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ECLG scheme expanded with the introduction of ECLGS 4.0

New loan products to support Healthcare; templated approach to restructuring

* SBI Chairman and IBA, in consultation with other Bank chiefs and the government, have on 30th May’21 announced certain measures due to disruptions caused by the second COVID wave to businesses across various sectors of the economy. They have decided to enlarge the scope of Emergency Credit Line Guarantee Scheme (ECLGS), launched three new loan products to support the Healthcare sector, and standardized the RBI resolution framework 2.0.

* ECLGS has been expanded with the introduction of ECLGS 4.0 for on-site oxygen generation, wider coverage for ECLGS 3.0, and increase in tenure and additional lines under ECLGS 1.0, while also extending the timeline till Sep’21/Dec’21 for implementation/disbursements.

* To support the creation of a COVID loan book under RBI guidelines, PSBs have launched three products to provide fresh lending support to vaccine manufacturers, hospitals/dispensaries, laboratories, manufacturers and suppliers of oxygen and ventilators, importers of vaccines, logistic players, and patients undergoing treatment.

* They have also extended the restructuring timelines till Sep’21/Dec’21 for invocation/implementation under the resolution framework 2.0, and have come with a formulated template to implement the restructuring plan.

* We continue to prefer Large Banks. ICICIBC, HDFCB, and SBIN remain our top picks.

Introduced ECLGS 4.0 for on-site oxygen generation, coverage widened for ECLGS 3.0, and increase in tenure and additional lines under ECLGS 1.0

* Due to the disruptions caused by the second COVID wave to businesses across various sectors of the economy, the IBA and the government has enlarged the scope of the ECLG scheme, and increased its validity till Sep’21 or till guarantees of INR3t are issued. Disbursement is permitted till Dec’21.

* ECLGS 1.0

* Additional ECLGS assistance of up to 10% of loans outstanding as on 29th Feb’20 will be covered under ECLGS 1.0.

* Increase in the tenure of loans to five years (v/s four years at present), with repayment of interest only for the first 24 months (v/s 12 months currently). The repayment of principal and interest will be spread over 36 months for borrowers eligible for restructuring as per RBI guidelines of 5th May’21 and who had availed loans under the ECLGS 1.0.

* ECLGS 2.0 – There has been no change under ECLGS 2.0.

* ECLGS 3.0

8 Current ceiling of INR5b for loans outstanding to be eligible under ECLGS 3.0 has been removed. Maximum additional ECLGS assistance to each borrower is being limited to 40%, or INR2b whichever is lower.

8 The Civil Aviation sector has been added for eligibility under this scheme.

* ECLGS 4.0 has been introduced

* To provide 100% guarantee cover to loans up to INR20m to hospitals/nursing homes/clinics/medical colleges for setting up on-site oxygen generation plants, with the interest rate being capped at 7.5%.

Launched three new loan products to ease access to Healthcare and create a COVID loan book

* To support the creation of a COVID loan book under RBI guidelines, PSBs have launched three products to provide fresh lending support to vaccine manufacturers, hospitals/dispensaries, laboratories, manufacturers and suppliers of oxygen and ventilators, importers of vaccines, logistic players, and patients undergoing treatment. These include:

* Business loans up to INR20m for setting up an oxygen plant at existing hospitals and nursing homes, at an interest rate of 7.5%, with a maximum tenure of five years. This would be provided under the ECLGS 4.0.

* Business loans for building/servicing infrastructure and to manufacture Healthcare products up to INR1b/INR200m/INR100m in metros/Tier I and urban centers/Tier II-IV centers. This would be provided for a maximum of 10 years and at a concessional rate to be decided by Banks on a case-to-case basis.

* Unsecured personal loans for COVID-related treatment for individuals (salaried, non-salaried, as well as pensioners) and family members amounting to INR25kINR0.5m, at concessional rates of interest. The maximum loan period would be for five years.

Formulated template approach towards restructuring under 2.0

* The resolution plan under the RBI resolution framework 2.0 is to be invoked within 30 days of receiving an application or before 30th Sep’21. The plan will be implemented within 90 days of invocation or before 31st Dec’21.

* PSBs have come up with a formulated template to implement this restructuring plan for individuals, small businesses, and MSMEs for loans up to INR250m.

* Business loans have been divided into three categories:

* Up to INR1m – Standardized restructuring offer to certain small businesses and MSMEs. Messages   have been sent to all eligible borrowers,

* Over INR1m to INR100m, and

* Over INR100m – Graded approach, standardized application, and proper assessment.

Other important takeaways

*A preliminary assessment suggests that Banks should be able to build a book of INR20b under ECLGS 4.0.

* Total ECLGS disbursement till date stands ~INR2.5t, and thus an additional opportunity exists for INR500b.

* Offers COVID-19 personal loans of up to INR0.5m, with the interest rate capped at 8.5%.

* Data of eligible borrowers has already been obtained across Banks. Data for borrowers will be made available centrally and at the branch level.

* In SBIN, only 60k MSME borrowers has availed this restructuring v/s eligible borrowers of ~0.85m.

Valuation and view

The IBA/Finance Ministry has announced measures to provide relief to the most affected borrowers after the resurgence in COVID-19 cases and the lockdown in several states. Extension of the ECLGS scheme, new loan products to support the Healthcare sector, and restructuring of loans will help address the potential stress arising from the most affected borrowers. Most slippages during FY21 have come from the Retail and MSME segment. Higher restructuring was also availed by both these segments, thus underscoring their vulnerability. A standardized process for restructuring would allow a seamless implementation and provide the necessary support. We reiterate our preference for large Private Banks: ICICIBC, HDFCB, and SBIN remains our top picks.

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