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May 20, 2020

Cabinet Approves 3 Lakh Crore Emergency Credit to MSMEs. Know if your Business is eligible

by facelesscompliance in Compliance Law

Cabinet Approves 3 Lakh Crore Emergency Credit to MSMEs. Know if your Business is eligible

The Union Cabinet approved additional funding of up to Rs 3 lakh crore through the Emergency Credit Line Guarantee Scheme (ECLGS) for the MSME sector hit hard by the coronavirus crisis. This will enable additional funding of up to ₹3 lakh to eligible MSMEs and interested MUDRA borrowers. 100 per cent guarantee coverage will be provided by National Credit Guarantee Trustee Company Limited (NCGTC).

What is the new Scheme ?

The Emergency Credit Line Guarantee Scheme (ECLGS) has been formulated as a specific response to the unprecedented situation caused by COVID-19 and the consequent lockdown, which has severely impacted manufacturing and other activities in the MSME sector. The Scheme aims at mitigating the economic distress being faced by MSMEs by providing them additional funding of up to Rs. 3 lakh crore in the form of a fully guaranteed emergency credit line. 

Encouraging Banks and NBFC to Lend more to MSME

The main objective of the Scheme is to provide an incentive to Member Lending Institutions (MLIs), i.e., Banks, Financial Institutions (FIs) and Non-Banking Financial Companies (NBFCs) to increase access to, and enable availability of additional funding facility to MSME borrowers, in view of the economic distress caused by the COVID-19 crisis, by providing them 100 per cent guarantee for any losses suffered by them due to non-repayment of the GECL funding by borrowers.

Which class of borrower / Business are eligible ?

The additional funding of up to Rs. three lakh crore to eligible MSMEs and interested MUDRA borrowers by way of “Emergency Credit Line Guarantee Scheme. Under the Scheme, 100% guarantee coverage to be provided by National Credit Guarantee Trustee Company Limited (NCGTC) for additional funding of up to Rs. three lakh crore to eligible MSMEs and interested MUDRA. borrowers, in the form of a Guaranteed Emergency Credit Line (GECL) facility.

Date from Which Scheme Starts – Guaranteed Emergency Credit Line (GECL)

The scheme would be applicable to all loans sanctioned under the GECL facility during the period from the date of announcement of the scheme to October 31, or till an amount of ₹3 lakh crore is sanctioned under the GECL, whichever is earlier.

The Cabinet also approved that the Scheme would be applicable to all loans sanctioned under GECL Facility during the period from the date of announcement of the Scheme to 31.10.2020, or till an amount of Rs 3,00,000 crore is sanctioned under the GECL, whichever is earlier.

Rate of Interest Guaranteed Emergency Credit Line (GECL)

Interest rates under the Scheme charged by government will be capped at 9.25 per cent for banks and at 14 per cent for NBFCs.

Banks usually Charge interest between 10.50 to 16.25 per cent while for NBFC, rate of interest ranges between 10 to 30 per cent, depending upon the borrower profile

How Much Government will fund make provisions

For Guaranteed Emergency Credit Line (GECL), the Government has provided a corpus of ₹41,600 crore, which will be spread over four years starting with the current fiscal.

Is your MSMEs or Business Eligible for Loan under Guaranteed Emergency Credit Line (GECL)?

Following are the terms and maximum loan which a business is eligible

1) Guaranteed Emergency Credit Line (GECL) facility to eligible Micro, Small and Medium Enterprise (MSME) borrowers, including interested MUDRA borrowers

2) All MSME borrower accounts with outstanding credit of up to Rs. 25 crore as on 29.2.2020 which were less than or equal to 60 days past due as on that date, i.e., regular, SMA 0 and SMA 1 accounts, and with an annual turnover of up to Rs. 100 crore would be eligible for GECL funding under the Scheme.

3) Maximum 20% of outstanding Loan (Max Loan 5 Cr i.e 20% of 25Cr

The amount of GECL funding to eligible MSME borrowers either in the form of additional working capital term loans (in case of banks and FIs), or additional term loans (in case of NBFCs) would be up to 20% of their entire outstanding credit up to Rs. 25 crore as on 29th February, 2020.

4) The entire funding provided under GECL shall be provided with a 100% credit guarantee by NCGTC to MLIs under ECLGS.

5) Tenor of loan under Scheme shall be four years with moratorium period of one year on the principal amount.

6) No Guarantee Fee shall be charged by NCGTC from the Member Lending Institutions (MLIs) under the Scheme.

7) Interest rates under the Scheme shall be capped at 9.25% for banks and FIs, and at 14% for NBFCs.

Impact

The Scheme has been formulated as a specific response to the unprecedented situation caused by COVID-19 and the consequent lockdown, which has severely impacted manufacturing and other activities in the MSME sector. In view of the critical role of the MSME sector in the economy and in providing employment, the proposed Scheme is expected to provide much needed relief to the sector by incentivizing MLIs to provide additional credit of up to Rs.3 lakh crore to the sector at low cost, thereby enabling MSMEs to meet their operational liabilities and restart their businesses. By supporting MSMEs to continue functioning during the current unprecedented situation, the Scheme is also expected to have a positive impact on the economy and support its revival.

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