The break-up of the Rs 20 lakh crore fiscal stimulus has generated a lot of discussion. While reviewing the various policy measures, I was taken back to an earlier era — the post bank nationalization period of the 1970s. Measures such as credit guarantees, interest subvention, Viability Gap Funding, support for MSME (Micro, Small and Medium Enterprises) and agriculture etc. remind one of those days.The impact of the COVID-19 crisis has been so acute that it has left the government with little choice but to consider measures often regarded as relics of the past. We will discuss credit guarantees (CG) in this piece, tracking its history from the 1960s to its most recent avatar.Idea of Credit Guarantee The Indian government first started giving credit guarantees to the Small Scale Industry (SSI) in 1960. The guarantee fee was levied at 0.25 percent of the guarantee amount, which was deemed high by industrialists. The RBI’s Industrial Finance Department administered the scheme.Close In the late 1960s, discussions picked up over making banks more socially responsible by asking them to give loans or open branches in neglected sectors/areas. It is interesting to note that the then RBI Governor PC Bhattacharya preferred credit guarantees over… Read full this story
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