Modi Govt To Roll Out ₹2.5 Lakh Crore Lifeline for War-Hit Businesses

India is reportedly preparing a massive ₹2.5 lakh crore ($26.7 billion) sovereign guarantee scheme to protect businesses hit by the Iran war, offering up to 90% credit guarantees on loans for four years. This move is aimed at shielding small and medium enterprises (SMEs), especially in sectors like textiles and glass, from supply chain shocks and rising inflation.

A sovereign guarantee (or government guarantee) is a formal assurance by the national government that it will take responsibility for a borrower’s debt if they fail to repay. In India’s case, it means the government will backstop loans to businesses hit by the Iran war, ensuring banks feel secure in lending.

Amid Iran War, supply chains from West Asia are strained, hitting raw material imports. Smaller firms in textiles, glass, and other sectors face bankruptcy risks. Moreover, rising crude prices threaten inflation and growth.  By offering sovereign guarantees, India ensures businesses can still access loans despite heightened risks.  

Key Details 

• Loan Coverage: Up to ₹100 crore ($10.75 million) per borrower
• Guarantee Extent: 90% sovereign guarantee to lenders in case of default
• Total Package Size: ₹2.5 lakh crore ($26.7 billion)
• Duration: Valid for four years, modeled on the COVID-era ECLGS
• Target Sectors: SMEs in textiles and glass manufacturing

Context: Why This Matters

• Iran War Impact: Disrupted supply chains across West Asia
• Oil Dependency: India faces risks of inflation and slower growth
• Economic Stability: Designed to prevent bankruptcies and stabilize industries

Comparison with COVID-Era Credit Scheme

Feature	COVID ECLGS (2020)	Iran War Guarantee (2026)
Package Size	₹3 lakh crore	₹2.5 lakh crore
Guarantee Coverage	100% for small loans	90% up to ₹100 crore
Duration	4 years	4 years
Target	MSMEs across sectors	SMEs in war-hit supply chains

Risks & Trade-Offs

• Fiscal Burden: Estimated cost of ₹170–180 billion
• Inflation Pressure: Rising oil prices could offset benefits
• Banking Sector Exposure: Liquidity stress possible if defaults surge
• Global Uncertainty: Escalation may worsen disruptions

What This Means for Businesses

• Immediate Relief: Easier access to loans with reduced risk
• Strategic Planning: Prepare for higher input costs and delays
• Opportunity: Government backing may encourage more lending
  

Global Context: Sovereign Guarantee Schemes vs Other Crisis Tools

India’s sovereign guarantee scheme can be better understood when compared with how other countries respond to crises.

Global Comparisons

Country	Tool Used	Purpose	Example
India	Sovereign loan guarantees	Protect SMEs from war-driven supply shocks	₹2.5 lakh crore guarantee for Iran war-hit firms
United States	Direct stimulus + Fed liquidity	Boost demand and stabilize banks	CARES Act (2020) gave direct cash + Fed backstops
European Union	Loan guarantees via European Investment Bank	Support cross-border firms and maintain credit flow	EU COVID Guarantee Fund (2020) covered €200 billion
Japan	Government-backed credit insurance	Shield exporters from global shocks	Trade insurance for firms during supply chain crises
China	State-directed lending + subsidies	Keep industries afloat and maintain employment	State banks extend cheap loans with gov’t backing

Key Differences

• India: Uses sovereign guarantees to encourage banks to lend.
• US: Relies on direct cash transfers and liquidity injections.
• EU: Pooled guarantees at a supranational level.
• Japan & China: Insurance and state-directed lending, reflecting centralized structures.

Why Guarantees Matter

• Cheaper for government upfront than direct subsidies
• Boosts confidence in banking sector
• Provides targeted relief for vulnerable industries
• Risk shifts to government balance sheet if defaults surge. 

India’s sovereign guarantee scheme is a shield, not a cash injection. It ensures SMEs can still borrow during the Iran war crisis, but unlike the US or EU, it doesn’t directly hand out money—it leverages the government’s credibility to keep credit flowing.

