Atmanirbhar 3.0: India Announces A New Emergency Credit Guarantee Scheme For Stressed Sectors
Nirmala Sitharaman, India’s finance minister, wears a protective mask while speaking during a news conference in New Delhi, India. (Photographer. T. Narayan/Bloomberg)

Atmanirbhar 3.0: India Announces A New Emergency Credit Guarantee Scheme For Stressed Sectors

The central government has announced the second iteration of the emergency credit-linked guarantee scheme to support 26 stressed sectors and healthcare firms.

Banks will be able to provide collateral-free, fully guaranteed loans to borrowers, on capped interest rates, Finance Minister Nirmala Sitharaman said while announcing 12 measures under Atmanirbhar Package 3.0 to boost the economy. The scheme will be available till March 31, 2021.

The 26 stressed sectors were identified by the KV Kamath committee in September. The panel, was constituted by the Reserve Bank of India, created the list of stressed sectors after the Covid-19 pandemic and the national lockdown affected businesses across the country. The purpose of the committee was to create sectoral benchmarks that banks can use to decide whether a borrower deserves to have debt restructured.

The government has added the healthcare sector to the list of those which can benefit from ECLGS 2.0.

Sitharaman said ECLGS 2.0 aims to support companies with outstanding dues of Rs 50-500 crore as on Feb. 29. It will also cover micro, small and medium companies with outstanding dues below Rs 50 crore that were granted support under the first version of the scheme.

Unlike the first iteration, the government has not placed any turnover cap for companies to be eligible. Firms that had remained in default for up to 30 days as on Feb. 29 can access emergency funding from banks.

Businesses will be able to borrow up to 20% of their outstanding dues as on Feb. 29 under the new scheme. The tenor of these loans will be set at five years, where borrowers will also receive a moratorium on principal repayments up to one year. The interest rates on the loan will be set at 9.25%, as was announced as part of the first ECLGS scheme.

“ECLGS 2.0 will provide much-needed relief to stressed sectors by helping entities sustain employment and meet liabilities," the finance minister said. "It will also benefit MSME sector which provides goods and services to eligible entities."

The first round of ECLGS loans were announced in May as part of the Rs 20 lakh crore economic package for India. The first scheme was to provide Rs 3 lakh crore worth of collateral-free, government guaranteed loans to MSMEs across India. So far, the scheme has seen sanctions worth over Rs 2 lakh crore to 61 lakh borrowers, while disbursals worth Rs 1.52 lakh crore have taken place.

ECLGS 2.0 will be within the Rs 3-lakh-crore limit announced by the government in May. The Rs 1-lakh-crore worth loans that are pending sanction will be distributed among MSMEs and stressed sectors by banks. The government, Financial Services Secretary Debasish Panda said, will review the need for further funding, if needed.

The scheme helped banks provide higher incremental credit to MSME borrowers in September. According to data available with the RBI, outstanding bank loans to medium-sized enterprises at the end of September stood at Rs 1.2 lakh crore as with Rs 1.05 lakh crore in March, a growth of 14%.

Also read: India Expands Stimulus to 15% of Economy as Recession Looms

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