The Union Cabinet on Wednesday approved a proposal to increase the limit of the Emergency Credit Line Guarantee Scheme (ECLGS) by Rs. 50,000 crore to Rs. 5 trillion. The additional amount is being earmarked for entities in hospitality and related sectors.
According to the government statement, while other sectors recovered faster, demand continued to be subdued for hospitality and related sectors, requiring the need for suitable interventions for sustenance and recovery.
“With high immunization levels, progressive roll-back of restrictions and overall economic recovery, conditions are in place for sustained growth in demand for these sectors as well. This additional guarantee cover is expected to support the recovery of these sectors as well,” the statement said.
Finance Minister Nirmala Sitharaman, in her Budget speech this year, had announced extension of the ECLGS till March 2023, and expansion of the guarantee cover by Rs. 50,000.
The ECLGS scheme was announced as part of the Atmanirbhar Bharat Package in 2020 to help businesses meet their operational liabilities and resume post the pandemic. Banks are provided 100 per cent guarantee against any losses suffered by them due to non-repayment by borrowers.
Loans of about Rs. 3.67 trillion have been sanctioned under the scheme as of August 5, 2022.
In March 2022, the Centre had allowed eligible borrowers in hospitality and related sectors to avail up to 50 per cent of their highest fund-based credit, outstanding on any of three reference dates — February 29, 2020, March 31, 2021 and January 31, 2022, subject to a cap of Rs. 200 crore per borrower.
The move will be beneficial for sectors which have seen traction in the last six months, said Madan Sabnavis, chief economist at Bank of Baroda. “The lower cost will help fund working capital for tourist operators, small hotels and restaurants. We shouldn’t expect this to lead to any sharp investment as that is done by the larger companies and not small businesses,” he said.