The ECLGS scheme is a financial package that India conceptualized, to save small businesses from the unprecedented and devastating effects of the Coronavirus pandemic. The scheme was launched by the Ministry of Finance, under the aegis of the Financial Inclusion Mission, on May 23, 2020. The aim was to help the eligible micro, small and medium enterprises (or MSMEs) and business enterprises severely hit by the Covid-19 pandemic, to restart or sustain their operations and meet liabilities of additional term loans and additional working capital requirements. The initial amount of the package was slated at Rs 3 lakh crore by the Finance Ministry.
ECLGS full form
ECLGS stands for Emergency Credit Line Guarantee Scheme
ECLGS loan providers
Financial aid under the ECLGS was to be channelised through all commercial banks, including RRBs, NBFCs, SIDBs, eligible HFCs and MFIs, EXIM Bank of India, National Housing Bank, and National Bank of Agriculture and Rural Development.
ECLGS scheme management
The scheme was to be managed under the trusteeship of National Credit Guarantee Trustee Company Ltd (NCGTC). However, no charges or guarantee fees were to be charged by the trustee. As of March 2022, the total number of such MLIs (Member Lending Institutions) covered under credit guarantee was 105.
Under the primordial offering, eligible business enterprises could apply for loans up to 20% of their total outstanding credit to the lending institutions as of February 29, 2020. The limit of such total outstanding credit was capped at Rs 50 crore.
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ECLGS beneficiaries
MSMEs, registered companies, trusts and individuals who set up a number of small businesses were the target beneficiaries of the proposed scheme.
ECLGS scheme eligibility
Registered companies were preferred over individuals. However, subjects having status of SMA-2 (special mention account) and NPA (non-performing asset) were not eligible.
Chronological history of the ECLGS scheme
ECLGS 1.0 scheme
This original version of the scheme provided for a 100% guarantee to the member lending institution on the eligible credit to its borrowers limited to the maximum of 20% of their all outstanding (funds) across all lenders, up to a limit of Rs 50 crore and for a period that has not exceeded 60 days as on February 29, 2020.
ECLGS 1.0 scheme provided loans for a tenor of four years at a rate of interest that equalled 9.25% for the banks (and financial institutions) and 14% for the NBFCs. It also had a moratorium of 12 months, on repayment of principal. The loans were term loans for working capital.
The scheme underwent an extension to the new eligible borrowers that came under its umbrella with the revision of the reference date as March 31, 2021. On this last day of FY 2020-21, the central government announced further good incentives to the beneficiaries of ECLGS.
The borrowers of ECLGS 1.0, who were supposed to repay only interest on the loan for the first 12 months and principal and interest in the remaining 36 months (out of a four-year tenor), could now enjoy the extension of the tenor by one more year.
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ECLGS 2.0
Based on the recommendations of the Kamath Committee on Resolution Framework dated September 4, 2020, the fund-based outstanding credit of the Healthcare sector, between Rs 50 crore and Rs 500 crore, across all its lenders, got secured for the same reference date of February 29, 2020 and the period of credit not past 30 days (i.e., DPD eligibility is SMA-0). The scheme was announced on November 26, 2020.
100% credit guarantee was to be extended to the eligible lending institutions for their borrowers from an additional 26 sectors identified in the mentioned committee report. These sectors were as elaborated below:
- Power
- Iron and steelmaking
- Construction
- Real estate
- Roads
- Wholesale trading
- Chemicals
- Textiles
- Non-ferrous metals
- Consumer durables/FMCG
- Cement
- Logistics
- Gems and jewellery
- Auto components
- Mining
- Hotels and restaurants
- Automotive dealership
- Automobile manufacturing
- Plastic product manufacturing
- Building materials
- Shipping
- Port and port services
- Sugar
- Aviation
- Corporate retail outlets
- Pharmaceuticals manufacturing
Under ECLGS 2.0, the borrower entities or accounts were also eligible for an additional collateral-free guaranteed emergency credit line (GECL) of 20% of their total outstanding (fund or non-fund-based, or both), fully secured by NCGTC, the trustee.
Similar to version 1.0 of the scheme, ECLGS 2.0, too, was extended to additional eligible borrowers with revision in the record date as March 31, 2021. Loans under ECLGS 2.0 and its extension were those for working capital term loan, non-fund facilities and a combination of both, fund and non-fund facilities.
ECLGS 3.0
This version offered a reward of 100% guarantee to MLIs on their eligible credit extended to borrowers from the hospitality and related sectors (hotels, marriage halls, restaurants, canteens), travel and tourism (travel agents, tour operators, bus operators, rent-a-car services, etc.), civil aviation (airports, air ambulances, airlines-both scheduled and non-scheduled, chartered flight operators, etc.) and leisure and sporting (gymnasiums, yoga institutes, spa/beauty parlour/salons, caterers, florists, etc.) sectors. These sectors were in addition to the 26 sectors already covered under version 2.0 of the scheme.
This version, too, got extended with the revised record date of March 31, 2021. The operational guidelines of the ECLGS were updated by a circular issued on May 30, 2021.
