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Emergency Credit Line Guarantee Scheme

Context:

The Union Cabinet, chaired by the Prime Minister has approved the enhancement in the limit of Emergency Credit Line Guarantee Scheme (ECLGS) by Rs 50,000 crore from Rs. 4.5 Lakh crore to Rs. 5 Lakh crore, with the additional amount being earmarked exclusively for enterprises in hospitality and related sectors. 

  • The increase has been done on account of the severe disruptions caused by COVID-19 pandemic on hospitality and related enterprises.

Relevance:

GS III-Indian Economy

Dimensions of the Article:

  1. About Emergency Credit Line Guarantee Scheme (ECLGS)
  2. Aims and objectives of ECLGS
  3. Benefits of the ECLGS

About Emergency Credit Line Guarantee Scheme (ECLGS)

  • Emergency Credit Line Guarantee Scheme (ECLGS) was announced as part of the Atma Nirbhar Bharat Package in 2020
  • Objective: to help businesses including MSMEs to meet their operational liabilities and resume businesses in view of the distress caused by the COVID-19 crisis, by providing Member Lending Institutions (MLIs).
  • It provides 100% guarantee coverage  against any losses suffered by them due to non-repayment of the ECLGS funding by borrowers by National Credit Guarantee Trustee Company Limited (NCGTC) for additional funding of up to Rs. 3 lakh crore to eligible MSMEs and interested MUDRA borrowers.
  • The credit will be provided in the form of a Guaranteed Emergency Credit Line (GECL) facility.
  • Tenor of the loan under Scheme shall be four years with a moratorium period of one year on the principal amount.
  • No Guarantee Fee shall be charged by NCGTC from the Member Lending Institutions (MLIs) under the Scheme.
  • Interest rates under the Scheme shall be capped at 9.25% for banks and FIs, and at 14% for NBFCs.
Aims and objectives of ECLGS
  • The Scheme aims at mitigating the economic distress faced by MSMEs by providing them additional funding in the form of a fully guaranteed emergency credit line.
  • The main objective is to provide an incentive to Member Lending Institutions (MLIs), i.e., Banks, Financial Institutions (FIs) and NBFCs to increase access to, and enable the availability of additional funding facility to MSME borrowers.
The eligibility criteria for availing credit under ECLGS are:
  • For ECLGS 1.0; MSME units, Business Enterprises, Mudra Borrower and individual loans for business purpose having loan outstanding upto Rs.50 crore and days past due upto 60 days as on 29.02.2020.
  • For ECLGS 2.0; Borrower belonging to 26 stressed sectors identified by Kamath Committee & Healthcare sector having loan outstanding above Rs.50 crore and upto Rs.500 crore and days past due upto 60 days as on 29.02.2020.
  • For ECLGS 3.0; Borrower belonging to Hospitality, Travel & Tourism, Leisure & Sporting and Civil Aviation sector having days past due upto 60 days as on 29.02.2020.
  • For ECLGS 4.0; Existing Hospitals/Nursing Homes/Clinics/Medical Colleges/units engaged in manufacturing of liquid oxygen, oxygen cylinders etc. having credit facility with a lending institution with days past due upto 90 days as on March 31, 2021.
Benefits of the ECLGS
  • The scheme aims to mitigate the distress caused by COVID-19 and the consequent lockdown, which has severely impacted manufacturing and other activities in the MSME sector.
  • The scheme is expected to provide credit to the sector at a low cost, thereby enabling MSMEs to meet their operational liabilities and restart their businesses.
  • By supporting MSMEs to continue functioning during the current unprecedented situation, the Scheme is also expected to have a positive impact on the economy and support its revival.

-Source: The Hindu


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October 2022
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