In a recent endeavor to alleviate disruptions caused by the Covid-19 pandemic on the hospitality industry, the government has extended the maximum limit on the Emergency Credit Line Guarantee Scheme (ECLGS) by Rs 50,000 crore. The revised total now stands at Rs. 5 Lakh crore against the previous Rs. 4.5 Lakh crore and will be effective until March 31, 2023.
Understanding the Emergency Credit Line Guarantee Scheme (ECLGS)
The ECLGS was initiated in 2020 as an integral element of the Centre’s Aatmanirbhar package. The scheme aimed at supporting small businesses struggling to meet their operational liabilities amidst a nationwide lockdown due to Covid-19. Under this scheme, a 100% guarantee is being provided by the National Credit Guarantee Trustee Company (NCGTC) to Member Lending Institutions (MLIs), including banks, financial institutions, and Non-Banking Financial Companies (NBFCs). For clarity, the credit product under which the guarantee would be offered is referred to as ‘Guaranteed Emergency Credit Line (GECL)’.
Versions of ECLGS: A Brief Snapshot
ECLGS 1.0: Launched to offer fully guaranteed, collateral-free additional credit to MSMEs, business enterprises, MUDRA borrowers, and individual loans for business purposes, the scheme made available 20% of their credit outstanding as of February 29, 2020. Eligibility was initially limited to MSMEs with outstanding amounts up to Rs 25 crore and turnovers up to Rs. 100 crore. However, the turnover cap was later removed in ECLGS 2.0.
ECLGS 2.0: The revised version mainly aimed at entities in 26 stressed sectors identified by the Kamath Committee and the healthcare sector. These sectors had a credit outstanding of more than Rs. 50 crores and up to Rs. 500 crores as of February 29, 2020. The scheme stipulated borrower accounts not to have been classified as SMA 1, SMA 2, or NPA by any lender as of the same date. SMAs are special mention accounts, indicating early signs of debt service failure. The revised scheme now has a five-year repayment window, increased from four years in ECLGS 1.0.
ECLGS 3.0: This scheme involves extending credit up to 40% of total credit outstanding across all lending institutions as of February 29, 2020. The tenor of loans granted under ECLGS 3.0 would be six years, including a two-year moratorium period. It covers business enterprises in Hospitality, Travel & Tourism, Leisure & Sporting sectors, which had a total credit outstanding not surpassing Rs. 500 crore and overdue, if any, were for 60 days or less as on February 29, 2020.
ECLGS 4.0: Under this scheme, a 100% guarantee is provided to cover loans up to Rs 2 crore to hospitals, nursing homes, clinics, medical colleges for setting up on-site oxygen generation plants with the interest rate capped at 7.5%.
National Credit Guarantee Trustee Company Ltd: A Brief Introduction
The National Credit Guarantee Trustee Company Ltd (NCGTC) is a private limited company that was incorporated in 2014 under the Companies Act, 1956. The Department of Financial Services, Ministry of Finance, established it as a wholly-owned company of the Government of India. NCGTC acts as a common trustee company for multiple credit guarantee funds. These credit guarantee programmes aim to share the lending risk of lenders and consequently facilitate access to finance for potential borrowers.
Relevance to UPSC Civil Services Examination
Candidates preparing for the UPSC Civil Services examination might find this information relevant. In particular, questions related to Pradhan Mantri MUDRA Yojana and Non-Banking Financial Companies (NBFCs) appeared in the 2016 and 2010 examinations respectively.
Pradhan Mantri MUDRA Yojana was launched by the Government of India in 2015 to provide loans up to Rs 10 lakh to non-corporate, non-farm small/micro enterprises. It has three products: ‘Shishu’, ‘Kishore’, and ‘Tarun’ that signify the growth stage/development and funding needs of the beneficiary micro unit/entrepreneur.
On the other hand, an NBFC is a company registered under the Companies Act, 1956 and engaged in loans, advances, acquisition of shares/stocks/bonds/debentures/securities issued by the Government or local authority. However, NBFCs don’t form part of the payment and settlement system and cannot accept demand deposits or issue cheques drawn on itself.
