Guaranteed Emergency Credit Line (GECL) FAQs – MSMEs & Business Enterprises

The National Credit Guarantee Trustee Company (“NCGTC”) is a Company wholly owned by the Government and acts as a common trustee company for many credit guarantee funds.
Intent of NCGTC
To manage multiple guarantee schemes as part of a larger financial inclusion programme of the government covering different cross-sections and segments of the economy like students, micro entrepreneurs, women entrepreneurs, SMEs, skill and vocational training needs, etc.
The sudden lockdown of the country has caused unaccountable losses to several businesses and has left an impact of micro, small and medium enterprises (“MSMEs”) which were helping in becoming the backbone of the economy and also employment generation.
Focussing on MSMEs and Business Enterprises in light of COVID – 19 crisis, the Government through the Finance Minister announced relief measures for the said suffering Sectors on 13th May, 2020. The announcement was made terming the loan as an “Automatic Collateral Free Term Loan”, the outcome of which has come out as the Guaranteed Emergency Credit Line (“GECL”).
The Government via NCGTC have issued the Scheme of Guaranteed Emergency Credit Line to help and guide the eligible MSMEs / Business Enterprises. NCGTC vide Letter Ref. No. 2842/NCGTC/ECLGS dated 23rd May, 2020 announcement the said Scheme.
It is important to note that subsequent changes and amendments can be brought in the Scheme from time to time. The Detailed Guidelines of the Scheme have been uploaded on the NCGTC Website updated as on 26th May, 2020.
We have covered some frequently asked questions hereunder to solve queries about the said Scheme.
1. What is Guaranteed Emergency Credit Line (GECL)?
Answer: The eligible MSMEs & Business Enterprises and interest borrowers of the Pradhan Mantri Mudra Yojana shall be provided with a loan by NCGTC.
2. What are the guarantee terms under the Scheme?
Answer: NCGTC shall provide 100% credit guarantee to Member Lending Institutions (MLIs) and will be extended  in form of additional working capital term loan facility in case of Scheduled Commercial Banks (SCBs) and Financial Institutions (FIs) and additional term loan facility in case of Non-Banking Financial Companies (NBFCs).
No guarantee fee shall be charged under the Scheme and no additional collateral shall be asked by the lending institutions for loans under GECL.
3.What is the purpose and objective of the Scheme?
Answer: The Scheme intends to provide relief to the MSME Sector which has suffered immensely due to the COVID – 19 situation and help them meet their operational liabilities, additional term loan and working capital requirements and restart their businesses.
4. How much credit infusion is the GECL Scheme planning to execute?
Answer: The Scheme proposes to infusion credit of Rs. 3 Lakh Crores in the Sector in an effort to minimize their burden and encourage the Sector to rise from the crisis.
5. How much credit shall be provided to an eligible MSME business?
Answer: The said loan facility shall provide up to 20% of the borrower’s total outstanding credit up to Rs. 25 Crores excluding off-balance sheet and non-fund based exposures as on 29th February, 2020 i.e. any borrower with an outstanding loan of Rs. 25 Crores or more as on 29th February, 2020 shall be eligible for the Scheme and can avail the benefit of the 20% additional credit to help in these unprecedented times.
6. Which enterprises are considered as MSMEs under this Scheme?
Answer:  Under the Scheme, MSMEs are considered to be the enterprises registered under the Micro, Small & Medium Enterprises Development Act, 2006 / Business Enterprises which are constituted as Proprietorships, Partnerships, Registered Companies, Trusts and Limited Liability Partnerships.
It also included interested borrowers under the Pradhan Mantri Mudra Yojana (PMMY).
7. Which Institutions are considered as Member Lending Institutions under the Scheme?
Answer: All Scheduled Commercial Banks and Financial Institutions are considered as Member Lending Institutions under the Scheme.
While the Non-Banking Financial Companies have to be in operation for at least two (2) years as on 29th February, 2020 in order to be included in the umbrella of Member Lending Institutions of this Scheme.
The turnaround time (i.e. the amount of time taken to complete the procedure of loans) for loans under this Scheme shall be same as those provided by the Department of Financial Services for credit support with respect to COVID – 19.
8. What are Financial Institutions under the Scheme?
Answer: Financial Institutions as defined under Section 45-I (c) (i) of the RBI Act, 1934 shall be covered under the Scheme. The said Section has been reproduced under for easy reference:
“Section 45 – I: Definitions
(c) ‘‘financial institution’’ means any non-banking institution which carries on as its business or part of its business any of the following activities, namely:–
(i) the financing, whether by way of making loans or advances or otherwise, of any activity other than its own…”
9. What is the duration of the Scheme?
Answer: As the total credit infusion is Rs. 3 Lakh Crores, GECL shall starting from 23rd May, 2020 till 31st October, 2020 provide loans to the MSME Sector unless the credit limit is reached before the said date.
10. Which MSMEs are eligible to avail the benefit of the credit facility?
Answer: MSME borrower accounts with:
  • combined outstanding loans across all the Member Lending Institutions up to Rs. 25 Crores as on 29th February, 2020; and
  • annual turnover of up to Rs. 100 Crores in the Financial Year 2019 – 2020,
shall be eligible for this Scheme. In case the annual turnover accounts are not finalized by the enterprise, the lending institution can rely upon the declaration by the Borrower of its turnover.
Only existing customers of the lending institutions can avail the facility. Earlier loans availed in individual capacity shall not be included under the Scheme.
Existing loans of the borrower under Guarantee Schemes like Credit Guarantee Fund for Micro Units (CGFMU) or Credit Guarantee Fund Trust for Micro And Small Enterprises (CGTMSE) are not necessary to be covered to avail this Scheme.
Also, the MSME borrower should have GST registration, only if mandatory.
**Udhyog Aadhar registration or recognition as MSME is not required under this Scheme.
11. Which other borrowers are eligible to avail the loan facility under the Scheme?
Answer: Loan Borrowers under the Pradhan Mantri Mudra Yojana on or before 29th February, 2020 which are reported on the Mudra Portal shall also be eligible under the Scheme.
12. How will the loan be provided to the eligible borrowers?
Answer: The loan provided under the Scheme shall be maintained under a separate account and the eligible borrowers shall receive an offer from the lending institutions.
If the borrower chooses to accept, the procedure will go further ahead to complete the documentation in order to avail the loan account.
13. What is ‘Opt – out’ Option?
Answer: When a lending institution puts forth an offer to an enterprise being a eligible borrower under the Scheme regarding the option available to gain such credit and the enterprise, not being interested, denies the offer, the same is considered an ‘opt-out’ option under GECL Scheme.
14. What procedure is required to be followed when a borrower has loan accounts with multiple lenders?
Answer: It is possible for a borrower to have already existing limits of loan facilities with lenders. The borrower can avail the GECL credit facility either through one lender or each of the current lenders in proportion as agreed between the borrower and the lending institution.
If the borrower is willing to take an amount more than 20% which is allowed under the Scheme from one lender, a No Objection Certification is required to be obtained from all other lending institutions.
No such Certificate will be required if the borrower avails from a particular lender the limited 20% as decided under GECL.
15. What shall be the rate of interest charged of the loan facility?
Answer: The interest rates on the loan provided under GECL are decided as under:
One of the RBI prescribed external benchmark linked rates +1%
Maximum of 9.25% per annum
Shall not exceed 14% per annum
No additional processing fee shall be charged on the loan facility.
*RBI prescribed external benchmark linked rates means a system for interest rates for all floating rate loans including retail loans and loans to MSMEs.
16. What is the term of the loan?
Answer: The loans provided under GECL shall have a term of four years from the date of disbursement. There is no pre-payment penalty charged for early repayment of loan.
17. What is the moratorium period under the Scheme?
Answer: A moratorium period of one (1) year is available on the principal amount and only the interest amount is payable during such moratorium period. The principal amount shall be repayable in the remaining three (3) years i.e. thirty-six (36) instalments after the moratorium period is over.
