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Business Eligible for Loan under Guaranteed Emergency Credit Line

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COVID Emergency Credit Facility covers all companies and not just MSMEs: Finance Minister

Union Minister for Finance and Corporate Affairs Smt Nirmala Sitharaman today said that the COVID Emergency Credit Facility covers all companies and not just MSMEs. Addressing the FICCI National Executive Committee members, Smt Sitharaman assured the industry of all possible Government support with the intent of supporting Indian business and reviving the economy, and said, “We are committed to support/intervene if any of your members have a problem”.

On the question of liquidity, the Finance Minister said, “We have fairly clearly addressed the issue of liquidity. There is definitely the availability of the liquidity. We will look into it if there are still issues.” Smt Sitharaman also said that every Government department has been told to clear dues and if there is any issue with any department, the government will look into it.

The Finance Minister also said that the Government will consider an extension in the deadline for availing the 15% corporate tax rate on new investments. “I will see what can be done. We want industry to benefit from the 15% corporate tax rate on new investments and I take your point for considering an extension in the deadline of 31st March, 2023,” Smt Sitharaman said.

The Finance minister suggested the industry to submit their recommendations related to the ministry of corporate affairs or SEBI deadlines so that necessary steps could be taken.

With regard to the need for reduction in GST rates in the badly affected sectors, She said, “GST rate reduction will go to the Council. But the council is also looking for revenue. The decision for reduction in rate for any sector has to be taken by the Council”.

Finance and Revenue Secretary Mr Ajay Bhushan Pandey informed FICCI members that Income Tax Refund to the corporates have also started and I-T refunds to the tune of Rs 35,000 crore have been issued in the last few weeks.

The meeting was also attended by the Secretary Expenditure Mr T V Somanathan , Economic Affairs Secretary Mr Tarun Bajaj, Corporate Affairs Secretary Mr Rajesh Verma , Department of Financial Services Secretary Mr Debasish Panda and Chief Economic Advisor Dr K V Subramanian.

FICCI President Dr Sangita Reddy informed the Finance Minister that the chamber is in constant touch with different government departments to support the implementation of the measures announced to deal with the COVID-19 impact. “FICCI is committed to the common goal of Atmanirbhar Bharat and working with the government in enhancing implementation,” Dr Reddy added.

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35 Frequently Asked Questions (FAQ) on Guaranteed Emergency Credit Line of Rs 3 lakh crore for eligible MSMEs

35 Frequently Asked Questions (FAQ) on Guaranteed Emergency Credit Line of Rs 3 lakh crore for eligible MSMEs

1) What is Guaranteed Emergency Credit Line (GECL)?

Answer: The GECL is a loan for which 100% guarantee would be provided by National Credit Guarantee Trustee Company (NCGTC) to Member Lending Institutions (MLIs), and which will be extended in the form of additional working capital term loan facility in case of Scheduled Commercial Banks (SCBs) and Financial Institutions (FIs), and additional term loan facility in case of Non-Banking Financial Companies (NBFCs), to eligible MSMEs/ Business Enterprises and interested Pradhan Mantri Mudra Yojana (PMMY) borrowers. Credit under GECL would be up to 20% of the borrower’s total outstanding credit up to Rs. 25 crore, excluding off-balance sheet and non-fund based exposures, as on 29th February, 2020, i.e., additional credit shall be up to Rs. 5 crore.

2) What is the objective of the Scheme?

Answer: The Scheme is a specific response to the unprecedented situation COVID-19. It seeks to provide much needed relief to the MSME sector by incentivizing MLIs to provide additional credit of up to Rs. 3 lakh crore at low cost, thereby enabling MSMEs to meet their operational liabilities and restart their businesses.

3) What is the Emergency Credit Line Guarantee Scheme?

Answer: The Emergency Credit Line Guarantee Scheme provides 100% guarantee coverage by NCGTC to MLIs on GECL of up to Rs. 3 lakh crore to eligible MSMEs. MSMEs for the purpose of this Scheme will include MSMEs/ Business Enterprises which are constituted as Proprietorships, Partnerships, Registered Companies, Trusts and Limited Liability Partnerships (LLPs), and also interested borrowers under PMMY.

4) Who are the MLIs under the Scheme?

Answer: All SCBs are eligible as MLIs. NBFCs which have been in operation for at least 2 years as on 29.2.2020, and FIs will also be eligible as MLIs under the Scheme.

