Here’s Everything You Need to Know about ECLGS
Published: Feb 23, 2023
The global impact of the COVID-19 pandemic has been largely disruptive in every aspect, be it economic or something else. Every single industry has seen the adverse effects of this huge crisis, and a large number of people lost their jobs as a result. Similarly, small business owners also suffered a lot in the pandemic as it became nearly impossible to keep operations running smoothly. In those tough times, the Indian government introduced the COVID-19 financial relief package, under which the ECLGS scheme was also launched. ECLGS, or Emergency Credit Line Guarantee Scheme, is something under which financial entities in India provide emergency loan facilities to businesses and MSMEs that have suffered due to the COVID-19 pandemic.
A Closer Look
ECLGS is a facility offered to extend emergency credit to small business entities in the country that are struggling to run their day-to-day operations. Under the ECLGS scheme, MSMEs can apply for loans to address their working capital needs, operational liabilities, or to restart businesses that have been affected by the pandemic. As a part of this, a number of banks and non-banking finance companies offered business loans for MSMEs. According to some sources, it has been estimated that ECLGS has prevented MSME loans worth Rs. 2.2 trillion from falling into the NPA (non-performing asset) category [source]. The best thing is that the government offers a 100% guarantee on the loans disbursed under this scheme.
Launched as a part of the Aatmanirbhar Bharat Abhiyan, the ECLGS scheme focused on providing government-guaranteed loans for MSMEs across India. It was launched in response to the economic distress caused by the country-wide lockdown. The moratorium period was 1 year, and the repayment period was 4 years. The credit limit under ECLGS 1.0 was up to 20% of the borrower’s total outstanding credit up to Rs. 25 crores, excluding off-balance sheet and non-fund-based exposures. Originally, it was valid until October 2020 but was later extended until the month of November.
In November 2020, ECLGS 2.0 was launched to support a total of 26 stressed sectors, and the scheme was valid until March 31, 2021. These sectors were: power, construction, iron and steel manufacturing, roads, real estate, textiles, chemicals, consumer durables, non-ferrous metals, pharma manufacturing, logistics, gems and jewellery, cement, auto components, hotels-restaurants-tourism, mining, plastic product manufacturing, automobile manufacturing, auto dealerships, aviation, sugar, ports and port services, shipping, building materials, and corporate retail outlets. Now, the repayment period is 5 years, while the moratorium period remains the same (1 year). The limit for outstanding credit was also increased from Rs 25 crore to Rs 50 crore under ECLGS 2.0.
To support a few more sectors, including hospitality, travel and tourism, leisure, sports, etc., the Indian government announced ECLGS 3.0. Under this scheme, MSMEs in the abovementioned sectors can get some additional credit to ensure smooth business operations. This time the credit limit was increased to 40%. ECLGS 3.0 itself has a validity date of June 30, 2021, and it also extended the validity of ECLGS 1.0 and ECLGS 2.0 by another 3 months. The tenure of granted loans is 6 years, including a moratorium period of 2 years.
The government introduced this scheme to control the deteriorating economic situation of MSMEs in the country in the event of a pandemic. After all, micro, small, and medium enterprises have a significant contribution to the Indian economy.
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