Expansion of Emergency Credit Line Guarantee Scheme - Pragnya IAS Academy - News Analysis.

Expansion of Emergency Credit Line Guarantee Scheme.

▪️Why in News

✅ Recently, the government has extended the Rs. 3-lakh-crore Emergency Credit Line Guarantee Scheme (ECLGS) until 30th June 2021, and also widened its scope to new sectors, including hospitality, travel and tourism.

✅ ECLGS was rolled out in May 2020 as part of the Centre’s Atmanirbhar package in response to the Covid-19 crisis.

🔸The objective was to support small businesses struggling to meet their operational liabilities due to the imposition of a nationwide lockdown.

Key Points

▪️ECLGS 1.0:

✅ To provide fully guaranteed and collateral free additional credit to MSMEs, business enterprises, MUDRA borrowers and individual loans for business purposes to the extent of 20% of their credit outstanding as on 29th February, 2020.

✅ MSMEs with up to Rs 25. crore outstanding and Rs. 100 crore turnover were eligible.

✅ However, the turnover cap was removed post amendment to ECLGS 2.0 in November 2020.

▪️ECLGS 2.0:

✅ The amended version focused on entities in 26 stressed sectors identified by the Kamath Committee along with the healthcare sector with credit outstanding of more than Rs. 50 crore and up to Rs. 500 crore as of 29th February, 2020.

✅ The scheme also mandated borrower accounts to be less than or equal to 30 days past due as of 29th February, 2020, that is, they should not have been classified as SMA 1, SMA 2, or NPA by any of the lenders as of 29th February 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 revised scheme also has a five-year repayment window up from four years in ECLGS 1.0.

▪️ECLGS 3.0:

✅ It involves extending credit of up to 40% of total credit outstanding across all lending institutions as on 29th February 2020.

✅ The tenor of loans granted under ECLGS 3.0 would be 6 years, including a moratorium period of 2 years.

✅ Covers business enterprises in Hospitality, Travel & Tourism, Leisure & Sporting sectors,Which had, as on 29th february 2020.

🔸Total credit outstanding not exceeding Rs. 500 crore and overdues, if any, were for 60 days or less.

✅ National Credit Guarantee Trustee Company (NCGTC) is the guarantee provider under the ECLGS scheme.

The above Article can also be read using the link below:

Expansion of Emergency Credit Line Guarantee Scheme.

11 public sector banks now on RBI watchlist, small firms face credit crunch - Pragnya IAS Academy - News Analysis

11 public sector banks now on RBI watchlist, small firms face credit crunch.

At present, 11 weak PSBs out of the 21 State-owned banks are under the PCA, which kicks in when banks breach regulatory norms on issues such as minimum capital, amount of non-performing assets and return on assets.

Lending to the corporate sector, particularly small and medium enterprises, is becoming increasingly difficult with more than half the country’s public sector banks (PSBs) now under the RBI’s Prompt Corrective Action (PCA) framework, which restricts lending activities of the banks, government sources said.
Government sources also confirmed that at least three-four more banks are expected to be brought under the PCA framework because of deteriorating performance.
“Since the PCA framework restricts the amount of loans banks can extend, this will definitely put pressure on credit being made available to companies especially the MSMEs. Large companies have access to the corporate bond market so they may not be impacted immediately,” a senior banker said.
At present, 11 weak PSBs out of the 21 State-owned banks are under the PCA, which kicks in when banks breach regulatory norms on issues such as minimum capital, amount of non-performing assets and return on assets. The RBI enforces these guidelines to ensure banks do not go bust and follow prompt measures to put their house in order.
In a report last month, rating agency ICRA said that five more banks could be brought under the PCA. These include Canara Bank, Union Bank, Andhra Bank, Punjab National Bank, and Punjab & Sind Bank.
The 11 banks already under the NPA framework are IDBI Bank, Bank of India, UCO Bank, Central Bank of India, Indian Overseas Bank, Oriental Bank of Commerce, Dena Bank, Bank of Maharashtra, United Bank of India, Corporation Bank and Allahabad Bank.
Sources said it may take these banks at least another 6-9 months before they report any noticeable improvement in the key regulatory indicators, which will help them come out of PCA.
The RBI tightened its PCA framework in April 2017 to turn around lenders with weak operational and financial metrics, and since then 11 banks have been moved to PCA.
Depending on the risk thresholds set in PCA rules, the banks are restricted from expanding the number of branches, staff recruitment and increasing the size of their loan book. Other restrictions include higher provisions for bad loans and disbursal only to those companies whose borrowing is above investment grades.
The government in January had allocated a bigger chunk of capital of Rs 52,311 crore to 11 weak banks to maintain their minimum capital requirement while nine strong banks were given Rs 35,828 crore. Last October, the Finance Ministry had announced plans to inject Rs 2.11 lakh crore of equity in PSBs – comprising Rs 1.35 lakh crore through recapitalisation bonds, Rs 18,000 crore from budgetary resources and Rs 58,000 crore to be raised by the banks from the market.
While RBI data shows credit off-take for micro and small enterprises and medium-scale companies deteriorated significantly post demonetisation, micro and small scale industries have seen some improvement in demand for credit from scheduled commercial banks over the last 5-6 months.
While credit growth to micro and small scale industries contracted by 7.7 per cent and 8.2 per cent in November 2016 and December 2016, it remained negative or mildly positive till August 2017. The growth rates in November 2017, December 2017 and January 2018 were better and stood at 4.6, 7.2 and 6.9 per cent.
Medium-scale industries continue to remain under pressure and credit growth is still negative even as gross bank credit growth for November, December and January has been over 8 per cent.
Bankers feel that if more state-owned banks are brought under PCA, it will impact the credit availability for the MSME segment. (Source: The Indian Express)


The above Article can also be read using the link below:

11 public sector banks now on RBI watchlist, small firms face credit crunch.