USA regulators urge banks to get back into small-dollar lending

Andrew Cummings
March 29, 2020

Indian Bank, Union Bank of India and Bank of Baroda on Wednesday announced special emergency loan products.

The SBI emergency credit line will remain operational till June 30. We expect that these credit lines willmeet the immediate liquidity requirements of businesses,"Indian Bank Managing Director Padmaja Chunduru said". "In wake of #coronavirus outbreak, #UnionBankofIndia unstintingly supports all its existing customers with the launch of Covid Emergency Line of Credit (CELC) which provides additional credit facilities to tide over liquidity issues" the bank tweeted. They added that banks should place an emphasis on helping borrowers who may struggle to repay such loans in a way that does not require them to borrow even more to cover costs.

Last week, the country's largest lender State Bank of India also announced an emergency credit line to meet any liquidity mismatch for its borrowers. The bank said no additional security was required for this facility.

Further, Indian Bank said it would extend financial assistance to its 168,000 self-help group partners to help them "tide over the COVID-19 crisis" under the scheme SHG-COVID - SAHAYA LOAN.

Ensuring continuation of these credit lines is also crucial for banks so that their existing borrowers don't slip into the non-performing category even as overall credit growth continues to be muted.

"The Bank has decided to make maximum 10 per cent of the existing fund based working capital limits (FBWC) subject to maximum of Rs 200 crore".

It is expected that the gesture by the bank would be the beginning of similar offers by banks aiming to cushion their loan books against extreme write-offs at a time when Covid-19 had historically dampened consumer and business confidence. The loan tenor will be 36 months with an initial moratorium of up to six months and would carry a fixed interest rate of one-year MCLR. Indian Bank is servicing 1.68 lakh SHGswith more than 22 lakh women beneficiaries.

The second scheme, IND- MSE COVID Emergency Loan- (INDMSE-CEL) will give additional funding of 10 per cent of FBWClimits with maximum Rs 50 lakh, available for all Micro and Small Enterprises and upto 60 months tenor.

"Customers of the Bank limit the use of the Banking Halls and instead, utilize the digital channels (internet banking, mobile money push and pull, *414#) or conveniently located Blue Machines (ATMs) for their banking transactions as part of the social distancing measures", the MD said.

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