ECLGS: How can MSMEs get unsecured loan, what are the eligibility criteria, proposed moratorium, other details
The Emergency Line of Credit Guarantee Program (ECLGS) was the dedicated, fully secured and unsecured additional credit support announced for micro, small and medium enterprises (MSMEs) affected by Covid, Mudra borrowers, in more to offer individual loans for business purposes. Announced in May 2020, the Rs 3 lakh crore credit program was initially valid until October 2020, but was then extended until November, followed by March of this year, then until June or until that guarantees for the amount of the corpus of Rs 3 lakh crore be issued by two iterations namely, ECLGS 2.0 and ECLGS 3.0. Here is a breakdown of everything an MSME would want to know about the credit securing system:
Who is eligible?
National Credit Guarantee Trustee Company (NCGTC) provides a full guarantee on loans offered by member banks and other credit institutions in the event of default by MSMEs and other borrowers, including companies incorporated as sole proprietorships, partnerships, registered companies , trusts and limited liability. Partnerships (LLP) apart from borrowers under Pradhan Mantri Mudra Yojana and individual business loans.
However, borrowers with total outstanding loans of up to Rs 50 crore in any sector and up to Rs. 500 crore for those in the hospitality, travel and tourism, leisure and sport and classified as regular, SMA-0 or SMA-1 accounts as of February 29, 2020, would be eligible for ECLGS loans. ADMs are special mention accounts that show signs of incipient stress leading to borrower default in debt service. While SMA-0 are accounts with partially or fully past due 1 to 30 days, SMA-1 and SMA-2 accounts have 31 to 60 days and 61 to 90 days past due respectively.
“There is no doubt that ECLGS is a good initiative, as a crore loan of at least Rs 1.8 lakh has already been disbursed. This means that it has benefited some MSMEs. However, the government should have allowed loans based on sanctioned working capital and not on outstanding credit as of February 29 to benefit MSMEs more. Also, it does not cater for SMA-2 accounts and therefore few MSMEs have benefited from it so far, ”Jacob Crasta, president of environmental test chamber manufacturer CM, told Financial Express Online. Envirosystems and past president of Assocham Southern Council.
How much credit can be used?
The available credit would represent up to 20 percent (up to Rs 100 crore) of the total outstanding amount of MSMEs up to Rs 500 crore and 40 percent (up to Rs 200 crore) for borrowers in the hospitality industry. , travel and tourism, and leisure and sports sector as of February 29, 2020. It is important to note that borrowers who have never raised credit before could not apply for the ECLGS as it is valid for those who are already on the books of banks and other eligible lenders such as NBFCs and financial institutions.
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How to get ECLGS credit if a borrower has loan accounts with multiple banks?
MSMEs could benefit from credit either through a lender (bank, NBFC, etc.) However, if a MSME wishes to take an amount greater than the 20 percent proportional from a particular lender, it will need ” a certificate of no objection from other lenders including the MSME’s share of the loan from that particular lender.
What is the content and what is the interest rate?
Loans under ECLGS 1.0 have a term (maximum warranty coverage period) of four years from the date of disbursement and five years under ECLGS 2.0. There is no prescribed term for the Unfunded Facility, but the first tranche of the Unfunded Loan is expected to be used no later than September 30, 2021. On the other hand, for ECLGS 3.0, the loan term is six years. from the date of the first disbursement. Interest rates under the scheme are capped at 9.25 percent for banks and FIs, and 14 percent for NBFCs.
What is the moratorium period and the reimbursement window?
The moratorium period on principal repayment would be one year for ECLGS 1.0 and 2.0 and two years for ECLGS 3.0. The principal amount must be repaid in 36 installments under ECLGS 1.0, 48 installments under ECLGS 2.0 and under 3.0, after the moratorium period has ended. Borrowers can also prepay at no additional cost.
Who are the registered lenders?
As of December 21, 2020, 12 public sector banks including SBI, Union Bank, Bank of Maharashtra, Canara Bank, etc., 22 private banks including smaller ones such as Lakshmi Vilas, Karur Vysya, Federal Bank, Jammu and Kashmir Bank, etc. . ., six foreign banks including Standard Chartered, DBS Bank India, HSBC, etc., six small financial banks including AU Small Finance Bank, Utkarsh Small Finance Bank, etc., two financial institutions – SIDBI and Export and Import Bank of India, 42 regional rural banks and 127 NBFCs were registered member credit institutions for the ECLGS program.