18. Is the loan provided under GECL separate from the loans under the other Schemes of the Government?
Answer: The loans provided under GECL Scheme are separate from the loans provided under the Pradhan Mantri Mudra Yojana (PMMY) and the Pradhan Mantri Employment Generation Programme (PMEGP).
19. How should the eligible lending institutions move ahead with the Scheme?
Answer: The eligible lending institutions are required to submit an undertaking to NCGTC for the purpose of this Scheme.
20. How will NCGTC pay the guaranteed amount to lenders on invocation of guarantee?
Answer: 75% of the loan amount shall be paid within thirty (30) days of invocation of the claim and the balance shall be paid on conclusion of recovery proceedings or till the decree gets time barred, whichever is earlier.
After invocation, if any recoveries are made in the account, lending institutions shall first adjust the legal costs incurred by them for recovery and thereafter remit to NCGTC the balance recoveries.
21. Who has the authority to bring changes in the instant Scheme?
Answer: NCGTC has issued detailed guidelines and the Management Committee for ECLGS fund can bring about changes in the current structure of the Scheme.
22. What is expected from Banks & NBFCs while awarding the loan under the Scheme?
Answer: Banks & NBFCs are expected to be vigilant and evaluate credit proposals by using prudent banking judgment and business discretion. The banks are also suggested to perform due diligence while accepting proposals. Therefore, under the Scheme, Banks & NBFCs are free to allot any percentage less than 20% credit facility as the Scheme provides for “up to” 20% loan of the total outstanding amount.
There are certain important points to remember about the Scheme which are listed under:
  • An approval request has been produced before the Reserve Bank of India for assigning zero risk weight to the credit extended under the Scheme.
  • The credit under GECL will rank pari passu with the existing credit facilities in terms of cash flows (including repayments) and securities, with charge on the assets financed under the Scheme to be created within a period of 3 months from the date of disbursal.
  • The procedure for claim settlement shall be covered under the Additional Guidelines yet to be released.
  • If the enterprise along with the promotor/director have jointly availed a loan, the primary co-applicant should be the enterprise to consider such loan amount under the existing loans criteria of this Scheme.
  • Borrower accounts should be less than or equal to 60 days past due as on 29th February, 2020 in order to be eligible under the Scheme. i.e. All borrowers which have not been classified as SMA 2 or NPA by any of the MLIs as on 29th February, 2020 will be eligible for the Scheme.
  • Business Enterprises & MSME borrower accounts which had NPA or SMA2 status as on 29th February, 2020 shall not be eligible under the Scheme.
  • The Banks & Lending Institutions are required to maintain data points like number of eligible borrowers and amount outstanding, number of enterprises sanctioned under the Scheme (MSME and PMMY borrowers to be shown separately), total amounts of funds sanctioned, Default ratio, NPA ratio, etc.
  • The lending institutions can find the format for the Undertaking to be provided to NCGTC on the website https://www.eclgs.com/ It also has a document format for the data report mentioned above to be provided by lending institutions to NCGTC fortnightly.
The Detailed Guidelines issued by NCGTC have defined several important terms like Amount in Default, Credit facility, etc. for better understanding of the guidelines. They also mention a list of responsibilities of the Banks & NBFCs to follow while providing the credit facility.
Therefore, with the first product of the Economic Package announced by the Modi Government under the Aatma Nirbhar plan, the MSME Sectors have high hopes that this additional credit has the ability to pay off recurring liabilities and help the businesses operate.
Difficult times like these had brought up cash flow issues majorly for the MSME Sector which led to many economic and monetary hurdles. It was becoming hard to sustain for these small enterprises and start-ups. However, with this ray of hope, we expect rapid working of the Banks to provide funds to the businesses in need and help the sinking economy.
AMLEGALS is a multi-specialised law firm. We would love to hear your views, queries, feedback and comments on anand@amlegals.com or sakshi.tibrewal@amlegals.com.

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