The Emergency Credit Line Guarantee Scheme (ECLGS) was the dedicated fully guaranteed and collateral-free additional credit support announced for Covid-hit micro, small, and medium enterprises (MSMEs), Mudra borrowers, apart from offering individual loans for business purposes. Announced in May 2020, the Rs 3 lakh crore credit scheme was initially valid till October 2020 but was later extended to November followed by March this year, and subsequently till June or till guarantees for the corpus amount of Rs 3 lakh crore are issued through two iterations viz., ECLGS 2.0 and ECLGS 3.0. Here’s a breakdown of everything an MSME would want to know about the scheme for securing credit:
Who is eligible?
National Credit Guarantee Trustee Company (NCGTC) offers a complete guarantee on loans offered by banks and other member lending institutions in case of default by MSME and other borrowers including business enterprises which are constituted as proprietorships, partnerships, registered companies, trusts, and Limited Liability Partnerships (LLPs) apart from borrowers under Pradhan Mantri Mudra Yojana and individual loans for businesses.
However, borrowers with total outstanding loans of up to Rs 50 crore in any sector and up to Rs.500 crore for those in the hospitality, travel and tourism, leisure, and sporting sector and classified as regular, SMA-0, or SMA-1 accounts as of February 29, 2020, would be eligible for ECLGS loans. SMAs are special mention accounts that show signs of incipient stress leading to the borrower defaulting in servicing the debt. While SMA-0 are accounts having payments partially or wholly overdue for 1-30 days, SMA-1 and SMA-2 accounts have payments overdue for 31-60 days and 61-90 days respectively.
“No doubt ECLGS is a good move as at least Rs 1.8 lakh crore loan has already been disbursed. This means it has benefitted some MSMEs. However, the government should have allowed loans based on the working capital sanctioned and not the outstanding credit as of February 29 to benefit more MSMEs. Also, it doesn’t cater to SMA-2 accounts and hence not many MSMEs have benefitted so far,” Jacob Crasta, Chairman at environmental test chambers maker CM Envirosystems and former President, Assocham Southern Council told Financial Express Online.
How much credit can be availed?
Credit available would be up to 20 per cent (up to Rs 100 crore) of MSMEs total outstanding credit up to Rs 500 crore and 40 per cent (up to Rs 200 crore) for borrowers in the hospitality, travel & tourism, and leisure & sporting sector as on February 29, 2020. Importantly, borrowers who haven’t raised credit before wouldn’t be able to apply for ECLGS since it is valid for those who are already on the books of banks and other eligible lenders such as NBFCs and financial institutions.
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How to avail ECLGS credit if a borrower has loan accounts with multiple banks?
MSMEs would be able to avail credit either through one lender (bank, NBFC, etc) or each of its current lenders in the proportion to the credit sought as per the agreement between the borrower and the lender. However, if an MSME wants to take an amount more than the proportional 20 per cent from any particular lender, then it would require a No Objection Certificate from other lenders whose share of loan the MSME is taking from that particular lender.
What’s the tenor and how much is the interest rate?
Loans under ECLGS 1.0 have a tenor (maximum period of guarantee cover) of four years from the date of disbursement and five years under ECLGS 2.0. There is no tenor prescribed for the non-fund-based facility but the first tranche of non-fund-based loan should be utilized on or before September 30, 2021. On the other hand, for ECLGS 3.0, the loan tenor is six years from the date of the first disbursement. The interest rates under the scheme are capped at 9.25 per cent for banks and FIs, and at 14 per cent for NBFCs.
How much is the moratorium period and repayment window?
The moratorium period on principal repayment would be one year for ECLGS 1.0 and 2.0 and two years for ECLGS 3.0. The principal amount is to be repaid in 36 installments under ECLGS 1.0, 48 installments under ECLGS 2.0, and under 3.0, after the moratorium period is over. Borrowers can also pre-pay at no additional cost.
Who are registered lenders?
As of December 21, 2020, 12 public sector banks including SBI, Union Bank, Bank of Maharashtra, Canara Bank, etc., 22 private banks including smaller ones such as Lakshmi Vilas, Karur Vysya, Federal Bank, Jammu and Kashmir Bank, etc., six foreign banks including Standard Chartered, DBS Bank India, HSBC, etc., six small finance banks including AU Small Finance Bank, Utkarsh Small Finance Bank, etc., two financial institutions – SIDBI and Export and Import Bank of India, 42 regional rural banks, and 127 NBFCs were registered member lending institutions for the ECLGS scheme.