ECLGS ambit widened to cos with loan dues up to 60 days

To provide relief to stressed companies, the Finance Ministry expanded the scope of a government-guaranteed credit facility to healthcare and stressed sector companies that have loan dues for up to 60 days (or SMA-1 accounts),as against 30 days earlier (SMA-0).

Key highlights:

  • This has been expected to provide partial relief to stressed firms facing fresh uncertainty and business risks due to fresh lockdowns and restrictions being imposed by states.
  • SMA-1 borrowers in the healthcare sector and 26 other high stress sectorsare now eligible under ECLGS 2.0.
    • Companies from hospitality, travel & tourism, and leisure & sportingsectors are expected to benefit from the relaxation in the scheme.
  • Accounts that are classified as non-performing assets or where overdueshave crossed 60 days (SMA-II) are not eligible.
  • Companies that had loan dues up to 30 days (Special Mention Accounts or SMA-0) as on February 29, 2020, were being provided additional credit of 20 per cent outstanding under the scheme, which will now be given to SMA-1 accounts as well.
  • The government has recently extended the ECLGS till June 2021, as against March 31, 2021 earlier.

About the ECLGS scheme:

  • The Finance Ministry unveiled a Rs. 20 Lakh Crore comprehensive package, known as the Emergency Credit Line Guarantee Scheme (ECLGS), in view of the economic distress caused by the COVID-19 pandemic.
  • This package is in aid of MSME sector, addressing working capital needs, operational liabilities and restart business impacted due the COVID-19 crisis.
  • Borrowers with up to Rs. 25 Crore outstanding as on Feb 29, 2020 and up to Rs. 100 Crore annual turnover for FY 2020 are eligible for this scheme.
  • Business Enterprises, MSMEs constituted as Proprietorship, Partnership, registered company, trusts and Limited Liability Partnerships (LLPs) shall also be eligible.
  • Borrower accounts which had NPA or SMA-2 status as on Feb 29, 2020 shall not be eligible under the scheme.
  • 20% of the total outstanding credit of borrowers can be sanctioned as a loan under the Guaranteed Emergency Credit Line (GECL), for those who having a loan as on Feb 29, 2020.

Special Mention Accounts:

  • SMAs are those assets/accounts that shows symptoms of bad asset qualityin the first 90 days itself or before it being identified as NPA.
  • The classification of Special Mention Accounts (SMA) was introduced by the RBI in 2014, to identify those accounts that has the potential to become an NPA/Stressed Asset.
  • Logic of such a classification is because some accounts may turn NPA soon.
    • An early identification will help to tackle the problem better.
    • There are four types of Special Mention Accounts – SMA-NF, SMA 0, SMA1 and SMA 2.
  • The Special Mention Accounts are usually categorized in terms of duration.
  • For example, in the case of SMA -1, the overdue period is between 31 to 60 days.
    • On the other hand, an overdue between 61 to 90 days will make an asset SMA -2.
  • But some ‘Special Mention’ assets are identified on the basis of other factors that reflect sickness/irregularities in the account (SMA -NF).
  • In the case of SMA -NF, non-financial indications about stress of an asset is considered.
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