Emergency Credit Line Guarantee Scheme (ECLGS)

India’s Finance Ministry introduced the Emergency Credit Line Guarantee Scheme (ECLGS) in May 2020 to provide financial assistance to pandemic hit economy. The Indian Government aim is to provide Rs.3 lakh core of unsecured loans to MSMEs and companies across the country to mitigate the losses suffered due to COVID-19 induced lockdowns.

Union Finance Minister Nirmala Sitharaman, in her Budget 2022 speech, announced the extension of Emergency Credit Line Guarantee Scheme (ECLGS) till March 2023. Presenting her fourth Budget, Ms Sitharaman said the cover of the scheme will be expanded by ₹ 50,000 crore to ₹ 5 lakh crore. She added, An additional amount has been earmarked exclusively for hospitality, related sectors and the government will take steps to make the MSME (Micro, Small and Medium Enterprises) sector more resilient.

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The government had launched the scheme in view of the Covid-19 pandemic to provide credit facilities to business enterprises, small and medium businesses (MSMEs). In September last year, the Centre had expanded the funds allotted under ECLGS from ₹ 3 lakh crore initially to ₹ 4.5 lakh crore and also extended the scheme until March 2022. The scheme provides 100 per cent guarantee coverage for additional working capital term loans up to 20 per cent of the outstanding credit.

Different types of Emergency Credit Line Guarantee Scheme (ECLGS)

ECLGS‐1.0 refers to the scheme for providing 100% Guarantee to member lending institutions in respect of eligible credit facility extended by them to its borrowers whose total credit outstanding (fund based only) across all lending institutions and days past due as on February 29, 2020 was upto Rs.50 crore and upto 60 days respectively.

ECLGS‐2.0 refers to the scheme for providing 100% Guarantee to member lending institutions in respect of eligible credit facility extended by them to its borrowers in the 26 sectors identified by the Kamath Committee on Resolution Framework vide its report dated 04.09.2020 and the Healthcare sector whose total credit outstanding (fund based only) across all lending institutions and days past due as on February 29, 2020 was above Rs.50 crore and not exceeding Rs.500 crore and upto 60 days respectively. (The 26 sectors are power, construction, iron and steel manufacturing, roads, real estate, trading wholesale, textiles, chemicals, consumer durables/FMCG, non-ferrous metals, pharma, logistics, gems and jewellery, cement, auto components, hotels, mining, plastic products manufacturing, automobile manufacturing, auto dealership, aviation, sugar, port and port services, shipping, building materials, and corporate retail outlets.)

ECLGS‐3.0 refers to the scheme for providing 100% guarantee to member lending institutions in respect of eligible credit facility extended by them to its borrowers in the Hospitality, Travel & Tourism and Leisure & Sporting sectors whose total fund based outstanding across all lending institutions is upto Rs.500 crore and days past due are upto 60 days as on 29.02.2020.

Objective of the Scheme

• Launched by Government of India as a special Scheme in view of COVID- 19 crisis.
• To provide 100% guarantee coverage to Banks and NBFCs to enable them to extend emergency credit facilities to Business Enterprises/ MSMEs in view of COVID-19 to meet their additional term loan/ additional working capital requirements.

Silent Features of the Scheme

• The amount of Emergency Credit Line to be extended to Business Enterprises/ MSMEs would be upto 20% of total outstanding as on Feb 29,2020.
• 100% guarantee coverage for the additional funds sanctioned under the Emergency Credit Line Scheme.
• Business Enterprises/ MSMEs with outstanding loan of upto Rs.50 crore as on February 29, 2020 and turnover of upto Rs.250 crore in FY 2019-20.
• Interest rate charged is capped at 9.25% for banks and 14% for NBFCs.
• Maximum tenure of 4 years from the date of disbursement.
• Moratorium period on Principal amount is 12 months.
• No charges/ guarantee fees to be charged by MLIs/NCGTC.

Eligibility Criteria

• All Business Enterprises /MSME borrower accounts with combined outstanding loans of up to Rs. 25 crores as on 29.2.2020, and annual turnover of up to Rs. 100 crores for FY 2019-20 are eligible for the Scheme.
• Total Outstanding Amount would comprise of the on-balance sheet exposure. Off-balance sheet and non-fund-based exposures will be excluded.
• Loans provided to Business Enterprises / MSMEs constituted as Proprietorship, Partnership, registered company, trusts and Limited Liability Partnerships (LLPs) shall be eligible under the Scheme.
• Business Enterprises / MSMEs would include loans covered under Pradhan Mantri Mudra Yojana extended on or before 29.2.2020, and reported on the MUDRA portal.
• Loans provided in individual capacity are not covered under the Scheme.
• The Scheme is valid for existing customers on the books of the MLIs.
• Borrower accounts should be less than or equal to 60 days past due as on 29th February, 2020 in order to be eligible under the Scheme. Borrower accounts which had NPA or SMA-2 status, as on 29.02.2020 shall not be eligible under the Scheme.
• Business Enterprises / MSME borrower must be GST registered in all cases where such registration is mandatory. This condition will not apply to Business Enterprises / MSMEs that are not required to obtain GST registration.
• To be eligible under the Scheme it is not necessary that the existing loans of the borrowers should be covered under the ECLGS of NCGTC.

Procedure to be followed in case a borrower has loan accounts with multiple lenders

• In case a borrower has existing limits with multiple lenders, GECL may be availed either through one lender or each of the current lenders in proportion depending upon the agreement between the borrower and the MLI.
• In case the borrower wishes to take from any lender an amount more than the proportional 20% of the outstanding credit that the borrower has with that particular lender, a No Objection Certificate (NOC) would be required from all other lenders.
• No NOC will, however, be required if the GECL availed from a particular lender is limited to the proportional 20% of the outstanding credit that the borrower has with that lender.

Interest rate to be decided for loans under the scheme

As per RBI guidelines dated September 04, 2019 & February 26, 2020, all loans to MSMEs must be benchmarked to one of the external benchmark rates. Banks are free to decide the spread over the external benchmark as per their approved policies. Accordingly, loans under the ECLGS must adhere to the above-mentioned guidelines and linked to the external benchmark rates.

As part of the scheme overall lending rate is capped 1% above the external benchmark lending rate or 9.25% p.a. whichever is lower. Loans which are allowed not to be benchmarked to external rates shall be capped at maximum of 9.25%.

For e.g. for Bank ABC External Benchmark Lending Rate is 7.80 %; i.e. RBI Repo Rate (4.0%)

+ Spread (3.80%). For the purpose of this scheme the lending rate would be Min of (7.8% + 1%

= 8.8% and 9.25%) = 8.8% in this case.

For e.g. for Bank ABC1 External Benchmark Lending Rate is 8.50 %; i.e. RBI Repo Rate (4.0%) + Spread (4.50%). For the purpose of this scheme the lending rate would be Min of (8.5%

+ 1% = 9.5% and 9.25%) = 9.25% in this case.

For more details, visit https://www.eclgs.com.

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