The ₹3-lakh-crore Guaranteed Emergency Credit Line (GECL) for business enterprises/MSMEs (micro, small and medium enterprises) for cheaper and easy working capital credit has been made operational.
Under the scheme, there is a one-year moratorium on the principal, but interest is payable during the period. The principal is to be repaid in 36 instalments once the moratorium period is over.
According to the guidelines issued by the National Credit Guarantee Trustee Company Ltd, not only MSMEs but also other businesses that fulfil the eligibility can avail the credit. “Banks/ NBFCs are to offer loans up to 20 per cent. Actual loan extended can, therefore, be less than 20 per cent. While the bank/ NBFC is expected to be liberal in sanctioning such loans, it is also expected to evaluate credit proposals by using prudent banking judgement and use business discretion / due diligence in selecting commercially viable proposals and conduct the account(s) of the borrowers with normal banking prudence,” the guidelines said. It also states that a business does not need to be registered as MSME to get the credit.
The scheme intends to provide 100 per cent guarantee coverage for the GECL. It will be a pre-approved sanction limit of up to 20 per cent of loan outstanding as on February 29 to eligible borrowers.
It will be in the form of additional working capital term-loan facility (in case of banks and financial Institutions), and additional term-loan facility (in case of NBFCs) in view of Covid-19 crisis as a special scheme.
This will also include MUDRA borrowers. Eligibility includes annual turnover of up to ₹100 crore and outstanding loan up to ₹25 crore (should be less than or equal to 60 days past due) on the prescribed date. A borrower could get credit up to ₹5 crore. GST registration will be madatory for borrowers except for those not required.
A separate loan account will be opened for the borrower for extending additional credit under GECL. The tenor of loans will be four years from the date of disbursement. No pre-payment penalty will, however, be charged in case of early repayment.
Interest rate
Maximum rate of interest for such credit will be 9.25 per cent (for banks and financial institutions) and 14 per cent (for NBFCs). As on date, various banks charge interest between 10.55 per cent and 16.25 per cent, while for NBFCs, the rate of interest ranges between 10 per cent and 30 per cent. For the scheme, the government has provided a corpus of ₹41,600 crore, which will be spread over four years starting with the current fiscal.
The scheme would be applicable to all loans sanctioned under the GECL facility during the period from the date of announcement of the scheme to October 31, or till an amount of ₹3-lakh crore is sanctioned under the GECL, whichever is earlier.
According to the guidelines, MSMEs or businesses constituted as proprietorship, partnership, registered company, trusts and Limited Liability Partnerships (LLPs) will be eligible under the Scheme.
Any existing loan such as vehicle loan taken by an entity will be taken into consideration for calculating ₹25 crore outstanding, but vehicle loan taken by promoter or director in personal capacity will not be covered.