Changes to the ECLGS would increase its usefulness and impact by providing more assistance to MSMEs, protecting livelihoods, and facilitating a smooth return to business. These enhancements will make it easier for institutions to obtain reasonable financing.
| Recent Update: The statistics in the paper shows that as of September 2022, banks and other lenders have disbursed ₹2.82 lakh crore into around ₹1.04 crore loan accounts of MSMEs and other enterprises covered by ECLGS. According to this, as of September 2022, over ₹17.72 lakh accounts (or about 1 in 6 of the approximately ₹1.04 crore accounts) had fallen into the NPA category. |
Overview:
The coronavirus pandemic has affected lives and livelihoods across the country. Of special concern were small and medium-sized businesses that found themselves running out of working capital. To help such cash-strapped businesses, professionals and independent institutions, the government last year announced the Emergency Credit Line Guarantee Scheme (ECLGS). From April 1, 2021, the scheme has been modified and and its scope extended. In this article, we cover important changes in the scheme and how you can avail of financial assistance under the scheme for your business.
Emergency Credit Line Guarantee Scheme – Key Points
The government started a special credit programme called the Emergency Credit Line Guarantee Scheme (ECLGS) to assist firms that were impacted by the Covid-19. It’s a loan that doesn’t need any security, so businesses can apply even if they don’t have any valuable things to give. The government also promises to help guarantee the loan and charges less interest. The loan payment period is also longer. This financing is intended to aid small businesses in recovering from the pandemic’s negative impacts. It’s a component of the government’s strategy to help small enterprises and strengthen the economy of the nation.
Objectives of Emergency Credit Line Guarantee Scheme (ECLGS)
The Emergency Credit Line Guarantee Scheme (ECLGS) seeks to assist companies who suffered losses as a result of Covid-19. Giving them money will enable them to continue operating and create new jobs. Businesses can apply for the loan even if they don’t have any valuable assets to pledge as security because no security is required. The ECLGS strives to support small enterprises in particular so that they can develop and improve the economy. Making the nation stronger and more independent is a goal of the government.
Who is Eligible Under the ECLG Scheme?
To get the special loan called Emergency Credit Line Guarantee Scheme (ECLGS), you need to be in certain categories like MSMEs, businesses, self-employed people, or professionals. Your business should have less than ₹50 crore of unpaid money as of 29 February 2020. It should not be in trouble and called non-performing. All applicants are eligible for this loan with the exception of a few restricted locations.
- The Emergency Credit Line Guarantee Scheme (ECLGS) does not apply to Central and State Public Sector Undertakings (PSUs) or Central and State Government Departments
- The ECLGS loan is not available to people who have defaulted on any debts before 29 February 2020
- The ECLGS loan is not available to entities that the lenders classify as Special Mention Accounts (SMA) 2 or SMA 3 as of 29 February 2020.
Tenure & Interest Rates under ECLGS
- The loan tenure is 4 years with a 1-year moratorium period on the principal amount
- Nevertheless, the loan’s term has been increased to five years
- The maximum interest rate for banks and other financial institutions is 9.25%, and for non-banking financial enterprises it is 14%
- It is forbidden for the National Credit Guarantee Trustee Company Ltd (NCGTC) to demand a guarantee fee from the participating member lending institutions.
Interest Rates under ECLGS 3.0
- The RBI has set the scheme’s interest rate at 9.25% per year.
- For loans availed from NBFCs, the rate under the scheme has been capped at 14%.
ECLGS 3.0’s Modified Emergency Credit Line Guarantee Scheme
- The original emergency credit line guarantee scheme has been launched with effect from 1 June 2020. This was a part of the government’s 20 lakh crore scheme of financial incentives.
- The scheme focuses on uplifting the Indian economy, with special incentives for the poor and small businesses affected by the pandemic.
- As part of this, 3 lakh crores has been set aside to ensure that MSMEs borrowers do not face difficulties in obtaining bank loans due to a lack of collateral security.
- The amount of loan availed under this scheme is entirely guaranteed by the National Credit Guarantee Trustee Company. This is a wholly-owned company by the government of India.
- The scheme was originally valid until October 2020 and was later extended until November 2020. This was done in accordance with the vision 3.0 of Atma Nirbhar Bharat.
- The sectors it originally applied to were 26 stressed sectors as identified by the KV Kamath committee.
- The modified version of the scheme, called the emergency credit line guarantee scheme (ECLGS) 3.0, was launched recently on April 1, 2021.
What Are the Eligibility Requirements for the ECLGS Scheme?
