The Emergency Credit Line Guarantee Scheme (ECLGS) has been specifically designed to respond to the unprecedented crisis brought by the COVID-19 pandemic. The pandemic has had a largely devastating impact on the production and other activities of India’s large MSME circle. ECLGS aims to reduce the financial difficulties faced by small and medium-sized enterprises and provide them with additional resources of up to Rs. 3 lakh crore in the kind of a completely secured emergency credit line.
Under the new rules, companies in the tourism, travel and hospitality sectors will be included in the ECLGS. The scheme will be relevant for accounts that had past dues up to Rs 500 crore as of Feb. 29, 2020.
Following the statement by the Reserve Bank of India that it would provide a Rs 50,000 crore cash window for infrastructure and healthcare companies, the hospitality industry also urged the Finance Ministry, the RBI and Tourism Ministry to ease some more rules and regulations of ECLGS to help the distressed industry.
The new ECLGS emergency credit guarantee window will cover more sectors, and banks will be able to offer collateral-free loans to borrowers.
Challenges that will be eased by ECLGS rules for the Travel and Hospitality Sector
The Federation of Associations in Indian Tourism & Hospitality (FAITH) has stated that ECLGS should extend its support to tourism, travel and hospitality business accounts, including Special Memorandum-0 and Special Memorandum Account-1 whose past dues were not beyond 60 days as of Feb. 29, 2020.
Restoration of the disclosure guidelines required by the ECLGS Article 19 Operating Instructions will clarify lending institutions for sanctioning loans.
With new changes, considering eligible outstandings for tourism, travel and hospitality as an average of 11 months of FY 2020 – April 1, 2019, to February 29, 2020 – as just against the outstandings as of February 29, 2020, will help businesses.
A moratorium on interest will enable drawdown under the proposed scheme.
Benefits of ECLGS to Travel and Hospitality Sector Businesses
From overall tenure of four years, comprising of repayment of interest, under ECLGS 1.0, businesses will now be able to avail for a tenor of five years for their ECLGS loan, that is, repayment of interest only for the first 24 months with repayment of principal and interest in 36 months after that.
ECLGS 1.0 loans are eligible for additional support of up to 10%, raising the total guaranteed loan to 30 per cent of outstanding as of February 29, 2020.
In a nutshell, relief measures under the ECLGS will help the borrowers in the travel and hospitality sector gain liquidity in light of the incremental stress on debt servicing brought on by the second wave. With new measures, the government will also not be burdened with additional cost, and this will also improve the utilisation of the ECLGS funding pool.