- In view of the economic distress caused by the COVID-19 pandemic, the Finance Ministry unveiled a Rs. 20 Lakh Crore comprehensive package, known as the Emergency Credit Line Guarantee Scheme (ECLGS).
- This package is in aid of Micro, Small and Medium Enterprises (MSMEs) sector, addressing working capital needs, operational liabilities and restart business impacted due the COVID-19 crisis.
- The Emergency Credit Line Guarantee Scheme provides 100% guarantee coverage by National Credit Guarantee Trustee Company (NCGTC)to Member Lending Institutions (MLIs) on GECL of up to Rs. 3 lakh crore to eligible MSMEs
Salient Features of ECGL:
|1.||Objective||The Scheme is a specific response to the unprecedented situation COVID-19. It seeks to provide much needed relief to the MSME sector by incentivizing MLIs to provide additional credit of up to Rs. 3 lakh crore at low cost, thereby enabling MSMEs to meet their operational liabilities and restart their businesses.|
|2.||Eligible Borrower||Under ECLGS 1.0: All Business Enterprises /MSMEs/individuals who have availed loan for business purposes with total credit outstanding (fund based only) of up to Rs. 50 crores as on 29.2.2020. The Scheme is valid for existing customers on the books of the MLI. Borrower accounts should be less than or equal to 60 days past due as on 29th February, 2020 in order to be eligible under the Scheme. Under ECLGS 2.0: All Business Enterprises /MSMEs in the 26 sectors identified by the Kamath Committee on Resolution Framework and the Healthcare sector who have availed loan for business purposes with total credit outstanding (fund based only), across lending institutions, above Rs.50 crores and not exceeding Rs.500 crores as on 29.02.2020. To be eligible under ECLGS2.0, the borrower accounts should be less than or equal to 30 days past due as on February 29, 2020. Under ECLGS 3.0: All Business Enterprises /MSMEs in the Hospitality, Travel & Tourism and Leisure & Sporting sectors whose total fund based outstanding across all lending institutions is up to Rs.500 crore and days past due are up to 60 days as on 29.02.2020.|
|3.||Eligible MLIs||All Scheduled Commercial Banks (SCBs) are eligible as MLIs. Non-Banking Financial Companies NBFCs which have been in operation for at least 2 years as on29.2.2020, and FIs will also be eligible as MLIs under the Scheme.|
|4.||Duration of the Scheme||The Scheme would be applicable to all loans sanctioned under GECL during the period from the date of issue of these guidelines by NCGTC to 30.06.2021 or till guarantees for an amount of Rs 3,00,000 crore are issued (taking into account ECLGS 1.0, 2.0 & 3.0), whichever is earlier.|
|5.||Guarantee Coverage||The entire funding provided under GECL shall be provided with a 100% credit guarantee coverage by NCGTC under the Scheme.|
|6.||GST Registration||Business Enterprises/ MSME borrowers must be GST registered in all cases where such registration is mandatory. This condition will not apply to Business Enterprises/ MSME’s that are not required to obtain GST registration.|
|7.||Loan Amount||The amount eligible under the scheme shall be 20% of their total outstanding loans up to Rs. 25 crores as on February 29, 2020 subject to the borrower meeting all the eligibility criteria.|
|8.||Interest rate||Maximum of 9.25% per annum|
|9.||Tenor of Loans||Under ECLGS 1.0: Four years from the date of first disbursement. Under ECLGS 2.0: The tenor of fund based facility provided under ECLGS 2.0 shall be Five years from the date of first disbursement/first utilization under fund based or non-fund based facility. No tenor has been prescribed for non-fund based facility, but the guarantee cover on the non-fund based facility shall expire on completion of 5 years from the date of first disbursement/first utilization under fund based or non-fund based facility. It may be noted that first tranche of non-fund based facility should be utilized on or before September 30, 2021. Under ECLGS 3.0: Six years from the date of first disbursement.|
|10.||Prepayment of loan||Pre- payment of facility is allowed at no additional charge to the borrower|
|11.||Moratorium Period||Under ECLGS 1.0 & 2.0: Moratorium period of One year on the principal amount shall be provided for fund based GECL facility. Under ECLGS 3.0: Moratorium period of Two years on the principal amount shall be provided for fund based GECL facility.|
|12.||Opt Out Option||An option is also provided to the eligible Borrowers to enable them to Opt Out of the scheme in case they do not wish to avail the facility.|
Repayment of Principal and Interest
|Type of facility||Total repayment period including moratorium||Moratorium period on principal repayment|
|GECL 1.0||4 years||1 year|
|GECL 2.0||5 years||1 year|
|GECL 3.0||6 years||2 years|
FAQs regarding ECGLS Scheme
Will GECL be extended as a separate loan account, or as part of the existing loan account of the borrower?
A separate loan account shall be opened for the borrower for extending additional credit under GECL. This account will be distinct from the existing loan account(s) of the borrower.
Will the interest rate on GECL be capped?
