Context: The Emergency Credit Line Guarantee Scheme (ECLGS) provides liquidity to companies, while still allowing the government to preserve its spending power.
Steps taken under ECLGS:
Fund Allotment: Government has earmarked 10% (Rs.3 lakh crore) of the stimulus measures announced to date to support various industries through ECLGS.
Around two-thirds of the funds have been allocated to 61 lakh borrowers, an average of Rs.3 lakh per borrower.
Support to MSMEs: Loans under ECLGS are fully guaranteed through the National Credit Guarantee Trustee Company and are collateral-free to borrowers.
To help MSMEs in managing cash flow for new loan, interest rates are capped, one-year moratorium on principal payments, and no loan fees or prepayment penalty fees.
Benefits of the steps taken:
Sustain the Financial Institutions: Financial institutions are able to utilise their current deposits to extend credit to their business customers during the times of slow lending.
Added benefit of earning interest on the loan.
Lifeline to MSMEs: These funds will prevent companies from going under distress conditions.
Relief to Government: While there will be some defaults on loan, but it will still be less than the Rs.3 lakh crore of liquidity being provided today.
Way Ahead:
Analyse reasons to the reluctance of eligible borrowers: who opted out of ECLGS loan consistently by instituting methods to measure the efficacy of ECLGS loan and collect data.
For E.g. Data on revenue, leverage and loan performance, employment growth, business locations, investment concentrations, external capital infusion and carbon footprint.
Incentivise desired behaviours: such as reducing carbon footprint and integrate sustainable practices should introduce loan forgiveness programme or extending the maturity of the loan.