SBI Research has said that the Emergency Credit Line Guarantee Scheme (ECLGS 5.0), approved amid disruptions arising from the West Asia conflict, is expected to benefit around 1.1 crore micro, small and medium enterprises (MSMEs). While banks and analysts have welcomed the move, they cautioned that implementation and on-ground transmission would need close monitoring.

The report estimates that nearly 1.1 crore MSME accounts, about 45% of the total MSME portfolio, would be eligible under the scheme, with an average additional credit flow of Rs 2–2.3 lakh per account.

“Though it is too early to comment on the expected results of ECLGS 5.0, based on earlier experience the scheme appears reasonably credible, proactive and sufficient to tide over the transient West Asia crisis,” the SBI Research report said. “The timely intervention will ensure liquidity support, protect jobs, sustain supply chains and strengthen the resilience of the Indian economy.”

As per the notification, the scheme allows additional credit of up to 20% of peak working capital utilised during Q4 FY26, capped at Rs 100 crore for MSMEs. For airlines, additional credit of up to 100% of peak working capital can be extended, capped at Rs 1,500 crore per borrower. The government has targeted a total additional credit flow of Rs 2.55 lakh crore, including Rs 5,000 crore for airlines.

Jinay Gala, Director at India Ratings and Research, said the move would provide a sentiment boost but lending would continue to be guided by banks’ internal underwriting standards. “It is a step in the right direction, but on the implementation front we will have to see how it percolates on the ground,” he said.

Bankers said the earlier versions of the credit guarantee scheme had delivered positive outcomes. Dhavan Shah, Head of Commercial Banking at AU Small Finance Bank, said, “As long as loans are granted to credit-worthy customers, it will lead to sustenance and growth of the MSME sector. The eligibility is limited to 20% of peak utilisation of working capital in Q4 FY26, effectively matching the stretch in working capital cycles due to delayed payments or input cost pressures.”

SBI Research noted that under the earlier ECLGS versions, around 13.5 lakh MSME loan accounts were saved from slipping into non-performing assets, preserving employment for nearly 1.5 crore workers. Gross NPA in the MSME segment declined to 3.3% in September 2025 from 11% in March 2020, aided by the guarantee support, the report said.

Sachin Sachdeva, Vice President – Financial Sector Ratings at ICRA, said overall credit flow to the eligible sectors is expected to increase, though part of the fresh borrowings could be used to refinance existing liabilities. “As seen during the Covid-time ECLGS scheme, the net increase in indebtedness may be limited. However, the risk of future slippages remains, and debt servicing ability will need to be monitored if the loans result in over-indebtedness,” he said.

Shekhar Bhandari, Head–SME at Kotak Mahindra Bank, said the scheme’s structure contains safeguards against misuse. “The design has guardrails that reduce evergreening risk—eligibility is restricted to standard accounts as of March 31, 2026, and incremental funding is linked to peak working-capital utilisation (Q4 FY26), rather than open-ended refinancing. The intent is to preserve confidence and continuity of credit, not mask asset quality,” he said.

In FY26, MSME credit grew nearly 27%, taking its share to 18.5% of total bank credit. For the aviation sector, at full disbursement of Rs 5,000 crore, the proposed measure would amount to around 9.5% of the outstanding credit. Outstanding bank credit to the aviation sector stood at Rs 52,600 crore as of March 2026, registering 14% year-on-year growth.