NBFCs request finmin to include education sector in ECLGS 3.0

By: |
April 20, 2021 4:00 AM

The Finance Industry Development Council (FIDC) told the government, in a letter, that loans to educational institutions across the country exceed Rs 10,000 crore and, in the absence of support, lenders in the space would be forced to write down their portfolios.

The scheme allows funding to these sectors up to 40% of total credit outstanding as on February 29, 2020, to the extent of Rs 500 crore.The scheme allows funding to these sectors up to 40% of total credit outstanding as on February 29, 2020, to the extent of Rs 500 crore.

An association of non-banking financial companies (NBFCs) has written to finance minister (FM) Nirmala Sitharaman, seeking the inclusion of education as a sector under the ambit of the credit guarantee scheme for small enterprises.

The Finance Industry Development Council (FIDC) told the government, in a letter, that loans to educational institutions across the country exceed Rs 10,000 crore and, in the absence of support, lenders in the space would be forced to write down their portfolios.

Seeking a virtual meeting with the FM and ministry officials, FIDC said in the letter, “We believe that inclusion of Education sector under ECLGS 3.0 will not only provide regular source of funding to Educational Institutions enabling them to cope up with short-term liquidity problem arising out of closure of schools/colleges etc. but also the cash flows would be more aligned to the elongated repayment term.” Simultaneously, lending institutions would be able to cover the risk of their educational infra loan portfolio and it would provide an enhanced business opportunity, the letter added.

Assuming an average tuition fee of `1,000 per month and an average 350 students per school, around `12,250 crore per month of fees should have been received by schools. However, due to sudden lockdowns and the continuing impact of the pandemic, the liquidity position of schools and colleges and, consequently, of the lenders in the education space has been seriously impacted, FIDC said.

The original emergency credit line guarantee scheme (ECLGS 1.0), announced in May 2020, sought to incentivise additional funding to eligible micro, small and medium enterprises (MSME) borrowers by ensuring 100% sovereign guarantee coverage.

In November 2020, the ministry announced the extension of ECLGS 1.0 till March 31, 2021, and the introduction of ECLGS 2.0, which brought 26 stressed sectors identified by the Kamath committee under the ambit of sovereign guarantee. Both the schemes are now in effect till June 30, 2021. ECLGS 3.0, notified on March 31, 2021, covers enterprises and MSMEs in the hospitality, travel & tourism, and leisure & sporting sectors.

The scheme allows funding to these sectors up to 40% of total credit outstanding as on February 29, 2020, to the extent of Rs 500 crore.

“It is pertinent to note that Education Sector has not been included in the identified 26 stressed sectors whereas there has been serious impact of COVID-19 on the education sector as well including closure of Schools/Colleges etc. resulting in a negative social and economic impact,” FIDC said.

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