Stimulus 3.0: Now, guaranteed credit for large firms in 27 sectors

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November 13, 2020 7:15 AM

Loan growth has been faltering in recent months. According to the latest RBI data, non-food bank credit growth decelerated to 5.8% on year in September from 8.1% a year before.

The government has already earmarked a corpus of Rs 41,600 crore over the current and the next three financial years to implement the ECLGS.The government has already earmarked a corpus of Rs 41,600 crore over the current and the next three financial years to implement the ECLGS.

The government on Thursday launched a new version of its Rs 3-lakh-crore guaranteed loan programme, originally meant for MSMEs, to benefit even larger firms in 27 stressed sectors ravaged by the Covid-19 pandemic, as it announced a raft of measures under the Aatmanirbhar package 3.0 to bring the economy back on its feet fast.

The move follows Rs 1.46 lakh crore production-linked incentive (PLI) schemes launched for 10 sectors on Wednesday, seeking to lure mainly large companies to ramp up manufacturing base and boost exports.

However, the Emergency Credit Line Guarantee Scheme (ECLGS) 2. 0 has been rolled out without raising the overall loan limit, as one-third of the Rs 3-lakh-crore cap is yet to be exhausted. That means no additional budgetary expenditure will be required for the revamped scheme. Nevertheless, it’s open to revising the limit later, based on the responses.

Both the ECLGS 1.0 and ECLGS 2.0 will run simultaneously and companies can tap the schemes until March 2021, as the government seeks to ensure greater flow of credit to lift economic activities in the aftermath of the easing of lockdown. The ECLGS was earlier extended only up to November 30 this year.

Finance minister Nirmala Sitharaman said, under the ECLGS 2.0, companies in 26 stressed sectors identified by the Kamath panel as well as healthcare, with credit outstanding of above Rs 50 crore and Rs 500 crore as of February 29, will be eligible to get up to 20% additional collateral-free loan with official guarantee.

The sectors include power, construction, iron and steel, roads, real estate, wholesale trading, textiles, consumer durables, aviation, logistics, hotels, restaurants and tourism, and mining.

The government has already earmarked a corpus of Rs 41,600 crore over the current and the next three financial years to implement the ECLGS.

Unlike in the ECLGS 1.0, there is no turnover limit set for the companies to tap the scheme. Their accounts must have been SMA-0 (where the delay in repayment ranges between one and 30 days) as of February 29, 2020.

Interest rates under both the versions of the scheme are capped at 9.25% for banks and other financial institutions, and 14% for NBFCs. However, instead of four years, the tenor of loans to be provided under the ECLGS 2.0 is five years, including a moratorium of one year on principle repayment.

“ECLGS 2.0 to provide much-needed relief to stressed sectors by helping entities sustain employment and meet liabilities. It will also benefit MSME sector which provides goods and services to eligible entities,” the finance minister said.

Loan growth has been faltering in recent months. According to the latest RBI data, non-food bank credit growth decelerated to 5.8% on year in September from 8.1% a year before.

Loans of Rs 2.05 lakh crore has been sanctioned so far under the ECLGS since its rollout on June 1 to 61 lakh borrowers. Of this, an amount of Rs 1.52 lakh crore has been disbursed.

Under the ECLGS 1. 0, announced as part of the government’s Rs 21 lakh-crore relief package in May, the Centre has pledged full guarantee for up to 20% extra, collateral-free working capital loans, subject to the Rs 3-lakh-crore limit. While this scheme was initially meant for only MSMEs, the government, in August, decided to relax the eligibility criteria to cover professionals and enable a wider pool of businesses to benefit from it.

Still, as part of its expanded coverage, companies with an annual turnover limit of only up to Rs 250 crore are eligible to tap the ECLGS 1. 0. Even individuals such as doctors, chartered accountants, lawyers, etc, who wish to take loans for professional purposes, are covered. Similarly, eligible businesses with only up to Rs 50 crore outstanding as of February 29 can avail of the additional guaranteed loans.

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