ECLGS 3.0: Hospitality MSMEs urge govt for changes in borrower status, calculation of outstandings, more – The Financial Express

lipped from: https://www.financialexpress.com/industry/sme/eclgs-3-0-hospitality-msmes-urge-govt-for-changes-in-borrower-status-calculation-of-outstandings-more/2247086/

Ease of Doing Business for MSMEs: The Finance Ministry had on March 31, 2021, introduced ECLGS 3.0 to cover enterprises in hospitality, travel & tourism, and leisure & sporting sectors with total credit outstanding, as of February 29, 2021, not exceeding Rs 500 crore and overdues, if any, were for 60 days or less on the said date.

SMA-0 are accounts having payments partially or wholly overdue for 1-30 days while SMA-1 and SMA-2 accounts have payments overdue for 31-60 days and 61-90 days respectively.

Ease of Doing Business for MSMEs: Weeks after the government had introduced the third leg of the Rs 3 lakh crore Emergency Credit Line Guarantee Scheme (ECLGS) to cover MSME-dominated hospitality, tourism, and related sectors, the industry has now sought amendments to the same to make the scheme more effective for MSMEs, other businesses through suggestions made to the Finance Ministry, Tourism Ministry, and Reserve bank of India. The first change sought by the policy think tank of 10 associations in travel and tourism — Federation of Associations in Indian Tourism & Hospitality (FAITH) – was towards the Borrower Status in the ECLGS 3.0. As per the revised operational guidelines issued by the implementing agency of the scheme — National Credit Guarantee Trustee Company (NCGTC), clause 19 mentioned that “the borrower account otherwise eligible under the scheme should not be an NPA as on the date of sanction/disbursement.” According to FAITH, this clause contradicts the proposed spirit of the scheme to help borrowers by assessing their accounts on a pre-pandemic status.

“There is a possibility that this may be mentioned in error. We assume so because if it is ‘as on date of disbursement’ of the new loan then this contradicts the basic tenet of the scheme which was supposed to extend the relief pre-pandemic thus requiring businesses not to be NPA as of February 29, 2020. Universally post March 2020 shutdown, almost all segments of tourism have been non-performing and the tourism industry has been effectively out of any significant business. Thus linking the ECLGS 3.0 to the account status as on the date of disbursement of the new guaranteed loan and not to February 29, 2020, is mutually contradictory to the entire stated purpose of the scheme,” Aashish Gupta, Consulting CEO, FAITH told Financial Express Online. Through its 10 association members, FAITH represents the organised travel and tourism sector in India comprising over 95 per cent MSMEs.

The federation had noted that as per the guidelines issued under clause 4 and clause 7, under clause 1 in the NCGTC letter and in the FAQs number 8 and 109, this scheme proposes to extend support to tourism, travel & hospitality accounts which were classified as regular, SMA -0 & SMA -1 and whose days past due (DPD) were not beyond 60 days as on February 29, 2020. SMAs are special mention accounts, which show signs of incipient stress, that lead to the borrower defaulting in servicing the debt. While SMA-0 are accounts having payments partially or wholly overdue for 1-30 days, SMA-1 and SMA-2 accounts have payments overdue for 31-60 days and 61-90 days respectively.

The Finance Ministry had on March 31, 2021, introduced ECLGS 3.0 to cover enterprises in hospitality, travel & tourism, and leisure & sporting sectors with total credit outstanding, as of February 29, 2021, not exceeding Rs 500 crore and overdues, if any, were for 60 days or less on the said date.

Also read: MSMEs hail RBI’s Rs 50,000 crore liquidity support to strengthen Covid infrastructure, supplies in time

“ECLGS 3.0 scheme operationally must be corrected to ensure that tour operator businesses and other tourism players are able to take full advantage of the guaranteed loan scheme to support their businesses which have no cash flows currently,” Rajiv Mehra, President, Indian Association of Tour Operators (IATO) and Honorary Secretary, FAITH told Financial Express Online.

Another suggestion made by FAITH pertained to the calculation of outstandings. The body sought to consider eligible outstandings for tourism, travel, and hospitality as an average of 11 months of FY2020 (April 1, 2019 — February 29, 2020) as just against the outstandings as of February 29, 2020. “October – February is traditionally the peak tourism season in India and thus credit outstanding levels are usually the lowest during February. Accordingly, an 11-month average of outstandings would enable a correct need assessment of the enterprises in the sector as it would balance out the off-seasons and the peak season accordingly,” the think tank said.

“ECLGS is given on the basis of outstanding loan as of February 29, 2020, but borrowings during November-February season is less as payments are not a problem during the period. Thus, it doesn’t indicate the true picture of actual borrowing by the company. So that’s why I would want the government to consider the 11-month average,” Sharat Chandra, Partner at travel agency State Express told Financial Express Online.

The last recommendation was made on the moratorium on Interest. ‘There is no moratorium on interest on funds drawn under this scheme and it has to be paid as per clause 10 of the Guidelines and clause 16 of the FAQs. However, amid inability to generate cash flows and service interest, a moratorium on interest was requested to enable drawdown under the scheme,” FAITH said.

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