In this article, we will discuss what is Emergency Credit Line Guarantee Scheme (ECLGS) is and how it works. The global pandemic’s impacts are still being seen throughout all aspects of society. So many of us, on the other hand, are progressively progressing more towards a new baseline.
When taking this effort with your commercial initiatives, you should let the shortage of operating cash hinder your speed. Axis Bank gives you the option of taking out extra loans underneath the Emergency Credit Line Guarantee Scheme, which was designed as a special reaction by India’s Government to this unusual scenario (ECLGS).
This extra credit, designed particularly for MSMEs & Business Enterprises, comes with a 100 per cent guarantee and might provide you with the boost you have to rekindle your ambitions.
Obtaining a loan through the ECLGS
The Government of India launched the Emergency Credit Line Guarantee Scheme (ECLGS) through to the Ministry of Finance, Department of Financial Services, to provide a hundred per cent guarantee media attention for additional working capital credit facilities up to 20 per cent of their outstanding balance credit up to Rs. 50 crore, i.e. up to Rs. 10 crores, since about February 29, 2020, subject to account would be less than or equal to Rs. 10 crores.
Why is it in the news?
The Union Government has increased the Emergency Credit Line Guarantee Scheme (ECLGS) for another month, or until a total of Rs. 3 lakh crore has been sanctioned underneath the Scheme, whatever comes first.
The initiative was introduced in May 2020 as part of something like the Aatmanirbhar Bharat Abhiyan package, which aims to alleviate the hardship caused by coronavirus-induced lockdown by giving loans to various sectors, particularly Micro, Small & Big Enterprises (MSMEs).
What is the GECL (Guaranteed Emergency Credit Line)?
The GECL is indeed a loan whereby the National Credit Guarantee Trustee Company (NCGTC) would provide a 100 per cent assurance to Member Financial Institutions (MLIs), and which would be extended within the form of additional working capital term loan for Scheduled Commercial Banks (SCBs) as well as Financial Institutions (FIs), & additional term loan facility for Non-Banking Financial Companies (NBFCs). Credit under the GECL would be up to 20% of the lender’s outstanding balance credit up to Rs. 50 crore since about February 29, 2020, excluding off-balance-sheet & non-fund based assets, i.e. extra credit worth up to Rs. 10 crores.
What exactly seems to be the Scheme’s goal?
This Plan is an unusual reaction to a once-in-a-lifetime scenario. COVID-19. It aims to offer much-needed assistance to the MSME sector by motivating MLIs (Money Lending Institutes) to grant additional low-cost loans of up to Rs. 3 lakh crore, allowing MSMEs to satisfy their operating obligations & restart their companies.
What is the Guaranteed Emergency Credit Line Scheme?
GTC provides a 100 per cent assurance to MLIs on GECLs of up to Rs. 3 lakh crore to qualifying MSMEs underneath the Emergency Credit Line Guarantee Scheme. Persons, Sole proprietors, partnerships, Registered Companies, Foundations, & Ltd Limited Liability partnerships (LLPs) shall be considered MSMEs again for purposes of this Scheme and also interested borrowers under PMMY.
What is the Scheme’s duration?
The Plan will apply to everyone GECL loans granted between May 23, 2020, and October 31, 2020, or until a total of Rs. 3 lakh crore is sanctioned through GECL whenever it comes first.
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How will the interest rate for loans under the Program be determined?
How will the interest rate for loans under the Program be determined? According to RBI guidelines, all loans to MSMEs must be benchmarked to one of the external benchmark rates. Banks are permitted to set their spreads above the external reference, as long as respective policies are authorized. As a result, ECLGS loans must follow the abovementioned standards and be connected to foreign benchmark rates. The overall cost of borrowing is capped at 1% over the external benchmark cost of borrowing or 9.25 per cent per annum, whichever is lesser, as part of the curriculum. Loans that are not required to be benchmarked with external rates have a maximum rate of 9.25 per cent.
For example, the External Benchmark Lending Rate for Bank ABC is 7.80 per cent; that is, RBI Repo Rate (4.0 per cent) + Spread (3.80 per cent). In this scenario, the loan rate would be a minimum of (7.8% + 1% = 8.8 per cent and 9.25 per cent) = 8.8 per cent for this Plan.
For example, the External Benchmark Lending Rate for Bank ABC1 is 8.50 per cent; that is, RBI Repo Rate (4.0 per cent) + Spread (4.50 per cent). In this scenario, the loan rate would be (8.5 per cent + 1 per cent = 9.5 per cent and 9.25 per cent) = 9.25 per cent for this Plan.
Will, a portfolio of clients acquired as part of a pool be eligible for this Scheme?
For the extra loan provided throughout the stipulated time, the existing lender is eligible for the guarantee. As a result, the lenders about whose books these borrowers are now can grant these facilities if the borrowers fulfil all of the Scheme’s eligibility requirements. It should have been noted that the maximum amount allowed for a loan under the ECLGS is 20% of the outstanding balance. Under the Scheme, the pool buyer should be an MLI.
Balance transfers of debts from one company to another are prevalent in the retail banking sector. Will all these consumers be able to take advantage of this offer?
A simple loan transfer through one lender or the other will not disqualify a client or lower the maximum loan eligibility available to that customer underneath this Scheme, as long as the lender taking over would be likewise qualified under the Program as stated in the scheme guidelines.
MLIs should be aware that the total loan amount under the Plan will be restricted to the total outstanding.
Features that stand noticed
GTC will give a 100 per cent credit guarantee to MLIs under ECLGS for the total amount delivered under GECL.
The loan term underneath the Scheme will be four years, with a one-year moratorium on the principal amount.
