The COVID-19 pandemic hit very hard on Indian business enterprises. The companies struggled a lot to meet their daily expenses. To mitigate the losses caused by the Covid-19 pandemic on various business enterprises in the country, the Indian Government launched an Emergency Credit Line Guarantee Scheme (ECLGS).
The ECLGS scheme was announced in May 2020 by the Finance Ministry.
The scheme aims to provide 100% guaranteed credit to Micro, Small and Medium Enterprises (MSMEs) across India to help them overcome the losses suffered due to Covid-19. It relieves MSMEs by helping them meet their working capital requirements and encouraging them to fulfill their dreams and desires.
This scheme is a part of the Government’s Aatmanirbhar Bharat Abhiyan. The scheme focuses on providing collateral-free, government-guaranteed loans to MSMEs worth ₹ 3 lakh crore.
Under the ECLGS version 1.0, borrowers can get the credit of up to 20% of their total outstanding loan as on February 29, 2020, provided the total outstanding loan of the MSMEs should not exceed ₹50 Crores as on February 29, 2020. In this, the borrowers are provided, 1 year moratorium period and a 4-year repayment period from the date of disbursement. The scheme was valid up to November 2020.
Version 2.0, extended the finance minister’s aim to provide guaranteed loans to 26 stressed sectors identified by the Kamath Committee and the healthcare sector. In this phase, the guaranteed credit was available to the borrowers whose total outstanding loan as on February 29, 2020, was between ₹50-500 crores, up to 20% of the outstanding amount. In this, the borrowers are provided 1 year moratorium period for repayment of principal and a total 5-year repayment period from the date of disbursement. This scheme’s validity was till March 2021.
The sectors included power, construction, iron and steel manufacturing, roads, real estate, textiles, chemicals, consumer durables, non-ferrous metals, pharma manufacturing, logistics, gems and jewellery, 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.
ECLGS 3.0 was launched to extend support to Hospitality, Travel and Tourism, Leisure, and Sporting sectors. The scheme is highly beneficial for businesses that are looking for credit above ₹500 crores. The scheme will only consider loans less than 60 days overdue as on 29 February 2020.Under this, borrowers can get credit of up to 40% (earlier 20%) of their total outstanding loan as on February 29, 2020. The loan tenure under this scheme was 6 years, including 2 years moratorium period and 4 years repayment period. The scheme was valid till June 2021.
It also extended the ECLGS 1.0 and ECLGS 2.0 by another 3 months.
To further support MSMEs, the Government widened the scheme’s validity by 3 months till September 2021. The scheme supports all hospitals, nursing homes and colleges engaged in manufacturing liquid oxygen, oxygen cylinders etc.having credit facilities with the lending institution with the days past due up to 90 days as on March 31, 2021. Borrowers are eligible for assistance of up to ₹2 crores for setting up oxygen plants, technologies like pressure swing absorption etc for on-site oxygen-producing plantsFor this scheme, the guaranteed coverage would be 100% of the amount in default.
ECLGS 1.0- Eligible borrowers under 1.0 will be those with a total outstanding credit up to ₹50 crores as of 20.02.2020, and the borrower’s account should be less than or equal to 60 days past due as of 20.02.2020.
ECLGS 2.0- Eligible borrowers under 2.0 will be those with total outstanding credit above ₹50 crore and up to ₹500 Crore as of 20.02.2020, and the borrower’s account should be less than or equal to 60 days past due as of 20.02.2020.
ECLGS 3.0- Eligible borrowers under 3.0 will be those with total outstanding credit above ₹500 crore, and the borrower’s account should be less than or equal to 60 days past due as of 20.02.2020.
ECLGS 4.0- Eligible borrowers under 4.0 will be those with accounts up to 90 days as of 31.03.2021. Borrowers are eligible for assistance of up to ₹2 crores for setting up oxygen plants.
January 3, 2023: Nearly 17% of ECLGS loans have turned into NPAs: RBI report
Around 17.72 lakh accounts (one-sixth of around 1.04 crore accounts) under ECLGS have become non-performing till September last year.
