To support MSMEs hurt by the second Covid-19 wave, Finance Minister Nirmala Sitharaman upped the amount under the Emergency Credit Line Guarantee Scheme (ECLGS) by 50% to Rs 4.5 lakh crore on Monday.
The existing maximum for the ECLGS scheme was Rs 3 lakh crore, which was announced as part of the Rs 20 lakh crore Atmanirbhar Bharat Abhiyan package in May 2020.
The finance minister revealed the scheme’s parameters, saying that contact-intensive industries are currently covered and will be continuing. So far, this window has provided almost Rs 4,000 crore to these industries, with the ceiling of permissible guarantee and loan amount recommended to be enhanced above the current threshold of 20% of outstanding on each loan.
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According to Debasish Panda, Secretary of the Department of Financial Services, banks and financial institutions have sanctioned Rs 2.73 lakh crore and disbursed Rs 2.10 lakh crore so far under the program.
The finance minister said that the overall maximum on permissible guarantees has been enhanced from Rs 3 lakh crore to Rs 4.5 lakh crore to help the Micro, Small, and Medium Enterprises (MSME) sector.
She stated that Scheduled Commercial Banks will be given a guarantee for loans to new or existing NBFC-MFIs or Micro Finance Institutions (MFIs) for lending up to Rs 1.25 lakh to over 25 lakh small borrowers.
The system would focus on new lending rather than repayment of existing debts, and loans to borrowers will follow existing RBI standards such as a number of lenders, borrower membership in a Joint Lending Group, and a household income and debt ceiling. According to Sitharaman.
All borrowers (including defaulters up to 89 days) would be eligible, and MLIs will provide guarantee protection for funding to MFIs/NBFC-MFIs until March 31, 2022, or until guarantees totaling Rs, 7,500 crores are given, whichever comes first.
She stated that the National Credit Guarantee Trustee Company (NCGTC) will provide a guarantee of up to 75% of the default amount for up to three years, with no guarantee fee imposed by NCGTC.
The finance minister expanded the scope of the Rs 3 lakh crore ECLGS last month by allowing hospitals to take up concessional loans to establish on-site oxygen-producing units. The scheme’s validity was also extended for three months, till September 30, or until Rs 3 lakh crore in guarantees were provided.
The scheme’s last distribution date has been extended until December 31.
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Under the ECLGS 4.0, hospitals, nursing homes, clinics, and medical institutions received a 100 percent guarantee on loans up to Rs 2 crore for the installation of on-site oxygen generation units.
The interest rate on these loans is capped at 7.5 percent, which means banks are unable to offer loans at lower rates.
While applauding the move to increase the ECLGS limit, Convenor K E Raghunathan of the Consortium of Indian Associations urged a capital gain tax exemption for small and micro businesses, OTS for individuals who want to terminate their loans and start over, and increased GST exemption limits.