Indian Government Plans New Credit Guarantee Scheme Amid Ongoing Iran Conflict

As the conflict in Iran continues, the Indian government is preparing to launch a new credit guarantee scheme to assist businesses facing financial challenges. This initiative, similar to the Emergency Credit Line Guarantee Scheme from the pandemic, aims to provide substantial funding guarantees to help companies manage rising costs. With concerns about the banking sector's performance and the impact of regional instability on economic growth, this proactive measure seeks to cushion the economy against potential stress. The scheme is expected to be announced soon, reflecting the government's commitment to supporting businesses during these turbulent times.

By Narendra Chaudhary Apr 3, 2026, 11:27 IST

New Measures to Support Businesses

With the conflict in Iran showing no signs of resolution, U.S. President Donald Trump has indicated that hostilities may continue for another two to three weeks. This situation has raised significant concerns regarding the health of businesses. To mitigate potential losses, the Indian government is reportedly preparing to introduce a new credit guarantee scheme, reminiscent of the measures taken during the COVID-19 pandemic. This initiative aims to facilitate easier access to funding for companies grappling with increased input and logistics expenses.

The anticipated scheme is expected to offer guarantees ranging from Rs 2 lakh to Rs 2.5 lakh crore and is set to be announced within the next two weeks, according to sources cited by a financial publication. Although there are currently no immediate concerns, the government is proactively working to alleviate any economic stress that may arise.

Officials have been in contact with industry representatives to gather insights on production impacts and to identify urgent issues that require government intervention. The new scheme is expected to mirror the Emergency Credit Line Guarantee Scheme (ECLGS) that was implemented during the pandemic, which aimed to assist businesses, including MSMEs, in managing their operational costs and resuming activities disrupted by the COVID-19 crisis.

Additionally, the banking sector is anticipated to face challenges regarding earnings performance, particularly as March, the month marking the end of the financial year, has been significantly impacted by the ongoing conflict in the Middle East. A brokerage firm has issued a cautionary note regarding Indian banks and the broader banking, financial services, and insurance (BFSI) sector, indicating a potential decline in earnings prospects. The instability in the region could adversely affect demand, growth, and profit margins in the future.

As of March 29, 2026, the liquidity surplus in the banking system has decreased to approximately 0.5% of deposits, down from 0.8% in late February, prior to the escalation of the Middle East conflict. This decline is attributed to ongoing currency pressures, with the rupee depreciating by 4.5%. If these currency pressures persist, they may restrict the Reserve Bank of India's (RBI) capacity to enhance banking system liquidity, as measures to support the rupee could also drain local currency liquidity from the banking sector, according to Fitch Ratings.