Delhi Govt, CGTMSE Launch ₹10 Cr Collateral-Free Loan Scheme for Entrepreneurs

Delhi has launched a new collateral-free loan scheme for small entrepreneurs, offering up to ₹10 crore in credit through a government-backed guarantee program. The initiative, announced on January 28, 2026, aims to boost startups, traders, and micro-enterprises by removing barriers to financing.

The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) plays a crucial role in enabling collateral-free loans for India’s MSMEs by providing credit guarantees to banks and financial institutions. This reduces the risk for lenders and makes it easier for small businesses and startups to access formal credit.

In the Delhi Government’s collateral-free loan scheme for small entrepreneurs, the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) plays the central role of providing the primary credit guarantee.

CGTMSE covers 75–90% of the loan amount extended by banks/NBFCs to small entrepreneurs under this scheme. By absorbing most of the risk, CGTMSE makes lenders more confident in disbursing loans without collateral.  

The Delhi Government steps in to provide the remaining guarantee coverage (10–25%), ensuring that 100% of the loan is backed. The scheme is implemented through a Memorandum of Understanding (MoU) between the Delhi Government and CGTMSE, making it a joint guarantee framework.  

Key Highlights of the Scheme

• Loan Amount: Up to ₹10 crore available for small entrepreneurs, startups, and traders.
• Collateral-Free: No need to pledge property or assets.
• Guarantee Structure: Centre (CGTMSE) covers 75–90% of the loan; Delhi Government provides the remaining guarantee.
• Launch Date: Announced on January 28, 2026 by Delhi Chief Minister Rekha Gupta.
• Partnership: Implemented through MoU between Delhi Government and CGTMSE.

Objectives

• Support Innovation: Encourage startups and new ventures in Delhi.
• Job Creation: Generate employment opportunities by easing access to capital.
• Inclusive Growth: Ensure small businesses and traders can expand without financial roadblocks.

Benefits for Entrepreneurs

• Reduced Risk: Entrepreneurs don’t need to risk personal or family assets.
• Access to Larger Loans: Higher credit limits compared to traditional schemes.
• Government Backing: Stronger trust between banks and borrowers due to dual guarantees.
• Focus on Growth: Businesses can channel funds into expansion, innovation, and hiring.

Potential Challenges & Considerations

• Bank Procedures: Entrepreneurs must still meet eligibility and documentation requirements.
• Creditworthiness: Banks may scrutinize business plans and financial viability more closely.
• Awareness & Outreach: Success depends on effective promotion among small entrepreneurs.

Comparison with Other Schemes

Feature	Delhi Credit Guarantee Scheme	National CGTMSE Scheme
Loan Limit	Up to ₹10 crore	Typically up to ₹2 crore
Guarantee Coverage	75–90% (Centre) + Delhi Govt	75–85% (Centre only)
Target Audience	Delhi-based entrepreneurs, startups, traders	MSMEs nationwide
Collateral Requirement	None	None

This scheme is a major boost for Delhi’s entrepreneurial ecosystem, especially for startups and small businesses struggling with access to capital.

To recall, Delhi government recently announced Startup Policy with ₹325 crore outlay over 5 years to support 5,000 Startups by 2035.

Tata Power–Bank of Baroda Pact Unlocks ₹10 Crore Collateral-Free Loans for Solar Projects up to 10 MW

Tata Power Renewable Energy Limited (TPREL), one of India’s leading renewable energy companies and a subsidiary of The Tata Power Company Limited (Tata Power), has signed a Memorandum of Understanding (MoU) with Bank of Baroda, one of India’s premier public sector banks, to facilitate financing solutions for MSME and Commercial & Industrial (C&I) customers opting for solar energy.

Under this partnership, Bank of Baroda will extend financial assistance to borrowers purchasing solar equipment and projects of up to 10 MW capacity through TPREL or its authorized channel partners. This initiative is designed to help MSME and C&I businesses adopt renewable energy with greater ease, reduce operating costs, and contribute to India’s sustainability goals.

