-Kanakprabha Jethani (firstname.lastname@example.org)
The Government of India had, in response to the crisis caused by the COVID-19 pandemic, announced an Emergency Credit Line Guarantee Scheme (ECLGS). Under the scheme, the Government undertook to guarantee additional facilities provided by Lending Institutions (LIs) to their existing borrowers. These facilities were limited to business loans only.
On November 12, 2020, the Finance Minister (FM), in a press conference, extended the last date granting loans under ECLGS 1.0 from November 30, 2020 to June 30, 2020. Further, the FM also announced introduction of ECLGS 2.0. On November 26, 2020, ECLGS 2.0 was introduced and the existing operational guidelines and FAQs on the scheme were revised. The below write-up discusses the major features of ECLGS 2.0 and changes in the existing ECLGS (referred to as ECLGS 1.0).
Opt-in Vs. Opt-out
While ECLGS 1.0 is essentially an opt-out facility, i.e. the lenders are required to offer a pre-approved additional facility to all the existing eligible borrowers and provide them an option to opt-out (not avail the funding). Under ECLGS 1.0, it is the responsibility of the LIs to determine the eligibility of the borrowers and offer loans.
On the contrary, the ECLGS 2.0 is an opt-in facility i.e. only those eligible borrowers, who intend to avail the funding and make an application for the same, will receive the additional facility. Here, the LIs would check the eligibility of the borrower upon receipt of application from the borrower for such funding. Hence, the responsibility of the lender to offer has now been changed to the responsibility of the borrower to apply.
Difference between ECLGS 1.0 and ECLGS 2.0
|Particulars||ECLGS 1.0||ECLGS 2.0|
|Eligibility of the borrower||· Credit outstanding (fund based only) across all lending institutions- up to Rs.50 crore
· Days Past
· Due (DPD) as on February 29, 2020 – up to 60 days or the borrower’s account should not have been classified as SMA 2 or NPA by any of the lender as on 29th February, 2020
|· Borrower should be engaged in any of the 26 sectors identified by the Kamath Committee on Resolution Framework vide its report and the Healthcare sector
· Total credit outstanding (fund based only) across all lending institutions- above Rs.50 crores and not exceeding Rs.500 crore
· DPD as on February 29, 2020 -up to 30 days respectively or the borrower’s account should not have not been classified as SMA 1, SMA 2 or NPA by any of the lender as on 29th February 2020
|Nature of Facility||Pre- approved additional funding with 100% guarantee coverage from the NCGTC||Non-fund based (in case of banks and FIs-other than NBFCs)/fund-based/mix of fund-based and non-fund based additional facility- with 100% guarantee coverage|
|Amount||20% of the total credit outstanding of the borrower up to Rs. 50 crores||20% of the total credit outstanding of the borrower up to Rs. 500 crores|
|Tenure||4 years from the date of disbursement||5 years from the date of first disbursement of fund based facility or first date of utilization of non-fund based facility, whichever is earlier|
Along with introduction of ECLGS 2.0, a few changes have been introduced in ECLGS 1.0 as well. The major changes are as follows:
- Extension of last date of disbursing loans from November 30, 2020 to June 30, 2021;
- Extension of the last date for sanctioning loans to March 31, 2021;
- The limit on turnover, under the eligibility criteria has been removed;
- The requirement of creating a second charge on the existing security has been waived-off in case of loans up to Rs. 25 lakhs.
With intent to provide relief and to give a push to the real sector, the government has been introducing various benefits and facilities; ECLGS being one of them. The date of the scheme has been extended to further provide benefit to the business. In this line, ECLGS 2.0 has also been introduced, with stricter eligibility criteria (to ensure lower risk) and higher loan sizes.
 Refer our detailed FAQs on the scheme here- http://vinodkothari.com/2020/05/guaranteed-emergency-line-of-credit-understanding-and-faqs/
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