The Finance Ministry to Review Covid Loan Guarantee Schemes to Help Pandemic-hit Businesses
The Finance Ministry has summoned the heads of public sector banks and top private sector lenders to discuss the progress of the Emergency Credit Line Guarantee Scheme (ECLGS) and the Loan Guarantee Scheme for Covid-Affected Sectors (LGSCAS). The review meeting, chaired by financial services secretary Vivek Joshi, is scheduled for February 22, with participation from HDFC Bank, ICICI Bank, Axis Bank, and Kotak Mahindra Bank.
ECLGS was introduced in May 2020 as part of the Atmanirbhar Bharat Package to help businesses, including Micro, Small, and Medium Enterprises (MSMEs), to cover operational liabilities and restart their operations following the impact of the Covid-19 pandemic. Banks were provided with a 100% guarantee against any losses incurred by them due to the non-repayment of funds by borrowers.
Initially, the ceiling for ECLGS was set at INR 3 lakh crore and was subsequently increased to INR 4.5 lakh crore. The Union budget 2022-23 announced an extension validity of the scheme until March 2023 and an increase in the guaranteed cover limit of ECLGS by INR 50,000 crore, reaching a total cover of INR 5 lakh crore. The additional amount was exclusively allocated to enterprises in the hospitality and related sectors.
In the latest budget, Finance Minister Nirmala Sitharaman said, “Last year, I proposed revamping the credit guarantee scheme for MSMEs. I am happy to announce that the revamped scheme will take effect from April 1, 2023, through the infusion of INR 9,000 crore in the corpus. This will enable additional collateral-free guaranteed credit of INR 2 lakh crore. Further, the cost of the credit will be reduced by about 1%.”
The upcoming meeting will review the progress of the loan schemes and deliberate on the challenges related to the ECLGS and LGSCAS. The discussion will also include the possibility of extending ECLGS and LGSCAS beyond the deadline of March 31. The purpose of the meeting is to assess the effectiveness of the schemes and to explore ways to better help businesses affected by the pandemic.
In conclusion, the meeting of the heads of public sector banks and top private sector lenders by the Finance Ministry is an essential step towards reviewing the progress of the Emergency Credit Line Guarantee Scheme and the Loan Guarantee Scheme for Covid-Affected Sectors. The meeting will evaluate the efficacy of the schemes and the challenges faced by them, including the possibility of extension beyond the deadline of March 31. With the review, the Finance Ministry aims to enhance the support for businesses and promote economic recovery during these challenging times.
