Emergency Credit Line Guarantee Scheme

Syllabus: General Studies Paper 2

The scheme was launched as a part of the Atma Nirbhar Bharat package for the Micro, Small, and Medium Enterprises (MSME) borrowers to mitigate the distress caused by the COVID-19 pandemic.

• The scheme was initially announced in May 2020 and then over a period of time, the Finance Ministry has expanded the scope of the ECLGS.
• Recently (May 2021), ECLGS 4.0 has been introduced which provides 100 percent guarantee cover to loans up to Rs.2 crore to hospitals/nursing homes/clinics/medical colleges for setting up on-site oxygen generation plants, interest rate capped at 7.5%.

Emergency Credit Line Guarantee Scheme 

• The Scheme allowed additional funding of up to Rs.3 lakh crores to different sectors, especially Micro, Small, and Medium Enterprises (MSME) and MUDRA borrowers.
• Under the ECLGS, all loans sanctioned under the Guaranteed Emergency Credit Line (GECL) facility will be provided with additional credit. However, there are two specifications:
• The scheme would be applicable for loans sanctioned from the date of announcement of the scheme to October 31, 2020, [Now September 3, 2021] OR
• Guarantees for an amount of Rs.3 lakh crore are issued (whichever happens first) Disbursement is permitted up to December 31, 2021.

Major objectives of ECLGS

• As per this scheme, 100% guarantee coverage is to be provided by National Credit Guarantee Trustee Company Limited (NCGTC) to the Member Lending Institutions (MLI), Banks, Financial Institutions, and Non-Banking Financial Companies (NBFC)
• The Scheme aims at mitigating the economic distress faced by MSMEs by providing them additional funding in the form of a fully guaranteed emergency credit line.
• It shall also provide credit to the sector at a low cost, thereby enabling the small sector businesses to meet their operational liabilities and restart their manufacturing and work

Who is eligible under the ECLG Scheme?

• As per the latest eligibility criteria with the launch of the expanded Emergency Credit Line Guarantee Scheme, the following criteria had to be met to be applicable for a loan under the scheme:
• Enterprises with a turnover of up to Rs. 250 crores (FY 2019-20) with outstanding loans up to Rs. 50 crores, as of February 29, 2020
• GECL credit provided will be up to 20% of the borrower’s total outstanding credit as of February 29, 2020.
• The maximum amount of loan that can be availed under the scheme is Rs. 5 crores.

Tenure & Interest Rates under ECLGS

• The loan tenure is for 4 years and the moratorium period of 1 year on the principal amount is also applicable [Now the loan tenure is 5 years]
• Interest rates under ECLGS have also been capped:
• 25% for Banks and Financial Institutions
• 14% for Non-Banking Financial Companies
• The National Credit Guarantee Trustee Company Ltd (NCGTC) is not allowed to charge any Guarantee Fee from the Member Lending Institutions that are included under this scheme.

ECLGS 4.0 – Expansion of the Scheme

• On 31st May 2021, the Indian government notified the expansion of the ECLGS. Under the version of ECLGS 4.0:
• 100 percent guarantee cover is being provided to hospitals/nursing homes/clinics/medical colleges for loans of up to Rs 2 crores at an interest rate of 7.5 percent. It is given for setting up on-site oxygen generation plants.
• The eligible borrowers who earlier had a loan tenure of four years can now avail of a loan tenure of five years.
• Additional ECLGS assistance of up to 10% of the outstanding as of February 29, 2020, to borrowers covered under ECLGS 1.
• The 500 crore loan ceiling under ECLGS 3.0 is being discontinued.
• The maximum additional ECLGS assistance to each borrower is being limited to 40% or Rs.200 crore, whichever is lower.
• Civil aviation sector is an eligible borrower under ECLGS 3.0.

About ECLGS 2.0

• The scheme was announced in November 2020 as a part of the Atma Nirbhar Bharat 3.0 package.
• The Emergency Credit Line Guarantee Scheme has been expanded to 27 new sectors, including the health sector.
• These 27 sectors have been identified by the Kamath Committee for one time debt restructuring. Power, construction, textiles, real estate, tourism are few among the many sectors identified.
• Individual beneficiaries for both, professional and self-employed people have also been included in the scheme
• The tenor has been upgraded to 5 years with a 1-year moratorium on repayment of principal.

About National Credit Guarantee Trustee Company Limited

• NCGTC or the National Credit Guarantee Trustee Company Limited was registered under the Companies Act, 1956 in 2014.
• It is a wholly-owned company of the Government of India.
• It was established by the Department of Financial Services, Ministry of Finance.
• The main role of the Organisation is to design credit guarantee programs, to share the risk of lending among the lenders, and facilitate financial access to a prospective borrower
• Conclusively, to revise the economy of the country which faced major disturbances due to the COVID lockdown, the Government of India decided to take charge of making the country self-dependent. And, the Emergency Credit Line Guarantee Scheme is one of those initiatives.