The ECLG scheme was launched initially to support the MSME sector. However, the scheme has changed its texture and flavour to accommodate the changing circumstances.
After receiving lower demand from the MSMEs, the scope of the scheme was later extended to the corporates. Now the government has further expanded the scope of the ECLG Scheme. As per the latest announcement, the civil aviation sector and oxygen generator plants are newly added under the scope of the scheme.
Lower Offtake of ECLGS
Several public banks have disclosed high-stress levels in their books through their Special Mention Accounts (SMA) data. Despite that, pace of utilization of this scheme has been quite low as banks have remained quite restrictive in using restructuring or ECLGS schemes.
This has largely to do with reluctance on part of the banks. They have been conservative to disburse under the ECLG schemes. Their apprehension is mainly on account of credit quality-related issues.
The borrowers, on the other hand, have also refrained from additional borrowing, as large corporations are more focused on deleveraging their balance sheets.
Changing Structure of ECLGS
Due to the muted response, the scheme has changed the structure many times, and its scope has been extended further.
Apart from including the stressed sectors in the list of beneficiaries, the scope of MSMEs has been extended further. The ECLG scheme now provides a 100% guarantee cover to loans up to Rs 2 crore or setting up on-site oxygen generation plants. Borrowers who had availed of loans under ECLGS 1.0 will get an extension of an additional year. Besides, they will be eligible for 10% additional disbursement. The scheme is also extended till the entire amount of Rs 3 lakh crore is allotted.
Closing Comments
Despite extending the scope of the scheme, it largely remains a COVID-relief measure, designed to provide benefit to the businesses, which came under stress post the outbreak of COVID-19.
Overall, the scheme is largely expected to benefit the regional banks with higher exposure to MSMEs like City Union Bank, Karur Vysya Bank, and small private banks like DCB Bank. However, its impact will be lower for public banks and insignificant for private banks.
