ECLGS 2.0 to cover mid-sized firms left out by ECLGS 1.0, RBI loan restructuring

Finance Minister Nirmala Sitharaman on Thursday announced a new Emergency Credit Line Guarantee Scheme (ECLGS) 2.0, which will cover the mid-sized companies in the 26 stressed sectors. These sectors were left out by the ECLGS 1.0 scheme and the corporate loan restructuring announced by the Reserve Bank of India (RBI) for the stressed sectors.

The ECLGS 1.0 offered a collateral free credit guarantee by the government to banks for loan outstanding up to Rs 50 crore as on February 29, 2020. The companies with over Rs 50 crore loan outstanding had no option but to go to the banking channel for loan restructuring or additional loans. Given the risk factor post-COVID-19, the banks were not very keen on lending additionally without collateral to these small companies.  

In addition, the corporate loan restructuring announced by the RBI generally leaves out mid-sized companies because of lack of collateral. Only big corporates are able to get such restructuring. The current scheme will bridge the gap, although FM Sitharaman did not mention the amount of guarantee cover offered by the banks. The ECLGS 1.0 offered Rs 3 lakh crore guarantee cover.

Also read: Govt extends Emergency Credit Line Guarantee Scheme till March 31, 2021

Most of these units with loan outstanding between Rs 50 crore and Rs 500 crore are promoter driven with not much assets to offer as collateral. The ECLGS 2.0 will be of great help as it would provide additional 20 per cent benefit. This translates into funds of Rs 10-100 crore to such units.

Under the scheme, the mid-sized companies in 26 sectors with loan outstanding of Rs 50-500 crore will get a 100 per cent collateral free additional loan up to 20 per cent of the loan outstanding as on February 29, 2020. There is no upper limit  on annual turnover of these companies.

Also read: Govt announces credit guarantee scheme for healthcare, 26 stressed sectors

The  tenure  of the additional credit under ECLGS 2.0 will be five years including one-year moratorium on principal repayment. The stressed sectors identified by K V Kamath committee were power, construction, iron & steel, roads, real estate, trading, textiles, chemicals, consumer durables, pharma, logistics, gems &  jewellery, cement, auto component, mining, hotel tourism, aviation and shipping etc.

FM Sitharaman also said that the ECLGS 1.0 has covered Rs 2 lakh crore loans sanctioned so far by the banks. There is still a headroom of Rs 1 lakh under the first scheme. The government said that it would assess the situation and decide on the additional guarantee cover for 26 stressed sectors later.

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