The financing scheme offers several key benefits, which include an attractive rate of interest starting from 7.75%, collateral-free loans of up to ₹10 crore CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises) coverage, flexible repayment tenure of up to 120 months, pan-India financing coverage, reduced margin requirements (starting from 20%), and concessional processing fees.

As of August 2025, TPREL has successfully completed over 2.49 lakh rooftop solar installations, achieving a cumulative capacity exceeding 3.6 GWp. In the C&I segment, TPREL has catered to a diverse set of customers across various sectors viz - Hospitality, Automotive, Aviation, Education, HVAC, Chemical, Steel, Electronics, and Textiles, among others.

This collaboration underscores TPREL’s commitment to accelerating clean energy adoption across industries and highlights Bank of Baroda’s focus on strengthening green financing to support India’s transition towards a low-carbon economy.

It further reinforces TPREL’s position as a leader in India’s renewable energy journey, contributing to the nation’s target of achieving 500 GW of renewable energy capacity by 2030.

Bank of Baroda Empowers Small Businesses with bob Digi Udyam—Fast, Collateral-Free Loans up to ₹50 Lakh

Bank of Baroda (Bank), one of India’s leading public sector banks, announced the launch of bob Digi Udyam – a digital, collateral-free lending platform offering Micro and Small Enterprises (MSEs) quick access to working capital loans above ₹10 lakh to ₹50 lakh. The initiative, aligned with the Union Budget 2024–25 announcement that public sector banks would develop in-house capabilities for MSME credit assessment, leverages the digital footprint of MSEs to enable faster credit assessment and reduce reliance on external assessment. This marks a major step in strengthening credit accessibility for India’s small businesses. The scheme is open to both existing and new customers of the Bank.

The bob Digi Udyam platform leverages a wide range of digital data points to comprehensively assess credit applications. It generates an automated, risk-based scorecard that enables seamless credit assessment, significantly reducing the turnaround time for loan processing. A provisional sanction is provided within minutes, after which the application is automatically routed to branches through TEJAS, the Bank’s Loan Origination & Processing System for the MSME segment, for final sanction and post-sanction formalities.

Eligible entities can apply for loans under bob Digi Udyam through both Do-it-Yourself (DIY) and Assisted mode at branches. The platform conducts digital eligibility checks, risk assessment, and credit limit calculations, ensuring a seamless and transparent lending process.

Speaking on the launch, Shri Lal Singh, Executive Director, Bank of Baroda, said, “MSEs are key drivers of India’s economy, yet timely credit remains a challenge. With bob Digi Udyam, we bring a digital, cash flow-based lending model that delivers quick, collateral-free working capital finance. bob Digi Udyam is a step towards making MSE credit truly accessible, with plans to expand the offering to cover a wider range of credit needs and higher ticket sizes.”

bob Digi Udyam – At a Glance

• Purpose: Digital, cash flow-based working capital finance for MSEs
• Facilities: Cash Credit & Overdraft facilities
• Loan Size: Above ₹10 lakh to ₹50 lakh
• Tenure: 12 months
• Collateral: Nil – covered under CGTMSE

bob Digi Udyam aligns with the Government of India and Reserve Bank of India’s vision for digital transformation in MSE lending, broadening access to bank credit and empowering India’s MSE businesses to grow sustainably. Bank of Baroda is aligned with the Government’s vision of Viksit Bharat@2047.

Applicants can apply for bob Digi Udyam, by clicking on https://mllps.bankofbaroda.co.in/BOBSTPCustomerPortal/

About Bank of Baroda

Founded on 20th July, 1908 by Sir Maharaja Sayajirao Gaekwad III, Bank of Baroda is one of the leading commercial banks in India. At 63.97% stake, it is majorly owned by the Government of India. The Bank serves its global customer base of over ~180 million through around 65,000 touch points spread across 17 countries in five continents and through its various digital banking platforms, which provide all banking products and services in a seamless and hassle-free manner. The Bank’s vision matches the aspirations of its diverse clientele base and seeks to instil a sense of trust and security in all their dealings with the Bank.

Visit us at www.bankofbaroda.in