ECLGS success hinges on willingness to lend  

NEW DELHI:  A top-up of Rs 1.5 lakh crore to the Emergency Credit Line Guarantee Scheme (ECLGS), taking the total outlay to Rs 4.5 lakh crore, has come as a major relief for Covid-hit industries struggling to limp back to normalcy, with demand in both the domestic and export markets have been hit badly.

The move comes as loan sanctions under the scheme near the Rs 3-lakh-crore mark after the government expanded the scope of the scheme beyond just small and medium businesses. However, the success of ECLGS will solely depend on lenders’ willingness to lend in a depressed demand situation, as it could add to the indebtedness of borrowers. This anxiety surfaces even as the government stands guarantee for the credit risk. 

“These loans (given under ECLGS) have a 12-month moratorium. Companies are keen on taking loans under this scheme, but there is no clarity how many borrowers will be able to repay given the underlying stress in businesses. The only silver lining is we have been increasing provisions to cover for the losses,” said a senior banker, requesting anonymity. 

The scheme is now available until  December 31, 2021, or till guarantees worth Rs 4.5 lakh crore are sanctioned, whichever is earlier. Out of the original Rs 3 lakh crore, banks have already sanctioned a cumulative Rs 2.69 lakh crore and disbursed around Rs 2.1 lakh crore under ECLGS, according to the latest available data. 

The pace of utilisation, however, has been slow. For instance, the exposure of public sector banks has been about 1-1.5 per cent of net advances, while the impact for the frontline private banks is not high (2 per cent of loans). “Our initial thesis was that the borrowers and lenders would look to utilise the scheme in a relatively short time after the window was opened.

However, we see that banks have been quite restrictive in using ECLGS. It is quite hard to understand if this behavior represents borrowers or lenders lack of confidence to recover from this slowdown or confidence to come back strongly once the economy returns to normalcy,” noted analysts from Kotak 
Institutional Equities. “Discussions with large private banks in the past indicated that the disbursements were also towards borrowers who utilised the scheme to lower the cost of debt and not necessarily to improve cash flows,” they added.

Monday’s package also  included Rs 1.1 lakh crore loan guarantee scheme for Covid-hit sectors, including health sector, which includes cover for expansion or for new projects.