On 20 May 2020, in the immediate backdrop of COVID-induced lockdowns, the government approved an Emergency Credit Line Guarantee Scheme (ECLGS) to guarantee bank and NBFC (Non-Banking Financial Company) credit of up to Rs 3 trillion to MSMEs (Micro, Small and Medium Enterprises) and MUDRA (Micro Units Development and Refinance Agency) borrowers.
Initially, the government guarantee was meant to cover only NPA (Non-Performing Asset) MSME borrowers and additional credit was limited to 20 percent of the outstanding loans, not exceeding Rs 25 crore as of 29 February 2020.
The scheme, initially meant to expire on 31 October 2020, was extended several times before it finally closed on 31 March 2023. The guarantee amount was increased to Rs 5 trillion and the extent of credit was raised to 100 percent of the outstanding amount for some borrowers.
What is the situation of the credit extended under the ECGLS? Will it lead to another spurt of NPAs?