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Cabinet approves Loan Guarantee Scheme for Covid Affected Sectors (LGSCAS) and to enhance the corpus of Emergency Credit Line Guarantee Scheme (ECLGS).

Targets

LGSCAS: The Scheme would be applicable to all eligible loans sanctioned up to 31.03.2022, or till an amount of Rs. 50,000 crore is sanctioned, whichever is earlier.

ECLGS: It is a continuing scheme. The Scheme would be applicable to all eligible loans sanctioned under Guaranteed Emergency Credit Line (GECL)till 30.09.2021, or till an amount of rupees four lakh fifty thousand crore is sanctioned under the GECL, whichever is earlier.

Impact

• The LGSCAS has been formulated as a specific response to an exceptional situation the country has witnessed due to lack of adequate health infrastructure in the light of second wave of Covid-19.
• The approved scheme is expected to help the country in shoring up its much-needed healthcare infrastructure along with creating more employment opportunities.
  
• The main objective of LGSCAS is to partially mitigate credit risk (primarily construction risk) and facilitate bank credit at lower rates of interest.
• ECLGS is a continuing scheme and recently, on account of the disruptions caused by the second wave of COVID 19 pandemic to businesses across various sectors of the economy, the Government has further enlarged the scope of ECLGS.
• The enhancement is expected to provide much-needed relief to various sectors of the economy by incentivizing lending institutions to provide additional credit of up to Rs. 1.5 lakh crore at low cost, thereby enabling business enterprises to meet their operational liabilities and continue their businesses.

Background

LGSCAS

• The government has taken various measures to combat the crisis caused due to Covid-19 pandemic which has been upended by the second wave of COVID-19.
• The proposed LGSCAS is aimed at upscaling the medical infrastructure in the country, specifically targeting underserved areas.
• LGSCAS would provide a guarantee of 50 percent for brownfield projects and 75 per cent to greenfield projects for loans sanctioned up to Rs.100 crore, set up at urban or rural locations other than 8 Metropolitan Tier 1 cities (Class X cities).
• For aspirational districts, the guarantee cover for both brownfield expansion and greenfield projects shall be 75%.

ECLGS

• The design of ECGLS provides flexibility to quickly respond to emerging needs, as has been evidenced by the introduction of ECLGS 2.0, 3.0 and 4.0 as well as changes announced on 30.05.2021, all of which were within available headroom of Rs 3 lakh crore.
• Currently, about Rs. 2.6 lakh crore of loans have been sanctioned under ECLGS.
• A further uptick is expected due to changes announced recently, extension of limit of one time restructuring to Rs. 50 crore by RBI on 04.06.2021 and the continuing adverse impact of COVID on businesses.

Source: PIB