written by Khatabook | January 13, 2022

What is Emergency Credit Line Guarantee Scheme (ECLGS)

ECLGS full form is Emergency Credit Line Guarantee Scheme. The government introduced this scheme in 2020 during lockdown to mitigate the stress caused by the Covid-19 pandemic on several sectors across the country. India’s Finance Ministry introduced the ECLGS in May 2020 as a part of the ₹20 Lakh Crore compensation package to provide financial assistance to Micro, Small & Medium Enterprises (MSME’s) and companies as economic distress was caused by the Covid-19 Pandemic. The scheme was originally valid upto 31.10.2020 or till ₹3 Lakh Crore got sanctioned under the Guaranteed Emergency Credit Line (GECL) scheme by all banks and Non-Banking Financial Company (NBFC). ECLGS scheme incorporates ECLGS 1.0, ECLGS 2.0 and ECLGS 3.0.

Did you know? ECLGS was not present before 2020. It started as a relief measure for MSMEs during the global pandemic.

What is the Objective of ECLGS Scheme

The ECLGS scheme became part of the Indian government’s Covid-19 monetary remedy package. Under this scheme-

1. Monetary establishments in India offer emergency mortgages to numerous businesses and MSMEs which have suffered all through this pandemic. This scheme can aid resource corporations to satisfy their running capital needs and different operational expenses. 

 2. Th e ECLGS scheme targets easing the monetary crunch being faced by MSMEs to offer them an extra investment of ₹3 lakh crore of a fully guaranteed emergency credit line.

3. An important goal of the Scheme is to offer an incentive to Member Lending Institutions (MLIs), i.e., Banks, Financial Institutions (FIs) and Non-Banking Financial Companies (NBFCs). It allows extra investment facility to businesses borrowing under the ECLGS scheme, in view of the monetary crisis due to the COVID-19 crisis, by offering them 100% assurance for any losses they suffered because of non-reimbursement of the Guaranteed Emergency Credit Line (GECL) investment by borrowers.

4. In simple words, the main features of the scheme are :

  • Launched by the Government of India as a special scheme in view of the Covid-19 pandemic.
  • To offer 100% assurance to banks and NBFCs to permit them to increase emergency credit score facilities to Business Enterprises/MSMEs because of Covid-19 to fulfil their additional term loan/extra working capital requirements.

Salient Features of the ECLGS Scheme

  • The amount of Emergency Credit line to be extended to Business Enterprises or MSMEs could be as much as 20% of overall outstanding as of Feb 29, 2020,
  • 100% Guarantee Coverage for the additional funds sanctioned under the Emergency Credit Line Guarantee Scheme
  • Eligibility- Business enterprises or MSMEs that had an outstanding loan of upto ₹50 crores as of February 29, 2020, and turnover of upto ₹250 crores in FY 2019-20.
  • Interest charge charged is capped at 9.25% for banks and 14% for NBFC
  • The maximum tenure is 4 years from the date of disbursement
  • Moratorium duration on Principal amount is 12 months
  • No charges/assurance costs to be charged by Member Lending Institutions (MLIs)/National Credit Guarantee Trustee Company Ltd. (NCGTC)

Explanation of ECLGS Scheme in Detail

Initial Scheme – ECLGS 1.0

The Government first introduced the Scheme of ECLGS on May 23, 2020. The letter's notice number/reference number was 2842/NCGTC/ECLGS. A brief of original wordings of the letter is given to understand what was ECLGS 1.0: 

“We are pleased to inform that the Government o f India through Ministry of Finance, Department of Financial Services has introduced the Emergency Credit Line Guarantee Scheme (ECLGS) for providing 100% guarantee coverage for additional working capital term loans (in case  of Banks and FIs) and additional term loans (in case of NBFCs) up to 20% of their entire outstanding credit up to ₹25 crores, i.e. up to ₹5 crores, as on February 29, 2020, subject to the account being less than or equal to 60 days past due as on that date.”

ECLGS 2.0

ECLGS 1.0 was amended and modified on November 26, 2020, and some modificati on is done in operational guidelines. The notice number of the letter was 3116/NCGTC/ECLGS. Extracts of ECLGS 2.0 are given below:

“The scope of the existing scheme has been enlarged with Introduction of ECLGS 2.0, which is an ‘opt-in’ facility and enables the extension of guaranteed emergency credit line facility (in the form of fund based or non-fund based facility or a mix of two) up to 20% of their fund based outstanding as on February 29, 2020, subject to:

  1.  Their loan outstanding being above ₹50 crores & not exceeding ₹500 crore and days past due up to 30 days as of February 29, 2020;
  2. They have operations in the 26 sectors identified by the Kamath Committee on Resolution Framework in its report dated September 04, 2020, and the Healthcare sector;

The repayment period for the fund-based facility under ECLGS 2.0 shall be 5 years, including a moratorium of 1 year.” 

