Guidelines of Emergency Credit Line Guarantee Scheme (ECLGS)

To help the MSME sector to continue functioning during this unprecedented situation triggered by the Covid-19 pandemic, the Ministry of Finance, Government of India has notified the revised Guidelines of Emergency Credit Line Guarantee Scheme ( ECLGS). The government expanded ECLGS scope at the request of the industry in line with the revised definition of micro, small, and medium enterprises (MSMEs). The cap on funding under the ECLGS scheme doubled from Rs 5 crore to Rs 10 crore. Besides, industrial units with turnover up to Rs 250 crore (the earlier cap was Rs 100 crore) are now eligible for the scheme. The present article briefs the Revised Guidelines of Emergency Credit Line Guarantee Scheme based on the new operation guidelines released by the National Credit Guarantee Trustee Company (NCGTC).

Synopsis of Revised Guidelines of ECLGS

The Synopsis updated and revised guidelines of the Emergency Credit Line Guarantee Scheme (ECLGS) is as follows

The Government has increased the upper ceiling of loans outstanding for being eligible under the ECLGS scheme from Rs.25 Crore to Rs.50 Crore
The Government has also increased the maximum amount of GECL funding under this scheme from Rs.5 Crore to Rs.10 Crore
The annual turnover ceiling of enterprises for being eligible under the scheme from Rs.100 crore to Rs.250 crore in line with the increased ceiling of loans outstanding and the revised definition of MSME issued by the Ministry of MSME.

Emergency Credit Line Guarantee Scheme (ECLGS)

The objective of the ECLGS scheme is to support the MSMEs to continue functioning during the current unprecedented situation triggered by the Covid-19 pandemic. As part of this scheme, the Government incentivizing the Member Lending Institutions (MLIs) to provide additional credit of up to Rs. 10 lakh crore (earlier 3 lakh crore) in the form of a fully Guaranteed Emergency Credit Line (GECL) facility. The scheme provides for an easy additional working capital loan at a concessional rate of interest to an existing borrower who was not a defaulter

Eligible MLIs as per Revised Guidelines

Member Lending Institution (MLI) for the Emergency Credit Line Guarantee Scheme purpose will include all Scheduled Commercial Banks (SCBs), Nonbanking Financial Companies (NBFCs) and Financial Institutions (FIs), All NBFCs which have been in operation for 2 years as on 29.02.2020 is eligible under this Scheme.

Eligible Borrowers as per Revised Guidelines

All borrower accounts about Business Enterprises, MSMEs, and Loans to individuals for business purposes are eligible for the ECLGS.
The borrower’s outstanding loans across all MLIs of up to Rs.50 crore as on 29.2.2020 only eligible for the scheme
The annual turnover of up to Rs. 250 crore for the financial year is now eligible for the benefit

Note: The Member Lending Institutions will check with credit bureau the overall outstanding of the borrower to assess the eligibility of the borrower

Eligible Business Enterprises / MSMEs

Loans provided to Business Enterprises / MSMEs constituted as following enterprises are eligible for the scheme

Proprietorship
Partnership
Registered company
Trusts
Limited Liability Partnerships (LLPs)

ECLGS Loans for individuals for business purposes

As per the notification released on August 03, 2020, loans provided to individuals for business purposes shall also be eligible for the ECLGS scheme. The government has already extended its scope by enhancing eligibility criteria to include larger units and also allowed individual professionals such as doctors, chartered accountants, and cab drivers.

ECLGS Loans for PMMY holders

For this Scheme, Business Enterprises or MSMEs would include loans covered under Pradhan Mantri Mudra Yojana (PMMY) extended on or before 29.02.20 and reported on the MUDRA portal.

Other Eligibility Criteria

Loans provided in individual capacity are covered under the Scheme
However, such loans should be restricted to business loans taken by individuals for their businesses and should be supported with a Management Certificate to this effect at the time of guarantee application. These loans should also meet the other eligibility criteria of the scheme
The Scheme is valid for existing customers on the books of the Member Lending Institutions.
Borrower accounts should be less than or equal to 60 days past due as on 29.02.2020 to be eligible under the ECLGS Scheme.
All borrowers which have not been classified as SMA 2 or NPA by any of the MLIs as on 29.02.2020 will be eligible for the ECLGS Scheme
Days Past Due status as on 29.2.2020 to be checked across MLIs from the credit bureau.
All borrower accounts which had NPA or SMA-2 status as on 29.2.2020 is not eligible for this scheme.
Business Enterprises or MSME borrower must be GST registered in all cases where such registration is necessary.

Note: This condition will not apply to Business Enterprises or MSMEs that are not required to obtain GST registration.

An ‘opt-out’ option for Eligible Borrowers

An ‘opt-out’ option should be provided to the eligible borrowers to enable them to choose whether they wish to opt-out of the GECL facility.
For this Scheme, the existing loans of the borrowers don't need to be covered under the existing NCGTC or CGTMSE Scheme.

Eligible Loan Amount under the Guarantee Coverage

The amount of GECL funding to eligible borrowers either in the form of additional working capital term loan facility (in case of banks and Financial Institutions) an additional term loan facility (in case of NBFCs) would be up to 20% of their total outstanding loans up to Rs. 50 crore as on 29.02.2019, subject to the borrower meets all the eligibility criteria.

MLIs will open a separate account for Credit Facility extended through the Scheme
Loans extended through current Government schemes such as PMEGP, PMMY will continue to be categorized under that scheme as earlier.
In case a borrower has existing limits with multiple lenders, GECL can be availed either through multiple lenders depending upon the agreement between the borrower and the Member Lending Institution.
In case the borrower plan to obtain loan from any lender an amount more than the proportional 20% of the outstanding credit that the borrower has with that particular lender, a No Objection Certificate (NOC) is mandatory. However, it is mandatory for the specific lender to agree to provide ECLGS facility on behalf of such of the lenders
No NOC will be required if the GECL availed from a particular lender is limited to the proportional 20% of the outstanding credit that the borrower has with that lender.

MLIs are expected to have simple and enabling criteria to assess borrower eligibility. Since the loans are being provided to existing borrowers it is expected that the time required for due diligence would be minimal. MLIs need to work towards enabling access of this facility to all the eligible loan borrowers by educating borrowers regarding the Scheme and steps to avail credit under the Scheme

Interest Rate of Credit under the ECLGS Scheme

Interest Rate on Guaranteed Emergency Credit Line (GECL) shall be capped as under:
For Banks and Financial Institutions, the lending rate linked to one of the external benchmark rates prescribed by Reserve Bank of India +1% subject to a maximum of 9.25% per annum.
For NBFCs, the interest rate on GECL is fixed at 14% per annum.

Loan Processing Fee

Since the additional pre-approved facility is to be provided to existing customers, no additional processing fee will be charged by money lending institution to borrowers.

Penal Interest

No penal interest due to any non-compliance of the already accepted covenants on the existing credit facilities will be charged on additional loans during the sanction time.

ECLGS Application Procedure

As mentioned above, the ECLGS scheme has an automatic pre-approve mechanism, which means the applicant does not have to approach the lender for the loan. Member Lending Institution 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 loan borrower for extending additional credit under GECL. This new account will be distinct from the existing loan account of the borrower.