The finance ministry expanded the scope of the Rs 5 lakh-crore Emergency Credit Line Guarantee Scheme (ECLGS) to support MSMEs engaged in travel, tourism and hospitality sectors to overcome the impact of the COVID-19 pandemic impact.

What is ECLGS?

• In May 2020, the Centre launched the Emergency Credit Line Guarantee Scheme (ECLGS) to provide relief to the MSME sector amidst the COVID-19 pandemic.

• The main objective of Rs 3 lakh crore collateral free loan scheme was to provide an incentive to Member Lending Institutions (MLIs) — banks, financial institutions (FIs) and non-banking financial companies (NBFCs) to increase access to, and enable availability of additional funding facility to MSME borrowers, in view of the economic distress caused by the COVID-19 crisis, by providing them 100 per cent guarantee for any losses suffered by them due to non-repayment of the Guaranteed Emergency Credit Line (GECL) funding by borrowers.

• With a view to support various businesses impacted by the second wave of COVID-19 pandemic, the Centre decided to extend the timeline of ECLGS till March 31, 2022 or till guarantees for an amount of Rs 4.5 lakh crore are issued under the scheme, whichever is earlier. 

ECLGS 1.0

In May 2020, 100 per cent guarantee was provided to MSMEs and business enterprises with loan outstanding up to Rs 25 crore. In August 2020, this was extended to Mudra borrowers and individual loans for business purposes.

ECLGS 2.0

In November 2020, the scheme was extended through ECLGS 2.0 for 26 sectors identified by the Kamath Committee and for health care sector up to March 31, 2021, for entities with loan  outstanding above Rs 50 crore and not exceeding Rs 500 crore as on February 29, 2020, which were less than or equal to 60 days past due as on February 29, 2020.

ECLGS 3.0

In March 2021, the scheme was extended through ECLGS 3.0 to cover business enterprises in hospitality, travel & tourism, leisure, sporting and civil aviation sectors. 

ECLGS 3.0 involved extension of credit of up to 40 per cent of total credit outstanding across all lending institutions as on February 29, 2020 to enterprises in these sectors. The maximum assistance is capped at Rs 200 crore.

ECLGS 4.0

In May 2021, some other modifications were made in the scheme, which include, increase in moratorium period up to one year for loans under ECLGS 1.0, for those lenders where restructuring is admissible as per RBI norms, additional 10 per cent credit to ECLGS 1.0 borrowers availing RBI’s one-time restructuring facility, inclusion of civil aviation sector within ECLGS 3.0 and removal of the cap of Rs 500 crore of loan outstanding for ECLGS 3.0 subject to the maximum guarantee be capped at Rs 200 crore in each case and 100 per cent guarantee under ECLGS up to a limit of Rs 2 crore for setting up new oxygen plants has been permitted.

• Since its launch in May 2020, loans worth Rs 3.19 lakh crore have been sanctioned till March 25, 2022. About 95 per cent of the guarantees issued are for loans sanctioned to micro, small and medium enterprises. 

• Finance Minister Nirmala Sitharaman while announcing the Budget 2022-23 had extended the validity of the scheme by another one year till March 2023, and also increased the total amount to be sanctioned under the scheme from Rs 4.5 lakh crore to Rs 5 lakh crore.

What are the new modifications?

• The National Credit Guarantee Trustee Company Ltd (NCGTC) has extended the ECLGS till March 2023.

• The coverage, scope and extent of benefits under ECLGS 3.0 pertaining to hospitality, travel, tourism and civil aviation sectors have been expanded.

• New borrowers, in the sectors covered under ECLGS 3.0, who have borrowed between March 31, 2021, and January 31, 2022, will now be eligible to avail the emergency credit facilities.

• The credit limit for eligible borrowers has been increased to 50 per cent of their fund-based credit outstanding from 40 per cent earlier.

• The enhanced limit is subject to a maximum of Rs 200 crore per borrower.

• Individuals and proprietary concerns in the sectors covered under ECLGS 3.0 can also now avail of emergency credit facilities.

• The fresh modifications are aimed at enabling businesses in these contact-intensive sectors to get further support through enhanced coverage and collateral-free liquidity on capped interest rates/fees.

• Keeping in view the high proportion of non-fund based credit in the overall credit of the civil aviation sector, eligible borrowers in the civil aviation sector are now permitted to avail of non-fund based emergency credit facilities as well under ECLGS 3.0.

• Further, to lower their cost of accessing non-fund-based credit, bank guarantees, letters of credit and other non-fund based facilities sanctioned under ECLGS 3.0 will be issued without any cash margin and subject to a cap of 0.5 per cent per annum on the fee/commission.

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