39 Things About Emergency Credit Line Guarantee Scheme You May Not Have Known
The government has extended the Rs. 3-lakh-crore Emergency Credit Line Guarantee Scheme (ECLGS) until 30th June 2021, included hospitality, travel, and tourism. The scheme was launched as part of the Atma Nirbhar Bharat Abhiyan package announced in May 2020. Intends to provide credit to different sectors, especially Micro, Small and Medium Enterprises (MSMEs). Fully guaranteed collateral free credit is supplied to MSMEs, business enterprises, MUDRA borrowers and individual loans for business purposes, 100% guarantee coverage is being provided by the National Credit Guarantee Trustee, Company, whereas Banks and Non-Banking Financial Companies (NBFCs) provide loans. ECLGS 2.0, Focused on entities in 26 stressed sectors identified by the Kamath Committee. The earlier turnover cap of MSMEs with up to Rs 25. crore outstanding and Rs. 100 crore turnover was removed in Nov 2020.
1. What is a Guaranteed Emergency Credit Line (GECL)?
The GECL is a loan for which a 100% guarantee would be provided by National Credit Guarantee Trustee Company (NCGTC) to Member Lending Institutions (MLIs), and which will be extended in the form of additional working capital term loan facility in case of Scheduled Commercial Banks (SCBs) and Financial Institutions (FIs), an additional term loan facility in case of Non-Banking Financial Companies (NBFCs), to eligible MSMEs/ Business Enterprises and interested Pradhan Mantri Mudra Yojana (PMMY) borrowers. Credit under GECL would be up to 20% of the borrower’s total outstanding credit up to Rs. 25 crore, excluding off-balance sheet and non-fund-based exposures, as of 29th February 2020, i.e., additional credit shall be up to Rs. 5 crores.
2. What is the objective of the Scheme?
The Scheme is a specific response to the unprecedented situation COVID-19. It seeks to provide much-needed relief to the MSME sector by incentivizing MLIs to provide additional credit of up to Rs. 3 lakh crore at low cost, thereby enabling MSMEs to meet their operational liabilities and restart their businesses.
3. What is the Emergency Credit Line Guarantee Scheme?
The Emergency Credit Line Guarantee Scheme provides 100% guarantee coverage by NCGTC to MLIs on GECL of up to Rs. 3 lakh crore to eligible MSMEs. MSMEs for the purpose of this Scheme will include MSMEs/ Business Enterprises which are constituted as Proprietorships, Partnerships, Registered Companies, Trusts, and Limited Liability Partnerships (LLPs), and also interested borrowers under PMMY.
4. Who are the MLIs under the Scheme?
All SCBs are eligible as MLIs. NBFCs which have been in operation for at least 2 years as of 29.2.2020, and FIs will also be eligible as MLIs under the Scheme.
5. What will be the definition of FIs for the purpose of this Scheme?
FIs for the purpose of this Scheme will be as defined under sub-clause (i) of clause (c) of Section 45-I of the RBI Act.
6. What is the duration of the Scheme?
The Scheme would be applicable to all loans sanctioned under GECL during the period from May 23, 2020, to 31st October 2020, or till an amount of Rs. 3 lakh crore is sanctioned under GECL, whichever is earlier.
7. What would be the guarantee coverage under the Scheme?
The entire funding provided under GECL shall be provided with a 100% credit guarantee coverage by NCGTC under the Scheme.
8. What will be the eligibility criteria for MSMEs to avail the benefit of the Scheme?
The eligibility criteria under the Scheme are as under: • All MSME borrower accounts with combined outstanding loans across all MLIs of up to Rs. 25 crore as of 29.2.2020, and an annual turnover of up to Rs. 100 crore in FY 2019-20. In case accounts for FY 2019-20 are yet to be audited/finalized, the MLI may rely upon the borrower’s declaration of turnover. • The Scheme is valid only for existing customers on the books of the MLI. • Borrower accounts should be classified as regular, SMA-0, or SMA-1 as of 29.2.2020. Accounts classified as NPA or SMA-2 as of 29.2.2020 will not be eligible under the Scheme. • The MSME borrower must be GST registered in all cases where such registration is mandatory. This condition will not apply to MSMEs that are not required to obtain GST registration. • Loans provided in individual capacity will not be covered under the Scheme.
