ECLGS 2.0 will be sufficient to ease liquidity pressures: Crisil

The Emergency Credit Line Guarantee Scheme (ECLGS) 2.0 will be sufficient to help companies, including those hit by a sharp decline in cash flows because of the pandemic, overcome liquidity pressures, according to a Crisil study.

Liquidity infusion

The scheme can potentially infuse about ₹40,000 crore in liquidity for Crisil-rated eligible companies, the credit rating agency said in a statement.

The ECLGS has been extended as part of the government’s stimulus to the economy under Atmanirbhar Bharat 3.0 to eligible companies in 26 stressed sectors identified by the KV Kamath Committee, and also to the healthcare sector.

Under ECLGS 2.0, companies with outstanding loans of between ₹50 crore and ₹500 crore, are eligible for additional credit of up to 20 per cent of their outstanding debt as on February 29. The tenure of such additional credit will be five years, including a one-year moratorium on principal repayment.

Out of Crisil’s rated portfolio, 1,414 companies from 27 sectors, including healthcare, were found eligible for ECLGS 2.0. Their total outstanding debt stood at about ₹2-lakh crore as on February 29.

Further, the study assumes that all eligible companies will avail the entire fund-based debt facility available under the scheme.

The study indicates that ECLGS 2.0 can be a significant source of liquidity for the sample set, given that the average cash flow of these companies is seen to be contracting 17 per cent, or by about ₹11,000 crore, compared to the pre-pandemic assessment for the current fiscal.

Subodh Rai, Senior Director, Crisil Ratings, said: “Borrowing under the ECLGS 2.0 scheme can provide additional liquidity equal to 3.5 times the cash-flow contraction for the sample set.

“This will help them overcome temporary liquidity challenges. Also, the one-year moratorium available under the scheme, will provide further room for companies to stabilise their cash flows,” he added.

Benefitting sectors

The scheme will particularly benefit companies in low-resilience sectors such as hotels, gems and jewellery, travel and real estate, as their accruals are expected to fall sharper at 23 per cent this fiscal.

For these sectors, the additional liquidity afforded by the scheme will be much higher at almost 10 times of the cash-flow decline.

Companies in high-resilience sectors such as dairy, information technology, FMCG, chemicals, and pharmaceuticals are seen less impacted, with the decline in their cash flow restricted to 10 per cent. They, too, will benefit from ECLGS 2.0, with additional liquidity being created of about five times of cash-flow contraction.

Several other sectors such as textiles and steel, which are debt-heavy, will also have similar additional liquidity against cash-flow decline, the study said.

However, the benefits to individual companies may sharply vary depending upon the loan outstanding on the cut-off date and lenders’ willingness to extend credit to specific borrowers, it added.

Crisil said that with the business environment continuing to evolve, the pandemic’s trajectory and attendant containment measures will be the key monitorable.