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All You Need to Know About ECLGS Scheme

While presenting the Budget 2022 on February 1, Union Finance Minister Nirmala Sitharaman stated that the Emergency Credit Line Guarantee Scheme (ECLGS) scheme will be extended to cover the next fiscal year as well, with an enlarged guarantee cover of Rs 5 lakh crore. For the hotel industry, an extra guarantee of Rs 50,000 crore has been announced. During the COVID-19 pandemic in 2020, the Finance Ministry launched ECLGS to give financial aid to the pandemic-affected economy. Emergency Credit Line Guarantee Scheme (ECLGS) allows banks to extend further loans to current clients without requiring additional collateral. We’ll look at what ECLGS is in this post.

 

What is ECLGS Scheme and its intent?

ECLGS scheme intends to offer banks and non-banking financial entities with 100 percent guaranteed coverage. Its goal is to assist MSMEs who have been impacted by the COVID lockout. Under the ECLGS system, loans are approved swiftly. It was announced as part of a COVID assistance package of Rs 20 lakh crore. 

This programmer will provide support to MSMEs around the country who have been affected by the COVID-19 lockdowns. Loans are promptly approved under this facility since lenders have the backing of the federal government in the event of default. Processing, foreclosure, and prepayment fees will also be waived. 

All Member Lending Institutions (MLIs) would provide loans to qualified business enterprises/MSMEs in the form of extra working capital term loan facilities (in the case of banks and financial institutions) and additional term loan facilities (in the case of NBFCs).

This plan is open to borrowers having outstanding loans of up up to Rs 25 crore as of February 29, 2020, and an annual turnover of up to Rs 100 crore for Financial Year 2020. MSMEs that are organised as a single owner, partnership, registered corporation, trusts, or Limited Liability Partnerships (LLPs) are also eligible. Debtor accounts with Non-Performing Assets (NPAs) or SMA-2 status as of February 29, 2020 are not qualified.

 

ECLGS Scheme 1.0

The ECLGS scheme 1.0 was introduced as part of the COVID-19 assistance package, which cost Rs 20 lakh crore. To alleviate COVID-related misery, it sought to give Rs 3 lakh crore in collateral-free, government-guaranteed loans to MSMEs across the country. It had a one-year moratorium period and a four-year payback period. For the financial year 2019-2020, it sought to provide collateral-free and completely guaranteed credit to firms with outstanding credit of up to Rs 25 crore as of February 29, 2020, with an annual turnover maximum of Rs 100 crore. The programme was initially only valid through October 2020, however it was later extended to the end of November.

ECLGS Scheme 2.0

The Rs 3 lakh crore plan was extended in November 2020 to help 26 challenged industries and was valid through March 31, 2021. The credit was for five years, with a one-year moratorium period in between. Companies with debts ranging from Rs 50 crore to Rs 500 crore as on February 29, 2020 were deemed eligible. The outstanding credit ceiling has been raised from Rs 25 crore to Rs 50 crore. 

ECLGS Scheme 3.0

The plan was extended to include the hospitality, travel & tourist, leisure, and sporting sectors on March 31, 2020. In addition, the government has prolonged the ECLGS scheme 1.0 and 2.0, as well as ECLGS 3.0, for additional three months, until June 30, 2021.

As of February 29, 2020, ECLGS scheme 3.0 featured the extension of up to 40% of total loan outstanding across all lending institutions. The loans were provided for a term of six years, with a two-year moratorium. It only took into account debts that were fewer than 60 days past due as of February 29, 2020, and had a total credit outstanding of less than Rs 500 crore. To help MSMEs even more, the ECLGS was recently extended till March 31 this year, or until guarantees worth Rs 4.5 lakh crore are granted under the plan, whichever comes first.

Key Takeaways

No doubt ECLGS scheme have been given for the ultimate support of MSME’s, but due to some complexities, MSME’s may face only some difficulties while applying for it. Nevertheless, as always LegalPillers is ready to serve the best services to its clients, may it be any scheme or any benefits, we have successfully crossed milestones on company registration in Delhi as we have online chartered accountants in Delhi who are ready to give their 100% in fulfilling the desired goals and objectives of startups and industries.

Disclaimer – Information provided hereby is based on various blogs published in the market. We do not claim complete authenticity of content shared above. Please do cross verify before relying on information. 

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