The Honorable Finance Minister Nirmala Sithraman presented the budget today, February 1, 2022. Along with many other announcements, the FM talked about Emergency Credit Line Guarantee Scheme (ECLGS).
The government’s emergency credit scheme, which was launched to support the credit needs of sectors hit by the pandemic, will be extended for another year up to March 2023, said Nirmala Sitharaman in her Budget speech.
What is the ECLGS Scheme?
The government has approved additional funding of up to 3 lakh crores to support various sectors, such as SMEs and micro, small and medium enterprises (MSMEs). The scheme is part of the Atma Nirbhar Bharat Abhiyan, which was launched by Prime Minister Narendra Modi to make India self-reliant.
During the pandemic, many industries in the country suffered losses. The government responded by introducing the Emergency Credit Line Guarantee scheme. This scheme provides 100% guarantee coverage to the financial institutions, including banks, that deal in loans.
What changes have been made?
The Reserve Bank of India has increased the guarantee cover for banks by another Rs 50,000 crore to help the crippled hospitality sector.
The bank has also extended the ECLGS’ guarantee covers up to March 2023 and added another Rs 50,000 crore for the hospitality industry. The hospitality industry, which mostly consists of micro and small enterprises, is still struggling to regain its pre-pandemic level of business.
More about the Scheme
The ECLGS scheme has extended credit to more than 13 million micro, small and medium enterprises to mitigate the impact of the pandemic. According to the Finance Ministry, the total disbursements as relief under the scheme stood at Rs.2.14 lakh crore as of July 2021.
The budget has been focused on filling the credit gap that the stressed sectors are experiencing. The extension of the ECLGS for the hospitality industry was much needed. However, it will take a while for the sector to fully recover.
Who is eligible for the ECLGS Scheme?
As per the expanded eligibility criteria, a loan under the Emergency Credit Line Guarantee scheme is available to the enterprises with total annual sales of up to Rs. 250 crores in the financial year 2019-20 and outstanding loan of up to Rs. 50 crores up to the end of February 2020.
The approved amount of loan will be only up to 20% of the total loans outstanding by the cut-off date of February-end, 2020. A cap on the total amount of credit is applied at Rs. 5 crores for an enterprise.
Further Key Takeaways
In the Budget Speech, the Finance Minister has also proposed that the Credit Guarantee Trust for Medium and Small Enterprises, known as CGTMSE, will also be revamped by allocating more funds towards assisting the enterprises. With this, there will be additional help to these enterprises of Rs. 2 lakh crores.
The extension of the E-Commerce and Local Government Support Program (ECLGS) is a relief for micro, small and medium-sized enterprises (MSMEs), which faced the effects of the pandemic. With the improved access to credit, there’s hope that the recovery of the economy will continue. The ECLGS has been able to provide credit to over 100,000 SMEs, which prevented them from entering the NPA category.
What is the intent behind the ECLGS Scheme?
The union government has launched an emergency credit line guarantee scheme to mitigate the effects of the Covid-19 pandemic. There are three schemes so far, ECLGS 1.0, 2.0, and 3.0.
How does the ECLGS Scheme serve the purpose?
This scheme serves the purpose of providing a 100 percent guarantee to non-bank financial institutions and banks for emergency loans to business entities affected by the pandemic.
What is the rate of interest and tenure for repayment for the loans extended under the ECLGS scheme?
The rate of interest for the loans extended under the relief package scheme, Emergency Credit Limit Guarantee Scheme, is 9.25% for banking companies and 14% for non-banking companies. Earlier the tenure for repayment was for 4 years but now with the extension, tenure is 5 years.
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