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Emergency Credit Line Guarantee Scheme (ECLGS)

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Emergency Credit Line Guarantee Scheme (ECLGS)

The Finance Ministry of India launched the Emergency Credit Line Guarantee Scheme (ECLGS) in May 2020 to help the pandemic hit economy. This scheme aimed to provide Rs.4.5 lakh crore of unsecured loans to MSMEs and business enterprises to mitigate the distress caused by the coronavirus-induced lockdown. In view of the continuing adverse impact of the pandemic, the ECLGS scheme for MSME is now extended till March 31, 2022.

ECLGS 3.0

Apart from providing financial assistance to the MSMEs to address their working capital needs, the ECLGS 3.0 will also be extended to enterprises from the hospitality, travel and tourism, leisure and sporting sectors that were worst hit due to the pandemic. This scheme is available to the mentioned businesses whose total outstanding credit is less than Rs. 500 crore as of February 29, 2020 and whose overdue balance is 60 days or less on that date. While this ECLGS loans scheme tenor for the credit will be 6 years, which includes 2 years of the moratorium period. The validity of ECLGS 1.0 and 2.0 has been extended till March 31, 2022. The last date of disbursement under the scheme is also extended to June 30, 2022. Under ECLGS 3.0, the loan amount will be 40% of total credit outstanding across all lending institutions as on February 29, 2020.

Purpose of Emergency Credit Line Guarantee Scheme (ECLGS)

The ECLGS loan was announced as a part of the COVID-19 relief package launched by the Central Government to revive various businesses. Backed by the government, under this scheme, banks and other lending institutions can extend emergency credit facilities to business enterprises and MSMEs that have suffered due to the pandemic. This guaranteed emergency credit line (GECL) can help meet the working capital needs and other operational costs of MSMEs and other stressed businesses.

Below are the details of the Scheme

Types of loan offered

Under the emergency credit line guarantee scheme, borrowers can avail of term loans that come without collateral.

Loan amount sanctioned

The amount of loan sanctioned under the Guaranteed Emergency Credit Line is up to 20% of the total outstanding credit of the borrower as on February 29, 2020. Under ECLGS 3.0, loan amount has increased to 40% of the total outstanding credit across all lending institutions as on February 29, 2020.

ECLGS eligibility

Business enterprises/MSMEs including proprietorship, partnership, Limited Liability Partnerships (LLPs) are eligible for the ECLGS scheme. Borrowers with a combined outstanding of Rs.50 crore as on February 29, 2020 and annual turnover up to Rs. 250 crore in FY 2019-20 are eligible. However, under ECLGS 3.0, enterprises from hospitality, travel and tourism, leisure and sporting sectors are also included whose total outstanding credit is less than Rs. 500 crore as of February 29, 2020.

Interest rate and charges

The ECGLS interest rate is nominal and unsecured loans can be availed at the ECLGS loan interest rate of 14 % p. a.

Loan tenor

The tenor for working capital term loans sanctioned under ECLGS scheme 1.0 is 48 months. Loans under ECLGS, ECLGS 2.0 and 3.0 have tenors of 5 and 6 years, respectively. (For the period of 1 year, only interest shall be payable and for subsequent years, principal plus interest shall be payable)

Nature of account

The overdue balance for borrowers' accounts should be less than or equal to 60 days as on February 29, 2020. Borrowers whose account has NPA or SMA-2 status as on February 29, 2020 will not qualify for the loan under this scheme.

Security & Guarantee Fees Under ECLGS

Under GECL loan scheme, there are no charges for processing, foreclosure or prepayment. Borrowers are not required to provide any collateral to obtain funds under an emergency credit line.

Validity of ECLGS Scheme

The validity of ECLGS i.e. ECLGS 1.0, ECLGS 2.0 & ECLGS 3.0 have been extended up to March 31, 2022 or until guarantees for an amount of Rs. 3 lakh crore are issued. The last date of disbursement of loan under the ECLGS scheme has been extended to June 30, 2022.

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