In an attempt to address the concerns of MSMEs suffering from the harmful effects of the COVID-19 pandemic, the Central Government has extended the ECLGS Scheme or the Emergency Credit Line Guarantee Scheme till March 31st next year. The BJP Government’s flagship scheme has been extended for the fifth time since its launch in May 2020. The Finance Ministry has decided to continue the Credit scheme till March 2021 or till the guarantees for the overall ceiling of Rs 4.5 lakh crore are issued, whichever is earlier.
What is ECLGS?
The Emergency Credit LIne Guarantee Scheme was launched last year amid the COVID-19 crisis hitting the Indian economy and small businesses. It has the objective of providing 100 percent guaranteed coverage to the banks, non-banking financial institutions (NBFCs), and other lending institutions to empower them in sanctioning credit to businesses that have suffered losses in the pandemic and need assistance to raise working capital funds.
The ECLGS 1.0 was launched as a part of the Atma NIrbhar Bharat Abhiyan which extended a stimulus package of Rs. 20 Lakh Crore to pandemic-hit industries in the year 2020. ECLGS was an innovative scheme aimed at extending Rs. 3 lakh crore worth of collateral-free loan guaranteed by the Government to Micro Small and Medium Enterprises (MSMEs) to alleviate the stress caused by the Coronavirus pandemic.
It was also announced that the last date of disbursement under the scheme has been extended to June 30, 2022. The ministry also informed that since its launch, the ECLGS has extended relief to over 1.15 crore MSMEs and businesses.
Extensions of the Scheme
The Scheme was first extended in November 2020 to support 26 sectors such as power, construction, iron and steel manufacturing, roads, real estate, textiles, chemicals, consumer durables, non-ferrous metals, pharma manufacturing, logistics, gems and jewelry, cement, auto components, hotels-restaurants-tourism, mining, plastic product manufacturing, automobile manufacturing, auto dealerships, aviation, sugar, ports and port services, shipping, building materials, and corporate retail outlets. These sectors were included as a part of the ECLGS 2.0.
Under ECLGS 2.0, the ceiling for outstanding credit was increased from Rs 25 crore to Rs 50 crore. Finance Minister Nirmala Sitharaman also announced that the ECLGS 1.0 and ECLGS 2.0 would be extended till March 31, 2020.
Under ECLGS 3.0, the Government widened the scope of the ECLGS Scheme to include Hospitality, Travel and Tourism, Leisure, and Sporting sectors which had suffered financially in the COVID 19 pandemic. The scheme was also extended till June 30, 2020.
ECLGS 3.0 also included extending the credit of up to 40 percent from 20 percent of the total credit outstanding across all lending institutions as of February 29, 2020.
Salient Features of the Scheme
- Since its launch, the ECLGS scheme has extended relief of over Rs. 2.86 lakh crore worth of loans. Out of total guarantees issued, around 95 percent were for loans sanctioned to MSMEs.
- The Interest rate charged is capped at 9.25% for banks and 14% for NBFCs.
- The Moratorium Period on Principal Amount is 12 months and maximum tenure is 4 months from the date of disbursement.
- The eligible borrowers are business enterprises and MSMEs with an outstanding loan of Rs. 50 crore as of February 29, 2020, and turnover of up to Rs. 250 Crore in FY 2019-20.
- The existing borrowers under ECLGS 1.0 and 2.0 can now avail of credit support of up to 10% of total outstanding credit as of 29 February 2020 or 31 March 2021, whichever is higher.
- Businesses that have not availed of credit under this scheme are eligible for credit support of up to 30% of their credit outstanding as of 31 March 2021.
- Businesses in sectors specified under ECLGS 3.0 (see above), who have previously not availed ECLGS, can get credit assistance up to 40% of their credit outstanding as of 31 March 2021, to the maximum of Rs.200 crore per borrower.
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