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LOANS OVER RS. 1 LAKH CRORE SANCTIONED UNDER ECLGS

Focus: GS-III Indian Economy

Why in news?

Under the 100 % Emergency Credit Line Guarantee Scheme (ECLGS) backed by a Government guarantee, Banks from Public & Private Sectors have sanctioned loans worth over Rs. 1 lakh crore.

Benefits

  • As part of the Aatmanirbhar package Government had announced its plans for Rs. 3 lakh Crore as additional credit to MSMEs and small businesses.
  • Such enterprises were to be eligible to receive upto 20% of their existing borrowing as additional loans at interest rates which were capped.
  • This would help more than 30 lakh units of MSMEs & other businesses restart their businesses post the lockdown.

Emergency Credit Line Guarantee Scheme (ECLGS)

  • Under the Emergency Credit Line Guarantee Scheme (ECLGS) 100% guarantee coverage to be provided 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.
  • It aims to provide a 100 per cent guarantee for any losses suffered by them due to non-repayment of the GECL funding by borrowers.

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.
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September 2022
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