Emergency Credit Line Guarantee Scheme

Syllabus: General Studies Paper 3

The Centre has announced raising the allocation under the Emergency Credit Line Guarantee Scheme (ECLGS) by Rs 50,000 crore to Rs 5 lakh crore.

• As per data by the government and banks, loans of about Rs 3.67 lakh crore have been sanctioned under ECLGS till August 5, and Rs 2.54 lakh crore had been disbursed till April 30. 
• The ECLGS was unveiled as part of the comprehensive package announced by the government in March 2020 to aid the MSME sector in view of the economic distress caused by the Covid pandemic and lockdowns.
• The tourism sector was one of the worst hit, as people postponed/cancelled their business and leisure travel plans. 
• With high immunisation levels, progressive roll-back of restrictions and overall economic recovery, conditions are in place for sustained growth in demand for these sectors as well. 
• This additional guarantee cover is expected to support the recovery of these sectors as well.

Emergency Credit Line Guarantee Scheme (ECLGS):

• Emergency Credit Line Guarantee Scheme(ECLGS) launched as part of the Covid-19 relief package called the Atma Nirbhar Bharat Abhiyan.
• The aim is to provide Rs 3 lakh crore worth of collateral-free, government guaranteed loans to micro, small and medium enterprises(MSMEs) across India. Further, it aims to mitigate the distress caused by the coronavirus-induced lockdown.
• National Credit Guarantee Trustee Company(NCGTC) is the guarantee provider under the ECLGS scheme.

Objective

To provide fully guaranteed and collateral free additional credit to MSMEs, business enterprises, MUDRA borrowers and individual loans for business purposes to the extent of 20% of their credit outstanding as on 29th February, 2020.

• 100% guarantee coverage is being provided by the National Credit Guarantee Trustee Company, whereas Banks and Non Banking Financial Companies (NBFCs) provide loans.
• Eligibility: Borrowers with credit outstanding up to Rs. 50 crore as on 29th February, 2020, and with an annual turnover of up to Rs. 250 crore are eligible under the Scheme.
• On 1st August, 2020 the government widened the scope of the Rs. 3 lakh crore-ECLGS scheme by doubling the upper ceiling of loans outstanding and including certain loans given to professionals like doctors, lawyers and chartered accountants for business purposes under its ambit.
• Tenor of loans provided under the Scheme is four years, including a moratorium of one year on principal repayment.
• Interest rates under the Scheme are capped at 9.25% for Banks and Financial Institutions (FIs), and 14% for NBFCs.

Benefits of the Scheme

• The scheme is expected to provide credit to the sector at a low cost, thereby enabling MSMEs to meet their operational liabilities and restart their businesses and recover early.
• The Scheme is expected to have a positive impact on the economy and support its revival.

National Credit Guarantee Trustee Company Ltd (NCGTC) 

• It was set up by the Department of Financial Services, Ministry of Finance, Government of India to, inter alia, to act as a common trustee company to manage and operate various credit guarantee trust funds.
• NCGTC was incorporated under the Indian Companies Act, 1956 in 2014 with a paid up capital of ₹10 crore, with its registered office at Bandra (East), Mumbai.