- India
- May 07
- Sreesha V.M
Cabinet approves Emergency Credit Line Guarantee Scheme 5.0
• The Union Cabinet approved the Emergency Credit Line Guarantee Scheme (ECLGS) 5.0 scheme to provide targeted credit support to Indian airlines.
• ECLGS was launched in May 2020 for business enterprises in meeting their operational liabilities in view of disruption caused by COVID-19 pandemic.
Highlights of ECLGS 5.0:
• The scheme aims to provide credit guarantee coverage of 100 per cent for MSMEs and 90 per cent for non-MSMEs as well as airline sector, to Member Lending Institutions (MLIs) by National Credit Guarantee Trustee Company Limited (NCGTC) for the amount in default under the additional credit facility extended to the eligible borrowers to tide over any short-term liquidity mismatches, against the backdrop of ongoing West Asia situation.
• The scheme is expected to facilitate additional credit flow of up to Rs 2.55 lakh crore.
• For the aviation sector, the scheme has specifically earmarked Rs 5,000 crore for airlines.
• The scheme provides structured financial relief with a maximum loan limit of Rs 1,000 crore per borrower, and an additional Rs 500 crore subject to equivalent equity infusion by the borrower.
• The loans will have a tenure of up to seven years, including a two-year moratorium on repayment, thereby easing short-term liquidity pressures.
• The longer seven-year loan tenure, along with the option to convert up to 50 per cent of interest into a Funded Interest Term Loan (FITL), is expected to ease immediate repayment pressure and improve cash flows and liquidity.
• The scheme will provide additional credit up to 20 per cent of peak working capital utilised during Q4 FY 26, capped at Rs 100 crore.
• For airlines up to 100 per cent, capped at Rs 1,500 crore per borrower, subject to satisfying certain specific conditions.
• Maximum period of guarantee cover shall be co-terminus with the tenure of the loan.
How will it help the airline sector?
• The decision was taken in view of the financial stress faced by airlines due to the sharp increase in Aviation Turbine Fuel (ATF) prices, compounded by airspace closures and reduced operations, particularly on international routes, leading to lower aircraft utilisation and liquidity constraints.
• The scheme will also help mitigate the impact of rising ATF prices, exchange rate volatility and operational disruptions, which continue to affect the financial health of airlines.
• By enabling access to credit backed by sovereign guarantee, it will enhance lender confidence, improve credit flow to the sector and support operational stability.
• It is also expected to sustain employment, preserve sectoral capacity and help minimise the pass-through of increased costs to passengers, thereby supporting the continued growth and resilience of India’s aviation sector.
(The author is a trainer for Civil Services aspirants.)