Indian government extends guarantee initiative to startups

The Indian government has extended its credit guarantee scheme (CGSS) to startups, enabling lenders to provide those eligible access to collateral-free loans up to a specified limit.

The Department for Promotion of Industry and Internal Trade (DPIIT) confirmed that loan or debt facilities made available to an eligible borrower on or after 6 October 2022 would be covered under the scheme.

In a statement it said: “The Central Government has approved the Credit Guarantee Scheme for Startups (CGSS) for the purpose of providing credit guarantees to loans extended by member institutions (MIs) to finance eligible borrowers being startups.”

This scheme would help provide the collateral-free debt funding to startups, it added.

MIs include banks, financial institutions, non-banking financial companies (NBFCs) and alternative investment funds engaged in lending or investing activity, so long as they meet the eligibility requirements of the Scheme.

In order to access the scheme startups must have a stable revenue stream, as judged from its audited monthly statements over a 12-month period. They are not eligible if they are in default to any lender.

“Maximum guarantee cover per borrower shall not exceed Rs 10 crore (£1.1m). The credit facility being covered here should not have been covered under any other guarantee scheme,” DPIIT said.

It added that for the purpose of this scheme, a trust or fund would be set up by the government of India with the purpose of guaranteeing payment against default in loans or debt extended to eligible borrowers, managed by the Board of National Credit Guarantee Trustee Company Ltd as the Trustee of the Fund.

It also said that lenders are responsible for evaluating applications for credit and oversee borrowers’ accounts as they would for any other customer.

Furthermore, a Management Committee set by the DPIIT will oversee the affairs of the trust. “The committee will be responsible for reviewing, supervising and monitoring the functioning of the trust and shall provide necessary guidance to the trust on broad policy matters related to the scheme,” it said.

 

RBI to launch digital rupee pilot project

The Reserve Bank of India (RBI) is to start trials of a central bank-backed digital rupee for specific use cases, it has announced.

The RBI has been exploring the pros and cons of a central bank digital currency for some time and is currently working towards a phased implementation strategy, it said.

The pilot is to examine introducing the e-rupee in a way that minimises disruption to the established financial system, the central bank added.

In February, the Indian government had said that a digital rupee will be launched during the current financial year.

It has been reported in the Indian press that the RBI has asked four public sector banks to trial India’s central bank digital currency (CBDC), with an RBI official quoted as saying: “The RBI has asked State Bank of India, Punjab National Bank, Union Bank of India and Bank of Baroda to run the pilot internally.”

The RBI is also reportedly consulting with several FinTech companies on the digital rupee. Among them is the FIS, which has been advising central banks on CBDC (Central bank digital currency) issues.

“FIS has had various engagements with the RBI. Our connected ecosystem could be extended to the RBI to experiment with various CBDC options,” said Julia Demidova, senior director, FIS.

In February of this year, Indian Prime Minister Narendra Modi said: “The digital rupee will be the digital form of our physical rupee and will be regulated by the RBI. This will be such a system that will enable an exchange of physical currency with digital currency.”

Meanwhile, the RBI is pushing for a ban on all cryptocurrencies, including bitcoin and ether. RBI Deputy Governor T. Rabi Sankar said earlier this year that cryptocurrencies have “no underlying cash flows” and “no intrinsic value,” adding that “they are akin to Ponzi schemes, and may even be worse”.