Overview of Financial Inclusion

The Government initiated the National Mission for Financial Inclusion (NMFI), namely, Pradhan Mantri Jan Dhan Yojana (PMJDY) in August, 2014 to provide universal banking services for every unbaked household, based on the guiding principles of banking the unbanked, securing the unsecured, funding the unfunded and serving unserved and underserved areas. A digital pipeline has been laid for the implementation of PMJDY through linking of Jan-Dhan account with mobile and Aadhaar [Jan Dhan-Aadhaar-Mobile (JAM)].

In order to move towards creating a universal social security system for all Indians, especially the poor and the under-privileged, three ambitious Jan Suraksha Schemes or Social Security Schemes pertaining to Insurance and Pension Sector were announced by the Government in the Budget for 2015-16. The schemes were launched on 9th May, 2015, for providing life & accident risk insurance and social security at a very affordable cost namely (a) Pradhan Mantri Suraksha Bima Yojana and (b) Pradhan Mantri Jeevan Jyoti Yojana and (c) Atal Pension Yojana. Pradhan Mantri Vaya Vandana Yojana to protect elderly aged 60 years and above was initially opened for subscription for a period of one year i.e. from 4th May 2017 to 3rd May 2018.

Schemes

Schemes

Financial Inclusion is an important priority of the Government. The objective of Financial Inclusion is to extend financial services to the large hitherto un-served population of the country to unlock its growth potential. The Government initiated the National Mission for Financial Inclusion (NMFI), namely, Pradhan Mantri Jan Dhan Yojana (PMJDY) in August, 2014 to provide universal banking services for every unbanked household, based on the guiding principles of banking the unbanked, securing the unsecured, funding the unfunded and serving un-served and under-served areas. With a view to further deepening the financial inclusion interventions in the country, PMJDY has been extended beyond 14.8.2018 with the focus on opening of accounts shifting from “every household” to “every unbanked adult”.

The moto of financial inclusion is form Jandhan to Jansuraksha. The details of the schemes of Financial Inclusion are below.

Partial Credit Guarantee Scheme (PCGS):

PCGS was launched by Government of India on 11th December 2019 for providing guarantee to Public Sector Banks (PSBs) limited to first loss of upto 10% of fair value of assets being purchased by the banks or Rs. 10,000 crore, whichever is lower, for purchasing high-rated pooled assets from financially sound Non-Banking Financial Companies (NBFCs)/Housing Finance Companies (HFCs) fulfilling the eligibility criteria prescribed under the Scheme.

As part of the Aatmanirbhar Bharat Abhiyan, the existing Partial Credit Guarantee Scheme was extended on 20th May 2020 to cover portfolio guarantee of up to 20% of first loss for purchase by PSBs of Bonds or Commercial Papers (CPs) with a rating of AA and below (including unrated paper with original/ initial maturity of up to one year) issued by NBFCs/ HFCs/Micro Finance Institutions (MFIs).

The Scheme was further modified on 31st July, 2020 and in effect the NBFCs/HFCs which were reported under SMA-1/SMA-2/NPA category due to erroneous reporting/ technical reasons alone by any bank for their borrowings during the last one year prior to 1.8.2018 would be eligible under the Scheme provided that the lending entity which had reported the concerned NBFC/HFC to CRILC or Credit Bureaus certifies that such reporting was erroneous or due to purely technical reasons. The Scheme guidelines were further modified on 17.08.2020 to allow additional 3 months till 19.11.2020 for building portfolio, and to increase ceiling for AA/AA- rated bonds from 25% to 50% of total portfolio. The timeline for purchase of bonds or CPs has been further extended till 31.12.2020, however the timeline for purchase of pooled assets is 31.3.2021.

The amount of overall guarantee provided under the extended Scheme shall be limited to 10% of fair value of assets or 20% of the face value at crystalized Portfolio Level of the Bonds/CPs being purchased by the Purchasing Banks under this Scheme, or an overall amount of Rs. 10,000 crore taking into account all the guarantees provided under the Scheme to all Purchasing Banks, whichever is lower.

Objective:

The existing Scheme was launched following the Budget announcement of 2019-20 with the objective that the purchase of pooled assets enabled by Government guarantee support under the Scheme, will help addressing temporary liquidity/cash flow mismatch issues of otherwise solvent NBFCs/HFCs without them having to resort to distress sale of their assets for meeting their commitments.

The extension of the existing Scheme to cover purchase by PSBs of Bonds or Commercial Papers (CPs) with a rating of AA and below (including unrated paper with original/ initial maturity of up to one year) issued by NBFCs/ HFCs/ MFIs (in case of MFIs, Bonds/ CPs with MFR rating equivalent) will address their liability side and also enable availability of additional liquidity for on lending. Since NBFCs, HFCs and MFIs play an extremely significant role in sustaining consumption demand as well as capital formation in small and medium segment, it is required that they continue to get funding without disruption.

Emergency Credit Line Guarantee Scheme (ECLGS):

As part of the Aatma Nirbhar Bharat Abhiyaan and as a specific response to the COVID pandemic, Emergency Credit Line Guarantee Scheme was launched on 23.05.2020 to support eligible Micro, Small and Medium Enterprises (MSMEs) and business enterprises in meeting their operational liabilities and restarting their business in the context of the disruption caused by the COVID-19 pandemic.

ECLGS 1.0

Under ECLGS 1.0, fully guaranteed and collateral free Guaranteed Emergency Credit Line (GECL) from Scheduled Commercial Banks, Financial Institutions, NBFCs is provided to eligible MSME units, business enterprises and individual loans for business purposes to the extent of 20 per cent of their entire outstanding credit as on 29.2.2020. The amount of GECL funding under ECLGS 1.0 to the eligible MSME borrowers is up to 20 per cent of their outstanding credit up to Rs. 50 crore as on 29.2.2020, subject to the account being less than or equal to 60 days past due as on that date. The loans provided under ECLGS 1.0 will have a 4-year tenor, with a 12-month moratorium on repayment of principal. Interest rates under the Scheme are capped at 9.25% for banks & FIs and at 14% for NBFCs.

ECLGS 2.0

The Scheme has been extended through ECLGS 2.0 for the 26 sectors identified by the Kamath Committee and the health care sector. Entities with outstanding credit between Rs. 50 crore to Rs. 500 crore as on 29.2.2020 are eligible subject to the account being less than or equal to 30 days past due as on 29.2.2020 are eligible under ECLGS 2.0. The eligible entities/borrower accounts shall be eligible for additional funding up to 20 per cent (which could be fund based or non-fund based or both) of their entire outstanding credit (fund based only) as a collateral free Guaranteed Emergency Credit Line (GECL), which would be fully guaranteed by NCGTC. The loans provided under ECLGS 2.0 will have a 5-year tenor, with a 12-month moratorium on repayment of principal.