What Is The MSME Guaranteed Emergency Credit Line Scheme?

Updated: Tuesday, June 9, 2020, 17:49 [IST]

MSME eligible borrowers will receive an offer from their credit institutions for a loan pre-approved under the Rs.3 lakh crore program announced for micro, small and medium enterprises to help them cope with the impact of COVID -19.

The Rs.3 lakh crore Guaranteed Emergency Credit Line(GECL) has been announced as part of the Rs.21 lakh crore package by the government of India. According to a set of FAQs which is published by the National Credit Guarantee Trustee Company (NCGTC), GECL is a loan for which a 100% guarantee would be provided by the National Credit Guarantee Trustee Company to member credit institutions (MLI) - banks, financial institutions and NBFC.

What Is The MSME Guaranteed Emergency Credit Line Scheme?

National Credit Guarantee Trustee Company Ltd (NCGTC) will provide 100% guarantee coverage on the amount owed for the credit facility provided under the program as of the date of the NPA. The loan will be provided in the form of an additional term working capital facility in the case of banks and an additional term loan facility in the case of NBFCs to eligible MSMEs / commercial enterprises and borrowers. Pradhan Mantri Mudra Yojana (PMMY) interested.

The ECLGS stands for Emergency Credit Line Guarantee System was formulated as a specific response to the unprecedented situation caused by COVID-19 and the resulting deadlock. which severely affected manufacturing and others activities in the MSME sector. The Scheme aims to alleviate the economic distress encountered by MSMEs by providing them with additional funding of up to Rs. 3 lakh crore in the form of a fully guaranteed emergency line of credit.

The main objective of the Scheme is to encourage member credit institutions (MLI), i.e. banks, financial institutions (FI) and non-bank financial companies (NBFC) to increase access and allow the availability of additional financing mechanisms for: MSME borrowers, given the economic distress caused by the COVID-19 crisis, by offering them a 100% guarantee for any loss suffered by them as a result of non-repayment financing of GECL by borrowers.

The Frequently Asked Questions (FAQ) stated that the program is a specific response to the unprecedented situation created by COVID-19. Its objective is to provide much-needed relief to the MSMEs sector by encouraging credit institutions to provide additional credit of up to Rs 3 lakh crore at low cost, thereby enabling MSMEs to meet their operational responsibilities and restart their operations. activities.

This is a pre-approved loan. An offer will be sent by the MLI to eligible borrowers for a pre-approved loan that the borrower can choose to accept. If MSME accepts the offer, it will have to complete the required documentation, "It said. A withdrawal option will be available to eligible borrowers and if a borrower is not interested in availing the loan, they can indicate this accordingly.

In the meantime, the CAIT traders organization has requested that the program be expanded to include all traders, not just those who are existing borrowers. The lockdown of COVID-19 had seriously affected traders and stores. In the past 60 days, the losses recorded and estimated have been greater than Rs 9 lakh crore, aid the Confederation of Indian Traders (CAIT) in a statement.

The CAIT estimates that before the pandemic, retail businesses had a daily turnover of more than Rs 15,000 crore. CAIT expressed concern that, as losses accumulate and recovery becomes difficult, about 20% of Indian traders will close their doors permanently.

Main features of the Scheme:

All MSME borrower accounts are should be less than or equal to 60 days late on this date, with an outstanding credit of up to Rs. Rs 25 crore on 29.02.2020. i.e. regular SMA 0 and SMA 1 accounts, with an annual turnover of up to Rs. 100 crores would be eligible for funding from GECL under the program.

The Scheme also covers PMMY loans granted by February 29, 2020, and reported on the MUDRA portal.
The plan's interest rates were capped at 9.25% for banks and financial institutions and 14% for NBFCs. The principal must be repaid in 36 instalments after the end of the moratorium.
The term of the loans granted under GECL will be four years and there will be no penalty for early repayment. In addition, a moratorium period of one year on the principal amount will be provided for the financing of GECL.
The amount of GECL financing to eligible MSME borrowers, either in the form of additional term loans for working capital (in the case of banks and FIs), or in the form of additional term loans (in the case of NBFCs) , could represent up to 20% of their current credit. at Rs. 25 crore as of February 29, 2020.
The duration of the loan under the program is four years with a moratorium period of one year on the principal amount.
No guarantee commission will be taken by the NCGTC from member credit institutions (MLI) under the program.
The plan's interest rates are capped at 9.25% for banks and FIs and 14% for NBFCs.
All funding provided under GECL must be provided with a 100% credit guarantee by the NCGTC to MLI under ECLGS.

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