New credit guarantee scheme will help India Inc revive, expand: CEOs

Say stimulus measures will spur economic activity, especially in construction and infra sector

The Finance Ministry today announced a new credit scheme under which stressed sectors will be eligible for debt moratoriums for up to five years, which, CEOs said, will help them to revive their pandemic-hit companies and encourage them to invest in new capacities.

   

The scheme will provide collateral free, additional credit at capped interest to companies in the 26 stressed sectors identified by former banker K V Kamath-led panel this October. The scheme also extended the deadline of loan moratorium from December this year to March next year, helping corporates in the stressed sectors.

The stressed sectors identified by the panel include aviation, power, construction, steel, roads and real estate among others.

The finance ministry said the tenure of additional credit under the Emergency Credit Line Guarantee Scheme (ECLGS 2.0) will be five years, including one-year moratorium on principal repayment scheme available till March 31 next year. The scheme will have no upper ceiling on annual turnover but should have credit outstanding of above Rs 50 crore and up to Rs 500 Crore as on February 29 this year. 

 

“The new production linked incentive scheme for ten key sectors will lead to enhanced manufacturing activity in India thereby augmenting the need for creation of new and expanded manufacturing facilities,” said Vinayak Deshpande, MD of Tata Projects.

Aiswarya Ravi, CFO Kinara Capital said the announcement of an extension of the ECLGS until the end of the fiscal year is a positive measure. “Post-the lockdown, MSMEs are struggling with liquidity crunch.The  ECLGS allows last-mile NBFCs to provide quick help to small businesses to stabilize and restart their business operations,” said he.

The finance ministry said the scheme has already helped several MSME units, business enterprises, individual loans for business purposes and MUDRA borrowers. Till date, the scheme has sanctioned Rs 2.05 trillion of additional credit to 61 lakh borrowers. Of this, Rs 1.52 trillion has already been disbursed to the small borrowers – providing them relief during the pandemic time, the ministry said.

“The ECLGS extension to 26 stressed sectors and rise in its loan limit is a significant announcement that CII was hoping to hear from the Government. Along with the PLI scheme to 10 manufacturing sectors as announced yesterday, today’s package comprising employment incentive, infrastructure boost and export impetus greatly enthuses industry across the board,” said Chandrajit Banerjee, Director General, Confederation of Indian Industry (CII). 

 

Others agree. “We feel that recently announced stimulus measures will definitely provide a spur to economic activity, especially across the construction and infrastructure sector. Newly announced measures such as replacing EMD (earnest money deposit) with Bid Security Declaration will provide relief to contractors since it shall lower locked-up capital and reduce cost of Bank Guarantee. Additionally, the earnest money deposit and performance security on government tenders have been reduced to three per cent from 5-10 per cent earlier, which is a positive move for the entire construction and infrastructure sectors,” Deshpande said.

"This should support the economy which is showing early signs of turning around. The performance linked incentives for a large number of industries including MSMEs; more funds for the Pradhan Mantri Awaas Yojana; and funding support for infrastructure projects should be seen as meaningful steps in the right direction – they not only offer immediate support for the economy, but also cater to longer term considerations such as boosting infrastructure and job creation," said Chandra Shekhar Ghosh, Managing Director and Chief Executive Officer, Bandhan Bank.

Highlights of new scheme

* Guaranteed credit for 26 stressed sectors

* Additional credit to be collateral free, with capped rates

* Companies with credit outstanding of Rs 50-Rs 500 cr as on February 29 eligible

* No upper ceiling on annual turnover

* Tenure of additional credit under ECLGS 2.0 to be 5 years, including one year moratorium on principal repayment