ECLGS 4.0 expands credit lifeline for MSMEs amid the second wave of COVID-19

In a move to support MSMEs hit by COVID-19, the government announced on May 30, 2021, that it will be further extending the Emergency Credit Line Guarantee Scheme (ECLGS) by three months. The ECLGS was drawing towards a close on June 30, 2021, but will now remain active till September 30, 2021, or till the issuance of guarantees worth Rs 3 lakh crore. The guarantee issue target of Rs 3 lakh crore falls under the scope of the fourth revision of the scheme, which is why the scheme is now dubbed as ECLGS 4.0. 

Key additions in ECLGS 4.0: 

Under ECLGS 4.0, all existing hospitals/ nursing homes/clinics/ medical colleges, who have a credit facility from a lending institution with days past due up to 90 days as of March 31, 2021, are eligible for assistance of up to Rs 2 crore for setting up technologies like Pressure Swing Adsorption for on-site oxygen generation.  

Borrowers who availed loans under ELCGS 1.0 with a four-year repayment term will now get an additional year to repay. These borrowers are eligible for loan restructuring under the RBI guidelines released on May 5, 2021. Initially, they had to pay interest for the first 12 months and interest and principal for the remaining 36 months. But now, under ELCGS 4.0, they will pay interest for the first 24 months and interest and principal for the remaining 36 months. 

Borrowers who opt for restructuring as per the RBI guidelines shall be permitted to avail additional assistance of up to 10% of their outstanding credit as of February 29, 2020, provided they have not availed additional assistance under ECLGS 3.0. This means borrowers can either opt for an additional 10% or additional assistance under ECLGS 3.0, but not both. 

ELCGS 4.0 removes the maximum ceiling limit of Rs 500 crore provided by ELCGS 3.0. However, the additional ELCGS assistance will be limited to 40% or Rs 200 crore, whichever is lower.

Civil aviation has been newly added to the ELCGS 3.0 scheme. 

And as mentioned above, the validity of the scheme has been extended by three months or until the issuance of Rs 3 lakh crore. The disbursement will go on till December 31 2021.

Many MSMEs and other entities are eligible under the revised RBI restructuring guidelines issued early May this year. Therefore, this new version of ELCGS seeks to continue providing additional financial backing to the MSME sector and other entities eligible under the scheme. The smoother flow of institutional credit at affordable rates aims to accelerate the country's resumption of normal business activity. 

What is ELCGS?

Quite simply, ELCGS was introduced to provide a 100% guarantee to the emergency credit that banks, NBFCs and other lenders provided to business entities that suffered financially due to the COVID-19 pandemic. It was a part of the Atmanirbhar Bharat Abhiyan and started with measures like a 1-year moratorium and 4-year repayment period. 

What were the major offerings under the earlier ELCGSs?

Apart from the moratorium and the repayment extension, ELCGS provided additional credit of 20% on their February 29 2020, outstanding. The ELCGS 2.0 extended Rs 3 lakh crore to 26 stressed sectors highlighted by the Kamath Committee and the healthcare sector. ELCGS 3.0 included more sectors like hospitality, travel and tourism, leisure and sports industries. 

To reduce the financial burden of businesses, HDFC Bank offers MSME Loans at competitive interest rates with flexible tenures. Click here to know more. 

To avail of the Emergency Credit Line Guarantee Scheme, contact your relationship manager now.             

*Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances.