Expansion of Emergency Credit Line Guarantee Scheme

• 05 Aug 2020

Why in News

Recently, the government has expanded its Emergency Credit Line Guarantee Scheme (ECLGS) to cover loans given to larger firms as well as to self-employed people and professionals who have taken loans for business purposes.

• ECLGS was rolled out in May 2020 as part of the Centre’s Aatmanirbhar package in response to the Covid-19 crisis. The objective was to support small businesses struggling to meet their operational liabilities due to the imposition of a nationwide lockdown.

Key Points

• The ECLGS provides for the Guaranteed Emergency Credit Line (GECL) facility. The GECL is a loan for which 100% guarantee is provided by the National Credit Guarantee Trustee Company (NCGTC) to Member Lending Institutions (MLIs) - banks, financial institutions and Non-Banking Financial Companies (NBFCs).
• The loans are extended in the form of additional working capital term loan facility in case of banks and additional term loan facility in case of NBFCs to eligible Micro, Small and Medium Enterprises (MSMEs)/business enterprises and interested Pradhan Mantri Mudra Yojana (PMMY) borrowers.
  
  • First-time borrowers and Non-Performing Asset (NPA) accounts cannot raise funds under the scheme.
• The tenor of loans provided under the GECL facility is four years from the date of disbursement.
  
  • A moratorium period of one year on the principal amount is provided.
• Interest rates of banks and financial institutions have been capped at 9.25% per annum, while NBFCs can lend at a maximum of 14% per annum.
• The Scheme is applicable to all loans sanctioned under the GECL facility during the period from, 23^rd May 2020 to 31^st October, 2020, or till an amount of Rs. 3 lakh crore is sanctioned under GECL, whichever is earlier.
• The scheme has been expanded to cover:
  
  • Enterprises with a turnover up to Rs. 250 crore with outstanding loans up to Rs. 50 crore (as on 29^th February, 2020).
    
    • The earlier limit was Rs. 100 crore and Rs 25 crore, respectively.
    • Credit under GECL is provided up to 20% of the borrower’s total outstanding credit up to Rs. 25 crore.
    • The expansion of the limits has increased the maximum amount of loans that can be availed under the Scheme to Rs. 10 crore (20% of 50 crore) from Rs. 5 crore (20% of 25 crore).
  • Individual beneficiaries including both professionals such as doctors, lawyers and chartered accountants, as well as self-employed people such as vendors or taxi drivers.
  • The changes in the ECLGS scheme are likely to make an additional Rs 1 lakh crore eligible.
• Till now, a total of around Rs. 1.37 lakh crore has been sanctioned under the scheme by member lending institutions to around 40 lakh accounts, of which around Rs 87,000 crore has been disbursed.

National Credit Guarantee Trustee Company Ltd

• NCGTC is a private limited company incorporated under the Companies Act, 1956 in 2014, established by the Department of Financial Services, Ministry of Finance, as a wholly owned company of the Government of India, to act as a common trustee company for multiple credit guarantee funds.
  
  • Credit guarantee programmes are designed to share the lending risk of the lenders and in turn, facilitate access to finance for the prospective borrowers.

Source: TH