5) What will be the definition of FIs for the purpose of this Scheme?

Answer: FIs for the purpose of this Scheme will be as defined under sub-clause (i) of clause (c) of Section 45-I of RBI Act.

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6) What is the duration of the Scheme?

Answer: The Scheme would be applicable to all loans sanctioned under GECL during the period from May 23, 2020 to 31st October, 2020, or till an amount of Rs. 3 lakh crore is sanctioned under GECL, whichever is earlier.

7) What would be the guarantee coverage under the Scheme?

Answer: The entire funding provided under GECL shall be provided with a 100% credit guarantee coverage by NCGTC under the Scheme.

8) What will be the eligibility criteria for MSMEs to avail the benefit of the Scheme?

Answer: The eligibility criteria under the Scheme are as under:

  • All MSME borrower accounts with combined outstanding loans across all MLIs of up to Rs. 25 crore as on 29.2.2020, and annual turnover of up to Rs. 100 crore in FY 2019-20. In case accounts for FY 2019-20 are yet to be audited/finalized, the MLI may rely upon the borrower’s declaration of turnover.
    • The Scheme is valid only for existing customers on the books of the MLI.
    • Borrower accounts should be classified as regular, SMA-0 or SMA-1 as on 29.2.2020. Accounts classified as NPA or SMA-2 as on 29.2.2020 will not be eligible under the Scheme.
    • The MSME borrower must be GST registered in all cases where such registration is mandatory. This condition will not apply to MSMEs that are not required to obtain GST registration.
    • Loans provided in individual capacity will not be covered under the Scheme.

9) Will the Scheme also cover borrowers under PMMY?

Answer: Yes, loans under PMMY extended on or before 29.2.2020, and reported on the MUDRA portal shall be covered under the Scheme.

10) Will GECL be extended as a separate loan account, or as part of the existing loan account of the borrower?

Answer: A separate loan account shall be opened for the borrower for extending additional credit under GECL. This account will be distinct from the existing loan account(s) of the borrower.

11) Will loans under the Scheme be automatically given without any application or solicitation from the borrower?

Answer: This is a pre-approved loan. An offer will go out from the MLI to the eligible borrowers for a pre-approved loan which the borrower may choose to accept. If the MSME accepts the offer, it will be required to complete requisite documentation. Thus, an ‘opt-out’ option will be provided to eligible borrowers under the Scheme, i.e., if the borrower is not interested in availing the loan, he/she may indicate accordingly.

12) What would be the procedure followed in case a borrower has loan accounts with multiple lenders?

Answer:

  • In case a borrower has existing limits with multiple lenders, GECL may be availed either through one lender or each of the current lenders in proportion depending upon the agreement between the borrower and the MLI.
    • In case the borrower wishes to take from any lender an amount more than the proportional 20% of the outstanding credit that the borrower has with that particular lender, a No Objection Certificate (NOC) would be required from all other lenders.
    • No NOC will, however, be required if the GECL availed from a particular lender is limited to the proportional 20% of the outstanding credit that the borrower has with that lender.

13) To avail GECL, will it be necessary for existing loans of the borrower to be covered under existing guarantee schemes such as CGFMU or CGTMSE?

Answer: No.

14) Will the interest rate on GECL be capped?

Answer: Yes, interest rates on GECL shall be capped as under:

  • For Banks and FIs, one of the RBI prescribed external benchmark linked rates +1% subject to a maximum of 9.25% per annum
    • For NBFCs, the interest rate on GECL shall not exceed 14% per annum

The Scheme may also be operated in combination with applicable interest subvention schemes, as far as feasible.

15) What would be the tenor of loans provided under GECL?

Answer: The tenor of loans provided under GECL shall be four years from the date of disbursement. No pre-payment penalty shall, however, be charged by the MLIs in case of early repayment.

16) Is there any moratorium period prescribed under the Scheme?

Answer: Yes, a moratorium period of one year on the principal amount shall be provided for GECL funding. Interest shall, however, be payable during the moratorium period. The principal shall be repaid in 36 installments after the moratorium period is over.

17) Is any turnaround time prescribed for MLIs under the Scheme for sanction of GECL?

Answer: Indicative turnaround time for loans under the Scheme shall be the same as those prescribed by Department of Financial Services for credit support in the context of COVID-19 pandemic.

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18) Will any guarantee fee be charged under the Scheme by NCGTC?

Answer: No, NCGTC will not charge any guarantee fee under the Scheme.