Yes, interest rates on GECL shall be capped as under:
or Banks and FIs, one of the RBI prescribed external benchmark linked rates (for MSMEs) and marginal cost based lending rate (for non-MSMEs) +1% subject to a maximum of 9.25% per annum
For NBFCs, the interest rate on GECL shall not exceed 14% per annum
The Scheme may also be operated in combination with applicable interest subvention schemes, as far as feasible.
Will MLIs ask for any additional collateral for the GECL facility?
No additional collateral shall be asked by MLIs for additional credit extended under GECL.
Will any processing fee be charged by MLIs for sanction of loans under GECL?
Since additional credit under GECL is to be provided to existing customers, no additional processing fee shall be charged by lenders
Will the categorization of existing loans extended through current Government schemes such as PMEGP or PMMY change if GECL is provided to such borrowers?
No. Existing loans extended through current Government schemes would continue to be categorized under that scheme as earlier. GECL under this Scheme shall be over and above the existing loan.
Will loans under ECLGS 1.0 be automatically given without any application or solicitation from the borrower?
This is a pre-approved loan. An offer will go out from the MLI to the eligible borrowers for a pre- approved loan which the borrower may choose to accept. If the MSME accepts the offer, it will be required to complete requisite documentation. Thus, an ‘opt-out’ option will be provided to eligible borrowers under the Scheme, i.e., if the borrower is not interested in availing the loan, he/she may indicate accordingly.
What would be the procedure followed in case a borrower has loan accounts with multiple lenders?
In case a borrower has existing limits with multiple lenders, GECL may be availed either through one lender or each of the current lenders in proportion depending upon the agreement between the borrower and the MLI.
In case the borrower wishes to take from any specific lender an amount more than the proportional 20% (40% in respect of borrowers in the Hospitality sector, Travel & Tourism sector and Leisure & Sporting sector) of the outstanding credit that the borrower has with that particular lender, a No Objection Certificate (NOC) would be required from such lenders whose share of loan under ECLGS is being proposed to be taken from the specific lender. However, it would be necessary for the specific lender to agree to provide loan under ECLGS on behalf of such lenders.
How will the guaranteed amount be paid by NCGTC to the MLIs on invocation of the guarantee?
75% of the guaranteed amount will be paid by NCGTC within 30 days of an eligible claim being preferred by the MLI concerned. The balance 25% will be paid on conclusion of recovery proceedings or till the decree gets time barred, whichever is earlier.
What is the biggest benefit of ECGLS 3.0?
ECLGS 3.0 would involve extending credit of up to 40 per cent of total credit outstanding across all lending institutions as on February 29, 2020.
The tenor of loans granted under ECLGS 3.0 would be 6 years ,including a moratorium period of 2 years.
Sample Case Studies
I run a business enterprise and have a GST registration. However, I am not registered as an MSME nor do I have Udyog Aadhar. My Bank also does not classify me as an MSME borrower. Am I eligbile under the scheme?
You are eligible if :
- You have total credit outstanding of Rs. 50 Crore or less as on 29th Feb 2020; or
- Belong to the 26 sectors identified by the Kamath Committee on Resolution Framework in its report dated September 04, 2020 or the Healthcare sector and the total credit outstanding is above Rs.50 Crore and not exceeding Rs.500 crore as on 29th Feb 2020; or
- You have total credit outstanding of Rs. 500 Crore or less as on 29th Feb 2020 and belong to the Hospitality sector, Travel & Tourism sector and Leisure & Sporting sector
- You have a GST registration or were not required to obtain such GST registration Udyog Aadhar or recognition as MSME is not required under this Scheme; and
- You meet other eligibility criteria prescribed under the scheme.
I operate a lending business. Am I eligible?
No. Typically lending institutions get funds from banks/ NBFCs through on lending, refinance, asset purchase, securitization, assignment etc.
I am not a registered MSME and operate a general/retail business. My account was NPA as on 29th Feb, 2020. Am I eligible for ECLGS?
Accounts that are NPA or where overdues have crossed 60 days (SMA-II) are not eligible under ECLGS 1.0 and ECLGS 3.0.
Accounts that are NPA or where overdues have crossed 30 days (SMA-1 or SMA-II) are not eligible under ECLGS 2.0
Whether educational institutes/ agri allied activities eligible for coverage under the scheme?
The scheme is for business activities. Any activity that is classified as an MSME or a business enterprise as per various guidelines issued by RBI or any Ministry from time to time are eligible for coverage under the scheme. If the other norms of the scheme are complied with, these institutions shall stand eligible.
The Government has extended the Emergency Credit Line Guarantee Scheme (ECLGS) by another three months, and widened its scope to issue additional funding to All Business Enterprises /MSMEs in the Hospitality, Travel & Tourism and Leisure & Sporting sectors up to 40 per cent of outstanding loans as on Feb 29, 2020 as against 20 per cent earlier. Hope this extension provides better credit availability to MSMEs and small businesses to meet their operational liabilities and revive their businesses which got affected due to the Corona pandemic.