The Emergency Credit Line Guarantee Scheme (ECLGS) will be extended to cover the next fiscal as well, with expanded guarantee cover of Rs 5 lakh crore, Finance Minister Nirmala Sitharaman said in her budget presentation. An additional guarantee amount of Rs 50,000 crore has been announced for the hospitality sector. Why an extension to the ECLGS? Under ECLGS, which is for helping companies tide over liquidity crunch resulting from Covid-19 curbs, banks provide additional loans to existing borrowers without asking for extra collateral. To encourage banks, these loans are fully guaranteed by the government against credit losses. This scheme will be key to ensure that MSMEs impacted by intermittent lockdowns in states get funding to stay afloat. Sanctions and disbursements under the facility are relatively faster since lenders have the Central government guarantee in case of default against these loans. Companies from hospitality, travel and tourism as well as leisure and sporting sectors are expected to benefit from the relaxation in the scheme. Hotels, restaurants, canteens, caterers, marriage halls, tour operators, as well as amusement parks and theatres can avail the facility. Accounts that are classified as non-performing assets or where overdues have crossed 60 days (SMA-II) are not eligible. In November 2020, the government had launched a new version of the ECLGS to provide funding support to stressed sectors in the economy. Companies that had loan dues up to 30 days (Special Mention Accounts or SMA-0) as on February 29, 2020, were being provided additional credit of 20 per cent outstanding under the scheme, which will now be given to SMA-1 accounts as well. Demand-led hike in limits This is within the Rs 3-lakh-crore loan sanction limit set under the scheme, but it could be raised depending on the demand. The stressed sectors, including construction, trade, hotels, and transport, contributed nearly 83.4 per cent to the contraction in the services sector in the April-June quarter of FY21. Trade, hotels, transport, communication and services related to broadcasting have been particularly hit, where output remains below pre-pandemic (2019-20) levels by as much as 8.5 percentage points. Output in most other sectors have recovered above pre-pandemic levels with recovery in agriculture being the strongest. In order to support Covid-hit MSMEs further, the government last announced an extension of its ECLGS till March 31, 2022, or till guarantees for an amount of Rs 4.5 lakh crore are issued under the scheme, whichever is earlier. Newsletter | Click to get the day's best explainers in your inbox
