The finance ministry has convened a meeting of the heads of public sector banks and the top four private sector lenders to assess the status of the Emergency Credit Line Guarantee Scheme (ECLGS) to assist firms affected by COVID-19.
The conference, which will be presided over by Financial Services Secretary Vivek Joshi, will also include key private sector lenders HDFC Bank, ICICI Bank, Axis Bank, and Kotak Mahindra Bank.
The extension of ECLGS and LGSCAS beyond March 31, along with the challenges related to them, would be discussed.
ECLGS was announced as part of the Atmanirbhar Bharat Package in May 2020, with the goal of assisting businesses, including MSMEs, to meet their operational liabilities and resume operations in the aftermath of the COVID-19 crisis, by providing banks with a 100 percent guarantee against any losses incurred due to non-repayment of funding by borrowers.
The initial overall ceiling set for ECLGS was Rs 3 lakh crore, which was later increased to Rs 4.5 lakh crore.
The Union Budget 2022-23 announced an extension of the Scheme’s validity until March 2023, as well as an increase in the limit of guaranteed ECLGS cover by Rs 50,000 crore to a total cover of Rs 5 lakh crore, with the additional amount earmarked exclusively for enterprises in the hospitality and related sectors.
Finance Minister Nirmala Sitharaman in the latest Budget said, “Last year, I proposed revamping the credit guarantee scheme for MSMEs. I am happy to announce that the revamped scheme will take effect from 1st April 2023 through the infusion of Rs 9,000 crore in the corpus.”
“This will enable additional collateral-free guaranteed credit of Rs 2 lakh crore. Further, the cost of the credit will be reduced by about 1 per cent.” To ensure easy and softer repayment terms on the credit extended to the MSME sector, the government has capped the interest rate under ECLGS scheme at 9.25 per cent for Banks and Financial Institutions and 14 per cent for Non-Banking Financial Institutions. This scheme also offers a one-year moratorium on payment of the principle component.”