Also Read: How To Launch an Event Decoration Business In No Time

ECLGS 3.0

ECLGS 2.0 was modified on April 01, 2021, wherein some modification was done in the ECLGS scheme. The notice number of the letter was 0007/NCGTC/ECLGS. Modifications in the ECLGS scheme are given below:

“Please refer to NCGTCs letter Ref No. 3116/NCGTC/ECLGS dated November 26, 2020, introducing modifications in the operating guidelines of ECLGS and extending the scheme [both ECLGS 1.0 & ECLGS 2.0] till March 31, 2021, or till guarantees for an amount of ₹3 lakh crore are issued by NCGTC, whichever is earlier.

We wish to inform you that the scope of the scheme has been enlarged with the introduction of ECLGS 3.0 to cover business enterprises in Hospitality, Travel & Tourism and Leisure & Sporting sectors as per the following salient feature:

  1. Only those entities/borrower accounts of Hospitality, Travel & Tourism and Leisure & Sporting sectors shall be eligible under ECLGS 3.0, which were classified as standard, but not in default for more than 60 days with any lending institution as of 29.02.2020 and had total fund based credit outstanding not exceeding ₹500 crores as on 29.02.2020 across all lending institutions.
  2. Such eligible entities/borrower accounts shall be eligible for funding under ECLGS 3.0 up to 40% of their total fund-based credit outstanding across all lending institutions. However, such of these entities who may have availed up to 20% of their fund based credit outstanding as of 29.02.2020 under ECLGS 1.0 or ECLGS 2.0, could get additional up to 20% of the total fund based credit outstanding as of 29.02.2020 An entity that is eligible under ECLGS 3.0, but has not availed facility under ECLGS 1.0 or ECLGS 2.0 would be eligible for a credit up to 40% of its total fund based credit outstanding as on 29.02.2020.
  3. The facility under ECLGS 3.0 shall be in the form of a fund-based facility only and as a separate loan.
  4. The moratorium period for loans granted under ECLGS 3.0 shall be 2 years to repay the principal amount. The moratorium period of loans already availed under ECLGS 1.0 and ECLGS 2.0 will remain unaltered.
  5. The total tenure of the loans in ECLGS 3.0 shall be 6 years (including a moratorium of 2 years). The tenure of loans already availed under ECLGS 10 [1-year moratorium and 3-year repayment] or ECLGS 2.0 [1-year moratorium and 4-year repayment] will remain unaltered.

Changes made in ECLGS 2.0 and ECLGS 3.0:

The following changes have been made in ECLGS 2.0 and ECLGS 3.0 -

1. In ECLGS 2.0 the repayment period has been increased from 4 years in  ECLGS 1.0 to 5 years(including 1 year of moratorium period) 

2. In ECLGS 3.0, the repayment period has been increased from 5 years in ECLGS 2.0 to 6 years(including 2 years of moratorium period) 

3. In ECLGS 2.0 the businesses who have operations in any of the 26 s ectors (including the health care sector) identified by the Kamath Committee can avail the scheme.

4. In ECLGS 3.0 the scheme has been enlarged to cover business enterprises in Hospitality, Travel & Tourism and Leisure & Sporting sectors.

The table given below shows the difference between the moratorium and repayment period in all the three schemes-

Scheme

Repayment period (including moratorium period)

Moratorium period

ECLGS 1.0

4

1

ECLGS 2.0

5

1

ECGLS 3.0

6

2

Further, the last date for sanction and disbursement of fund-based loans under ECLGS 1.0, 2.0 and 3.0 has been extended up to 31st March 2022.

Procedure of obtaining ECLGS scheme if a borrower has loan accounts with multiple lenders

  1. Suppose a borrower has current limits with a couple of creditors. In that case, GECL can be availed either via one lender or each of the current creditors in share, relying upon the settlement between the borrower and the MLI.
  2. In case the borrower needs to take from any particular lender an amount extra than the proportional 30% (40% in respect of debtors in the Hospitality sector, Travel & Tourism sector, Leisure & Sporting sector and Civil Aviation sector, subject to a max of ₹2 hundred crores per borrower) of the outstanding credit that the borrower has with that specific lender,
  3. No Objection Certificate (NOC) might be required from such creditors whose percentage of a mortgage under ECLGS is proposed to be taken from the particular lender. However, it might be important for the particular lender to agree to provide a loan under ECLGS on behalf of such creditors.
  4. No NOC will, however, be required if the GECL availed from a specific lender is limited to the proportional 30% (40% in admire of debtors in the Hospitality sector, Travel & Tourism sector, Leisure & Sporting sector and Civil Aviation sector, subject to a maximum of ₹2 hundred crores per borrower) of the outstanding credit that the borrower has with that lender.

List of Registered Banks

Member Lending Institutions (MLIs) as of 24.06.2021 are-

Public Sector Banks

  • State Bank of India (SBI)
  • Union Bank of India 
  • Central Bank of India
  • Bank of Baroda
  • Bank of India
  • Canara Bank

Private Sector Banks

  • Axis Bank Limited
  • DCB Bank Limited
  • City Union Bank Limited
  • IDBI Bank Limited
  • RBL Bank Limited
  • Yes Bank Limited
  • The Federal Bank Limited etc

Other Banks

  • CITI Bank (Foreign)
  • Standard Chartered Bank (Foreign)
  • Jana Small Financial Bank (Small Financial Bank)
  • Andhra Pradesh Grameena Vikas Bank (Regional Rural Bank)

Also Read: How to write a Bank Verification Letter for Various Banks?

Conclusion

The Indian government introduced Emergency Credit Line Guarantee Scheme as financial aid for small, micro and medium businesses because of the economic slowdown due to the global pandemic. To reduce the stress caused by the Covid-19 pandemic, the government has provided ₹3 lakh crore of unsecured loans to MSMEs. We hope that this article provides sufficient information regarding the Emergency Credit Line Guarantee Scheme (ECLGS), how it helps, along with a list of registered banks. 

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FAQs

Q: How will NCGTC pay the assured amount to the MLIs on invocation of the guarantee

Ans:

75% of the assured amount could be paid via National Credit Guarantee Trustee Company (NCGTC) within 30 days of an eligible claim being desired by the MLI concerned. The balance of 25% might be paid at the end of recovery proceedings or until the decree receives time-barred (i.e., within the limitation period of the lending institutions), whichever is earlier.

Q: Will the categorisation of current loans extended via current Government schemes together with PMEGP or PMMY change if GECL is provided to such borrowers?

Ans:

No. Existing loans extended through current Government schemes will not change. GECL under this Scheme will be over and above the present loan.

Q: Will any processing fee be charged by MLIs for sanctioning loans under the GECL scheme as notified by Govt.?

Ans:

Since additional credit under GECL is to be provided to existing customers, no additional processing fee shall be charged by money givers.

Q: Is any turnaround time prescribed for Member Lending Institutions (MLIs) under the Scheme for sanction of GECL?

Ans:

Indicative turnaround time for loans beneath the Scheme will be similar to the ones prescribed by the Department of Financial Services for credit assistance in the context of the COVID-19 pandemic.

Q: Will the interest rate on GECL be capped?

Ans:

Yes, interest fees on GECL will be capped as under

For Banks and FIs

Capped at 9.25%

For NBFCs,

Capped at 14%

For loans to hospitals/nursing homes/clinics/medical colleges/units engaged in manufacturing liquid oxygen, oxygen cylinders, etc., for putting on-site oxygen generation plants in place,

Capped at 7.5% p.a.

Q: Till when is the ECLGS scheme extended?

Ans:

The ECLGS Scheme has been extended till 31.03.2022.

Q: Will the Scheme also cover borrowers under PMMY?

Ans:

Yes, loans under PMMY extended on or before 29.2.2020 and reported on the MUDRA portal shall be covered under the Scheme.

Q: What will be the eligibility criteria for MSMEs to avail the scheme's benefit?

Ans:

Initially, the eligible borrowers w ere those business enterprises/MSMEs which had an outstanding loan of upto ₹50 crores as of February 29, 2020, and a turnover of upto ₹250 crores in FY 2019-20. However, the eligibility has been changed from time to time w hich has been given in detail in the article above.

Q: What would be the guarantee coverage under the Scheme?

Ans:

The complete investment provided under GECL will be provided with a 100% credit guarantee coverage via means of National Credit Guarantee Trustee Company Ltd.(NCGTC) under the Scheme.

Q: What is the objective of the Scheme?

Ans:

The Scheme is a compensation package to provide financial assistance to Micro, Small & Medium Enterprises (MSME’s) and companies as economic distress was caused by the Covid-19 Pandemic. It seeks to offer much-needed comfort to the MSMEs/organisations by incentivising MLIs to offer extra credit of ₹4.5 lakh crore at a low cost, allowing MSMEs/organisations to meet their operational liabilities and restart their businesses.

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