9. Will the Scheme also covers borrowers under PMMY?
Yes, loans under PMMY extended on or before 29.2.2020, and reported on the MUDRA portal shall be covered under the Scheme.
10. Will GECL be extended as a separate loan account, or as part of the existing loan account of the borrower?
A separate loan account shall be opened for the borrower for extending additional credit under GECL. This account will be distinct from the existing loan account(s) of the borrower.
11. Will loans under the Scheme be automatically given without any application or solicitation from the borrower?
This is a pre-approved loan. An offer will go out from the MLI to the eligible borrowers for a preapproved loan which the borrower may choose to accept. If the MSME accepts the offer, it will be required to complete requisite documentation. Thus, an ‘opt-out’ option will be provided to eligible borrowers under the Scheme, i.e., if the borrower is not interested in availing the loan, he/she may indicate accordingly.
12. What would be the procedure followed in case a borrower has loan accounts with multiple lenders?
• In case a borrower has existing limits with multiple lenders, GECL may be availed either through one lender or each of the current lenders in proportion depending upon the agreement between the borrower and the MLI. • In case the borrower wishes to take from any lender an amount more than the proportional 20% of the outstanding credit that the borrower has with that particular lender, a No Objection Certificate (NOC) would be required from all other lenders. • No NOC will, however, be required if the GECL availed from a particular lender is limited to the proportional 20% of the outstanding credit that the borrower has with that lender.
13. To avail GECL, will it be necessary for existing loans of the borrower to be covered under existing guarantee schemes such as CGFMU or CGTMSE?
14. Will the interest rate on GECL be capped?
Yes, interest rates on GECL shall be capped as under: • For Banks and FIs, one of the RBI prescribed external benchmark linked rates +1% subject to a maximum of 9.25% per annum • For NBFCs, the interest rate on GECL shall not exceed 14% per annum The Scheme may also be operated in combination with applicable interest subvention schemes, as far as feasible.
15. What would be the tenor of loans provided under GECL?
The tenor of loans provided under GECL shall be four years from the date of disbursement. No pre-payment penalty shall, however, be charged by the MLIs in case of early repayment.
16. Is there any moratorium period prescribed under the Scheme?
Yes, a moratorium period of one year on the principal amount shall be provided for GECL funding. Interest shall, however, be payable during the moratorium period. The principal shall be repaid in 36 installments after the moratorium period is over.
17. Is any turnaround time prescribed for MLIs under the Scheme for sanction of GECL?
Indicative turnaround time for loans under the Scheme shall be the same as those prescribed by the Department of Financial Services for credit support in the context of the COVID-19 pandemic.
18. Will any guarantee fee be charged under the Scheme by NCGTC?
No, NCGTC will not charge any guarantee fee under the Scheme.
19. Will any processing fee be charged by MLIs for sanction of loans under GECL?
Since additional credit under GECL is to be provided to existing customers, no additional processing fee shall be charged by lenders.
20. Will MLIs ask for any additional collateral for the GECL facility?
No additional collateral shall be asked by MLIs for additional credit extended under GECL.
21. Will the categorization of existing loans extended through current Government schemes such as PMEGP or PMMY change if GECL is provided to such borrowers?
No. Existing loans extended through current Government schemes would continue to be categorized under that scheme as earlier. GECL under this Scheme shall be over and above the existing loan.
22. What will be the risk weight assigned to the credit extended under GECL?
Approval of RBI has been requested for assigning zero risk weight to the credit extended under GECL.
23. What will be the security on credit extended under GECL? Scheme?
The credit under GECL will rank pari passu with the existing credit facilities in terms of cash flows (including repayments) and securities, with charge on the assets financed under the Scheme to be created within a period of 3 months from the date of disbursal.
24. Will MLIs be required to enter into any agreement with NCGTC for the purpose of this Scheme?
Yes, MLIs will be required to submit an Undertaking to NCGTC for the purpose of this Scheme.
25. How will the guaranteed amount be paid by NCGTC to the MLIs on invocation of the guarantee?
75% of the guaranteed amount will be paid by NCGTC within 30 days of an eligible claim being preferred by the MLI concerned. The balance 25% will be paid on conclusion of recovery proceedings or till the decree gets time barred, whichever is earlier.
