The Emergency Credit Line Guarantee Scheme (ECLGS) was approved by the Union Cabinet under Prime Minister Narendra Modi’s leadership in May 2020. The program was introduced as a component of the Atma Nirbhar Bharat package for Micro, Small, and Medium Enterprises (MSME) borrowers to lessen the hardship brought on by the COVID-19 pandemic. The Scheme is anticipated to benefit the economy and aid in its recovery by assisting MSMEs to continue operating in the face of the current unusual scenario.
Emergency Credit Line Guarantee Scheme
The Emergency Credit Line Guarantee Scheme (ECLGS) was developed specifically in response to the exceptional scenario brought on by COVID-19, which has had a negative impact on manufacturing and other operations in the MSME sector. By offering them additional liquidity of up to Rs. 3 lakh crore in the form of a fully guaranteed emergency credit line, the Scheme seeks to alleviate the financial hardship of MSMEs. For banks and financial institutions(FIs), the Scheme’s interest rate cap is 9.25 percent and for NBFCs, it is 14 percent. The maximum amount of loan that can be availed under the scheme is Rs. 5 crores.
Emergency Credit Line Guarantee Scheme (ECLGS) 1.0: It offers MSMEs, commercial firms, MUDRA borrowers, and private individuals fully guaranteed and collateral-free loans for business purposes, and 20 percent of their credit balance as of February 29, 2020, was granted in the form of credit. The payback duration was four years, and there was a one-year moratorium.
Emergency Credit Line Guarantee Scheme (ECLGS) 2.0: It includes the healthcare industry as well as the 26 other challenged sectors listed by the Kamath Committee in the ECLGS Scheme. Companies having debts between Rs 50 and Rs 500 crore as of February 29, 2020, were eligible. The ECLGS 2.0 credit had a five-year tenor, with a one-year grace period.
Emergency Credit Line Guarantee Scheme (ECLGS) 3.0: The travel & tourism, business enterprises in the hospitality, leisure, and sporting industries would all be eligible for credit under ECLGS 3.0. The term of loans awarded under ECLGS 3.0 is six years, including a two-year moratorium.
Emergency Credit Line Guarantee Scheme (ECLGS) 4.0: All current hospitals, nursing homes, clinics, and medical colleges that have credit facilities from lending institutions as of March 31, 2021, with days past due up to 90 days, are eligible for assistance of up to Rs 2 crore for setting up technologies like Pressure Swing Adsorption for on-site oxygen generation.
Objectives of Emergency Credit Line Guarantee Scheme
- The primary goal of the Scheme is to encourage Member Lending Institutions (MLIs), which include Banks, Financial Institutions (FIs), and Non-Banking Financial Companies (NBFCs), to increase access to and make available additional funding facilities to MSME borrowers in light of the economic distress brought on by the COVID-19 crisis.
- The scheme will offer them a 100 percent guarantee for any losses they may incur as a result of borrowers failing to repay Guaranteed Emergency Credit Line (GECL) funding. This guarantee is provided by the National Credit Guarantee Trustee Company Limited (NCGTC).
- Additionally, it will offer affordable finance to the industry, allowing small enterprises to satisfy their operating obligations and resume production and employment.
- It would improve MSME and MUDRA borrowers’ access to and facilitate the availability of new lending facilities.
- The Scheme provides MSMEs with additional liquidity in the form of a fully guaranteed emergency credit line in an effort to lessen the financial hardship they are now experiencing.
Eligibility Criteria for Emergency Credit Line Guarantee Scheme
- The ECLGS 1.0 Scheme is open to all Business Enterprises/MSME borrower accounts with combined outstanding loans of up to Rs. 25 crores as of Feb. 29, 2020, and an annual turnover of up to Rs. 100 crores for FY 2019–20.
- Under ECLGS 2.0, companies that owed between Rs 50 and Rs 500 crore as of February 29, 2020, qualified.
- ECLGS 3.0 will only take into account loans that were less than 60 days past due as of February 29, 2020, and whose total credit outstanding did not exceed Rs 500 crore.
- The Scheme will be applicable to loans given to Business Enterprises and MSMEs that are organized as proprietorships, partnerships, registered companies, trusts, and limited liability partnerships (LLPs).
- Loans made on an individual basis are not protected by this Scheme.
- Existing consumers on the Member Lending Institutions’ (MLI) books are eligible for the Scheme.
- As of February 29, 2020, borrower accounts that had Non-Performing Asset(NPA) or SMA-2 status are not eligible for the Scheme.
Interest Rate and Tenure under Emergency Credit Line Guarantee Scheme
- Additionally, the ECLGS has a cap on interest rates: For banks and other financial institutions, 9.25% and for Non-Banking Financial Companies it is 14 percent.
- The Member Lending Institutions covered by this Scheme may not be charged any Guarantee Fee by the National Credit Guarantee Trustee Company Ltd (NCGTC).
Benefits of Emergency Credit Line Guarantee Scheme
- Existing borrowers can receive additional loans from banks without having to put up additional collateral.
- MSMEs affected by sporadic lockdowns receive funding to remain operational.
- As the facility is completely guaranteed by the government against credit losses; sanctions and disbursements are made significantly more quickly.
- Businesses in the hospitality, travel, and tourism, as well as the leisure and sporting industries, are anticipated to profit from the scheme.
Updates on Emergency Credit Line Guarantee Scheme
- The Emergency Credit Line Guarantee Scheme (ECLGS) will be extended until March 2023, in the Union Budget 2022, by the Finance Minister.
- The cover will be increased by an additional Rs 50,000 crore to Rs 5 lakh crore.
- The Finance Minister stated that as the hospitality industry, which relies heavily on human contact, has not yet recovered to its pre-pandemic levels, more money will be set aside for it.
- The qualified borrowers who previously had a loan term of four years may now do so for five years.
- To borrowers covered by ECLGS 1.0, further ECLGS assistance of up to 10% of the debt as of February 29, 2020.
- Under ECLGS 3.0, the loan ceiling of Rs. 500 crore is no longer in effect.
- For each borrower, the maximum additional ECLGS assistance is capped at 40% or Rs. 200 crores, whichever is less.
- Now, the civil aviation sector is a qualified borrower.