Demand Seen: Loan guarantee scheme to stay through FY22

In May, the finance ministry extended the validity of the ECLGS by three months through September 30 or until guarantees for the earlier limit of Rs 3 lakh crore were issued. Now, it’s expected to be extended further. (Representative image)

The government will likely extend the validity of its Rs 4.5-lakh-crore guaranteed loan scheme for companies and individuals by six months through March 2022 to enable a wider pool of businesses to take advantage of it, sources told FE.

“There is also a chance that initially, it may be extended by three months through December 2021, which could be followed by another three-month extension,” one of the sources said.

Disbursement under the Emergency Credit Line Guarantee Scheme (ECLGS) hasn’t yet exceeded Rs 3 lakh crore, which is why its validity needs to be extended, banking sources said. Also, while expanding the scheme’s limit in June, the government hadn’t extended its validity, they added.

As of July 2, loans of Rs 2.73 lakh crore were sanctioned under the scheme, of which Rs 2.14 lakh crore was disbursed under its various avatars (ECLGS 1.0, 2.0 and 3.0), MSME minister Narayan Rane had said in a written reply in the Rajya Sabha. Guarantees were issued for credit extended to around 1.09 crore MSMEs, he had said, citing data from the department of financial services.

The offtake under the ECLGS has slowed down after initial pick-up last year. However, the government expects a large number of businesses, which have been hit by the second Covid wave, to tap the scheme.

As part of its stimulus package, the Centre had on June 28 enhanced the limit of loans under the ECLGS by Rs 1.5 lakh crore from the initial target of Rs 3 lakh crore to soften the second Covid wave blow.

The ECLGS 1.0 was announced as part of the government’s Rs 21-lakh-crore relief package in May 2020. Under this, the government had pledged full guarantee for up to 20% extra, collateral-free working capital loans, subject to the `three-lakh-crore limit. While this scheme was originally meant for only MSMEs, the government has periodically broadened its scope to enable a large number of businesses and professionals to benefit from it.

The last expansion of the scheme in June, aimed at stirring economic growth through sustained credit push, could cost the exchequer an extra Rs 20,000 crore over three years, analysts have said.

The limit of guarantee and amount for each loan was raised in June from the earlier level of 20% of the outstanding amount.

In May, the finance ministry extended the validity of the ECLGS by three months through September 30 or until guarantees for the earlier limit of Rs 3 lakh crore were issued. Now, it’s expected to be extended further.