Cabinet okays Rs 3 lakh cr emergency credit line for MSMEs

The Union Cabinet on Wednesday approved additional funding of up to Rs 3 lakh crore at a concessional rate of 9.25 per cent through the Emergency Credit Line Guarantee Scheme (ECLGS) for the MSME sector hit hard by the coronavirus crisis. 

The ECLGS was the second-biggest component of Rs 21 lakh crore comprehensive package announced by Finance Minister Nirmala Sitharaman last week. 

Under the scheme, 100 per cent guarantee coverage will be provided by National Credit Guarantee Trustee Company (NCGTC)for additional funding of up to Rs 3 lakh crore to eligible MSMEs and interested MUDRA borrowers, in the form of a guaranteed emergency credit line (GECL) facility, an official statement said. 

For this purpose, a corpus of Rs 41,600 crore shall be provided by the Government of India spread over the current and the next three financial years, it said. 

The Cabinet headed by Prime Minister Narendra Modi also approved that the scheme would be applicable to all loans sanctioned under GECL Facility during the period from the date of announcement of the scheme to October 31 or till an amount of Rs 3 lakh crore crore is sanctioned under the GECL, whichever is earlier. 

The ECLGS has been formulated as a specific response to the unprecedented situation caused by COVID-19 and the consequent lockdown, which has severely impacted manufacturing and other activities in the MSME sector, the release said. 

The scheme aims at mitigating the economic distress being faced by about 45 lakh MSMEs by providing them additional funding of up to Rs 3 lakh crore in the form of a fully guaranteed emergency credit line. 

The main objective of the scheme is to provide an incentive to member lending institutions (MLIs) like banks, financial institutions (FIs) and non-banking financial companies (NBFCs) to increase access to, and enable availability of additional funding facility to MSME borrowers, in view of the economic distress caused by the COVID-19 crisis, by providing them 100 per cent guarantee for any losses suffered by them due to non-repayment of the GECL funding by borrowers. 

With regard to eligibility, it said, all MSME borrower accounts with outstanding credit of up to Rs 25 crore as on February 29 which were less than or equal to 60 days past due as on that date, i.e., regular, SMA 0 and SMA 1 accounts, and with an annual turnover of up to Rs 100 crore would be eligible for GECL funding under the Scheme. 

The amount of GECL funding to eligible MSME borrowers either in the form of additional working capital term loans (in case of banks and FIs), or additional term loans (in case of NBFCs) would be up to 20 per cent of their entire outstanding credit up to Rs. 25 crore as on February 29, 2020. 

The entire funding provided under GECL shall be provided with a 100 per cent credit guarantee by NCGTC to MLIs under ECLGS, it said, adding, tenor of loan under Scheme will be four years with moratorium period of one year on the principal amount. 

No guarantee fee shall be charged by NCGTC from the member Lending Institutions (MLIs) under the scheme and interest rates under the scheme will be capped at 9.25 per cent for banks and FIs, and at 14 per cent for NBFCs. 

In view of the critical role of the MSME sector in the economy and in providing employment, the proposed scheme is expected to provide much needed relief to the sector by incentivising MLIs to provide additional credit of up to Rs 3 lakh crore to the sector at low cost, thereby enabling MSMEs to meet their operational liabilities and restart their businesses, it said.  

By supporting MSMEs to continue functioning during the current unprecedented situation, the scheme is also expected to have a positive impact on the economy and support its revival, it added.