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Emergency Credit Line Guarantee Scheme (ECLGS)

Coronavirus Loans for MSMEs

Emergency Credit Line Guarantee Scheme (ECLGS)

The unprecedented situation caused by COVID-19 pandemic and the consequent lockdown has critically impacted the manufacturing and other activities in the MSME sector. Ministry of Finance, Government of India has introduced the Emergency Credit Line Guarantee Scheme (ECLGS) for supporting the MSMEs to continue functioning during this current unprecedented situation. As part of this scheme, the Government seeks to provide much-needed relief to the MSME sector by incentivizing the Member Lending Institutions (MLIs) to provide additional credit of up to Rs. 3 lakh crore in the form of a fully Guaranteed Emergency Credit Line (GECL) facility.

The present article briefs the details of the ECLGS based on the FAQs released by the National Credit Guarantee Trustee Company (NCGTC).

The objective of the ECLGS

As mentioned above, the Scheme is a specific response to the unprecedented situation caused by 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.

First Tranche of Economic Package – ECLGS

Unveiling the first tranche of economic stimulus on May 13, 2020, Honourable Finance Minister – Smt. Nirmala Sitharaman announced 100% collateral-free loans up to Rs 3 lakh crore to MSME. This collateral-free MSME loan is being called the Emergency Credit Line Guarantee Scheme (ECLGS).

Prescribed Authority

The fund and the Emergency Credit Line Guarantee Scheme (ECLGS) will be managed and operated by the National Credit Guarantee Trustee Company (NCGTC) which is a wholly-owned trustee firm of Government of India.

Note on Guaranteed Emergency Credit Line (GECL)

The Guaranteed Emergency Credit Line (GECL)is a loan for which 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),

Eligible Enterprises

The MSMEs/ Business Enterprises which are constituted in the form of 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

Eligibility criteria for MSMEs To avail the Benefit of ECLGS

The eligibility criteria under the Emergency Credit Line Guarantee Scheme (ECLGS) are as under:

  • The benefit of the ECLGS is provided for all MSME borrower accounts with combined outstanding loans across all Member Lending Institutions of Rs. 25 crores as on the date of 29.02.2020
  • The annual turnover of the MSME should be Rs. 100 crore during the financial Year 2019-2020.
  • Note: In case of accounts for financial years 2019-2020 are yet to be finalized, the Member Lending Institutions may rely upon the borrower’s declaration of turnover.
  • The ECLGS is valid only for existing customers on the books of the Member Lending Institutions.
  • If the borrower accounts classified as regular, SMA-0, or SMA-1 as on 29.2.2020, then such will be eligible for the scheme.  If the borrower’s accounts are classified as NPA or SMA-2, such will not be qualifying for the scheme.
  • To avail the benefit of the scheme, the MSME applicant must be GST registered where such registration is mandatory.
  • Note: This condition is not applicable to MSMEs that are not required to obtain GST registration.
  • Loans provided in individual capacity will not 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.

Duration of the Scheme

The ECLG period from 23.05 2020 to 31.10.2020, or till Rs. 3 lakh crore is sanctioned under GECL, whichever is earlier scheme applies to all loans sanctioned under Guaranteed Emergency Credit Line during the.

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 on 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.

Interest Rate for ECLGS Loan

Reserve Bank of India prescribed external benchmark linked rates for Banks and FIs is +1% subject to a maximum of 9.25% per annum and for NBFCs, the interest rate on GECL is fixed at 14% per annum.

Tenor of loans

The tenor of loans provided under ECLGS is four years from the date of disbursement of the loan. No pre-payment penalty will be charged from the borrower. However, for the early payment, the MLIs may charge a penalty.

Moratorium period

A moratorium period for the loan amount provided under ECLGS is one year. Interest amounts need to be paid during the moratorium period. The principal amount needs to be repaid in 36 instalments after the moratorium period is over.

Processing fee

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

Procedure to Get Guarantee Cover

To get guarantee cover under the Emergency Credit Line Guarantee Scheme (ECLGS), the eligible institution need to register itself for the scheme with the National Credit Guarantee Trustee Company (NCGTC) as a Member Lending Institution by furnishing an undertaking on stamp paper of the requisite value to the corporate office of NCGTC at Mumbai. The format of the undertakings is as follows:

The undertaking is to be executed by an official authorized by the appropriate authority of the lending institution.

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 required to complete 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