Emergency Credit Line Guarantee Scheme

Context: 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 – Key Points

• 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.

Source: Indian Express

Previous Year Questions

Q.1) Which among the following steps is most likely to be taken at the time of an economic recession? (2021)

1. Cut in tax rates accompanied by increase in interest rate
2. Increase in expenditure on public projects
3. Increase in tax rates accompanied by reduction of interest rate
4. Reduction of expenditure on public projects