26. Who will issue detailed operational guidelines for ECLGS, and who will have the authority to modify provisions of the Scheme/operational guidelines?
NCGTC has issued the detailed operational guidelines for the Scheme. The Management Committee for ECLGS fund will have the authority to approve any changes to the current structure of the Scheme/ operational guidelines.
27. I run a business enterprise and have a GST registration. However, I am not registered as an MSME nor do I have Udyog Aadhar. My Bank also does not classify me as an MSME borrower. Am I eligbile under the scheme?
You are eligible if (i) you have total credit outstanding of Rs. 25 Crore or less as on 29th Feb 2020 (ii) your turnover for 2019-20 was upto Rs. 100 Cr. (iii) You have a GST registration or were not required to obtain such GST registration Udyog Aadhar or recognition as MSME is not required under this Scheme 28. My Bank/ NBFC has offered me a pre-approved loan of 15% only though the scheme mentions 20%. Can the Bank/ NBFC do so? Under ECLGS, Banks/ NBFCs are to offer loans upto 20%. Actual loan extended can therefore be less than 20%. This is generally on mutually agreed terms between the borrower and the lender based on factors relevant to the business operations.
29. I run a retail shop. Am I eligible for coverage?
See answer to question 27 30. I operate a lending business. Am I eligible? No please. Typically lending institutions get funds from banks/ NBFCs through on lending, refinance, asset purchase, securitization, assignment etc. There are therefore other windows available including the Partial Credit Guarantee Scheme and the Special Liquidity Facility.
31. Are all NBFCs eligible to become MLIs with NCGTC? No. The NBFC must be registered with RBI, should be meeting the CRAR requirements prescribed by RBI and have been in lending business for at least two years as on 29th Feb 2020. The Managing Committee of the Scheme may prescribe additional qualification criteria from time to time.
32. What will be the procedure for claim settlement ?
This will be advised in due course through additional guidelines to be issued.
3. Can new MSME borrowers get covered under the scheme?
ECLGS scheme is only for existing borrowers on the books of the banks as on 29th Feb 2020. Any New borrowers should be covered under ongoing CGTMSE and NCGTC schemes 34. Can co-applicant loans between entity and the promoter or director get covered under the scheme ? For loans having co-applicant, only those existing loans where entity is the primary co-applicant are covered under the Scheme for additional emergency funding 35. Are off balance sheet loans provided to MSME borrowers covered as part of the scheme? No, the scheme does not cover the off-balance sheet exposure. Only on balance sheet exposures outstanding as on 29th Feb, 2020 are eligible to be covered under the scheme. 36. How is the interest rate to be decided for loans under the scheme? As per RBI guidelines dated September 04, 2019 & February 26, 2020, all loans to MSMEs must be benchmarked to one of the external benchmark rates. Banks are free to decide the spread over the external benchmark as per their approved policies. Accordingly, loans under the ECLGS must adhere to the above-mentioned guidelines and linked to the external benchmark rates. As part of the scheme overall lending rate is capped 1% above the external benchmark lending rate or 9.25% p.a. whichever is lower. Loans which are allowed not to be benchmarked to external rates shall be capped at maximum of 9.25%. For e.g. for Bank ABC External Benchmark Lending Rate is 7.80 %; i.e. RBI Repo Rate (4.0%) + Spread (3.80%). For the purpose of this scheme the lending rate would be Min of (7.8% + 1% = 8.8% and 9.25%) = 8.8% in this case. For e.g. for Bank ABC1 External Benchmark Lending Rate is 8.50 %; i.e. RBI Repo Rate (4.0%) + Spread (4.50%). For the purpose of this scheme the lending rate would be Min of (8.5% + 1% = 9.5% and 9.25%) = 9.25% in this case.
37. I am not a registered MSME and operate a general/retail business. My account was NPA as on 29th Feb, 2020. Am I eligible for ECLGS?
Accounts that are NPA or where overdues have crossed 60 days (SMA-II) are not eligible under ECLGS. 38. My lender, which is an NBFC, proposes to charge 15% for the loan. Is this permissible? While a NBFC lender can charge a rate of interest higher than 14%, such a loan would not be eligible for guarantee coverage.
39. Who can provide answers to any further queries?
Please address your queries/suggestions to email@example.com