Emergency Credit Line Guarantee Scheme – ECLGS 4.0

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Emergency Credit Line Guarantee Scheme – ECLGS 4.0

To support Covid-hit MSMEs further, the Ministry of Finance has further enlarged the scope of the Emergency Credit Line Guarantee Scheme and issued the fourth revision of the scheme – ECLGS 4.0. Ministry has announced a three-month extension of this Rs 3 lakh crore Scheme to September 30, 2021, from June 30, 2021. The present article briefs the details of the ECLGS 4.0 based on the guidelines released by the National Credit Guarantee Trustee Company (NCGTC) on 30th May 2021.

Synopsis of Notification

Ministry of Finance has further enlarged the scope of the Emergency Credit Line Guarantee Scheme as under:

  • ECLGS 4.0:100% guarantee cover to loans up to Rs.2 crore to hospitals/nursing homes/clinics/medical colleges for setting up on-site oxygen generation plants, interest rate capped at 7.5%
  • Borrowers who are eligible for restructuring as per RBI guidelines of May 05, 2021and had availed loans under ECLGS 1.0 of overall tenure of four years comprising of  repayment of interest only during the first 12 months with repayment of principal and interest in 36 months thereafter will now be able to avail a tenure of five years for their ECLGS loan e. repayment of interest only for the first 24 months with repayment of principal and interest in 36 months thereafter
  • Additional ECLGS assistance of Upto 10% of the outstanding as of February 29, 2020, to borrowers covered under ECLGS 1.0, in tandem with restructuring as per RBI guidelines of May 05, 2021
  • The current ceiling of Rs. 500 Cr. of loan outstanding for eligibility under ECLGS 3.0 to be removed, subject to maximum additional ECLGS assistance to each borrower has limited to 40% or Rs.200 crore, whichever is lower
  • Civil Aviation sector to be eligible under ECLGS 3.0
  • Validity of ECLGS extended to 30.09.2021 or till guarantees for an amount of Rs.3 lakh crore is issued. Disbursement under the scheme permitted up to31.12.2021.

Emergency Credit Line Guarantee Scheme (ECLGS)

The Emergency Credit Line Guarantee Scheme provides 100% guarantee coverage by National Credit Guarantee Trustee Company (NCGTC)  to Member Lending Institutions on Guaranteed Emergency Credit Line (GECL) of up to Rs. 3 lakh crore to eligible MSMEs

ECLGS-1.0

ECLGS-1.0 refers to the scheme for providing 100% Guarantee coverage by NCGTC to its Member Lending Institutions against the extension of eligible credit to its existing borrowers whose total credit outstanding (fund based) across all lending institutions and days past due as of February 29, 2020, was upto Rs.50 crore and 60 days respectively.

ECLGS-2.0

ECLGS-2.0 refers to the scheme for providing100% Guarantee coverage by NCGTC to its MLI against the extension of eligible credit to its existing borrowers in the 26 stressed sectors identified by the Kamath Committee on Resolution Framework and the Healthcare sector whose total credit outstanding (fund based) across all lending institutions and days past due as on February 29, 2020, was above Rs.50 crore and not exceeding Rs.500 crore and upto 60 days respectively.

ECLGS 3.0

ECLGS 3.0 refers to the scheme for providing 100% guarantee coverage by NCGTC to its Member Lending Institutions against the extension of eligible credit to its existing borrowers in the Hospitality, Travel & Tourism and Leisure & Sporting sectors whose total credit outstanding (fund based) across all lending institutions and days past due as on February 29, 2020, was upto Rs.500 crore and upto 60 days respectively.

ECLGS 4.0

ECLGS 4.0 refers to the scheme for providing 100 percent guarantee cover to loans up to Rs 2 crore to hospitals, nursing homes, clinics, medical colleges for setting up on-site oxygen generation plants with the interest rate capped at 7.5 percent.

