What is the Emergency Credit Line Guarantee Scheme (ECLGS)?
The Finance Ministry of India launched the Emergency Credit Line Guarantee Scheme (ECLGS) in May 2020 to help businesses mitigate the distress caused by lockdowns and the pandemic as a whole. This scheme aimed to provide Rs. 3 lakh crore to lenders, permitting them to extend credit in the form of unsecured loans to MSMEs and businesses with outstanding credit.
In view of the continuing adverse impact of the pandemic, the ECLGS scheme is now extended till June 30, 2021. Currently, there are three components, which are the ECLGS 1.0, ECLGS 2.0, ECLGS 3.0. Read on to know more about the scheme, its purpose, and other crucial details.
Purpose of the 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.
Types of loans 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 of February 29, 2020. Under ECLGS 3.0, the loan amount has increased to 40% of the total outstanding credit across all lending institutions as of February 29, 2020.
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 of 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 of at the ECLGS loan interest rate of 14% p. a.
The tenor for working capital term loans sanctioned under ECLGS scheme 1.0 is 48 months. Loans under ECLGS 2.0 and ECLGS 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 of the borrower’s account should be less than or equal to 60 days as of February 29, 2020. A borrower whose account has NPA or SMA-2 status as of February 29, 2020, will not qualify for the loan under this scheme.
Security and guarantee fees under ECLGS
Under the 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
ECLGS validity, i.e. ECLGS 1.0, ECLGS 2.0 and ECLGS 3.0, has been extended up to June 30, 2021, or until guarantees for an amount of Rs. 3 lakh crore is issued. The last date of disbursement of the loan under the ECLGS scheme has been extended to September 30, 2021.
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.
This ECLGS loan scheme’s tenor will be of six years, including two years of the moratorium period. The validity of ECLGS 1.0 and 2.0 has been extended till June 30, 2021. The last date of disbursement under the scheme is also extended to September 30, 2021. Under ECLGS 3.0, the loan amount will be 40% of total credit outstanding across all lending institutions as of February 29, 2020.