Non-performing assets (NPA) have been around 6 per cent under Emergency Credit Line Guarantee Scheme (ECLGS), government officials have said. This means the cost to providing a full guarantee under the scheme will be much less than anticipated.
“Out of total liquidity support of over ₹3.68-lakh crore, NPAs reported are around ₹22,000 crore or 6 per cent on loans guaranteed,” an official said. The definition of NPA under ECLGS is the same as defined by RBI. According to RBI, with effect from March 31, 2004, a non-performing asset shall be a loan or an advance where Interest and/or instalment of principal remain overdue for more than 90 days in respect of a term Loan.
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Trends in bad debts under ECLGS appear to be in line with overall system data. According to the latest Financial Stability Report by RBI, scheduled commercial banks’ gross non-performing assets (GNPA) ratio fell to a multi-year low of 2.8 per cent and the net non-performing assets (NNPA) ratio to 0.6 per cent at end-March 2024. Similarly, for non-banking financial companies (NBFCs), GNPA ratio at 4 per cent at end-March 2024.
ECLGS was launched in May 2020, as a special initiative to enable liquidity support to businesses adversely impacted by lockdown due to Covid-19 pandemic. The scheme covers all loans sanctioned under ‘Guaranteed Emergency Credit Line’ up to March 31, 2023 or till guarantees for an amount of ₹5-lakh crore are issued, whichever is earlier. It provides for 100 per cent guarantee coverage to banks & NBFCs on credit extended to business enterprises/MSMEs on their loan outstanding as on February 29, 2020, to meet their additional term loan/additional working capital requirements. Initially, it was mainly for MSMEs, but later, it was expanded to borrowers from 26 stressed sectors identified by Kamath Committee besides healthcare and hospitality sectors
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Share of MSMEs
Officials highlighted that out of liquidity support of ₹3.68-lakh crore to 1.19 crore businesses, the share of MSMEs is 95 per cent in terms of number of guarantees and about 65 per cent in terms of amount of guarantees issued. In terms of number of borrowers supported, 88 per cent are micro borrowers, 78 per cent are MUDRA borrowers and 68 per cent are women borrowers. Around 6.25 crore employees have been benefitted under this scheme, they added.
The scheme got mentioned in the World Development Report 2022 by the World Bank. It was said that the true cost of these guarantees to the government will only become clear in the long term. Although India’s economic recovery from the first waves of the pandemic has been remarkably robust and the immediate fiscal impact of credit guarantee schemes is low, credit guarantees always carry the risk of turning into a liability for the government if an economic downturn causes loan defaults to rise.
A report by SBI released last year showed that at least 14.6 lakh MSMEs accounts were saved due to ECLGS. In absolute terms, MSME loan accounts worth ₹2.2-lakh crore improved since inception of ECLGS for entire banking industry. This means that around 12 per cent of the outstanding MSME credit has been saved from slipping into NPA because of the ECLG scheme and thus saving livelihood of 6.6 crore.