The Emergency Credit Line Guarantee Scheme (ECLGS) and Loan Guarantee Scheme for Covid-Affected Sectors (LGSCAS) were launched in 2020 as part of the Atmanirbhar Bharat Abhiyaan package. Both schemes were geared towards helping the MSME sector resume business operations amidst the COVID-19 pandemic and lockdown by providing banks with a 100% guarantee against any loss due to loan defaults.

The overall ceiling announced for ECLGS in 2020 was Rs 3 lakh crore, which was subsequently enhanced to Rs 4.5 lakh crore. Subsequently, the 2022 Budget extended the validity of the Scheme up to March 2023 and increased the guaranteed cover by Rs 50,000 crore to a total cover of Rs 5 lakh crore. The incremental amount was exclusively earmarked for hospitality and related sector enterprises. During her 2023 Budget Speech, Finance Minister Nirmala Sitharaman announced that ECLGS would be revamped with an infusion of Rs 9000 crore into its corpus. The revamped scheme is set to go into effect on April 1, 2023. 

Stakeholders in both schemes have demanded that they be extended beyond their initial expiry deadline of March 31, 2023. The Finance Ministry recently met with the heads of public sector banks as well as four private sector banks to review the performance of both schemes. 

“The scheme was launched by the government during the Covid period and the aviation sector was also included under the scheme later on. The scheme must continue, depending upon the budgetary resources available with the government,” Former SBI Chairman Rajneesh Kumar told Bizz Buzz. However, he added that banks had to assess the risks while providing loans under the insurance-backed scheme, and hence, they had every right to question borrowers accordingly. 

The SME Chamber of India made a few notable observations: first, banks were not providing MSMEs with credit support to the extent required under the scheme. Second, in most cases, banks were recovering their over-dues through fresh loans disbursed under ECLGS. In both cases, MSMEs were not receiving the promised support. 

The schemes were more beneficial to banks by aiding them in recovering dues than to the small businesses suffering from the impact of the pandemic, said a communication from the Chamber to the Finance Ministry. It also details the growing debt burden on the MSMEs as a result of these new loans, which makes their businesses vulnerable to defaults. It suggests that all overdue amounts incurred by MSMEs since the pandemic be clubbed together and treated as working capital term loans rather than instant recovery of previous dues through fresh loans. “The fresh loans under ECLGS can be granted to the desired extent by way of long-term soft loans. These steps may give many breathers to small borrowers, and they may be able to re-stabilize their businesses,” said Chandrakant Salunkhe, Founder and President, of the SME Chamber of India.