Emergency Credit Line Guarantee Scheme: From eligibility to interest rate, everything about Government's Rs 3-lakh crore collateral free loan

By Rishi Mehra

Unveiling the first tranche of economic stimulus to help businesses during the Covid-19 pandemic, Finance Minister Nirmala Sitharaman on May 13 announced collateral-free loans up to Rs 3 lakh crore backed by government guarantee. Meant to help businesses suffering from a severe cash crunch, the Government has since the announcement come out with the guidelines on how the scheme will operate. Based largely on the FAQs released by the National Credit Guarantee Trustee Company (NCGTC), here are the key details of the scheme.

What are the details of the Collateral free MSME loans?
The 100% collateral-free MSME loan is being called the Emergency Credit Line Guarantee Scheme (ECLGS), which is being provided by the National Credit Guarantee Trustee Company (NCGTC) to banks, NBFCs and Financial Institutions (FIs).

According this scheme, every eligible MSME or business enterprise, gets a pre-approved sanction limit of up to 20% of loan outstanding as on 29th February, 2020. This is in the form of additional working capital term loan facility (in case of banks and Financial Institutions), and additional term loan facility (in case of NBFCs). This is a special scheme to help small businesses battling the economic impact of Covid-19 and includes Pradhan Mantri MUDRA Yojana (PMMY) borrowers.

Who is eligible for the scheme?
All business enterprises or MSMEs that have a combined outstanding loans across different banks, NBFCs and FIs up to Rs. 25 crore as on 29.2.2020, and when the annual turnover of the firm is up to Rs. 100 crore for FY 2019-20 is eligible for the Scheme. Proprietorship, partnership, registered company, trusts and Limited Liability Partnerships (LLPs) are all eligible under the Scheme, but only the loans taken for the business is being covered. Any loan taken by a promoter or director in his personal capacity will not be covered under the scheme.

What is important to note is that the Scheme is valid for existing customers of a bank, NBFC or FI. This means this scheme is not for new borrowers. Also, the loan account should be less than or equal to 60 days past due as on 29th February, 2020 and the borrower has not been classified as SMA 2 or NPA by any of the lender as on 29th February, 2020. A borrower must also be registered under GST, unless the business is not required or exempted from having a GST registration.

What is the amount that can be borrowed?

The maximum amount eligible under this scheme either in the form of additional working capital term loan facility (in case of banks and Financial Institutions), and additional term loan facility (in case of NBFCs) is set at 20% of the total outstanding loans up to Rs 25 crore as on 29th February, 2020. To arrive at the total outstanding, only on-balance sheet exposure like an outstanding amount in working capital loan, term loan and working capital term loans will be taken. In case a borrower has loans with multiple lender, the scheme can be availed either through one lender or multiple lenders. You must keep in mind that a lender will check with credit bureau to get the correct picture of the overall outstanding of a borrower.

What is the interest rate on such loans?
To ensure that the scheme is beneficial to the borrowers and the cost of borrowing is kept low; Banks and FIs link their lending rate to one of the external benchmark rates prescribed by RBI plus 1% subject to a maximum of 9.25% per annum. Similarly, NBFCs cannot charge more than 14% as interest for the loans under this scheme.

This facility is available for borrower from May 23, 2020 to 31st October, 2020, or till an amount of Rs. 3 lakh crore has been sanctioned, whichever is earlier.

How do you apply?
To keep things simple, the scheme has an automatic pre-approve mechanism, which means you do not have to approach the lender for the loan. If a borrower is eligible, a lender will automatically offer it. The scheme provides an ‘opt-out’ option where the borrower may not avail the scheme, while someone who wants to take the benefits of this scheme will have to go through the documentation process.

What are the other details that I need to know?

The loan under this scheme is extended for a period of four year from the date of disbursement and there will be no pre-payment charge if a borrower wants to repay early. There will also be no processing fee for such loans.

What is important to note is that a there will be a moratorium of one year on the principal repayment, but interest payment will continue during this period. The principal repayment will then be converted into equated installments spread across the remaining period, which is 36 months.

A separate loan account will be opened, which is distinct from your current loan accounts. In that sense, the scheme is not a top-up on your existing loan. Also, it is important to note and there has been much confusion about it, but Udyog Aadhar or recognition as an MSME is not required under this Scheme as long as you satisfy the eligibility criteria stated above.

(The writer is the CEO, The above has been prepared from the FAQs and Operational Guidelines of ECLGS by the National Credit Guarantee Trustee Company (NCGTC).)


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