ECLGS 5.0 finds traction as MSMEs look for buffer amid uncertainty

Banks are seeing early interest in ECLGS 5.0 as MSMEs seek extra liquidity buffers amid rising uncertainty linked to the West Asia crisis

Bankers are seeing early traction under the Ministry of Micro, Small and Medium Enterprises (MSME) credit support scheme Emergency Credit Line Guarantee Scheme (ECLGS) 5.0, with a steady rise in enquiries and applications from small businesses, although lenders cautioned that it was too early to gauge the eventual outcome. The initial response suggests that micro, small, and medium enterprises may be seeking to shore up liquidity buffers and secure additional credit lines, amid an uncertain operating environment, bankers said. 

“A lot of MSME customers are reaching out and we are receiving applications. It is still early days, so we do not know yet how this will pan out. But the scheme has seen traction. People are making enquiries. There could be some stress among MSMEs, or perhaps businesses want to ensure they have additional credit lines in place, just in case,” said a senior banker at a state-owned bank. 

Launched earlier this mo­n­th, the scheme is aimed at prov­i­ding additional credit support to help businesses manage disruptions arising from the West Asia conflict. Under the progr­a­m­me, existing standard MSMEs are eligible for loans carrying a 100 per cent government guarantee, while non-MSMEs, including airlines, are eligible for a 90 per cent guarantee. 

Borrowers with existing working capital limits can avail additional credit of up to 20 per cent of peak working capital utilised in the fourth quarter of financial year 2026 (Q4FY26), capped at ₹100 crore. For airlines, the support extends to 100 per cent of peak working capital utilised, subject to a cap of ₹1,500 crore per borrower. The government has targeted total additional credit flow of ₹2.55 trillion under the scheme, including ₹5,000 crore earmarked for airlines. 

“We are seeing traction for additional credit lines under ECLGS 5.0. This may not necessarily indicate underlying stress in the MSME segment. Disbursements under the scheme may not be as large as the room available, but it is still too early to say how things will pan out at this point,” said another senior banker at a state-owned bank. 

A few banks, including State Bank of India and Indian Bank, have indicated the outer limits of lending they could undertake under the ECLGS 5.0 scheme. SBI said that while it could extend ₹70,000 crore-₹80,000 crore of credit under the sch­eme, the eventual uptake may be around 30-40 per cent of that amount. Indian Bank estimated that the available credit it could disburse under the scheme would be around ₹15,000 crore. Bank of Baroda has said it could disburse around ₹12,000 crore under the scheme. 

ECLGS was originally introduced to cushion the economic shock from the Covid-19 pandemic, alongside a regulatory standstill that froze days-past-due movement. The scheme served as a key liquidity backstop for the economy during and after the pandemic, providing ₹3.61 trillion in total guarantees and ₹2.82 trillion in disbursements by its official conclusion on March 31, 2023. 

The scheme is credited with saving around 1.46 million MSME units from closure and protecting an estimated 15 million jobs by preventing a cascade of defaults in the credit-constrained small business sector. According to SBI Research, under ECLGS 5.0, around 11 million MSME accounts, or about 45 per cent of the total MSME portfolio, will be eligible to benefit from the scheme.

 

Safety net

• Banks see rise in enquiries, applications for additional credit lines
• SBI estimates only 30-40% utilisation of sanctioned ECLGS limits
• Around 11 million MSME accounts will be eligible to benefit from the scheme
• Bankers expect stronger uptake if operating conditions worsen further