Emergency Credit Line Guarantee Scheme

About Emergency Credit Line Guarantee Scheme

What is emergency credit line guarantee scheme? The Union Cabinet on Wednesday announced a 9.25 per cent relief rate through the Emergency Credit Line Guarantee Scheme (ECLGS) for the coronavirus-hit MSME sector. Approved additional funding of up to Rs 3 lakh crore. ECLGS was the second largest component of the Rs 21 lakh crore comprehensive package announced by Finance Minister Nirmala Sitharaman last week.

Micro, small and medium enterprises will get guaranteed emergency credit from banks at an interest rate of up to 9.25 per cent. This is a plan that was approved by the cabinet on Wednesday.

In addition, six other measures were approved by the Cabinet under the ‘Atmanbhar Bharat Abhiyan’, including the provision of free food grains to migrants.

Objectives Of Emergency Credit Line Guarantee Scheme

The main objective of the scheme is to provide incentives to Member Lending Institutions (MLs) such as Banks, Financial Institutions (FIs) and Non-Banking Financial Companies (NBFCs) to enable MSMEs to avail additional funding facilities.

Lending and Lending for MSMEs: ECLGS has been launched to support MSMEs in other activities affected by the Kovid epidemic. The government has allocated Rs. 41,600 crore.

Under this scheme, eligible MSMEs and interested currency borrowers will be provided Rs. Additional funding of up to Rs 3 lakh crore will be provided.

For this, the Government of India has provided Rs. 41,600 crore will be provided, he said.

Cabinet Approval For Emergency Credit Line Scheme

The Cabinet, headed by Prime Minister Narendra Modi, also approved that all loans sanctioned under the GECL facility would be applicable from the date of announcement of the scheme till October 31 or up to Rs 3 lakh crore under GECL.

Cabinet approves ‘Emergency Credit Line Guarantee Scheme’ This will provide additional funding of up to ₹ 3 lakh to eligible MSMEs and interested currency borrowers. 100 per cent guarantee coverage will be provided by National Credit Guarantee Trustee Company Limited (NCGTC).

Under the scheme, interest rates will be capped at 9.25 per cent for banks and FIs and 14 per cent for NBFCs. The loan will be given for four years and one year maturium on the principal amount. To date, various banks charge between 10.55 and 16.25 per cent, while interest rates for NBFCs range from 10 to 30 per cent.

The government has set aside Rs 41,600 crore for Guaranteed Emergency Credit Line (GECL), which will be disbursed in four years from the current financial year. The scheme will be applicable to all loans sanctioned under GECL facility from October 31 to October 31 or till an amount of Rs 3 lakh crore is sanctioned under GECL.

ECLGS has been designed as a specific response to COVID-19 and the resulting unprecedented lockout and consequent lockout, which has had a serious impact on production and other activities at MSMEs.

As on February 29, 2020, all MSME borrowers have accounts with outstanding credit up to Rs. 25 crore, which was less than or equal to 60 days from that date and with an annual turnover of up to Rs. 100 crore, GECL will be eligible under this scheme.

The amount of GECL lending to eligible MSME borrowers will be either additional working capital term loan (in case of banks and FIs) or additional term loan (in case of NBFC) up to Rs 25 crore up to 20 per cent of their total outstanding loan.

ECLGS has been prepared as a specific response to the unprecedented situation created by COVID-19 and the resulting lockout, which has had a serious impact on production and other activities in the MSME sector, it was revealed.

The scheme aims to alleviate the financial woes faced by 45 lakh MSMEs by providing additional funding of up to Rs 3 lakh crore in the form of fully guaranteed emergency credit lines.

Special Liquidity Scheme for NBFCs / HFCs

A new special liquidity scheme for non-banking financial companies (NBFCs) and housing finance companies (HFCs) has received Rs. A Special Purpose Vehicle (SPV) will be set up with an equity contribution of Rs 5 crore.

In addition there is no financial impact for the government unless there is a guarantee involved.

However, on invitation, the limit of government liability will be the same as the amount of default subject to the guarantee limit. The total guarantee limit has been set at ,000 30,000 crore, which will be increased by the required amount as required.

The SPV will issue securities as required, subject to the total amount of securities not exceeding ₹ 30,000 crore to be extended by the required amount as required.

According to the Cabinet, the scheme will apply to all loans sanctioned under GECL from October 31, 2020 to October 31, 2020 or loans up to Rs 3 lakh crore under GECL. With full guarantee cover provided by the government under the scheme, banks will “save about Rs 25,000 – 30,000 crore in capital,” SBI said in its eCorp report last week.

The securities issued by the SPV will be purchased by the RBI and the proceeds from it will be used to obtain a minimum investment grade (remaining maturity) of the short term (maturity up to 3 months remaining) of the eligible NBFC / HFC.

No guarantee fee will be charged by NCGTC from Member Lending Institutions (MLIs) under this scheme and there will be a limit of 9.25 per cent in interest rates and 14 per cent for NBFCs under this scheme.

The proposed scheme is expected to provide much needed relief to the sector by encouraging MLIs to provide additional credit of up to Rs 3 lakh crore to the sector at low cost.

By supporting MSMEs to operate during the current unprecedented situation, the scheme will have a positive impact on the economy and support its revival, he added.

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F.A.Q About Emergency Credit Line Scheme

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Final Words

So we shared all the derail information about emergency credit line guarantee scheme which is approved by Cabinet.