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.
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.
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.
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
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.
Ans: ECLGS‐1.0 provides member lending institutions with a 100% guarantee in respect of eligible credit facilities they extend to their borrowers. The total amount of credit outstanding (fund-based only) across all lending institutions and the number of days past due as of February 29, 2020 was Rs.50 crore and up to 60 days, respectively.
The tenure for ECLGS 1.0 is 48 months, including a 12-month principal moratorium, and the principal should be repaid in 36 equal installments after the moratorium period ends.
Ans: The ECLGS2.0 is a guarantee scheme for member lending institutions that provides 100% guarantee for credit extended to borrowers in the 26 sectors identified by the Kamath Committee on Resolution Framework, dated April 9, 2020, and the healthcare sector, whose total credit outstanding (fund based only) across all lending institutions and days past due as of February 29, 2020 was above Rs.50 crore but not exceeding Rs.500 crore and up to 60 days respectively.
The tenure for ECLGS 2.0 is 60 months, including a 12-month principal moratorium, and the principal should be repaid in 48 equal installments after the moratorium period ends.
Ans: ECLGS‐3.0 is a scheme for providing a 100% guarantee to member lending institutions in respect of eligible credit facilities they extend to their borrowers in the hospitality, tourism, leisure, and sporting industries. As of February 29, 2020, the total outstanding balance across all lending institutions is Rs. 500 crore and the days past due are up to 60 days.
The tenure for ECLGS 3.0 is 72 months, including a 24-month principal moratorium, and the principal should be repaid in 48 equal installments after the moratorium period ends.
Ans: The Indian government extended the scheme.
As part of the 4.0 version, 100% guarantees are provided for loans of up to Rs 2 crores at a 7.5% interest rate to hospitals, nursing homes, clinics, and medical colleges. It is granted for the establishment of on-site oxygen generation plants. Borrowers can receive up to 40% additional ECLGS assistance or Rs.200 crore whichever is lower than ECLGS-3.0.
Ans: The Scheme is open to all Business Enterprises/MSME borrower accounts with combined outstanding loans of up to Rs. 25 crore as of 29.2.2020 and annual turnover of up to Rs. 100 crore for FY 2019-20.