ECLGS: Repayment pressure likely on small and medium enterprises

MUMBAI: With the end of the one-year moratorium on emergency credit schemes, there are growing concerns over the rise in bad loans in the banking system. A number of small and medium-sized companies have secured loans under the scheme in anticipation of an improvement in demand and are now facing repayment pressure.

As the one-year moratorium period is now coming to an end, it will take some time to see the real situation, said a banker. Many companies have increased their capacity.

As on September 6, 1.18 crore MSMEs and small business houses have been provided benefits under this scheme. So far, a total of Rs 2.5 lakh crore loans have been sanctioned. The scheme has been extended till March 31, 207.

The government launched the Emergency Credit Line Guarantee Scheme (ECLGS) last year to provide support to businesses affected by the Corona. Under the scheme, the government has provided 100 per cent guarantee to banks and non-banking finance companies for providing loans to small business houses.

Under the scheme loans are provided for four years and one year moratorium is given on the principal amount. The original amount has to be repaid within 6 months after the completion of the moratorium. Repayments could be a problem for troubled boroughs whose trade has been severely affected by the epidemic, an analyst said. He further said that it would be challenging for them to pay the principal amount as they were paying interest slowly.