Following the massive disruption across businesses during the initial pandemic-led lockdown phase, the economy has been on a recovery mode, bolstered by festive season sales. Yet businesses, in particular MSMEs, continue to face cash-flow challenges owing to the sharp hit in revenues and high overhead costs.
The Centre’s Emergency Credit Line Guarantee Scheme (ECLGS) has helped ease the liquidity issues of businesses to a large extent. After extending the scheme until November 30, the Centre has now further extended the scheme until March 31, to provide yet another opportunity for borrowers (who have not yet availed the scheme).
Siddhartha Rajagopal, Executive Director, Cotton Textile Export Promotion Council, said many eligible borrowers under the ECLGS scheme did not the benefit due to varying interpretations by the bank officials, and the extension will now enable the borrowers to get the necessary clarifications to avail the benefits.
Further, to widen the coverage of the scheme, the new avatar, ECLGS 2.0, will be available for the 26 stressed sectors identified by the Kamath Committee (plus healthcare). Enhancement of the outstanding credit criteria to upto ₹500 crore (as on February 29) and no upper ceiling on annual turnover, should help a wider set of businesses. Under ECLGS 1.0, borrowers with credit outstanding up to ₹50 crore and with an annual turnover of up to ₹250 crore were eligible.
Siddhartha Sanyal, Chief Economist and Head, Research, Bandhan Bank, said that embattled sectors like real estate, hospitality and aviation can draw hope from the ECLGS 2.0.
“Extending ECLGS scheme with 100 per cent guaranteed collateral-free credit at capped interest rates to entities in the 26 stressed sectors, including textiles, with no upper ceiling on annual turnover will help medium-sized companies to utilise the opportunity in improving their business performance,” said Prabhu Dhamodharan, Convenor, Indian Texpreneurs Federation.
Tepid interest for recast
The Kamath committee had listed out 26 stressed sectors, including hotels, aviation and textiles, for RBI’s loan restructuring scheme for Covid-19-affected borrowers. So far there have been few takers for the recast package, with leading banks such as SBI, Bank of Baroda and Axis Bank reporting few requests for restructuring. With corporates aware of the increased burden under the restructuring scheme — higher interest rate, impact on credit ratings etc — they have not been too keen to opt for the leeway. But the ECLGS scheme that offers 100 per cent guaranteed collateral-free credit can offer much-needed relief to borrowers. Interest rates under the Scheme are capped at 9.25 per cent for banks and 14 per cent for NBFCs. Bankers say that a high rated borrower can avail loan at even 7.5-8.5 per cent interest.
“Restructuring has its challenges and banks would be cautious while deciding recast packages. But banks will be open to extend credit under ECLGS backed by 100 per cent government guarantee for stressed sectors. For borrowers too, the lower interest rate under ECLGS is a big positive,” said Natarajan, President and COO, of Karur Vysya Bank.
“At Karur Vysya Bank, about 63 per cent of eligible borrowers have already availed credit under the scheme, amounting to over ₹1,600 crore. But the inclusion of the stressed sectors and raising the outstanding credit limit to ₹500 crore will lead to quick exhaustion of the ₹3-lakh crore funding,” said Natarajan.
Clarity is also awaited on what happens to existing borrowers who availed credit under the ECLGS 1.0. Under the earlier version, tenure of loans provided is four years, including a moratorium of one year on principle repayment.
Under the ECLGS 2.0, tenure is is five years, including one year moratorium on principal repayment.
(With inputs from Mumbai and Delhi bureaus)