Emergency Credit Line Guarantee Scheme

Why in news?

• Union Cabinet has approved additional funding of up to Rs1,50,000 crore under Emergency Credit Line Guarantee Scheme (ECLGS).

About the scheme:

• The scheme was launched as part of the Aatmanirbhar Bharat Abhiyan package announced in May 2020 to mitigate the distress caused by coronavirus-induced lockdown, by providing credit to different sectors, especially Micro, Small and Medium Enterprises (MSMEs).
• ECLGS aims to provide 100 percent guarantee coverage to banks, NBFCs and other lending institutions to enable them to extend emergency credit to business entities that have suffered due to the pandemic
• Annual turnover ceiling of companies that could avail loans under the scheme is Rs.250 crore, and the maximum amount of loans that can be availed is Rs.10 crore

How it works?

• The scheme provides fully guaranteed and collateral free additional credit to MSMEs, business enterprises, MUDRA borrowers and individual loans for business purposes to the extent of 20% of their credit outstanding
• 100% guarantee coverage is being provided by the National Credit Guarantee Trustee Company, whereas Banks and NBFCs provide loans.
• Interest rate charged is capped at 9.25% for banks and 14% for NBFCs
• Maximum tenure of loan under the scheme must be 4 years
• The ECLGS will be applicable to all eligible loans sanctioned under Guaranteed Emergency Credit Line (GECL) till September 2021, or till an amount of Rs4.5 trillion is sanctioned, whichever is earlier.

PRACTICE QUESTION:

With reference to ‘Emergency Credit Line Guarantee Scheme’, consider the following statements:

1. It aims to provide interest free loans to business entities that have suffered due to the pandemic

2. Maximum amount of loans that can be availed by an entity under the scheme is Rs.10 crore

Which of the statements given above is/are correct?

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

Answer