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What is The Emergency Credit Line Guarantee Scheme?

Opportunity India Desk
Opportunity India Desk Jan 12 2022 - 8 min read
What is The Emergency Credit Line Guarantee Scheme?
Basic things you must know about ECGL if you are running a small medium business.

The Emergency Credit Line Guarantee Scheme provides 100% guarantee coverage by National Credit Guarantee Trustee Company Ltd (NCGTC) to MLIs on Guaranteed Emergency Credit Line (GECL) of up to Rs. 4.5 lakh crore to eligible MSMEs.

MSMEs for the purpose of this Scheme will include MSMEs/ Business Enterprises which are constituted as Proprietorships, Partnerships, Registered Companies, Trusts and Limited Liability Partnerships (LLPs), interested borrowers under Pradhan Mantri MUDRA Yojana (PMMY), and also loans to individuals for business purpose.

National Credit Guarantee Trustee Company Ltd (NCGTC) is a private limited company incorporated under the Companies Act 1956 on March 28, 2014, established by the Department of Financial Services, Ministry of Finance, as a wholly owned company of the Government of India, to act as a common trustee company for multiple credit guarantee funds.

Emergency Credit Line Guarantee Scheme (ECLGS) was launched by the Government of India as a special scheme in view of COVID-19 crisis.

The main Objective of the Scheme was:

To provide 100% guarantee coverage to Banks and NBFCs to enable them to extend emergency credit facilities to Business Enterprises or MSMEs in view of COVID-19 to meet their additional term loan/additional working capital requirements.

Most important Features of the Scheme are:

1)   Emergency Credit line

The amount of Emergency Credit line was extended to Business Enterprises / MSMEs was upto 20% of total outstanding as on Feb 29, 2020.

2)   100% Guarantee Coverage

100% Guarantee Coverage for the additional funds sanctioned under the Emergency Credit Line Scheme.

3)   Eligible Borrower

Business Enterprises / MSMEs with outstanding loan of upto,Rs.50 crore as on February 29, 2020 and turnover of upto Rs.250 crore in FY 2019-20.

4)   Interest Rate

Interest rate charged is capped at 9.25% for banks and 14% for NBFCs.

5)   Tenure

Maximum tenure of 4 years from the date of disbursement.

6)   Moratorium

Moratorium period on Principal amount is 12 months.

7)   Charges

No charges / guarantee fees to be charged by MLIs/NCGTC.

Frequently Asked Questions (FAQs) on Emergency Credit Line

1-    What is a Guaranteed Emergency Credit Line (GECL)?

The GECL is a loan for which 100% guarantee would be provided by National Credit Guarantee Trustee Company (NCGTC) to Member Lending Institutions (MLIs), and which will be extended in the form of additional working capital term loan facility and non-fund based facility in case of Scheduled Commercial Banks (SCBs) and Financial Institutions (FIs), and additional term loan facility in case of Non-Banking Financial Companies (NBFCs), to eligible MSMEs/ Business Enterprises, individual borrowers in case of the original loan having been for own business and interested Pradhan Mantri Mudra Yojana (PMMY) borrowers.

Credit under GECL would be up to 30% of the borrower’s total outstanding credit (40% in respect of borrowers in the Hospitality sector, Travel & Tourism sector, Leisure & Sporting sector and Civil Aviation sector, subject to a maximum of Rs.200 crore per borrower), excluding off-balance sheet and non-fund based exposures, as on 29th February, 2020 or 31st March, 2021, whichever is higher, i.e., additional credit shall be maximum up to Rs.150 crore (Rs.200 crore in respect of borrowers in the Hospitality sector, Travel & Tourism sector , Leisure & Sporting sector and Civil Aviation sector). GECL in respect of hospitals/nursing homes/clinics/medical colleges/units engaged in manufacturing of liquid oxygen, oxygen cylinders etc. seeking loans for setting up of on-site oxygen generating plants shall be upto Rs.2 crore and can be provided as fund based or non fund based facility or a mix of two. GECL in respect of borrowers with credit outstanding upto Rs.50 crore is open for all MSMEs/businesses, including MUDRA borrowers.

2)  What would be the guarantee coverage under the Scheme?

The entire funding provided under GECL shall be provided with 100% credit guarantee coverage by NCGTC under the Scheme.

