Govt extends ECLGS by one year, expands scope for contact-intensive sectors

Eligible borrowers in hospitality and related sectors, except civil aviation, can avail up to 50% of their highest fund based credit outstanding

The Centre has expanded the scope of Emergency Credit Line Guarantee Scheme (ECLGS) by allowing contact-intensive sectors to avail up to 50 per cent of their credit outstanding as against the earlier limit of 40 per cent, and raising the per borrower cap for civil aviation sector to Rs 400 crore.

The ECLGS scheme has been extended by one year until March 2023, and allows new borrowers in the hospitality and related sectors who have borrowed from March 31, 2021 to January 31, 2022 to avail of funds under the scheme.

Eligible borrowers in hospitality and related sectors, except civil aviation, can avail up to 50 per cent of their highest fund based credit outstanding on any of three reference dates — February 29, 2020, March 31, 2021 and January 31, 2022. This is an increase from the earlier limit of 40 per cent of the highest of their fund-based outstanding as on two reference dates of February 29, 2020 and March 31, 2021. However, this is subject to the existing cap of Rs 200 crore per borrower.

Individuals and proprietary concerns in contact-intensive sectors such as hotels and restaurants, marriage halls, canteens, travel and tourism, agents, tour operators, car repair services, spas and beauty parlours, among others will also be able to avail credit facility under ECLGS.

The Centre has allowed the cash-starved aviation sector to avail of 50 per cent of their credit outstanding — a combination of their highest total fund and non-fund-based credit outstanding — subject to a cap of Rs 400 crore per borrower. Just like other contact-intensive sectors, highest credit outstanding would be referenced on any of the three reference dates of February 2020, March 2021 or January 2022.

This is a change from the previous credit outstanding limit of 40 per cent of the highest of their fund-based outstanding as on two reference dates of February 2020 and March 2021, subject to a per borrower cap of Rs 200 crore. The change has been made to help the aviation sector that relies more on non-fund-based credit such as bank guarantees and letters of credit.

Eligible borrowers in the civil aviation sector have now been permitted to avail of non-fund based emergency credit facilities as well, and to lower their cost of accessing non-fund-based credit, bank guarantees, letters of credit, among others will be issued without any cash margin and subject to a cap of 0.5 per cent per annum on the fee or commission.

“The modifications introduced are aimed at enabling businesses in these contact-intensive sectors to get further support through enhanced coverage and collateral-free liquidity on capped interest rates/fees,” the finance ministry said in a release.

However, experts feel that the Rs 400-crore cap for loans to the aviation sector may not bring the sector out of stress. According to a report by rating agency ICRA earlier this month, domestic aviation industry is expected to report a net loss of Rs 25,000-26,000 crore this fiscal year on the back of elevated jet fuel prices and fare caps continuing to pose a major challenge for the airlines’ profitability.

The scheme has also not seen impressive incremental sanctions even after several modifications, experts added. As on March 25, 2022, loans sanctioned under the ECLGS were Rs 3.19 trillion as compared to Rs 2.86 trillion sanctioned under the scheme as on September 24, 2021.