Various MSME associations and industry chambers had earlier suggested that the government should make individual entrepreneurs eligible under the scheme, and bankers now expect disbursements to rise significantly. (Express Photo by Gopal Kateshiya/Representational)
AIMING TO jumpstart the economy in the middle of a Covid slump, the government Saturday expanded the Emergency Credit Line Guarantee Scheme (ECLGS) to cover individual entrepreneurs, who run a large chunk of the over 6.3 crore Micro, Small and Medium Enterprises (MSMEs) across the country, and larger companies.
The scheme, which provides additional 20 per cent collateral-free credit, will now cover individual loans given for business purposes.
Besides, companies with outstanding loans of up to Rs 50 crore and annual turnover of up to Rs 250 crore, as on February 29, 2020, can avail additional financing — the earlier limit was Rs 25 crore and Rs 100 crore, respectively. This means that the maximum loan a unit can avail will rise to around Rs 10 crore as against Rs 5 crore earlier.
“A total of around Rs 1.37 lakh crore has been sanctioned under the scheme by member lending institutions to around 40 lakh accounts, of which around Rs 87,000 crore has been disbursed. The changes in the ECLGS scheme are likely to make an additional Rs 1 lakh crore eligible,” Department of Financial Services Secretary Debasish Panda said.
Under the scheme, banks offer up to Rs 3 lakh crore of government-guaranteed loans. Official figures till July 23 show that disbursement per loan account by private banks is nearly 5.6 times that of state-owned banks — Rs 14.95 lakh and Rs 2.66 lakh per borrower, respectively.
Various MSME associations and industry chambers had earlier suggested that the government should make individual entrepreneurs eligible under the scheme, and bankers now expect disbursements to rise significantly. However, first-time borrowers and NPA accounts cannot raise funds under the scheme.
Since a large number of borrowers — almost 80-90 per cent, in the case of Non Banking Financial Companies (NBFCs) for equipment and vehicles — take loans in their individual names, they had so far been ineligible. The changes will now cover, for instance, truck drivers, small shopkeepers, taxi drivers, lawyers, agriculture equipment owners, and doctors and engineers with loans on equipment.
The National Credit Guarantee Trustee Company Ltd (NCGTC), which runs the ECLGS under which the government provides 100 per cent credit guarantee against loan losses, will amend the scheme to reflect these changes.
Sources said the rate of disbursement was below expectations, as most vehicle and equipment financing NBFCs could not provide this facility to individual borrowers. “The Prime Minister wants sanctions and disbursements to pick up pace and reach needy sections of the society,” they said.
Sources said that another Rs 18,000 crore of support to NBFCs has been approved under the government’s special liquidity window of Rs 45,000 crore, while another scheme for stressed MSMEs is expected to gather pace.
Under the ECLGS scheme, interest rates of banks and financial institutions have been capped at 9.25 per cent per annum, while NBFCs can lend at a maximum of 14 per cent per annum. Launched on May 23, the scheme is open until October 31 or until Rs 3 lakh crore has been sanctioned. Sources indicated that the government is open to extend the scheme beyond October 31 if the funds have not been exhausted.
Sources said the government expects uncertainty to prevail in the economy and the revival may get affected due to sporadic lockdowns being imposed by several states. “While states are the best judges on whether to impose lockdowns in containment areas, this disrupts the supply and value chains, hitting economic activity across the country,” the sources said.
“We have to make decisions as we go along, as the pandemic is still on,” they said.