One-sixth (one in every six loans) or 16.9 per cent of total loan accounts, which raised credit under the Emergency Credit Line Guarantee Scheme (ECLGS), have turned non-performing assets (NPAs) as of September 2022, said the Reserve Bank of India (RBI) in its December 2022 Financial Stability Report. “The September 2022 position of the ECLGS lending indicates that distress continues in the MSME sector,” the report said.
As of September 2022, Rs 2.82 lakh crore were disbursed by banks and other lenders in around 1.04 crore loan accounts of MSMEs and other businesses under ECLGS, according to the report’s data. This indicated that roughly 17.72 lakh accounts (one-sixth of around 1.04 crore accounts) slipped into the NPA category as of September 2022.
“If one-sixth of the accounts, which were normal as of February 28, 2020, have gone bad, think of those accounts which were SMA (special mention accounts) 2,3 and NPA before that due to demonetisation, GST and economy slowdown. In our opinion, the total of such accounts, which have gone bad in the last 36 months, would have crossed more than 35 per cent but we have no data except seeing the reality on the ground which we don’t want to accept,” KE Raghunathan, National Chairman, Association of Indian Entrepreneurs told FE Aspire.
On the other hand, in terms of the amount, 4.5 per cent of the credit raised turned non-performing as of September 2022 with a 43 per cent share of micro units, 25 per cent of small units, 10 per cent of medium enterprises, and 22 per cent of other business enterprises that secured credit under ECLGS.
Even though micro enterprises segment availed a quarter of loans disbursed under the ECLGS, their share in overall NPAs stood much higher at 93.5 per cent in comparison to 3.2 per cent share of other business enterprises, 2.8 of small enterprises, and 0.5 per cent of medium units.
Moreover, services and trade businesses, which formed one-third of the ECLGS disbursements, remain stressed with little more than half of the total delinquency under the ECLGS, the report noted. While services businesses had a share of 28 per cent in total NPAs, traders had a share of 23 per cent. Textiles and food processing segments had NPA share of 5 per cent and 6 per cent respectively and other industries had a share of 11 per cent.
ECLGS was launched in May 2020 as part of Aatmanirbhar Bharat Abhiyaan to support eligible MSMEs and other businesses in recovering post-Covid. Banks were provided with a complete credit guarantee for loans given by them under the scheme to eligible MSMEs. The admissible guarantee limit under the scheme was increased from Rs 4.5 lakh crore to Rs 5 lakh crore earlier last year, with the additional guarantee cover of Rs 50,000 crore earmarked exclusively for the hospitality and related enterprises including the civil aviation sector.
January 31, 2023: Emergency Credit Line Guarantee Scheme supported MSMEs during COVID, led to remarkable credit growth: Economic Survey
The micro, small and medium enterprises sector witnessed a credit growth of 30.6% on average during January-November 2022 due to ECLGS, according to Economic Survey tabled in the Parliament.
GST paid by MSMEs in FY22 crossed the pre-pandemic level
In FY21, the government announced the Emergency Credit Linked Guarantee Scheme, which succeeded in shielding micro, small and medium enterprises from financial distress.
Quoting a recent CIBIL report, the Survey said it showed that the scheme has supported MSMEs in facing the COVID-19 shock, with 83% of the borrowers that availed the ECLGS being micro-enterprises. Among these micro units, more than half had an overall exposure of less than ₹10 lakh.
Furthermore, CIBIL data also showed that ECLGS borrowers had lower non-performing asset rates than enterprises that were eligible for ECLGS but did not avail of it, the Survey pointed out.
The GST paid by MSMEs after declining in FY21 has been rising since and now has crossed the pre-pandemic level of FY20, reflecting the financial resilience of small businesses and the effectiveness of the pre-emptive government intervention targeted towards MSMEs.
Information Source: https://www.thehindu.com/business/budget/emergency-credit-line-guarantee-scheme-supported-msmes-during-covid-led-to-remarkable-credit-growth-economic-survey/article66453396.ece
Feb 22, 2023: Centre mulling an extension of emergency credit line guarantee scheme
The government is assessing if the emergency credit line guarantee scheme (ECLGS) needs to be extended.
