Govt may extend time limit for emergency credit line guarantee scheme

Since the launch of the scheme, industry bodies have pushed the government to relax conditions that accompany the scheme as they felt it restricts benefits to only a small cross section of companies

The government is considering to extend the time window for businesses to seek sovereign-guaranteed loans under the Emergency Credit Line Guarantee Scheme (ECLGS).

The last date for sanctioning loans up to Rs 3 trillion was October 31 under the ECLGS, which was implemented from May 23. However, data released by the finance ministry on Sunday showed that only Rs 1.63 trillion, about half of the targeted loan amount, was sanctioned till September 10.

“We will take a call (on extending the deadline of the scheme). We will also issue a clarification on the time window that banks will have to disburse the loans after being sanctioned to borrowers. The time limit cannot be endless,” a senior finance ministry official said, requesting anonymity.

Though private sector banks and non-banking financial companies started slow when the scheme was launched, they have now outpaced state-owned banks in terms of loan sanctions. Private lenders have sanctioned loans worth Rs 84,633 crore while their state-owned counterparts have sanctioned loans of Rs 78,593 crore till September 10, the data showed.

A top state-owned bank executive said reaching the goal of sanctioning Rs 3 trillion of loans by October 31 would prove to be a major task as lenders have reached out to most of the borrowers.

According to estimates, public sector banks (PSBs) will be able to sanction up to Rs 92,910 crore of loans to the micro, small and medium enterprises (MSMEs) under the scheme. PSBs have reached almost 84 per cent of the sanctioning limits already. One million of around 46 million borrowers of PSBs have opted out of the scheme.

“Localised lockdowns, coupled with lack of demand in the economy, are the reasons behind lower-than-expected sanctioning of loans. We expect the scheme to pick up pace during the festive season,” the finance ministry official cited above said.

According to an analysis by CARE Ratings on September 9, public and private sector banks “may need to sanction Rs 55,000 crore and Rs 14,000 crore per month for the next two months (September and October) to maintain their share in overall bank credit.”

Since the launch of ECLGS, industry bodies have pushed the government to relax conditions that accompany the scheme as they felt it restricts benefits to only a small cross section of firms.

In early August, the government relaxed the rules to allow borrowers with outstanding loans of up to Rs 50 crore as of February 29 to be eligible — up from Rs 25 crore — to avail the benefits of the scheme. It also raised the annual turnover limit of companies to be eligible to tap the scheme to Rs 250 crore from Rs 100 crore earlier, in sync with the revised definition of MSMEs, along with allowing individual borrowers also to participate in the scheme.

However, the total sanctioned am­ount has increased by about 18 per cent from Rs 1.4 trillion since then and that, too, mainly led by private sector lenders.

One of the drawbacks that the industry bodies have flagged is the fact that loans sanctioned under ECLGS can only be up to 20 per cent of the borrower’s total outstanding credit till February 29. Many industry insiders argue that the latest expansion of the loan eligibility (in August) to cover doctors, chartered accountants, and lawyers came after the government was unable to find many takers for the loans under the existing narrow ambit.

“Our members have pointed out that the low demand situation has stopped many from scaling up operations and, thereby, use the loan. But the need for funds remain, and we have also written to the Prime Minister that micro entities be allowed to take in money up to Rs 10 lakh from friends and family members without tax liabilities, to sustain their business during this crisis,” All India Manufacturers Organisation National President Sudarshan Sareen said.

Under the scheme, 100 per cent guarantee coverage is being provided by the National Credit Guarantee Trustee Company for additional funding to the tune of Rs 3 trillion to borrowers. The government has kept budgeted Rs 41,600 crore for the present and next three financial years to provide the loan guarantee under the scheme.
 

Progress of various schemes under the Aatma Nirbhar Bharat package:


Partial Credit Guarantee Scheme 2.0 for NBFCs, HFCs and MFIs
Banks have approved portfolio worth Rs 25,055 crore
Target: Rs 45,000 crore

Special liquidity scheme for NBFCs/HFCs/MFIs
Banks have appproved 37 proposals worth Rs 10,590
Target: Rs 30,000 crore

Note: NBFC is non-banking financial company, HFC is housing finance company and MFI is microfinance institution
Source: Press release dated 13.09.2020, Ministry of Finance