ECLGS: How Modi govt’s Rs 3-lakh-crore credit scheme put Covid-hit MSMEs back on recovery track

The total borrowers were 92.27 lakh as of February 28 out of which 87.50 lakh (95 per cent) were MSMEs.

Credit and Finance for MSMEs: Working capital term loans secured by Covid-hit micro, small, and medium enterprises (MSMEs) under the Rs 3-lakh-crore Emergency Credit Line Guarantee Scheme (ECLGS) have been able to help beneficiaries meet their operational liabilities and resume businesses. MSMEs, which were staring at shutdown post lockdown in March last year with a runway of not more than three-four months for a majority of them, have been able to extend it by at least the end of 2020 through credit via ECLGS, according to experts Financial Express Online spoke to.

“ECLGS has been helpful for MSMEs, which were shut or inactive, to resume their operations by clearing payments to suppliers, salaries to employees, etc. In August, India’s manufacturing sector had witnessed growth after the preceding five months. Also, goods and services tax (GST) collections were up in September after six months of decline. One of the reasons for this was MSMEs resuming their businesses,” Govind Lele, National General Secretary at MSME body Laghu Udyog Bharati told Financial Express Online. The association has around 30,000 members across India.

India’s manufacturing PMI had expanded for the first time in August 2020 to 52 after contracting for five months in 2020, compared to 46 in July 2020 largely on the back of greater client demand for Indian goods and the resumption of business operations, according to the IHS Markit report. GST collections grew 4 per cent to Rs 95,000 crore in September, after the preceding six months of decline, hinting at economic activity recovery. The government had launched the ECLGS scheme in May 2020, as part of the Atmanirbhar Bharat package to provide emergency credit to businesses from banks and NBFCs up to 20 per cent of the entire outstanding credit as of February 20, 2020.

According to the data from the National Credit Guarantee Trustee Company (NCGTC) – the implementing agency of the ECLGS scheme, the amount of loan sanctioned under the scheme stood at Rs 2.46 lakh crore as of February 28, 2021, MSME Minister Nitin Gadkari had said in a written reply to a question in the Rajya Sabha last month. The total borrowers were 92.27 lakh as of February 28 out of which 87.50 lakh (95 per cent) were MSMEs.

“Lot of this money was used for repayment of an existing debt by MSMEs as the interest rate charged under ECLGS by banks was capped at 9.25 per cent instead of the usual 14-15 per cent in a regular bank loan. So, MSME used ECLGS credit to repay their existing loans as they were not receiving their payments from buyers and were not able to pay their debts. But how much of that money went for growth capital and how much for servicing of old debt is not known,” Madan Sabnavis, Chief Economist, CARE Ratings told Financial Express Online.

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Importantly, ECLGS was amended on November 26, 2020, and extended till March 31, 2020, with the introduction of ECLGS 2.0 that was expanded in scope. Under 1.0, an emergency credit line is offered to MSMEs and other businesses from banks and NBFCs up to 20 per cent of their entire credit outstanding as of February 29, 2020. MSMEs with up to Rs 25 crore outstanding and Rs 100 crore turnover were eligible. However, the turnover cap was removed post amendment in November. The amended version focused on entities in 26 stressed sectors identified by the Kamath Committee along with the healthcare sector with credit outstanding of more than Rs 50 crore and up to Rs 500 crore as of February 29, 2020. The scheme also mandated borrower accounts to be less than or equal to 30 days past due as of February 29, 2020, that is, they should not have been classified as SMA 1, SMA 2, or NPA by any of the lenders as of February 29, 2020.

“We had availed the scheme and it helped us in terms of additional working capital requirement as due to Covid our customers were not able to pay us on time and we were also held up with additional stock. That was when additional working capital was required and from that point, ECLGS helped a lot. We lost business for the initial 1.5-month post lockdown as workers were not available due to lockdown and other restrictions. We had availed the entire 20 per cent of the limit,” Sanjay Bhatia, Managing Director at Can maker Hindustan Tin Works and past President at FICCI-CMSME told Financial Express Online.

In March 2021, the government had also announced the launch of ECLGS 3.0 to cover enterprises in hospitality, travel & tourism, leisure & sporting sectors as well and had extended the overall emergency credit scheme including the previous two versions by three months from March 31, 2021, till June 30, 2021, or until guarantees for the entire Rs 3 lakh crore amount are issued. Last week, the Finance Ministry had further extended its scope to cover stressed businesses that have loan dues for up to 60 days (SMA-1 accounts), vis-a-vis 30 days earlier (SMA-0). SMAs are special mention accounts showing signs of incipient stress that lead to the borrower defaulting in servicing loan.

“Even if MSMEs were able to reduce their cost by 5 per cent then also it is a huge relief. The scheme has certainly helped in the viability of the unit as the entire financials of a business became stronger. Moreover, they would have also been able to attract labour back. If I close my unit, my labour disappears and if I keep my unit open, my labour also comes back,” added Sabnavis.