₹2-2.5 lakh crore credit guarantee scheme amid West Asia conflict

India is drawing up a new credit guarantee scheme for industry to cushion the fallout from the West Asia conflict, people familiar with the matter said.

The proposed scheme aims to ease funding access for companies facing higher input and logistics costs, they said, as the government steps up measures to contain the economic impact of the conflict.

The scheme — which could provide guarantees up to ₹2-2.5 lakh crore — is likely to be unveiled in two weeks, they said.


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The government has also initiated an exercise to gauge the war’s economic impact.

Liquidity Crunch
“This is being worked out. The idea is to reassure the industry in view of the uncertainties imposed by the war,” a government official told ET.

However, the official added that there was no immediate concern but the government is being pre-emptively preparing to cushion any stress on the economy.

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Officials have reached out to the industry seeking details of the impact on production and asked it to flag issues on a real-time basis that require immediate government attention, one of the persons said.

The new scheme is likely to be on the lines of the Emergency Credit Line Guarantee Scheme (ECLGS) launched during Covid-19 pandemic in May 2020. It could offer 100% guaranteed collateral-free loans to eligible businesses, including MSMEs, helping them tide over the temporary liquidity crunch.

A senior bank executive said delinquencies have not spiked yet, but for some sectors, including export-oriented units, signs of rising stress are visible.

“This will be a timely intervention, and even if the war ends this month, normalisation can take up one quarter or more,” he said, noting that most sectors are likely to be covered through the war-focused Guaranteed Emergency Credit Line, or GECL.

As per the latest data available, guarantees amounting to ₹3.62 lakh crore were issued under ECLGS, benefiting 11.9 million borrowers, which averages ₹3 lakh guarantee cover per account. Interest rates under GECL were capped at a maximum of 9.25% per annum for banks and at 14% for non-banking finance companies.

In 2022, State Bank of India, in its research report, noted that MSME loan accounts worth 1.8 trillion were saved from slipping into non-performing assets and over 1.35 million MSME units survived due to the ECLGS.