Emergency Credit Line Guarantee Scheme (ECLGS)

  • March 31, 2022
  • Posted by: OptimizeIAS Team
  • Category: DPN Topics
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Emergency Credit Line Guarantee Scheme (ECLGS)

Subject: Economy

Section: Fiscal Policy

Context:

The government has expanded the scope of its flagship guaranteed loan scheme and extended its validity by a year through March 2023.

The finance ministry has also extended relief under the Rs 5-trillion emergency credit line guarantee scheme (ECLGS) to hospitality, civil aviation and related enterprises.

Concept:

Emergency Credit Line Guarantee Scheme (ECLGS) was announced as part of the AtmaNirbhar Bharat Package in 2020 with the objective to help businesses including MSMEs to meet their operational liabilities and resume businesses in view of the distress caused by the COVID-19 crisis, by providing Member Lending Institutions (MLIs), 100 percent guarantee against any losses suffered by them due to non-repayment of the ECLGS funding by borrowers.

Objective: To provide fully guaranteed and collateral free additional credit to MSMEs, business enterprises, MUDRA borrowers and individual loans for business purposes to the extent of 20% of their credit outstanding as on 29th February, 2020.

100% guarantee coverage is to be provided by National Credit Guarantee Trustee Company Limited (NCGTC) to the Member Lending Institutions (MLI), Banks, Financial Institutions, and Non-Banking Financial Companies (NBFC).

The credit will be provided in the form of a Guaranteed Emergency Credit Line (GECL) facility. No Guarantee Fee shall be charged by NCGTC from the Member Lending Institutions (MLIs) under the Scheme.

Interest rates under the Scheme shall be capped at 9.25% for banks and FIs, and at 14% for NBFCs.

ECLGS is under the operational domain of the Ministry of Finance, Department of Financial Services (DFS).

The eligibility criteria for availing credit under ECLGS are:

  • For ECLGS 1.0; MSME units, Business Enterprises, Mudra Borrower and individual loans for business purpose having loan outstanding upto Rs.50 crore and days past due upto 60 days as on 29.02.2020.
  • For ECLGS 2.0; Borrower belonging to 26 stressed sectors identified by Kamath Committee & Healthcare sector having loan outstanding above Rs.50 crore and upto Rs.500 crore and days past due upto 60 days as on 29.02.2020.
  • For ECLGS 3.0; Borrower belonging to Hospitality, Travel & Tourism, Leisure & Sporting and Civil Aviation sector having days past due upto 60 days as on 29.02.2020.
  • For ECLGS 4.0; Existing Hospitals/Nursing Homes/Clinics/Medical Colleges/units engaged in manufacturing of liquid oxygen, oxygen cylinders etc. having credit facility with a lending institution with days past due upto 90 days as on March 31, 2021.

Limits:

  • Enterprises with a turnover of up to Rs. 250 crores (FY 2019-20) with outstanding loans up to Rs. 50 crores, as of February 29, 2020
  • The maximum amount of loan that can be availed under the scheme is Rs. 5 crore
  • The loan tenure is for 4 years and the moratorium period of 1 year on the principal amount is also applicable [Now the loan tenure is 5 years]

National Credit Guarantee Trustee Company Limited

NCGTC or the National Credit Guarantee Trustee Company Limited is registered under the Companies Act, 1956 in 2014 as a private limited company.

It is a wholly-owned company of the Government of India

It was established by the Department of Financial Services, Ministry of Finance to act as a common trustee company for multiple credit guarantee funds.

The main role of the Organisation is to design credit guarantee programs, to share the risk of lending among the lenders, and facilitate financial access to a prospective borrower.

Latest changes:

  • Companies in the hospitality, civil aviation, travel and tourism industry can now borrow up to 50% of their highest fund-based credit outstanding, as against 40% earlier
  • Borrowing by a single MSME from the hospitality, travel and tourism industry is still capped at Rs 200 crore. However, the borrowing limit for an aviation player has been raised to Rs 400 crore from Rs 200 crore earlier.
  • To reduce the cost of accessing non-fund-based credit, bank guarantees, letters of credit and other non-fund based facilities sanctioned under the latest version of the scheme (ECLGS 3.0) will be issued without any cash margin. The fee or commission will be capped at 0.5% per annum.
  • Individuals and proprietary concerns in the sectors covered under ECLGS 3.0 can also now avail of emergency credit facilities.

To know about ECLGS, please click here.

economy Emergency Credit Line Guarantee Scheme (ECLGS)