The MSME sector took a hit by the pandemic due to which the Finance Ministry of India introduced the Emergency Credit Line Guarantee Limit (ECLGS) in May 2020 to revive the MSME sector. The ECLGS was part of the Atmanirbhar Bharat Abhiyaan for COVID relief, by providing 100% guarantee to the emergency credit that financial institutions such as banks, NBFCs and other lenders provide to the MSMEs small business entrepreneurs.
Under the ECLGS scheme for MSMEs loan amount of INR 3.32 trillion has been sanctioned and as of April 30,2022 and INR 2.54 trillion has been disbursed. Although the gross non-performing asset ratio has been decreased to 9.3% in March 2022 from 11.9% in June 2021, yet the MSMEs are still struggling. Thereby the Indian Government made an announcement on February 1,2022 that the ECLGS extension is to be till March 2023 along with an expansion in the guarantee cover by another INR 50,000 crore to INR 5 lakh crore. In this blog, let us learn more about the ECLGS eligibility and how the scheme will help the MSME sector.
To boost MSMEs which have been impacted due to the COVID-19 pandemic, the working capital term loan is provided with a tenure and principal moratorium accordingly based on the different components that is ECLGS 1.0, ECLGS 2.0, ECLGS 3.0 and ECLGS 4.0
ECLGS 1.0 – Refers to the scheme where additional 20% of the eligible credit facility extended to borrowers eligible on the total credit outstanding across all lending institutions upto Rs.50 crores and upto 60 days past due as on February 29, 2020. Tenure period is of 4 years from the date of disbursement including principal moratorium for 1 year.
ECLGS 2.0 – Refers to the scheme where additional 20% of the eligible credit facility extended to borrowers eligible in the 26 sectors identified by the Kamath Committee on Resolution Framework and the healthcare sector on total credit outstanding across all lending platforms starting from INR 50 crores and not exceeding INR 500 crore and upto 60 days past due as on February 29, 2020. Tenure period is of 5 years from the date of disbursement including principal moratorium for 1 year.
ECLGS 3.0 – Refers to the scheme where additional 40% of the eligible credit facility extended to borrowers eligible in the hospitality, travel & tourism and leisure & sporting sectors on total credit outstanding across all lending platforms upto INR 500 crore and upto 60 days past due as on February 29, 2020. Tenure period is of 6 years from the date of disbursement including principal moratorium for 2 years.
ECLGS 4.0 – Refers to the scheme under which existing hospitals/nursing homes/clinics/ medical colleges are eligible for financial assistance of upto INR 2 crore who have a total credit outstanding across all lending platforms past due as on March 31,2021 and upto 90 days respectively. This amount can be used for setting up technologies like Pressure Swing Adsorption for on-site oxygen generation.
ECLGS loans are provided to any MSME or SME considered as proprietorship, partnership, registered company, trusts and limited liability partnerships. Borrowers having a total outstanding of INR 50 crores as on February 29, 2020 with an annual turnover of INR 250 crore in fiscal year 2019-20 are eligible.
ECLGS unsecured loan can be availed at an interest rate of 14% per annum and the interest rate is nominal.
MSMEs whose liquidity is tied up due to COVID-19 pandemic are provided with additional loans by the financial institutions without any collateral. These loans are 100% guaranteed by the Financial Ministry of India against any credit losses. ECLGS scheme is to ensure that small business enterprises have funds to keep their business afloat after the impact of lockdowns. Sanction and disbursement of loans are quicker comparatively as they have guarantees from the central government. Hence by availing these loans MSMEs can reduce the financial burden and grow their business.
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