In recent news, the government has widened the scope of its Emergency Credit Line Guarantee Scheme (ECLGS) to include loans offered to larger firms, self-employed individuals, and professionals using loans for business-related activities. This expansion of the ECLGS is a crucial step in providing financial support to those affected by the Covid-19 pandemic, who have been struggling to meet their operational liabilities due to nationwide lockdowns.
An Overview of the ECLGS
Launched in May 2020 as a part of the Centre’s Aatmanirbhar package, the ECLGS aims to aid small businesses struggling amidst the pandemic. The key feature of this scheme is the Guaranteed Emergency Credit Line (GECL) facility, where 100% guarantees are provided by the National Credit Guarantee Trustee Company (NCGTC) to Member Lending Institutions (MLIs), which include banks, financial institutions, and Non-Banking Financial Companies (NBFCs).
These loans are offered as additional working capital term loan facilities by banks and as additional term loan facilities by NBFCs to eligible Micro, Small and Medium Enterprises (MSMEs), business enterprises, and interested Pradhan Mantri Mudra Yojana (PMMY) borrowers.
Terms and Conditions of the GECL
However, first-time borrowers and Non-Performing Asset (NPA) accounts are not eligible under this scheme. The duration of loans under the GECL facility is four years counting from the date of disbursement, with a moratorium period of one year on the principal amount. Interest rates are capped at 9.25% per annum for banks and financial institutions, while NBFCs can lend at a maximum of 14% per annum.
This scheme is applicable to all loans sanctioned under the GECL facility from 23rd May 2020 to 31st October 2020, or until an amount of Rs. 3 lakh crore is sanctioned under GECL, whichever occurs first.
Expanded Coverage under ECLGS
The recent expansion of the scheme now covers enterprises having a turnover up to Rs. 250 crore with outstanding loans up to Rs. 50 crore (as on 29th February 2020). However, the previous limit was at Rs. 100 crore and Rs 25 crore, respectively. Consequently, the maximum loan amount under this scheme has been increased to Rs. 10 crore from the previous Rs. 5 crore.
Under this new amendment, individual beneficiaries such as doctors, lawyers, chartered accountants, vendors, taxi drivers, and other self-employed people can avail the benefits of this scheme. The adjustments in the ECLGS scheme are expected to make an additional Rs 1 lakh crore eligible for disbursement.
Impact of the Scheme
Till now, a total of around Rs. 1.37 lakh crore has been sanctioned under the scheme by member lending institutions to approximately 40 lakh accounts, of which around Rs 87,000 crore has been disbursed.
About National Credit Guarantee Trustee Company Ltd
The NCGTC is a private limited company, established by the Department of Financial Services, Ministry of Finance, as a wholly owned company of the Government of India in 2014. Its primary role is to act as a common trustee company for multiple credit guarantee funds. These credit guarantee programmes are designed to share the lending risk of the lenders and thereby facilitate greater access to finance for prospective borrowers.
