ECLGS is a useful lifeline to stressed borrowers, but its expanding scope calls for checks and balances
As the Centre weighs the need for a fresh fiscal stimulus after Covid’s second wave, it is good that it has acted immediately on expanding the scope of the Emergency Credit Line Guarantee Scheme (ECLGS) that it implemented last year. Initially designed to help MSMEs battered by the lockdown to quickly resume operations, the ECLGS has since gone through three iterations that have opened it up to both individuals and larger firms in select sectors. Initially applicable only to MSMEs with loans of up to ₹50 crore rated as ‘standard’ as of February 2020, ECLGS offered a sovereign credit guarantee to banks if they raised these firms’ working capital limits by 20 per cent. Later versions however allowed larger borrowers with loans up to ₹500 crore and firms from 26 new stressed sectors to tap in. The latest version removes even the ₹500 crore cap and offers the guaranteed credit line to aviation players and hospitals/clinics looking to set up oxygen facilities. The repayment period for original MSME borrowers has been pushed back by a year, with 10 per cent additional accommodation. While the government’s willingness to tweak ECLGS to make it more useful to borrowers is welcome, its expanding scope may call for safeguards to ensure that it reaches the most deserving borrowers.
Offering accommodation to a wide set of private borrowers and sectors in the form of a government-guaranteed credit line may be acceptable in a pandemic situation. But the moral hazard of such a move cannot be ignored. Given that Indian banks are just emerging from a bad loan crisis of mammoth proportions, they can ill-afford a repeat. Both the end-use of ECLGS loans and the ability of borrowers to stick to revised schedules thus needs to be carefully monitored.