oppn parties ECLGS Amended To Allow Defaulters To Borrow

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Nikhat Zareen is crowned world champion in the flyweight (52Kg) category at the Women's World Championships in Istanbul /////// Supreme Court sentences Navjot Singh Sidhu to rigorous imprisonment of one year in the road rage case /////// Sunil Jakhar, who quit the Congress a few days ago, joins the BJP
oppn parties
ECLGS Amended To Allow Defaulters To Borrow

By Ashwini Agarwal
First publised on 2021-04-17 03:21:05

The government had announced a Rs 3 lakh crore Emergency Credit Line Guarantee Scheme (ECLGS) as part of its Covid package to provide loans to stressed MSMEs. These loans were backed by government guarantee. When MSMEs did not avail the entire quantum of the scheme, it was first thrown open to professionals and then to other stressed sectors like hospitality and travel and tourism. But the scheme was only for those whose accounts did not show a payment default as on February 29, 2020. With just 80% offtake in the scheme till now, Rs. 60000 crore are still left unutilized. Hence, the government has amended the scheme as per the recommendations of the committee headed by ICICI Bank chief K V Kamath to provide loans even to big borrowers (Rs 50-500 crore) even if they had payment default of 31-60 days as on the cut-off date, or if they were classified as Special Mention Account (SMA)-0 or SMA-1. This facility will be provided to nearly 26 stressed sectors identified by the committee.

This is a good move on part of the government because even though there is a danger of the stress of the companies getting brushed under the carpet for the time being, the larger goal of providing relief to stressed sectors and companies to prevent job losses will be achieved. Since these new loans will be guaranteed by the government, banks will not be reluctant to fund these defaulters. But a close watch needs to be kept on these borrowers and the application of funds needs to be tracked too. Although the government has said they can use the new loans to repay the old debt, the health of these borrowers needs to be monitored closely to ensure that the new loans do not go bad. While it is good to bail out stressed sectors in order to maintain productions levels, prevent job losses and give them a chance to overcome the stress, the government should not suffer a loss.