ECLGS: Indian Banks’ Association pitches for 1-year extension

The Indian Banks’ Association (IBA) has urged the government to extend the ₹4.5-lakh crore Emergency Credit Line Guarantee Scheme (ECLGS) — an MSME support initiative — by one more year beyond March 31, the announced end date for the scheme. This is needed given that the pandemic’s effect on economic activity is still continuing, and more so when the expected revival of the economy has not materialised and MSMEs are struggling to come out of their financial difficulties, IBA said. 

IBA has conveyed, in a letter to the Department of Financial Services in the Finance Ministry, that support needs to be extended till the economy regains its strength, sources in the IBA said.

Mitigating Covid impact

It maybe recalled that ECLGS was launched with the objective of providing additional liquidity to MSMEs to help them cope with the crisis arising out of Covid-19. Under this scheme, loans extended to MSMEs by banks and NBFCs would be 100 per cent guaranteed by the National Credit Guarantee Trustee Company (NCGTC). The loan will be extended in the form of additional working capital term loan facility in case of banks and additional term loan in case of NBFCs to MSMEs and interested Pradhan Mantri Mudra Yojana borrowers.

In September 2021, the government had extended the validity of ECLGS till March 31, 2022, or till guarantees for an amount of ₹4.5-lakh crore are issued under the scheme, whichever is earlier. The last date of disbursement under the scheme was also extended to June 30, 2022.

Additional credit support

Meanwhile, IBA has also made a case for additional funding of 10 per cent of eligible finance for all borrowers continuing to be affected by the extended disruptions.

With the continuing effects of the pandemic, the assumed cash flows have not materialised fully. In addition to this, the existing malaise of delayed payments of MSME dues by large corporates has exacerbated due to their own constricted cash flows. Thus, there is a need for an incremental dose of funding to these MSMEs to help them tide over the current situation, IBA has said.

Extend cover to SMA 2

Sources added that IBA has also recommended that the cover under ECLGS scheme be extended to all MSMEs irrespective of sector and size so that a broad-based recovery will be possible, and those units found viable and now classified as Special Mention Accounts (SMA) 2 be made eligible for additional funding under the Guarantee Cover of ECLGS.

SMA 2 is a category where the amount is overdue for tenure between 61 days to less than 90 days. Under the current framework, eligibility for additional funding is restricted to SMA 0 and SMA 1 accounts.

IBA is understood to have highlighted that SMA 2 accounts also deserve a chance to survive the harsh post-Covid environment and that if no assistance is extended, there is a real danger of these accounts slipping into NPAs.

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