ECLGS 4.0
This refers to the version of ECLGS that provided for 100% guarantee to MLIs extending credit to eligible medical colleges/hospitals/nursing homes/clinics or units engaged in manufacturing liquid oxygen/oxygen cylinders for setting up on-site oxygen generation plants using technologies like Pressure Swing Adsorption.
The necessity for this variant came from the phenomenal amount of oxygen support needed for Covid patients suffering from reduced blood oxygen saturation levels during the second wave of the pandemic in the country. The credit product under this scheme was named as ‘Guaranteed Emergency Credit Line (GECL)’.
DPD status was defined as up to 90-days as on March 31, 2021 and loan eligibility was up to Rs 2 crore.
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Assessment and impact analysis of ECLGS
By NIBM
The trustee company NCGTC hired the services of the National Institute of Bank Management (NIBM), and they submitted a 40-page final report on August 26, 2020, after completion of a study on the impact of ECLGS.
The report comprised of six chapters as follows:
Chapter-I: Discussed the impact of Covid-19 on availability and cost of credit of business enterprises and MSMEs that necessitated the launch of ECLGS scheme.
Chapter-II: Population data on Mudra (PMMY) and non-Mudra loans were analysed here. On the basis of GECL, it found out the share of MLIs on serving the loans based upon size of the business enterprises.
Chapter-III: Embodies survey responses from 1,722 firms participating in the survey. It appeared that the smallest companies, those supposed to be mostly hit, have actually benefited from the short-term liquidity support, up to three months without any noticeable business growth.
Chapter-IV: Embodies responses from MLIs. It highlighted business disruption as the most vital reason for the non-availment of ECLGS, as well as its popularity with borrowers in terms of liquidity support. It also connoted the popularisation of MLIs’ credit business with ECLGS.
Chapter-V: Embodies an empirical analysis of qualitative survey responses from borrowers. The model showed that a small percentage of increase in disbursement and a positive opinion on the liquidity benefit of GECL could lead to a positive outlook on business growth across the board including the smallest and most affected enterprises.
Chapter-VI: It documents suggestions received from field officers, nodal officers at MLIs as borrowers and identifies certain loopholes in the process of documentation for under utilisation of GECL. It opines that a higher disbursement linked to working capital limit would have proved more effective.
The above report was followed by a complimentary report by the NIBM on September 16, 2020, that comprised only two chapters (III and V).
Chapter-III: It documented survey responses from 1,948 MSME and other business enterprises.
Main observations by respondents:
- ECLGS increased short-term liquidity support
- Most borrowers used the GECL to clear supplier dues for resuming operations.
- A small fraction perceived ECLGS as an enabler for business volume and growth.
Chapter-V: Empirical analysis of qualitative responses from 1,948 MSME and other business enterprises towards two pertinent questions, viz.: i) whether GECL will help to overcome financial problems and ii) whether it will increase business volume (long-run perspective).
The findings were in-line with those of the corresponding chapter of the previous report.
TU-CIBIL report
Credit rating company Transunion CIBIL prepared an ECLGS insights report in December 2021 that analysed the Flow of Credit and Borrower Behaviour compiled from information collated by its member credit institutions.
Salient findings, as etched out in their report on the two title aspects, were as follows:
Credit flow
- The public sector banks were the lead implementers of the scheme.
- Very small and micro MSMEs have benefitted the most.
- Sectors mostly hurt have received the most funds – these are the sectors that involve mobility (retail, tourism, food and hospitality, entertainment, etc.)
- MSMEs concentrated in industrialised states received the major chunk of the pie – the five most industrialised states of India, Gujarat, Maharashtra, Uttar Pradesh, Karnataka, and Tamil Nadu received 47% of total ECLGS loan disbursement.
Borrower behaviour
- The credit health of borrowers has improved – MSME availed of ECLGS moved to a lower risk bucket from a higher one, thereby improving their credit scores.
- Average credit balances reduced – There was a recorded drop in average credit balances of the availers of the scheme to the tune of 17% between March 2020 and March 2021 compared to a corresponding figure of 8% for the non-availers.
- Improved credit performance – borrower level NPA rate was at 6% as of March 2021 among availers of the scheme compared to a 7.5% of the corresponding rate among non-availers. Only 2% of loans given under ECLGS were reported to be NPA by lenders as of March 2021.
- Boost in confidence and optimism – 65% of respondents from 756 surveyed MSMEs acknowledged that ECLGS had helped them to overcome business turmoil caused due to the pandemic and 68% were confident of a positive future outlook having availed of the scheme.
By a notification dated March 30, 2022, NCGTC the managing trustee of the ECLGS scheme, has informed its MLIs that duration of the scheme has been extended up to March 31, 2023 or till guarantees for an amount equal to Rs 4.5 lakh crore is issued (taking into account all components of ECLGS), whichever is earlier.
It also informed of certain changes that have been brought about, to provide further relief to borrowers in the Hospitality and Aviation sectors. The revised operational guidelines have been made available on the NCGTC website.
