Loan defaults under the Emergency Credit Line Guarantee Scheme (ECLGS) are seen at just 2-3%, much lower than anticipated when the scheme designed to rescue micro, small and medium enterprises (MSMEs) and other businesses from the hardships during the Covid-19 period.

Therefore, the Centre’s cost to meet loan defaults may be around Rs 25,000 crore or a third of Rs 75,000 crore estimated initially during the five-year repayment period through FY28, official sources told FE.

The default level for ECLGS is broadly in line with the gross non-performing asset (GNPA) ratio of scheduled commercial banks (SCBs), which stood at 2.3% of gross advances as of March 31, 2025.

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The scheme, which was unveiled in 2020, was extended in phases till March 2023. Under the scheme, 11.9 million guarantees worth Rs 3.68 lakh crore were issued to MSMEs and other businesses. The moratorium period varies depending on different versions of the scheme, the loan repayment moratorium was 1 or 2 years.

So, while some repayments of the early part had begun, repayments for the full spectrum loans has commenced from April 2025.

“Loan repayments for all versions of the scheme have begun now. Most of the borrowers are repaying as per the initial trends. Defaults are now seen at 2-3% as of now, and we have to see how it evolves over a period of time,” a senior official said.

It provided a 100% guarantee on loans issued to eligible businesses, primarily MSMEs, to help them overcome financial difficulties in meeting their operational liabilities and restarting their businesses in the context of the disruption caused by the Covid-19 pandemic. This scheme covers all the sectors of the economy. This guarantee against defaults was provided by the National Credit Guarantee Trustee Company Limited (NCGTC).

According to a State Bank of India report in January 2023, at least 1.46 million MSMEs accounts were saved due to the ECLGS, saving millions of jobs till November, 2022. It said around 12% of the outstanding MSME credit has been saved from slipping into NPA because of the ECLG scheme.