What Is Emergency Credit Line Guarantee Scheme?

Introduced in the midst of Covid-19 pandemic, Emergency Credit Line Guarantee Scheme(ECLGS) is a part of the Atma Nirbhar Bharat package to help Micro, Small and Medium enterprises mitigate the losses incurred due to the pandemic. While the scheme was launched by the Union Minister in May 2020, led by Prime Minister Narendra Modi, its scope was further expanded by the Finance Ministry over a period of time.

In May 2021, ECLGS 4.0 was introduced and provides 100% guarantee cover for loans up to Rs.2 crore to hospitals/nursing homes/clinics/medical colleges with interest rates capped at 7.5%. This is for the establishment of on-site oxygen generation plants.

What Is The Purpose Of ECLGS?

The purpose of this emergency line of credit is to provide working capital and other financial support to borrowers from the Business Enterprises/Micro, Small and Medium Enterprises (MSME) subsectors who need it because of their inability to meet operational liabilities caused by the COVID-19 crisis.

What Are The Objectives Of Emergency Credit Line Guarantee Scheme?

During the country's fight against the COVID-19 pandemic, MSMEs in manufacturing and other sectors suffered significant losses. To compensate for this loss, the government implemented the Emergency Credit Line Guarantee Scheme.

The major objectives of the ECLGS are:

• In accordance with the scheme, National Credit Guarantee Trustee Company Limited (NCGTC) will provide 100% guarantee coverage to members of lending institutions, banks, financial institutions, and non banking financial companies.

• MSME and MUDRA borrowers would have greater access to, and wider availability of, additional financing facilities as a result

• This emergency line of credit scheme provides MSMEs with a fully guaranteed emergency credit line in an effort to mitigate economic distress

• Also, it will provide low-cost credit to the sector, allowing small businesses to meet their operational liabilities and resume manufacturing

Once the MSMEs in India begin to function normally, India will benefit both financially and socially. This is one of the primary reasons why the government implemented this scheme in the midst of a pandemic.

ECLG Scheme: Who is Eligible?

To be eligible for a loan under the expanded Emergency Credit Line Guarantee Scheme, candidates must meet the following criteria:

• Enterprises with an annual turnover lower than Rs. 250 crores (FY 2019-20) and less than Rs. 50 crores in outstanding loans as of February 29, 2020

• The GECL credit will amount to up to 20% of the borrower's total outstanding credit on February 29, 2020

• The maximum amount of loan that can be obtained under the scheme is Rs. 5 crore

Tenure & Interest Rates Under ECLGS

• The loan tenure is four years, and a moratorium period of one year applies to the principal amount [The loan tenure has been extended to five years now]

• Under ECLGS, interest rates are also capped as follows:

• 9.25% for Banks and Financial Institutions

• 14% for Non-Banking Financial Companies

• In accordance with this scheme, the National Credit Guarantee Trustee Company Limited (NCGTC) cannot charge Member Lending Institutions any Guarantee Fee

Key highlights of ECLGS:

• Loans made to Business Enterprises/MSMEs formed as a sole proprietorship, partnership, registered company, trusts, or Limited Liability Partnerships (LLPs) will be eligible under the respective scheme, as long as they fall within specific sectors.

• In all cases where such registration is required, Business Enterprises/MSME borrowers must have Goods and Services Tax (GST) registered. This circumstance does not apply to Business Enterprises/MSMEs that are not required to get GST registration.

• Borrower accounts with NPA or SMA-2 status as of February 29, 2020 will be ineligible for the ECLGS 1.0/2.0 and 3.0 schemes.

• The moratorium period for ECLGS 1.0, ECLGS 2.0, and ECLGS 3.0 extensions is two years. ECLGS 4.0 has a 6-month moratorium period.

• No processing fees and no foreclosure/prepayment penalties

• There is no need for additional collateral

Conclusion

The Emergency Credit Line Guarantee Scheme was launched by the Indian government in May 2020, as a part of Atma Nirbhar Bharat Abhiyan Package to help alleviate the losses caused by pandemic-induced lockdown. As a result of this scheme, credit will be extended to a wide variety of sectors, especially micro,small and medium enterprises (MSMEs). Owing to their size, these companies were particularly hit by the pandemic.