Credit in the Economy

Syllabus: General Studies Paper 3

In absolute terms, credit outstanding stood at ₹128.6 lakh crore as of October 07, 2022, rising by ₹19.6 lakh crore over the last 12 months: CareEdge report.

• Increase is due to a low base, retail credit, higher demand for working capital requirements amidst high inflation, and low funds raised in the capital market.

Weighted Average Call Rate (WACR)

• Call money rate is the rate at which short term funds are borrowed and lent in the money market.
• The duration of the call money loan is 1 day.
• Banks resort to these types of loans to fill the asset liability mismatch, comply with the statutory CRR and SLR requirements and to meet the sudden demand of funds.
• RBI, banks, primary dealers etc are the participants of the call money market.
• Demand and supply of liquidity affect the call money rate. A tight liquidity condition leads to a rise in call money rate and vice versa.
• It represents the unsecured segment of the overnight money market.
• It was explicitly chosen as the operating target of monetary policy in India.

Emergency Credit Line Guarantee Scheme(ECLGS) for MSMEs.

• • To mitigate the economic distress being faced by about 45 lakh MSMEs by providing them additional funding of up to Rs 3 lakh crore in the form of a fully guaranteed emergency credit line. 
  • All MSME borrower accounts with outstanding credit of up to Rs.25 crore as on 29th February,2020 and with annual turnover of up to Rs.100 crore would be eligible for the scheme.They can get up to 20% fresh loans of their entire outstanding credit.
  • National Credit Guarantee Trustee Company (NCGTC) will provide 100% guarantee against losses on loans advanced to eligible MSMEs and MUDRA borrowers.
  • The loan will be provided for four years with a moratorium of one year on the principal amount.
  • The Interest rates under the Scheme are capped at 9.25% for banks and financial institutions and at 14% for non-banking financial companies(NBFCs)

• Benefits of the Scheme

• The scheme is expected to provide credit to the sector at a low cost, thereby enabling MSMEs to meet their operational liabilities and restart their businesses and recover early.
• The Scheme is expected to have a positive impact on the economy and support its revival.