ECLGS has been a crucial lifeline for businesses struggling to stay afloat during the COVID-19 pandemic. The scheme was launched in May 2020 and has since been extended several times.
However, with the current extension set to expire on March 31, 2023, the government is now reviewing the scheme to assess its effectiveness and decide whether to continue or let it lapse.
ECLGS is a loan guarantee scheme that provides financial assistance to businesses in the Micro, Small, and Medium Enterprises (MSMEs) sector, as well as those in the aviation, tourism, and hospitality sectors. Under the scheme, eligible borrowers can avail of a loan of up to 20 percent of their total outstanding credit as of February 29, 2020. The government provides a guarantee to the lender to cover any default by the borrower.
In the 2022-23 Budget, the government extended the ECLGS till March 31, 2023. However, the National Institute of Bank Management (NIBM) has been tasked with submitting an assessment report on the scheme. This report will likely inform the government's decision on whether to continue the scheme beyond the current deadline.
The government is also seeking feedback on ECLGS from banks that have participated in the scheme. This feedback will help the government understand the challenges faced by lenders and borrowers and identify areas for improvement.
As of January 31, 2023, the total amount of guarantees provided under ECLGS stands at Rs 3.41 lakh crore, which is about 68 percent of the Rs 5 lakh crore scheme limit. This highlights the significant demand for the scheme and its importance in supporting businesses affected by the pandemic.
The government's review of the scheme is a positive step to assess its impact and identify any areas for improvement. With the deadline for the current extension fast approaching, it remains to be seen whether the scheme will continue beyond March 31, 2023.
Information Source: https://www.cnbctv18.com/finance/government-mulling-an-extension-of-emergency-credit-line-guarantee-scheme-sources-16007631.htm
April 11, 2023: The Indian government on March 31, 2023, closed the Emergency Credit Line Guarantee Scheme (ECLGS), as the Centre sees no COVID-19-related emergency for loan guarantees, according to multiple people familiar with the development.
As of March 31, 2023, the total amount of guarantees provided under ECLGS stood at Rs 3.65 lakh crore out of Rs 5 lakh crore, and the total amount of loans sanctioned stood at Rs 3.73 lakh crore, sources privy to the developments told CNBC-TV18.
Also, Rs 2.93 lakh crore amount was disbursed on guarantees under ECLGS, and the nonperforming asset (NPA) ratio stood at 4.38 percent or Rs 16,000 crore approximately, said people familiar with the matter.
ECLGS is a loan guarantee scheme that provides financial assistance to businesses in the micro, small, and medium enterprises (MSMEs) sector, as well as those in the aviation, tourism, and hospitality sectors.
Around 18 lakh accounts or 15 percent of 1.19 crore borrowers who availed credit under ECLGS have turned into NPAs as of March 31, 2023, sources in the know told CNBC-TV18.
Under the scheme, eligible borrowers can avail of a loan of up to 20 percent of their total outstanding credit as of February 29, 2020. The government provides a guarantee to the lender to cover any default by the borrower.
In the 2022-23 Budget, the government extended the ECLGS till March 31, 2023. However, the National Institute of Bank Management (NIBM) has been tasked with submitting an assessment report on the scheme.
1. Major relief given for Hospitality, Civil Aviation and related enterprises under Government’s Emergency Credit Line Guarantee Scheme
2. Increase in additional credit support from existing 40% of fund-based credit outstanding to 50% of fund and non-fund based credit outstanding under ECLGS 3.0
3. Eligible borrowers in the civil aviation sector now permitted to avail of non-fund-based emergency credit facilities
Informational Sources: https://www.wintwealth.com/blog/emergency-credit-line-guarantee-scheme-eclgs%EF%BF%BC/
A K Bansal is a former banker and law professional which background in legal matters concerning credit, recovery, insolvency and bankruptcy matters. He is a columnist for Ancoraa Resolution and writes his opinions and commentaries on recent judgements pertaining the Insolvency and Bankruptcy Code.
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