Backstop guarantee will ensure banks overcome risk averseness: CII

Backstop guarantee will ensure banks overcome risk averseness: CII

Agency News

Kolkata, Apr 20: Given the current crisis in the economy and the urgent need for liquidity to flow into NBFCs and MFIs, the last mile lending community, CII urges the government to provide partial backstop guarantees.

This will ensure banks to overcome their risk averseness and enable full fructification of RBI’s timely intervention announced on Friday. RBI’s slew of measures are both timely and far-reaching and is targeted towards ensuring flow of credit towards the NBFCs that in turn leads to small and medium industry and the farm community, a CII statement on Monday said. To tackle the current crisis arisen from the outbreak of COVID-19 and the consequent nation-wide lockdown, Government and Reserve Bank of India (RBI) have announced many measures to ease the stress of businesses.

To instill the necessary confidence into the banking system to participate in the auction and lend to such entities, Confederation of Indian Industry recommends that the Government of India must provide backstop facility in the form of partial credit guarantee scheme with the amount of overall guarantee being limited to loss of up to 20% to 30% of the amount being lent by the banks under the Scheme. There will be no immediate impact on the fiscal deficit, as this will be a contingent liability.(UNI)