The government is working on creating a Rs 40,000 crore corpus to provide special guaranteed funding to the MSME sector to help fight the COVID-19 pandemic led disruption, sources told CNBC-TV18.

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The creation of such a corpus may help absorb potential defaults and will help leverage lending of upto 3 lakh crore to MSMEs, sources explained.

CNBC-TV18 learns the scheme is likely to run for 6 months from the date of notification and the government will guarantee 100 percent of the additional finance given by lenders for COVID-19 impacted MSMEs.

Top bankers told CNBCTV18, “MSMEs may be eligible for 20 percent funding of their outstanding limits/term loans from banks, financial institutions and NBFCs under the scheme and the government may provide guarantee through a fund similar to the Credit Guarantee Trust for MSMEs under SIDBI”.

Banks have been suggesting to the government that NBFCs' additional credit lines to MSMEs should also be guaranteed by the government.

The matter is still under discussion and the announcement is likely in the second relief package being worked out by the government, sources said.

MSMEs will be allowed to borrow these funds in addition to the emergency COVID-19 credit line announced by banks.

First Published:Apr 28, 2020 8:44 AM IST