Emergency Credit Line Guarantee Scheme (ECLGS): A Comprehensive Guide

The Emergency Credit Line Guarantee Scheme (ECLGS) was introduced by the Indian Government as a part of the Atma Nirbhar Bharat package to support Micro, Small, and Medium Enterprises (MSMEs) and MUDRA borrowers during the economic disruptions caused by the COVID-19 pandemic. This scheme plays a pivotal role in reviving the economy by providing additional credit to businesses and promoting self-reliance.

Key Highlights of the Emergency Credit Line Guarantee Scheme (ECLGS)

• Launch Date: Approved by the Union Cabinet in May 2020 under the leadership of Prime Minister Narendra Modi.
• Funding Limit: Additional funding of up to ₹3 lakh crore to various sectors, primarily MSMEs and MUDRA borrowers.
• Part of Atma Nirbhar Bharat Abhiyan: This initiative aligns with India’s goal of becoming self-reliant.
• Loan Applicability:
  • Loans sanctioned from the scheme’s launch to October 31, 2020 (later extended to September 3, 2021).
  • Disbursement allowed until December 31, 2021.
  • Applicable until guarantees of ₹3 lakh crore are issued, whichever occurs first.

Objectives of the ECLGS

1. Comprehensive Coverage: The scheme offers 100% guarantee coverage by the National Credit Guarantee Trustee Company Limited (NCGTC) to Member Lending Institutions (MLIs), Banks, Financial Institutions, and Non-Banking Financial Companies (NBFCs).
2. Access to Additional Funding: Enhances the availability of funding for MSME and MUDRA borrowers.
3. Economic Relief: Mitigates the financial distress faced by MSMEs during the pandemic through guaranteed emergency credit lines.
4. Low-Cost Credit: Ensures access to credit at a lower cost, helping small businesses meet operational liabilities and restart activities.
5. Economic and Social Revival: Supports MSME recovery, contributing to the economic and social well-being of the nation.

Eligibility Criteria for ECLGS

To qualify for loans under the ECLGS, businesses must meet the following criteria:

1. Turnover Limit: Enterprises with a turnover of up to ₹250 crores for FY 2019-20.
2. Outstanding Loans: Borrowers with outstanding loans up to ₹50 crores as of February 29, 2020.
3. Loan Amount:
   • Up to 20% of the borrower’s total outstanding credit as of February 29, 2020.
   • Maximum loan limit of ₹5 crores.

Tenure and Interest Rates under ECLGS

1. Loan Tenure:
   • Initially set at 4 years with a 1-year moratorium on principal repayment.
   • Now extended to 5 years.
2. Interest Rate Caps:
   • Banks and Financial Institutions: Maximum of 9.25%.
   • Non-Banking Financial Companies (NBFCs): Maximum of 14%.
3. No Guarantee Fee: NCGTC does not charge any guarantee fees to Member Lending Institutions.

ECLGS 4.0: Scheme Expansion

On May 31, 2021, the Government of India announced the expansion of the ECLGS under ECLGS 4.0:

1. Healthcare Support:
   • 100% guarantee cover for loans of up to ₹2 crores at an interest rate of 7.5% for hospitals, clinics, and medical colleges to set up on-site oxygen generation plants.
2. Extended Loan Tenure:
   • Eligible borrowers under ECLGS 1.0 can now avail of a 5-year loan tenure.
3. Additional Assistance:
   • Up to 10% additional credit for borrowers covered under ECLGS 1.0.
4. Revised Loan Ceiling:
   • The ₹500 crore loan ceiling under ECLGS 3.0 has been discontinued.
   • Maximum additional assistance is capped at 40% of the borrower’s outstanding loan or ₹200 crore, whichever is lower.
5. Civil Aviation Sector: Included under ECLGS 3.0.

ECLGS 2.0: Expanded Scope

Announced in November 2020 as part of the Atma Nirbhar Bharat 3.0 package, ECLGS 2.0 introduced significant changes:

1. Sectoral Inclusion: Expanded to 27 new sectors, including health, power, construction, textiles, real estate, and tourism, identified by the Kamath Committee for one-time debt restructuring.
2. Beneficiary Expansion: Includes individual beneficiaries, professionals, and self-employed individuals.
3. Revised Credit Limit:
   • Turnover limit increased to ₹250 crores with outstanding loans of ₹50 crores as of February 29, 2020.
   • Maximum loan amount increased to ₹10 crores.
4. Extended Loan Tenure:
   • Tenure upgraded to 5 years with a 1-year moratorium on principal repayment.

Role of National Credit Guarantee Trustee Company Limited (NCGTC)

The NCGTC, established in 2014, is a wholly-owned entity of the Government of India under the Ministry of Finance. Its primary functions include:

1. Designing credit guarantee programs.
2. Sharing lending risks with financial institutions.
3. Facilitating access to credit for prospective borrowers.

Benefits of ECLGS

1. MSME Revival: Provides essential liquidity to MSMEs to manage their operations and restart manufacturing.
2. Low Borrowing Costs: Enables businesses to access funds at competitive interest rates.
3. Economic Boost: Facilitates the revival of sectors significantly impacted by the pandemic.
4. Increased Credit Availability: Enhances access to credit for self-employed individuals and small enterprises.

Conclusion

The Emergency Credit Line Guarantee Scheme (ECLGS) has been instrumental in supporting businesses during the COVID-19 crisis. By offering guaranteed credit, the scheme ensures financial stability for MSMEs and promotes economic recovery. With its evolving scope and expanded benefits, ECLGS stands as a testament to the Indian Government’s commitment to building a self-reliant and resilient economy.