How ECLGS Credit Guarantee Scheme Launched During Pandemic Saved 13.5 Lakh MSME Units, 1.5 Cr jobs,14% Of MSME Loans Turning NPA
In May 2020, the Modi Government launched the Emergency Credit Line Guarantee Scheme (ECLGS) for Micro, Small and Medium Enterprises (MSMEs) to provide relief to the sector amidst the COVID-19 pandemic disruption.
A SBI research reports estimates almost 13.5 lakh MSMEs accounts were saved due to ECLG scheme (including restructured) with almost 93.7% of such accounts are in Micro and Small category. In absolute terms, MSME loan accounts worth Rs 1.8 lakh crore were saved from slipping into NPA during the period. This is equivalent to 14% of the outstanding MSME credit being saved from becoming NPA. SBI Research also estimated that 1.5 crore workers were saved from potential unemployment due to the credit guarantee scheme.
Amongst the States, Gujarat has been the biggest beneficiary, followed by Maharashtra, Tamil Nadu and Uttar Pradesh.
The Emergency Credit Line Guarantee Scheme (ECLGS) was unveiled as part of the Rs 20 lakh crore comprehensive package announced by Finance Ministry in May 2020, to aid Micro, Small and Medium Enterprises (MSMEs) sector in view of the economic distress inflicted by the COVID-19 pandemic.
Under ECLG scheme, 100% guarantee was provided for 20% extra credit to MSMEs and Business Enterprises with outstanding up to Rs.50 crore. In August 2020, the scheme was extended to Mudra borrowers and Individual loans for business purposes. In Nov 20, the scheme was extended through ECLGS 2.0 for 26 sectors identified by the Kamath Committee and for Health Care sector up to Mar 21, for entities with outstanding credit of above Rs.50 crore and not exceeding Rs.500 crore.
Since then, the Modi Government has extended the scheme to cover various industries (till now four extended versions of ECLG scheme have come out).
Of the extended limit of Rs 4.5 lakh crore, 64.4% or Rs 2.9 lakh crore has already been sanctioned by 21 Nov’21.
According to estimates by the SBI Research, ECLG scheme is likely to have saved almost 13.5 lakh MSMEs accounts worth Rs 1.8 lakh crore from slipping into NPA during the period. This is equivalent to 14% of the outstanding MSME credit being saved from becoming NPA.
Out of the 13.5 lakh MSMEs accounts that were saved due to ECLG scheme, almost 93.7% are in micro and small units.
SBI research also calculates that if these micro, small and Medium Enterprises units had turned nonperforming in case of no credit guarantee support, about 1.5 crore workers would have become unemployed. In effect, the ECLG scheme saved the livelihood for 6.0 crore families (assuming four family members per worker including herself), the report says
Trading Sector (including small kirana shops) has benefitted the most followed by Food Processing, Textiles and Commercial Real Estate, the report adds. Top ten sectors accounted for ~75% of the outstanding amount saved for becoming NPAs
Amongst the States, Gujarat has been the biggest beneficiary, followed by Maharashtra, Tamil Nadu and Uttar Pradesh. Top ten states accounted for ~75% of the outstanding amount that did not slip into NPAs.
SBI Research team analysed the Special Mention Account (SMA) data for the banking system based on trends in SBI portfolio to quantify the benefits derived from ECLGS in terms of asset quality.
SMA is an account exhibiting signs of incipient stress resulting in the borrower defaulting in timely servicing of their debt obligations, though the account has not yet been classified as NPA as per the extant RBI guidelines. Early recognition of such accounts enables banks to initiate timely remedial actions to prevent their potential slippages into NPAs.
In 2020, MSMEs received higher credit than compared to 2019 primarily due to ECLG scheme, the report says. Incremental credit in 2020 (over 2019) was much higher than the credit provided in pre-pandemic times (2019 over 2018).
In FY 2021, the country disbursed loans worth Rs 9.5 lakh crore to MSME sector, which is significantly higher than preceding years of Rs 6.8 lakh crore in FY 2020. The report said that this sharp jump in MSME lending in 2021 has been supported by Atmanirbhar Bharat scheme of ECLGS which provided 100% credit guarantee to lenders
The report recommends that the existing Credit Guarantee Scheme for Subordinate Debt (CGTMSE) scheme for extending loans to SME sector be relooked into totality and be reoriented by adopting the best practices from the current ECLG scheme.
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