Government's Credit Guarantee Support Scheme ECLGS 2.0 to Infuse Life in Stressed Sector

Union Finance Minister Nirmala Sitharaman on Thursday announced new stimulus measures as part of the ‘Atmanirbhar Bharat 3.0’ package. As part of these measures, the Emergency Credit Line Guarantee Scheme (ECLGS 1.0) has been extended till March 21, 2021. FM Sitharaman also announced that the scheme is being launching a credit guarantee support - Emergency Credit Line Guarantee Scheme 2.0 (ECLGS 2.0) under which stressed sectors can avail themselves of debt moratoriums for up to five years, which executives said will help revive their pandemic-hit companies and encourage them to invest in building new capacities.

The ECLGS 2.0 will provide collateral-free, additional credit at capped interest rates to firms in 26 stressed sectors identified by the KV Kamath panel in October. The scheme also extended the deadline of loan moratorium from December to March next year. The stressed sectors identified by the panel include aviation, power, construction, steel, roads and real estate.

The finance ministry said the tenor of additional credit under ECLGS 2.0 will be five years, including one-year moratorium on principal repayment available till March 31, 2021. The scheme will have no ceiling on annual turnover, but firms should have credit outstanding above Rs. 50 crore and up to Rs. 500 crore as on February 29 this year. “The new production-linked incentive (PLI) scheme for 10 key sectors will lead to enhanced manufacturing activity in India,” said Vinayak Deshpande, Managing Director, Tata Projects, adding that this will spur creation of new and expanded facilities.

Aiswarya Ravi, CFO, Kinara Capital, said the extension of ECLGS until the end of this fiscal is positive. “After the lockdown, MSMEs (micro, small and medium

The ECLGS 2.0 will provide collateral-free, additional credit at capped interest rates to firms in 26 stressed sectors identified by the KV Kamath panel in October

enterprises) are struggling with liquidity crunch. The ECLGS allows last-mile NBFCs to provide quick help to small businesses to stabilize and restart their business operations,” she added.

The finance ministry said so far Rs. 2.05 trillion of additional credit has been sanctioned to 6.1 million borrowers. Of this, Rs. 1.52 trillion has already been disbursed to small borrowers, the ministry said. “The ECLGS extension to 26 stressed sectors and rise in its loan limit is a significant announcement that Confederation of Indian Industry (CII) was hoping to hear from the government. Along with the PLI scheme to 10 manufacturing sectors, package comprising employment incentives, infrastructure boost and export impetus greatly enthuses industry across the board,” stated Chandrajit Banerjee, Director General, CII.

Talking about the stimulus Vinayak Deshpande stated “We feel that the recently announced stimulus measures will definitely provide a spur to economic activity, especially across the construction and infrastructure sectors. Measures such as replacing EMD (earnest money deposit) with bid security declaration will provide relief to contractors, since it shall lower locked-up capital and reduce cost of bank guarantee. Additionally, the earnest money deposit and performance security on government tenders have been reduced to 3 per cent instead of 5-10 per cent earlier, which is a positive move for the entire construction and infrastructure sectors”.

“This should support the economy, which is showing early signs of turning around. The measures should be seen as steps in the right direction. They not only offer immediate support for the economy, but also cater to longer term considerations such as boosting infrastructure and job creation,” said Chandra Shekhar Ghosh, Managing Director & CEO, Bandhan Bank.