Emergency Credit Line Guarantee Scheme, Prime Minister Narendra Modi led the Union Cabinet in approving the Emergency Credit Line Guarantee Scheme (ECLGS). The initiative was launched as part of the Atma Nirbhar Bharat package for Micro, Small, and Medium Enterprises (MSME) borrowers in an effort to alleviate the hardship caused by the COVID-19 pandemic.
Contents
Why is ECLGS in the news?
Candidates for the UPSC Prelims 2024 should be aware that the Finance Ministry has broadened the scope of ECLGS. Following its original announcement in May 2020, the Finance Ministry gradually broadened the ECLGS’s purview. Just released in May 2021, ECLGS 4.0 provides 100% guarantee coverage for loans up to Rs. 2 crore to medical colleges, hospitals, nursing homes, and clinics for the establishment of on-site oxygen production plants. 7.5% is the maximum interest rate.
Emergency Credit Line Guarantee Scheme:-
This article will discuss the Emergency Credit Line Guarantee Scheme and its extension. The importance and objectives of the program are also discussed, along with the major groups involved in its management.
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Emergency Credit Line Guarantee Scheme – Key Points
Following the Union Cabinet’s approval of the Emergency Credit Line Guarantee Scheme in May 2020, MUDRA borrowers and Micro, Small and Medium-Sized Enterprises (MSME) were among the sectors to receive additional funding of up to Rs. 3 lakh crores. The program is a component of Prime Minister Narendra Modi’s AtmaNirbhar Bharat Abhiyan, which aims to make India self-sufficient. All loans approved under the Guaranteed Emergency Credit Line (GECL) facility will receive extra credit under the ECLGS. But there are two requirements:
- The program would apply to loans approved between the announcement date and October 31, 2020 [as of September 3, 2021]. For Rs., OR guarantees are provided. 3 lakh crore, whichever comes first.
- The deadline for disbursement is December 31, 2021.
Objectives of Emergency Credit Line Guarantee Scheme (ECLGS)
MSMEs in the manufacturing and other sectors suffered significant losses during the nation’s battle against the COVID-19 pandemic. To make up for this loss, the government created the Emergency Credit Line Guarantee Scheme.
The following discusses ECLGS’s primary objectives:
- This program mandates that the National Credit Guarantee Trustee Company Limited (NCGTC) provide 100% guarantee coverage to Member Lending Institutions (MLI), Banks, Financial Institutions, and Non-Banking Financial Companies (NBFC).
- It would make it easier for MSME and MUDRA borrowers to access and make more funding opportunities available.
- Through the provision of a fully guaranteed emergency loan line, the Scheme seeks to alleviate the financial hardship experienced by MSMEs.
- Additionally, it will offer low-cost credit to the industry, allowing small enterprises to pay their operating debts and resume production and activity.
India will gain economically and socially once the MSMEs in the country are operating properly and regularly. This is among the main justifications for the government’s introduction of this program during the exceptional pandemic. Interested candidates can read the attached article to find out more about the Micro Units Development and Refinance Agency (MUDRA) or Pradhan Mantri Mudra Yojana (PMMY).
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Who is eligible under the ECLG Scheme?
To be eligible for a loan under the extended Emergency Credit Line Guarantee Scheme, one must fulfil the following requirements, according to the most recent eligibility criteria:
- As of February 29, 2020, GECL credit shall account for up to 20% of the borrower’s total outstanding credit for businesses with a turnover of up to Rs. 250 crores (FY 2019–20) and outstanding loans up to Rs. 50 crores.
- A maximum loan of Rs. 5 crore can be obtained under the arrangement.
Tenure & Interest Rates under ECLGS
The loan has a four-year term, and there is a one-year moratorium on the principal amount. [The loan term is currently five years.]
- Interest rates are thus constrained by ECLGS:
- 9.25% for financial institutions and banks
- 14% for financial firms that are not banks
- The National Credit Guarantee Trustee Company Ltd. (NCGTC) cannot receive any guarantee fees from Member Lending Institutions that are covered by this scheme.
ECLGS 4.0 – Expansion of the Scheme
The Indian government announced the ECLGS’s expansion on May 31, 2021. Under the ECLGS 4.0 version:
- For loans up to Rs 2 crores at an interest rate of 7.5 per cent, hospitals, nursing homes, clinics, and medical colleges are offering 100% guaranteed coverage. It is provided for the installation of on-site oxygen production facilities.
- A five-year loan tenor is now available to qualified borrowers who previously had a four-year loan tenure.
- For borrowers covered under ECLGS 1.0, further ECLGS assistance of up to 10% of the outstanding balance as of February 29, 2020
- The ECLGS 3.0 loan cap of Rs. A total of 500 crore is being lifted.
- Each borrower may only receive a maximum of 40% additional ECLGS aid, or Rs. 200. whichever is less than one crore.
- Under ECLGS 3.0, the civil aviation sector is a borrower.
About ECLGS 2.0
The program was introduced as part of the Atma Nirbhar Bharat 3.0 package in November 2020. Higher loan amounts and a broader range of sectors are now part of this revamped project.
The following is a discussion of some important points with ECLGS 2.0:
- The Emergency Credit Line Guarantee Scheme will apply to 27 new businesses, including the health industry.
- The Kamath Committee has selected these 27 industries for one-time debt restructuring. Among the several industries identified are power, construction, textiles, real estate, and tourism.
- The program now includes individual beneficiaries for both self-employed and professional individuals.
- As of February 29, 2020, the credit ceiling has been increased to Rs. 250 crore, with outstanding loans totalling up to Rs. 50 crore.
- Additionally, the maximum amount of a loan that can be approved has increased. Under ECLGS 2.0, the maximum sum that can be obtained is Rs. 10 crore.
- The tenor has been extended to five years with a one-year repayment moratorium.
About National Credit Guarantee Trustee Company Limited
- The National Credit Guarantee Trustee Company Limited, or NCGTC, was established in 2014 in accordance with the Companies Act of 1956.
- The Indian government owns all of the corporation.
- The Ministry of Finance’s Department of Financial Services founded it.
- The organization’s primary responsibilities include creating credit guarantee programs, distributing lending risk among lenders, and assisting potential borrowers in obtaining financing.
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Conclusion
The Indian government made the decision to take care of achieving national self-reliance in order to revitalise the economy of the nation, which had been severely disrupted by the COVID lockdown. One of the programs is the Emergency Credit Line Guarantee Scheme.
Faq’s
Q. The emergency credit line guarantee program is available to whom?
Ans: The ECLGS scheme is available to any SME or MSME, including partnerships, sole proprietorships, and limited liability partnerships (LLPs). Candidates who have an annual turnover of Rs. 250 crores in FY2019–20 and a total outstanding balance of Rs. 50 crore on February 29, 2020, are eligible.
Q. What advantages does the credit guarantee program offer?
Ans: Through the National Credit Guarantee Trustee Company (NCGTC), the program offers the guarantee. For MIs that lend money to startups, NCGTC offers guaranteed coverage. Up to ₹10 crore, net of the value of any collateral offered can be borrowed without collateral under the plan.
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