The emergency credit line guarantee scheme (ECLGS) explained

The government launched the Emergency Credit Line Guarantee Scheme or ECLGS as a response to the financial distress caused to the MSME sector in the past few months. This scheme was launched as part of the Rs 20 lakh crore covid-19 relief package, called the Atmanirbhar Bharat Abhiyaan.

The ECLGS initially had a repayment period of four years. Under the scheme launched in May 2020, borrowers were able to avail additional credit of up to 20 per cent of their overall outstanding credit as on February 29, 2020. The scheme was envisaged to provide collateral free and fully guaranteed credit to entities who had an outstanding credit of up to Rs 25 crore as of February 29, 2020, with an annual turnover cap of Rs 100 crore for the financial year 2019-2020. 

Later the ceiling for outstanding credit was increased from Rs 25 crore to Rs 50 crore. Also, the annual turnover amount was capped to Rs 250 crore from the earlier Rs 100 crore. The loan account should not be 60 days past its due as of 29th February, 2020.

The credit scheme is also available for individual borrowers if the loan was availed for their own business and for borrowers under the Pradhan Mantri Mudra Yojana (PMMY).

What are the updates for ECLGS?

In the recently released Atmanirbhar Bharat covid-19 relief package, the government has extended the credit line guarantee scheme till March 2021. It is made applicable to loans sanctioned as part of ECLGS during this period or till the guarantee for Rs 3 lakh crore is sanctioned, whichever is earlier, according to the Finance Ministry. Now the ECLGS scheme has been extended to the health sector, apart from another 26 sectors, as noted by the Kamath Committee. 

As part of this new ECLGS, those entities which have outstanding credit exceeding Rs 50 crore and under Rs 500 crore as of February 29, 2020 and which were 30 days or lower past due as of February 29, 2020 are now eligible for the scheme. 

The additional funding for borrowers will be provided as collateral free Guaranteed Emergency Credit Line (GECL), which would be 100 per cent guaranteed by the National Credit Guarantee Trustee Company Limited or NCGTC. 

The credit offered under the new scheme will have a tenure of five years and a moratorium of up to 12 months on the principal repayment. 

Any borrower opting to avail credit under the emergency credit line guarantee scheme will not have to pay processing, foreclosure or prepayment charges. 

Who is not eligible?

According to the guidelines, any borrower account which, as of February 29, 2020, has a non-performing asset (NPA) status or the special mention account - 2 (SMA - 2) status which means the interest/principal payment is overdue for between 61 and 90 days will not be eligible for credit under the ECLGS. 

Liquidity boost

According to a news report (*), the ECLGS can potentially ensure a liquidity of Rs 40,000 crore into the 27 sectors that have been identified, including the healthcare sector. The scheme, the report notes will benefit sectors like hospitality, travel, real estate and jewellery, which have taken a hit because of the pandemic. 

Conclusion

The ECLGS is a government response to the financial distress caused to MSMEs, other businesses or PMMY borrowers because of Covid-19. 

As part of the scheme, these businesses can avail of additional funding to meet working capital needs or any operational issues. If you are looking to revive your business affected by the Covid-19 pandemic, look up HDB Financial Services to avail of the emergency credit line guarantee scheme. You can avail of collateral-free fully guaranteed credit line to rejuvenate and boost your business. 

SOURCE

https://www.livemint.com/news/india/eclgs-2-0-can-infuse-over-40-000-crore-liquidity-report-11606741373570.html