Emergency Credit Line Guarantee Scheme

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Context

The Union Cabinet chaired by Prime Minister Narendra Modi approved a proposal to enhance the limit of the Emergency Credit Line Guarantee Scheme (ECLGS) by ₹ 50,000 crore to ₹ 5 lakh crore.

Emergency Credit Line Guarantee Scheme

Emergency Credit Line Guarantee Scheme is a type of multipurpose loan offered by the Government of India.
The ECLGS primarily aims to provide a line of credit loan facility to MSMEs and business enterprises that have faced hardships due to the pandemic. As a part of the same, government officials provide a 100% credit guarantee on behalf of the National Credit Guarantee Trustee Company (NCGTC).
The Emergency Credit Line Guarantee Scheme makes up a part of the ₹20 lakh crore package announced by the Indian Finance Ministry back in the early months of the pandemic. It was done to help various struggling enterprises. According to the Emergency Credit Line Guarantee Scheme guidelines, all eligible entities were entitled to a credit of up to 20% of their existing business loan dues starting from February 29, 2020. However, it must be noted that the capping for the same is set at ₹5 Crores.

Key Features of ECLGS Scheme

To determine if the line of credit loan offered under the Emergency Credit Line Guarantee Scheme is the right option for someone, they must review the following features of the scheme:
The ECLGS loan amount offered is up to 20% of the borrower’s total outstanding loan of up to ₹50 Crores, which means the maximum loan amount will be ₹10 Crores.
Separate loan accounts are made for borrowers who have sanctioned loans under the ECLGS scheme.
The ECLGS loans do not attract any fees that one would pay on an ordinary business loan, such as the processing fee and the applicable prepayment charges.
The ECLGS scheme offers a repayment tenure of up to 4 years from the date of disbursal.
The emergency credit scheme also offers a moratorium of up to one year to repay the principal amount.
It is important to note that the ECLGS loan interest rate payment will continue during the moratorium period. Post the moratorium period, the principal balance amount will be paid over three years in 36 equal monthly installments.

ECLGS Scheme Eligibility Criteria

The MSME or business enterprise borrower accounts must have a minimum annual turnover of up to ₹250 Crores for FY19-20 and combined outstanding loans of up to ₹50 Crores.
The MSME or Business Enterprise must be recognised as a partnership, trust, limited liability partnership, proprietorship, or a registered company.
To be eligible for a credit line provided under the ECLGS loan, the MSME or business enterprise must be a GST-registered entity. However, businesses that do not require a GST licence to operate are eligible for the scheme's beneficiaries' benefits.
Borrowers must also be existing customers on the books of the Member Lending Institutions (MLIs)
The ECLGS is not applicable for loans provided in an individual capacity.

ECLGS 2.0

Under ECLGS 2.0 entities with outstanding credit above Rs 50 crore and not exceeding Rs 500 crore as on February 29, 2020, which were less than or equal to 30 days past due as on February 29, 2020 are eligible.
The loans provided under ECLGS 2.0 will have a five-year tenor, with a 12-month moratorium on repayment of principal.
These entities or borrower accounts will be eligible for additional funding up to 20 per cent (which could be fund based or non-fund based or both) of their total outstanding credit (fund based only) as a collateral free Guaranteed Emergency Credit Line (GECL), which would be fully guaranteed by NCGTC

ECLGS 3.0

It would involve extension of credit of upto 40% of total credit outstanding across all lending institutions as on 29.02.2020.
The tenor of loans granted under ECLGS 3.0 shall be 6 years including moratorium period of 2 years.
Validity of ECLGS i.e. ECLGS 1.0, ECLGS 2.0 & ECLGS 3.0 have been extended upto 30.06.2021 or till guarantees for an amount of Rs. 3 lakh crore are issued.
The modifications will enable availability of additional funding facility to the eligible beneficiaries will go a long way in contributing to economic revival, protecting jobs, and creating conducive environment for employment generation.