Guaranteed Emergency Credit Line (GECL)

The Guaranteed Emergency Credit Line (GECL)is a loan for which a 100% guarantee would be given by National Credit Guarantee Trustee Company (NCGTC) to Member Lending Institutions (MLIs) that is the Banks, Financial Institutions (FIs), and Non-Banking Financial Companies (NBFCs), and which will be extended in the following form to eligible MSMEs/ Business Enterprises and interested Pradhan Mantri Mudra Yojana (PMMY) borrowers.

  • Additional working capital term loan facility for Scheduled Commercial Banks (SCBs) and Financial Institutions (FIs)
  • Additional term loan facility for Non-Banking Financial Companies (NBFCs),

The objective of the ECLGS

As mentioned above, the Scheme is a specific response to the unprecedented situation caused by the second wave of the COVID-19 pandemic. The primary objective of the ECLGS is to provide much-needed relief to the MSME sector by incentivizing Member Lending Institutions to provide additional funding, thereby enabling MSMEs to meet the operational liabilities and restart the businesses.

Eligible Enterprises

The MSMEs/ Business Enterprises which are constituted in the form of the following enterprises can avail the benefits of the Emergency Credit Line Guarantee Scheme (ECLGS).

  • Proprietorships
  • Partnerships
  • Registered Companies
  • Trusts and Limited Liability Partnerships (LLPs)
  • Interested borrowers under Pradhan Mantri MUDRA Yojana

Tenure of the Scheme

The Scheme would apply to all loans sanctioned under GECL during the period from May 23, 2020, to September 30, 2021, or till guarantees for an amount of Rs. 3 lakh crore is issued by NCGTC, whichever is earlier.

Eligibility Criteria for MSMEs

The eligibility criteria for MSMEs to avail the benefit of the Emergency Credit Line Guarantee Scheme are as follows:

  • All MSME borrower accounts with combined outstanding loans across all MLIs of up to Rs. 50 crore in any sector and any amount in respect of borrowers in the Hospitality sector, Travel & Tourism sector, Leisure & Sporting sector and Civil Aviation sector and classified as regular, SMA-0 or SMA-1 as on 29.2.2020
  • All MSME borrower accounts in the 26 sectors identified by the Kamath Committee on Resolution Framework in its report of September 04, 2020, and the Healthcare sector having combined outstanding loans across all MLIs above Rs. 50 crore and not exceeding Rs.500 crore and classified as regular, SMA-0, or SMA-1 as of 29.2.2020.
  • Hospitals/Nursing Homes/Clinics/Medical Colleges/ units engaged in manufacturing of liquid oxygen, oxygen cylinders, etc. having credit facility with any lending institution (none necessarily MLI) and classified as regular, SMA-0, SMA-1, or SMA-2 as of 31.03.2021.
  • Borrowers who have availed facility under ECLGS 1.0 and are seeking restructuring as per RBI guidelines of May 05, 2021
  • The Scheme is valid only for existing customers on the books of the MLI
  • 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.
  • Loans provided to individuals for their own business purposes will be covered under the Scheme

Eligibility criteria for PMMY Borrowers

The loans under Pradhan Mantri MUDRA Yojana extended on or before 29.2.2020, and reported on the MUDRA portal are eligible for the ECLGS.

Eligibility Criteria for Business Other than MSME

The eligibility criteria for Business Other than MSME are explained in detail below:

  • The entity having a total credit outstanding of Rs. 50 Crore or less as of 29th Feb 2020 is eligible for the scheme
  • Entity belong to the 26 sectors identified by the Kamath Committee on Resolution Framework in its report dated September 04, 2020, or the Healthcare sector and the total credit outstanding is above Rs.50 Crore and not exceeding Rs.500 crore as of 29th Feb 2020 is also eligible
  • The enterprises having a total credit outstanding of any amount with an eligible MLI as of 29th Feb 2020 and belong to the Hospitality sector, Travel & Tourism sector, Leisure & Sporting sector or Aviation sector is eligible under the scheme
  • The benefit of ECLGS will also be provided to the hospital, nursing home, clinic, medical college or unit engaged in manufacturing of liquid oxygen, oxygen cylinders, etc. having credit outstanding with a lending institution and need assistance Upto Rs.2 crore for setting up an on-site oxygen generation plant

The Maximum Amount Eligible Under the ECLGS

The maximum amount eligible under the ECLGS either in the form of additional working capital term loan facility and additional term loan facility is set at 20% of the total outstanding loans up to Rs 25 crore as of 29.02.2020.

  • To arrive at the total outstanding, only on-balance sheet exposure like an outstanding amount in the working capital loan, term loan will be taken.

In case a borrower has loans with multiple lenders, then this ECLGS can be availed either through one lender or multiple lenders.

The interest rate for ECLGS Loan

  • For Banks and FIs, one of the RBI prescribed external benchmark linked rates (for MSMEs) and marginal cost-based lending rate (for non-MSMEs) +1% subject to a maximum of 9.25% per annum
  • For NBFCs, the interest rate on GECL shall not exceed 14% per annum
  • For loans to hospitals/nursing homes/clinics/medical colleges/units engaged in manufacturing of liquid oxygen, oxygen cylinders, etc. for setting up on-site oxygen generation plants, the rate of interest shall be capped at 7.5% p.a.

Tenure of loans

  • The tenure of loans provided under GECL shall be 4 years from the date of the first disbursement in respect of borrowers under ECLGS 1.0.
  • However, such of the borrowers under ECLGS 1.0 who avail of restructuring, the tenor of loans under GECL shall be a maximum of five years from the date of the first disbursement.
  • The tenor of the fund-based facility provided under ECLGS 2.0 and 4.0 shall be 5 years from the date of the first disbursement/first utilization under the fund-based or non-fund-based facility.
  • No tenor has been prescribed for a non-fund-based facility, but the guarantee cover on the non-fund-based facility shall expire on completion of 5 years from the date of the first disbursement/first utilization under fund-based or non-fund based facility.
  • The tenure of loans provided under ECLGS 3.0 shall be six years from the date of the first disbursement.

The last date of disbursement of the fund-based facility is December 31, 2021, and the first tranche of the non-fund-based facility should be utilized on or before December 31, 2021. No pre-payment penalty shall be charged by the MLIs in case of early repayment.

Moratorium period

  • ECLGS 1.0: A moratorium period of one year on the principal amount shall be provided for fund based GECL facility under ECLGS 1.0 and The principal shall be repaid in 36 installments after the moratorium period
  • ECLGS 2.0: A moratorium period of one year on the principal amount shall be provided for fund based GECL facility under ECLGS 2.0 and The principal shall be repaid in 48 installments after the moratorium period
  • ECLGS 3.0: A moratorium period of two years on the principal amount shall be provided for fund based GECL facility under ECLGS 3.0 The principal shall be repaid in 48 installments after the moratorium period
  • ECLGS 4.0: A moratorium of 6 months shall be provided on fund based GECL facility under ECLGS 4.0.

Note: Borrowers opting for RBI resolution framework 2.0 shall have extended tenure.

Sl.No Type of facility Total repayment period including a moratorium Moratorium period on principal repayment
1 GECL 1.0 (without restructuring) 4 years 1 year
2 GECL 2.0 5 years 1 year
3 GECL 3.0 6 years 2 year

Processing fee

An additional processing fee will not be charged by the lender since additional credit under ECLGS is provided to existing customers

EGLGS Application Procedure

For ease of doing business, the ECLGS scheme has an automatic pre-approve mechanism, which means the applicant does not have to approach the lender for the loan. MLI will furnish an offer letter to the eligible borrowers for a preapproved loan which the borrower may choose to accept. If the MSME accepts the offer, then the applicant is required to complete the requisite documentation. Thus, an ‘opt-out’ option will be provided to eligible borrowers under the ECLGS scheme, i.e., if the borrower is not interested in availing the loan, the applicant may indicate accordingly.

As part of the EGLGS, a separate loan account will be opened for the borrower for extending additional credit under GECL. This new account will be distinct from the existing loan account of the borrower

Click here to know more about the EGLGS Scheme

Post by Renu Suresh

Renu is experience content writer specialised in compliances and company rules.