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Emergency Credit Line Guarantee Scheme (ECLGS)

Topics Covered: Schemes for the vulnerable sections of the society.

Emergency Credit Line Guarantee Scheme (ECLGS):

Context:

The government has extended the ₹3-lakh-crore emergency credit line guarantee scheme by another three months till June 30 and also widened its scope to new sectors, including hospitality, travel and tourism.

Details:

  • ECLGS 3.0 would involve extending credit of up to 40% 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.

About the scheme:

The scheme was launched as part of the Aatmanirbhar Bharat Abhiyan package announced in May 2020 to mitigate the distress caused by coronavirus-induced lockdown, by providing credit to different sectors, especially Micro, Small and Medium Enterprises (MSMEs).

  • 100% guarantee coverage is being provided by the National Credit Guarantee Trustee Company, whereas Banks and Non Banking Financial Companies (NBFCs) provide loans.
  • The credit will be provided in the form of a Guaranteed Emergency Credit Line (GECL) facility.
  • 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.

Eligibility:

  • Borrowers with credit outstanding up to Rs. 50 crore as on 29th February, 2020, and with an annual turnover of up to Rs. 250 crore are eligible under the Scheme.
  • On 1st August 2020, the government widened the scope of the Rs. 3 lakh crore-ECLGS scheme by doubling the upper ceiling of loans outstanding and including certain loans given to professionals like doctors, lawyers and chartered accountants for business purposes under its ambit.

Benefits of the scheme:

  • 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.

InstaLinks:

Prelims Link:

  1.   1.Classification of MSMEs- old vs new.
  2.  2.Contributions of MSMEs to GDP.
  3.  3.What are NBFCs?
  4.  4.What is GECL facility?
  5.  5.What is NCGTC?

Sources: the Hindu.