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Banking Central: How helpful is the tweaked ECLGS scheme for COVID hit borrowers?

Considering the impact of Covid second wave lockdowns on the industries, especially small businesses, both the RBI and government will have to think beyond merely tweaking of ECLGS schemes.

May 31, 2021 / 02:50 PM IST

On Sunday , the back-to-back announcements from the Finance Ministry and the Indian Banks Association (IBA), the industry lobby of banks, raised hopes of some major announcements to give relief for Covid-hit segments of the economy . But, the outcome of both announcements was largely some tweaking of the existing schemes and explanation of the annoncements already made by the Reserve Bank of India (RBI) with respect to the Emergency Credit Line Guarantee Scheme (ECLGS).

If one avoid the technicalities, the major thrust of the announcements made are the following:

The scope of the ECLGS scheme was expanded to let borrowers draw additional support of 10 per cent above the 20 per cent of the total loan outstanding already announced as on February, 2020. Also, the scheme validity has been extended to September 30, 2021. Under ECLGS 3.0, the current ceiling of Rs500 crore loan outstanding has been removed subject to maximum facility of 40 per cent of existing exposure, or Rs200 crore, whichever is lower.

Civil aviation sector has been included under ECLGS--a good news for stressed airlines and related businesses. One needs to see along with the May 5 announcement of the RBI which said those who had not availed the re-structuring 1.0 can now avail of the restructuring 2.0 if the loan amount is up to Rs 25 crore, besides some liquidity help to ramp up Covid infrastructure.

Even the bankers press conference post the government announcements lacked any big announcements. There were expectations of some fresh measures to help Covid hit borrowers and some clarity on the proposed ‘Bad Bank’. But, what largely happened was explaining the implementation details of the schemes already announced by the RBI on May 5.


Reserve Bank of India Governor Shaktikanta Das on May 5 announced a Rs 50,000-crore on-tap liquidity facility to ramp up health infrastructure and additional loan restructuring schemes to help the Covid-hit economic segments. Banks only took this announcement further by explaining how will they do the implementation part.

Lenders talked about three sets of products to build a “COVID book” under the RBI liquidity scheme and the expanded ECLGS 4.0 for healthcare institutions to help setting up oxygen plants, business loans for healthcare facilities and unsecured personal loans for COVID-19 treatment etc. These are all positive steps but essentially detailing of the earlier announced schemes.

But, the point here is the limited room left in the ECLGS scheme. As such, the response for the scheme has not been very encouraging so far. State-run banks have aggressively pushed the ELCGS scheme among their borrowers to show results. The total scheme limit remains  Rs 3 lakh crore, of which banks have already sanctioned Rs 2.54 lakh crore and disbursed Rs 2.45 lakh crore is disbursed. This means, there is only a limited room of Rs46,000 crore balance left.

How far this will be significantly helpful for the stressed segments hit by the second wave of the pandemic?

Considering the impact of Covid second wave lockdowns on the industries, especially small businesses, both the RBI and government will have to think beyond merely tweaking of ECLGS schemes. The RBI will do well if it announces a moratorium for stressed borrowers, at least in select segments, at least a few months. The one month-lockdown has impacted small businesses in particular—the impact of which will be visible on banks' asset quality only starting the end of the first quarter. Considering the economic situation, what has been done so far isn’t enough.

(Banking Central is a weekly column that keeps a close watch and connects the dots about the sector's most important events for readers.)

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Dinesh Unnikrishnan
first published: May 31, 2021 02:37 pm
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