GTC will not charge Member Lending Institutions (MLIs) any Guarantee Fees under the Scheme.
Banks and financial institutions will have their interest rates set at 9.25 per cent, while NBFCs will have their rates regulated at 14 per cent.
ECLGS 2.0 Information
As part of the Atma Nirbhar Bharat 3.0 package, the initiative was launched in November 2020. The loan ceilings have been increased, and the industries included have also been enlarged in this updated Program.
The following are some essential factors to keep in mind when it comes to ECLGS 2.0:
● The Emergency Credit Line Guarantee Scheme has been expanded to include 27 different industries, including healthcare.
● The Kamath Committee has chosen these 27 industries for one-time debt restructuring. Power, construction, textiles, real estate, and tourism are just a handful of the numerous industries that have been recognized.
● Individual beneficiaries also are included in the system for both professionals and self-employed persons.
● As of February 29, 2020, the credit ceiling has been increased to Rs.250 crores, with outstanding debts of up to Rs.50 crore.
● Although there has been an increase in the maximum loan amount that can be approved. Under ECLGS 2.0, the maximum number that may be borrowed is Rs. 10 crores.
● The tenor has now been increased to 5 years, including a one-year grace period on principal payments.
It would entail extending loans worth up to 40% of total outstanding credit across all lending institutions.
Loans provided under ECLGS 3.0 will have a tenor of six years, including a two-year moratorium period.
ECLGS 1.0, ECLGS 2.0, and ECLGS 3.0 have also extended their validity until June 30, 2021, or until guarantees in the sum of Rs. 3 lakh crore is provided.
National Credit Guarantee Trustee Company Ltd will release new operational rules in this respect (NCGTC).
With the launch of ECLGS 3.0, the government has broadened the Emergency Credit Line Guarantee Scheme (ECLGS) scope to include businesses in the Hospitality, Travel & Tourism, Leisure & Sporting sectors.
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ECLGS 4.0 – The Scheme’s Expansion
The Indian government announced the expansion of the ECLGS on May 31, 2021. ECLGS 4.0 has the following features:
● Hospitals, nursing homes, clinics, and medical institutions would receive a 100 per cent guarantee for loans of up to Rs 2 crores at a 7.5 per cent interest rate. It is offered in exchange for the installation of on-site oxygen production units.
● Eligible borrowers who previously had a loan term of four years can now get a five-year loan term.
● Borrowers covered by ECLGS 1.0 may get further ECLGS assistance of up to 10% of the remaining balance as of February 29, 2020.
● The ECLGS 3.0 lending ceiling of Rs. 500 crore is being phased out.
● Each borrower’s additional ECLGS assistance is restricted to 40% of the loan amount or Rs.200 crore, and see which is lower.
Under ECLGS 3.0, the civil aviation industry is indeed an eligible borrower.
What are the qualifying requirements enabling MSMEs to participate in the Scheme?
The following are indeed the Scheme’s criteria that must be met:
● All MSME borrower accounts having total outstanding loans worth up to Rs. 50 crore across all MLIs & annual revenue amounting to INR. 250 crore. The MLI may rely upon that borrower’s statement of turnover if the borrower’s accounts for FY still have to be audited/finalized.
● Only current clients just on MLI’s books are eligible for the Program.
● Borrower accounts shall be categorized as normal, SMA-0, or SMA-1. Accounts that are designated as NPA or SMA-2 are ineligible for the Scheme.
● The MSME borrower must be GST registered in all cases where such registration is mandatory. This condition will not apply to MSMEs that are not required to obtain GST registration.
What would have been the procedure if a lender had multiple loan accounts with different lenders?
● If a lender has lower than a selected cutoff with different lenders, GECL may be obtained through one lender or from each of the current lenders in percentage; I guess it depends on the borrower’s & MLI’s agreement.
● A No Counterargument Certificate (NOC) from all other lenders has always been considered necessary if the borrower wants to carry from any lender an order of magnitude greater than just the proportional 20% of something like the outstanding credit that the borrower has with that lender.
● But even so, if the GECL obtained from such a particular lender is severely restricted to a proportional 20% of the borrower’s credit rating with just that lender, no NOC is needed.
. What would be the duration of GECL loans?
The tenor of GECL loans will be four years from the time they are disbursed. The MLIs, on the other hand, will not charge a liquidated damages clause if the loan is repaid early.
Is there a limitation period that the Scheme mandates?
Yes, GECL financing will be subject to a one-year embargo on the principal amount. Interest shall, however, be due throughout the moratorium period. That after the moratorium period expires, the principal will be payable in 36 stages.
Points to Remember
To provide guaranteed & collateral-free additional credit to MSMEs, businesses, MUDRA borrowers, and individuals up to 20% of their existing credit for business purposes.
The National Credit Guarantee Trustee Company provides 100 per cent guarantee coverage, whilst non – banking finance companies financial companies (NBFCs) supply loans.
Eligibility: The Scheme is open to borrowers having outstanding loans worth up to Rs. 50 crore since about and annual revenue of up to Rs. 250 crore.
The government expanded the scope of the Rs. 3 lakh crore ECLGS plan on August 1 by doubling the upper cap of outstanding loans and adding some loans granted to professionals like physicians, attorneys, and chartered accountants for business reasons.
The Scheme’s loans have a four-year term, including a one-year grace period on principal payments.
Thus far, an amount of Rs. 2.03 lakh crore has already been sanctioned under the Scheme to 60.67 lakh borrowers, according to data submitted by Member Lending Institutions upon that ECLGS portal, an amount of Rs. 1.48 lakh crore has already been disbursed.