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Published on 2/04/2021 9:54:18 AM | Source: Motilal Oswal Financial Services Ltd

NBFC Sector Update - ECLG scheme extended for another three months By Motilal Oswal

Posted in Broking Firm Views - Sector Report| #NBFC #Sector Report #Motilal Oswal Financial Services Ltd

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ECLG scheme extended for another three months

Scope widened to cover most affected sectors with additional credit support

* With the rise in COVID-19 cases again and continuing adverse impact of the pandemic in certain segments of the economy, the government has once again extended the Emergency Credit Line Guarantee Scheme (ECLGS) of INR3t for another three months till 30th Jun’21. The last date for disbursement under the scheme has been extended till 30th Sep’21.

* It has also widened scope of the credit guarantee scheme with the introduction of ECLGS 3.0 to cover business enterprises in Hospitality, Travel and Tourism, Leisure, and Sporting sectors with loans not exceeding INR5b as on 29th Feb’20. The scheme would only consider loans less than 60 days overdue as on 29th Feb’20.

* As Hospitality, Travel and Tourism, Leisure, and Sporting are the most affected sectors by the COVID-19 pandemic and would take longer to revive, the government has further relaxed ECLGS guidelines with additional credit support of up to 40% of outstanding loans and increased the loan tenor to six years. As per earlier guidelines, the maximum additional disbursement is up to 20%, with the maximum loan tenure of four years in ECLGS 1.0 and five years in ECLGS 2.0.

* SME growth for Banks over the last two quarters has been aided by disbursements under the ECLGS scheme. Total loans sanctioned under this scheme stands ~INR2.5t (including ECLGS 1.0 and 2.0), while ~INR1.81t has been disbursed as per the last disclosure by the National Credit Guarantee Trustee Company as on 28th Feb’21. This implies that ~43% of incremental growth in systemic credit base has been aided by disbursement under this scheme.

* The extension of this scheme and further widening of the scope for impacted sectors would be positive for all lenders. Select banks like CUBK will benefit the most owing to relatively higher exposure to these stressed sectors, with 8-10% exposure to the Hotels and Tourism sector, while it has earlier guided for higher restructuring up to 6% of loans.

 

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