Centre expands collateral-free liquidity limits for civil aviation sector to help struggling airlines

The Finance Ministry has expanded the scope of the Emergency Credit Line Guarantee Scheme (ECLGS) to enhance the maximum loan amount eligibility for airlines under ECLGS 3.0. According to a notification shared by the Department of Financial Services (DFS), the step has been taken so that the airlines can have the necessary collateral-free liquidity at reasonable interest rates. This would solve their present cash flow problems. The step would come as a breather for airlines like SpiceJet, which is in need of funds. The scheme would help them get more collateral-free loans.

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Under the ECLGS, banks can give additional loans to existing borrowers without asking for extra collateral to help them cope with the liquidity crunch. These loans are also fully guaranteed by the government against credit losses. At present, the extension has been made looking at the sector’s financial hurdles due to the pandemic.   As per the notification, 100 per cent of the fund-based or non-fund-based loan outstanding as on the reference dates or Rs 1,500 crore, whichever is lower; and of the above, Rs 500 crore shall be considered. This would be based on equity contribution by the owners. All other criteria terms and conditions parameters prescribed under the operational guidelines of the ECLGS on 30.8.2022 shall be applicable as it is, the notification stated. In March this year, eligible companies were allowed to borrow up to 50 per cent of their highest fund-based credit outstanding, subject to a maximum of Rs 400 crore per borrower, as against 40 per cent of their credit outstanding as part of earlier iterations of the ECLGS scheme. The credit outstanding can be described as a mix of operating companies’ highest total fund and non-fund-based credit outstanding.