MSME Loans Under ECLGS Report Less Than 6% NPAs

New Delhi, Jul 15 (KNN) Government officials have announced that non-performing assets (NPAs) under the Emergency Credit Line Guarantee Scheme (ECLGS) are hovering around 6 per cent, indicating that the cost of providing full guarantees under the scheme may be lower than initially projected.

"Of the total liquidity support exceeding Rs 3.68 lakh crore, reported NPAs amount to approximately Rs 22,000 crore, or 6 per cent of guaranteed loans," a government official stated.

The NPA definition for ECLGS aligns with the Reserve Bank of India's (RBI) standard, which classifies a loan as non-performing when interest and/or principal instalments remain overdue for more than 90 days.

The ECLGS NPA trends appear to be consistent with overall banking system data.

The RBI's latest Financial Stability Report reveals that scheduled commercial banks' gross non-performing assets (GNPA) ratio decreased to a multi-year low of 2.8 per cent, while the net non-performing assets (NNPA) ratio fell to 0.6 per cent by end-March 2024.

Non-banking financial companies (NBFCs) reported a GNPA ratio of 4 percent for the same period.

Launched in May 2020, ECLGS was designed to provide liquidity support to businesses adversely affected by COVID-19 lockdowns.

The scheme covers loans sanctioned under the 'Guaranteed Emergency Credit Line' up to March 31, 2023, or until guarantees for Rs 5 lakh crore are issued, whichever occurs first.

It offers 100 per cent guarantee coverage to banks and NBFCs on credit extended to businesses and MSMEs based on their loan outstanding as of February 29, 2020.

Officials highlighted that out of the Rs 3.68 lakh crore liquidity support provided to 1.19 crore businesses, MSMEs account for 95 per cent of the guarantees issued by number and about 65 percent by value. The scheme has reportedly benefited around 6.25 crore employees.

The World Bank's World Development Report 2022 mentioned the ECLGS, noting that while India's economic recovery from the initial pandemic waves has been robust, the long-term cost of these guarantees to the government remains to be seen.

The report cautioned that credit guarantees carry the risk of becoming a government liability if an economic downturn leads to increased loan defaults.

A report by the State Bank of India (SBI) last year indicated that the ECLGS had potentially saved at least 14.6 lakh MSME accounts.

The report suggested that MSME loan accounts worth Rs 2.2 lakh crore had improved since the scheme's inception across the banking industry, effectively preventing about 12 per cent of outstanding MSME credit from becoming NPAs and safeguarding the livelihoods of an estimated 6.6 crore individuals.

As the ECLGS continues to play a crucial role in India's economic recovery, its performance and long-term impact will likely remain subjects of close scrutiny by financial experts and policymakers.

(KNN Bureau)