Govt raises credit limit for civil aviation sector under ECLGS scheme

The finance ministry has modified the Emergency Credit Line Guarantee Scheme (ECLGS) by raising loan limit under the scheme to Rs 1,500 crore from Rs 400 crore to help the civil aviation sector tide over liquidity stress.

Recognising that an efficient and strong civil aviation sector is vital for the economic development of the country, the Department of Financial Services (DFS) has modified the ECLGS to enhance the maximum loan amount eligibility for airlines.

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.

• 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.

• On August 17, the Union Cabinet approved the enhancement in the limit of ECLGS by Rs 50,000 crore to Rs 5 lakh crore. The additional amount is being earmarked exclusively for enterprises in hospitality and related sectors including the aviation sector.

• Loans of about Rs 3.67 Lakh crore have been sanctioned under ECLGS till August 5, 2022.

Raises credit limit under ECLGS for airlines

• As per the modified ECLGS 3.0, an airline would be eligible for 100 per cent of their fund based or non-fund-based loan outstanding as on the reference dates or Rs 1,500 crore, whichever is lower; and of the above, Rs 500 crore shall be considered, based on equity contribution by the owners.

• All other criteria terms and conditions parameters prescribed under the operational guidelines of the ECLGS on August 30, 2022, would be applicable as it is.

• The modifications introduced are aimed to give necessary collateral-free liquidity at reasonable interest rates to tide over their present cash flow problems.

• Earlier in March 2022, the ECLGS was extended beyond March 2022, till March 2023, to implement the announcement made in the Union Budget 2022-23 by Finance Minister Nirmala Sitharaman.

• Keeping in view the high proportion of non-fund based credit in the overall credit of the civil aviation sector, the eligible borrowers were permitted to avail up to 50 per cent of their highest total fund and non-fund based credit outstanding, subject to a maximum of Rs 400 crore per borrower.

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