19) Will any processing fee be charged by MLIs for sanction of loans under GECL?

Answer: Since additional credit under GECL is to be provided to existing customers, no additional processing fee shall be charged by lenders.

20) Will MLIs ask for any additional collateral for the GECL facility?

Answer: No additional collateral shall be asked by MLIs for additional credit extended under GECL.

21) Will the categorization of existing loans extended through current Government schemes such as PMEGP or PMMY change if GECL is provided to such borrowers?

Answer: No. Existing loans extended through current Government schemes would continue to be categorized under that scheme as earlier. GECL under this Scheme shall be over and above the existing loan.

22) What will be the risk weight assigned to the credit extended under GECL?

Answer: Approval of RBI has been requested for assigning zero risk weight to the credit extended under GECL.

23) What will be the security on credit extended under GECL? Scheme?

Answer: The credit under GECL will rank pari passu with the existing credit facilities in terms of cash flows (including repayments) and securities, with charge on the assets financed under the Scheme to be created within a period of 3 months from the date of disbursal.

24) Will MLIs be required to enter into any agreement with NCGTC for the purpose of this Scheme?

Answer: Yes, MLIs will be required to submit an Undertaking to NCGTC for the purpose of this Scheme.

25) How will the guaranteed amount be paid by NCGTC to the MLIs on invocation of the guarantee?

Answer: 75% of the guaranteed amount will be paid by NCGTC within 30 days of an eligible claim being preferred by the MLI concerned. The balance 25% will be paid on conclusion of recovery proceedings or till the decree gets time barred, whichever is earlier.

26)Who will issue detailed operational guidelines for ECLGS, and who will have the authority to modify provisions of the Scheme/operational guidelines?

Answer: NCGTC has issued the detailed operational guidelines for the Scheme. The Management Committee for ECLGS fund will have the authority to approve any changes to the current structure of the Scheme/ operational guidelines.

27) I run a business enterprise and have a GST registration. However, I am not registered as an MSME nor do I have Udyog Aadhaar. My Bank also does not classify me as an MSME borrower. Am I eligbile under the scheme?

Answer: You are eligible if

  • you have total credit outstanding of Rs. 25 Crore or less as on 29th Feb 2020
  • Your turnover for 2019-20 was upto Rs. 100 Cr.
  • You have a GST registration or were not required to obtain such GST registration Udyog Aadhaar or recognition as MSME is not required under this Scheme

28) My Bank/ NBFC has offered me a preapproved loan of 15% only though the scheme mentions 20%. Can the Bank/ NBFC do so?

Answer: Under ECLGS, Banks/ NBFCs are to offer loans upto 20%. Actual loan extended can therefore be less than 20%. While the Bank/ NBFC is expected to be liberal in sanctioning such loans, it is also expected to evaluate credit proposals by using prudent banking judgment and use business discretion / due diligence in selecting commercially viable proposals and conduct the account(s) of the borrowers with normal banking prudence

29) I run a retail shop. Am I eligible for coverage?

Answer: See answer to question 28

30) I operate a lending business. Am I eligible?

Answer: No please. Typically lending institutions get funds from banks/ NBFCs through on lending, refinance, asset purchase, securitization, assignment etc. There are therefore other windows available including the Partial Credit Guarantee Scheme and the Special Liquidity Facility.

31) Are all NBFCs eligible to become MLIs with NCGTC?

Answer: No. The NBFC must be registered with RBI, should be meeting the CRAR requirements prescribed by RBI and have been in lending business for at least two years as on 29th Feb 2020.

The Managing Committee of the Scheme may prescribe additional qualification criteria from time to time.

32) What will be the procedure for claim settlement?

Answer: This will be advised in due course through additional guidelines to be issued.

33) Can new MSME borrowers get covered under the scheme?

Answer: ECLGS scheme is only for existing borrowers on the books of the banks as on 29th Feb 2020. Any New borrowers should be covered under ongoing CGTMSE and NCGTC schemes

34) Can co-applicant loans between entity and the promoter or director get covered under the scheme?

Answer: For loans having co-applicant, only those existing loans where entity is the primary co-applicant are covered under the Scheme for additional emergency funding

35) Are off balance sheet loans provided to MSME borrowers covered as part of the scheme?

Answer: No, the scheme does not cover the off-balance sheet exposure. Only on balance sheet exposures outstanding as on 29th Feb, 2020 are eligible to be covered under the scheme

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

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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