 3)  What will be the eligibility criteria for MSMEs to avail the benefit of the Scheme?

The eligibility criteria under the Scheme are as under:

All MSME borrower accounts with combined outstanding loans across all MLIs of up to Rs. 50 crore in any sector and any amount in respect of borrowers in the Hospitality sector, Travel & Tourism sector, Leisure & Sporting sector and Civil Aviation sector.

Hospitals /Nursing Homes/Clinics/Medical Colleges/ units engaged in manufacturing of liquid oxygen, oxygen cylinders etc. having credit facility with any lending institution (non necessarily MLI)

Borrowers who have availed facility under ECLGS and are seeking restructuring as per RBI guidelines of May 05, 2021 (as amended vide RBI Circular dated June 04, 2021).

The Scheme is valid only for existing customers on the books of the MLI.

The MSME borrower must be GST registered in all cases where such registration is mandatory. This condition will not apply to MSMEs that are not required to obtain GST registration.

Loans provided to individuals for their own business purposes will be covered under the Scheme.

4)  Will the Scheme also cover borrowers under PMMY?

Yes, loans under PMMY extended on or before 29.2.2020, and reported on the MUDRA portal shall be covered under the Scheme. 10. Will GECL be extended as a separate loan account, or as part of the existing loan account of the borrower? A separate loan account shall be opened for the borrower for extending additional credit under GECL. This account will be distinct from the existing loan account(s) of the borrower.

5)  Will loans under ECLGS 1.0 be automatically given without any application or solicitation from the borrower?

This is a pre-approved loan. An offer will go out from the MLI to the eligible borrowers for a pre- approved loan which the borrower may choose to accept. If the MSME accepts the offer, it will be required to complete requisite documentation. Thus, an ‘opt-out’ option will be provided to eligible borrowers under the Scheme, i.e., if the borrower is not interested in availing the loan, he/she may indicate accordingly.

6)  What would be the procedure followed in case a borrower has loan accounts with multiple lenders?

 

  • In case a borrower has existing limits with multiple lenders, GECL may be availed either through one lender or each of the current lenders in proportion depending upon the agreement between the borrower and the MLI.
  • In case the borrower wishes to take from any specific lender an amount more than the proportional 30% (40% in respect of borrowers in the Hospitality sector, Travel & Tourism sector, Leisure & Sporting sector and Civil Aviation sector, subject to a maximum of Rs.200 crore per borrower) of the outstanding credit that the borrower has with that particular lender, a No Objection Certificate (NOC) would be required from such lenders whose share of loan under ECLGS is being proposed to be taken from the specific lender. However, it would be necessary for the specific lender to agree to provide a loan under ECLGS on behalf of such lenders.
  • No NOC will be required if the GECL availed from a particular lender is limited to the proportional 30% (40% in respect of borrowers in the Hospitality sector, Travel & Tourism sector, Leisure & Sporting sector and Civil Aviation sector, subject to a maximum of Rs.200 crore per borrower) of the outstanding credit that the borrower has with that lender.

7)    Will the interest rate on GECL be capped?

Yes, interest rates on GECL shall be capped as under:

  • For Banks and FIs, one of the RBI prescribed external benchmark linked rates (for MSMEs) and marginal cost based lending rate (for non-MSMEs) +1% subject to a maximum of 9.25% per annum • For NBFCs, the interest rate on GECL shall not exceed 14% per annum
  • For loans to hospitals/nursing homes/clinics/medical colleges/units engaged in manufacturing of liquid oxygen, oxygen cylinders etc. for setting up on-site oxygen generation plants, rate of interest shall be capped at 7.5% p.a. The Scheme may also be operated in combination with applicable interest subvention schemes, as far as feasible.

8)    What would be the tenor of loans provided under GECL?

 The tenor of loans provided under GECL shall be four years from the date of first disbursement.

9)     In case of MUDRA borrowers, if the total outstanding after support under ELGS exceeds the limit of Rs.10 lakh as specified for MUDRA borrowers, will they continue to get cover under Credit Guarantee Fund for Micro Units?

Yes, the additional loan would be covered under NCGTC’s ECLGS,   while the original loan would continue under CGFMU as previously covered.

10)    Who can provide answers to any further queries?

One can write to ceo@ncgtc.in

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