The scheme aims to shield Indian industries from liquidity stress caused by the West Asia conflict. (Image source: Pixabay)
With an aim to meet the additional credit needs of industries under distress amid the ongoing West Asia conflict, the Union Cabinet on Tuesday approved a credit support scheme named ‘Emergency Credit Line Guarantee Scheme 5.0’ targetting additional credit flow of Rs 2.55 lakh crore including Rs 5,000 crore for airlines. On the lines of similar credit guarantee schemes extended to distressed sectors during the Covid-19 pandemic, the latest scheme has an estimated outlay of Rs 18,000 crore, which is the cost to the government for providing the credit guarantees.
Additional credit will be available to MSMEs and non-MSMEs (except aviation) up to 20% of peak working capital utilised during Q4 FY26 (capped at Rs 100 crore), an official release said. For airlines, the credit will be up to 100%, capped at Rs 1,500 crore per borrower, subject to certain specific conditions, it said.
Guarantee fees will be waived under the scheme. For MSMEs and non-MSMEs (except airline sector), the tenor of the loan would be 5 years from the date of first disbursement, including a moratorium of 1 year. For the airline sector, the loan tenor would be 7 years from the date of first disbursement, including a moratorium of 2 years. The rate of interest by banks will be capped at 9% and by non-banking financial companies (NBFCs) would be 13% or 0.75% above benchmark rate, whichever is lower, Vaishnaw said.
“The scheme has been approved to tackle the stress being faced by MSMEs and the aviation sector as a result of the ongoing West Asia conflict. The credit guarantee scheme was established during Covid and the benefit of this scheme is that there is no moral hazard. Only those who need (credit) in real, (they) utilise this scheme and there is very less probability of it being misused. It is a very well thought through scheme,” Vaishnaw said.
About 1.1 crore MSMEs have benefitted so far from the existing credit guarantee schemes and Rs 3.7 lakh crore has been extended under these schemes, he added.
The ECLGS 5.0 aims to provide credit guarantee coverage of 100% for micro, small and medium enterprises (MSMEs) and 90% for non-MSMEs along with the airline sector, to Member Lending Institutions (MLIs) by National Credit Guarantee Trustee Company Limited (NCGTC) for the amount in default under the additional credit facility to the eligible borrowers to tide over any short-term liquidity mismatches in view of West Asia crisis, an official release said. Borrowers eligible for the scheme will include MSMEs and non-MSMEs with existing working capital limits and scheduled passenger airlines having outstanding credit facilities as of March 31, 2026, provided their accounts are standard, the release stated.
The maximum period of guarantee cover shall be co-terminus with the tenor of the loan, it said. The scheme will apply to all loans sanctioned during the period from the date of issue of these guidelines by NCGTC upto March 31, 2027.
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The scheme aims to enable businesses to tide over the challenges arising from the West Asia conflict, the release said. “Additionally, this is expected to help businesses maintain their operations, protect jobs, and sustain supply chains. The proposed credit guarantee scheme is a major step to help businesses, particularly MSMEs and airline sector, to ensure their additional working capital needs are catered by the Banks & FIs (financial institutions). By providing timely liquidity, the scheme will sustain the businesses and prevent job losses. It will also promote uninterrupted domestic production and maintain the resilience of the ecosystem,” it said.
The ECLGS was launched in May 2020 as part of the Aatmanirbhar Bharat Abhiyaan to support eligible MSMEs and other eligible businesses in meeting their operational liabilities amid disruption caused by the COVID-19 pandemic, covering all sectors of the economy. 100% guarantee is provided to Member Lending Institutions (MLIs) in respect of the credit facility extended by them under the scheme to eligible borrowers. The later versions of the scheme has covered Mudra borrowers and other stressed sectors including healthcare, hospitality, leisure, travel, tourism and civil aviation.
