Context:
The Reserve Bank of India (RBI) has allowed banks and other regulated entities to assign 0% risk weight on 75% of eligible guaranteed exposure under ECLGS 5.0. The move eases capital requirements for lenders and supports credit flow to sectors facing liquidity stress.
Explanation:
- ECLGS means Emergency Credit Line Guarantee Scheme, launched to provide government-backed credit support to stressed businesses.
- ECLGS 5.0 was introduced in May to provide guaranteed credit support to MSMEs, non-MSMEs and the airline sector facing liquidity challenges due to the external geopolitical situation.
- Under the RBI relaxation, exposures guaranteed under ECLGS 5.0 will carry 0% risk weight up to 75% of the guaranteed portion.
- The remaining exposure will attract risk weight as per existing RBI guidelines.
- The relaxation applies to scheduled commercial banks, all-India financial institutions, small finance banks, regional rural banks, urban cooperative banks and NBFCs.
- As of June 10, more than 1.06 lakh loans worth over ₹48,484 crore had been guaranteed under ECLGS 5.0.
- Around 96% of these guarantees were extended to MSMEs, showing the scheme’s importance for small businesses.
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