- Companies with a turnover of up to 250 crores can avail of the loan under the emergency credit line guarantee scheme. This limit was earlier restricted to Rs. 100 crores.
- Maximum loan value: An amount of up to 25 crores can be taken by an eligible company.
- Earlier, only MSMEs that had existing loans of up to a maximum of 25 crores (as of February 29, 2020) could seek additional loans under the scheme. However, this has now been revised to
ECLGS 3.0 would involve extending credit of up to 40% of the total credit outstanding to lending institutions across the country.
What New Sectors Does the ECLGS 3.0 Plan Cover?
The government has added three new sectors to the ECGLS. These new sectors are:
- Hospitality
- Travel
- Tourism
As a result, businesses in these areas that match the eligibility criteria listed below may be eligible for additional loans under the plan.
How Much Additional Loan Can Be Obtained Through the Scheme
The maximum limit of loans that can be availed under the emergency credit line guarantee scheme has been capped at up to 20%. Thus, if a borrowing company or individual has existing loans of 25 crores, the maximum extra credit that can be taken under the scheme is 5 crores. Since banks decide the final loan to be given, an upper limit of 20% may not guarantee that the individual or company will get an additional loan of 20%. The bank may choose to extend a smaller amount of credit to the borrower.
Loan Repayment Period Under the ECLGS 3.0
For all categories of loan takers—individual or company/partnership businesses—the overall repayment period under the scheme is now six years. This limit, however, is subject to a moratorium period of two years on the payment of the principal component of the loan. The principal amount of the loan needs to be paid in 36 instalments after the initial moratorium is over. The interest, however, becomes payable from the date on which the loan has been taken. This is unlike the previous version of the ECLG scheme, which had a repayment period of five years and a moratorium period of one year only.
The Process of Availing Loan Under the Emergency Credit Line Guarantee Scheme
The scheme is offered as a “pre-approved loan”. Thus, the banking institution or NBFC from where the initial loan has been taken can be approached for availing benefits under the scheme.
Additionally, banks will also offer this loan in a pre-approved format to eligible borrowers, who may choose to avail or opt out of the scheme.
ECLGS 4.0 – Expansion of the Scheme
ECLGS 4.0 is a way for the government to help more businesses hit by COVID-19. They are giving extra money to businesses that need it and letting them pay it back over a longer time. They are also letting more types of businesses apply, like hospitals and airlines. The goal is to help businesses and make the economy better again.
- The scheme provides 100% guarantee cover to eligible healthcare facilities for loans up to ₹2 crore to set up on-site oxygen generation plants
- The loan’s interest rate is 7.5%
- The length of the loan has been increased from four to five years
- Borrowers covered under ECLGS 1.0 can avail of additional assistance of up to 10% of the outstanding as of 29 February 2020
- The ₹500 crore loan limit under ECLGS 3.0 is no longer in effect
- The maximum additional assistance that can be provided to each borrower is 40% of their outstanding loan or ₹200 crore, whichever is lower
- The civil aviation sector is now eligible to borrow under ECLGS 3.0.
About National Credit Guarantee Trustee Company Limited
The NCGTC is a bank owned by the government that helps small businesses get loans. They are really important for the ECLGS program because they guarantee the loans given by other banks. Their responsibility is to support firms who require financing and to ensure that the loans are not dangerous. The bank doesn’t have to worry about losing money if the business is unable to repay the loan because the NCGTC guarantees the entire amount. They also streamline the loan application process and speed up the money transfer.
Frequently Asked Questions
How do I apply for the ECLGS Working Capital term loan with Standard Chartered Bank?
You can visit Standard Chartered Bank's website or office to submit an application for a loan through the ECLGS programme. If you currently have a loan from them, you can be eligible for another loan under this programme if you meet the conditions and the bank's standards. You can inquire with the bank for additional details.
Will the ECLGS Working Capital term loan be a top-up over and above my existing loan?
Yes, the ECLGS Working Capital term loan will be a top-up loan over and above your existing loan.
Do I have to pay any fees to avail the ECLGS Working capital term loan?
Standard Chartered Bank does not charge any processing fee for availing the ECLGS Working Capital term loan.
What is the tenor of the ECLGS Working Capital Term Loan?
The ECLGS Working Capital Term Loan has a maximum term of five years, including an optional moratorium of up to twelve months.
If I have more than one Loan with Standard Chartered Bank will I be offered a single loan as an additional ECLGS Working Capital term loan?
Yes, subject to certain terms and circumstances, you can be given a single loan as an additional ECLGS Working Capital term loan if you have numerous loans with Standard Chartered Bank. It is preferable to inquire about specifics and eligibility requirements directly from the bank.
