Govt expands credit score lifeline for MSMEs amid 2nd Covid wave

The Centre has additionally eliminated the mortgage excellent ceiling of Rs 500 crore.


IMAGE: A employee operates a lathe machine as he makes a metal cutter at a producing unit in Noida. {Photograph}: Anindito Mukherjee/Reuters

The federal government has expanded the Rs 3-trillion Emergency Credit score Line Assure Scheme (ECLGS) to assist companies hit by the second wave of the Covid-19 pandemic.

Dubbed ECLGS 4.0, the scheme has added the civil aviation sector and mortgage to well being establishments for on-site oxygen technology vegetation.

The Centre has additionally eliminated the mortgage excellent ceiling of Rs 500 crore.


Nevertheless, the utmost further loans they’ll take beneath the scheme is proscribed to 40 per cent of the excellent mortgage, or Rs 200 crore, whichever is decrease.

Loans given beneath ECLGS 1.0 might be eligible for added help as much as 10 per cent, elevating the overall assured mortgage as much as 30 per cent of excellent as on February 29, 2020.

The 100 per cent assure cowl supplied to hospitals, nursing properties, clinics, and medical faculties for establishing oxygen vegetation might be accessible for loans as much as Rs 2 crore, with the rate of interest capped at 7.5 per cent.

Lenders stated they’ve room to lend one other Rs 45,000 crore beneath the scheme.

Of the assure cowl of Rs 3 trillion, about Rs 2.54 trillion has been sanctioned, and disbursements stand at Rs 2.4 trillion, stated Sunil Mehta, chief govt, Indian Banks’ Affiliation (IBA).

In an announcement, the finance ministry stated: “The modifications would improve the utility and impression of ECLGS by offering further help to MSMEs (micro, small and medium enterprises), safeguarding livelihoods, and serving to in seamless resumption of enterprise exercise.

“These adjustments will additional facilitate movement of institutional credit score at cheap phrases.”

The validity of the scheme has been prolonged to September 30 or until ensures of Rs 3 trillion are issued.

Disbursements might be made till December 31.

The compensation interval for restructured loans has been enhanced by one yr to 5 years for loans beneath ECLGS 1.0.

IBA chairman Rajkiran Rai stated: “Many debtors who used ECLGS 1.0 have additionally been impacted within the second wave.

“They want further funds and extra time for repayments.

“This revision will truly scale back possibilities of defaults.”

Reduction measures beneath the ECLGS will assist debtors’ liquidity place in mild of the incremental stress on debt servicing introduced on by the second wave, stated Anil Gupta, vp – monetary sector rankings, ICRA.

“The federal government will even not be burdened with further value.

“This will even enhance the utilisation of ECLGS funding pool,” stated Gupta.

Prakash Agarwal, head – monetary establishments at India Ranking and Analysis, stated the impression of the present wave has been wider and deeper and is more likely to be extra on small companies.

So, ECLGS 4.0 is a optimistic step.

Nevertheless, Agarwal cautioned that many companies would possibly nonetheless turn into unviable regardless of the help.

Therefore, the stress on lenders’ portfolio will mirror with a lag, he added.

SpiceJet chairman and managing director Ajay Singh stated: “The inclusion of the civil aviation sector… is a welcome and well timed transfer by the federal government that ought to assist the sector that has been essentially the most severely impacted by the Covid-19 pandemic.”

Repayment interval

On the prolonged compensation interval, the federal government stated the scheme would assist debtors eligible for restructuring beneath the Reserve Financial institution of India’s pointers and had availed of loans beneath ECLGS 1.0.

The general tenure consisted of compensation of curiosity in the course of the first 12 months, with the remaining compensation of principal and curiosity being unfold over the next 36 months.

These debtors will get a five-year compensation interval, involving curiosity compensation for the primary 24 months, and principal and curiosity within the subsequent 36 months.

ECLGS 2.0 had a mortgage tenure of 5 years with a 12-month moratorium on compensation of principal, and ECLGS 3.0 six years, together with a moratorium interval of two years.

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