Pharma industry welcomes Emergency Credit Line Guarantee Scheme

To combat challenges faced by the Indian economy due to COVID-19, the government, through the Department of Financial Services under Ministry of Finance, has introduced the ‘Emergency Credit Line Guarantee Scheme (ECLGS)’, to provide a collateral-free loan with additional 20 per cent increase in working capital term loans. In line with the guidelines of ECLGS, banks will be providing additional Working Capital Term Loan (WCTL) facility to the COVID-19 affected BEs/ MSMEs.

This move seeks to provide financial assistance to MSMEs, as they are facing maximum disruption in cash flows they are the most affected by the COVID-19. To provide collateral-free loans to such affected units, the fund and the scheme will be managed and operated by the National Credit Guarantee Trustee Company (NCGTC), which is a wholly-owned trustee company of the Government of India. Following the announcement made by the government, various nationalised banks like State Bank of India (SBI), Union Bank of India (UBI) and Punjab National Bank (PNB) have launched their products linked to the scheme and also introduced product-specific guidelines. It is assumed that other nationalised banks will also launch similar products shortly.

To differentiate their product from those of other banks, each bank has coined a name, for instance, the SBI is calling it the Emergency Credit Line Guarantee Scheme (ECLGS), UBI has termed it as Union Guaranteed Emergency Credit Line (UGECL) and PNB scheme is named as Guaranteed Emergency Credit Line (GECL).

Commenting on the scheme, Viranchi Shah, National Vice President, IDMA-GSB said, “It will help the MSME sector by providing liquidity. It addresses the cash crunch arising out of debtors not being able to pay on time due to business disruptions during this pandemic. This liquidity support will further enhance their buying power to buy new raw materials and pay manpower, so as to help them continue their manufacturing activities and business as usual and help the industries recover fast from the effects of this pandemic.”

Sharing similar views, Harish Jain, Secretary, Karnataka Drugs and Pharmaceutical Manufacturers Association said, “The COVID-19 crisis and the subsequent lockdown has brought about an unprecedented financial crisis to businesses, especially MSMEs. Therefore, the Union Government’s initiative to provide additional credit guarantee is a step in the right direction. Guidelines now issued by nationalised banks for implementation of the scheme gives much-needed clarity and transparency. We welcome this move, especially the reduced rate of interest and moratorium in repayment. It is now up to local level branches to gear up and disburse the loan quickly so that business attain their global potential quickly.”

BR Sikri, Chairman FOPE, and Vice President, BDMA stated, “In the COVID-19 period, the industry is suddenly faced with several challenges at various fronts such as shortage of manpower, excessive expenditure, increase in the cost of diesel, increasing manpower cost etc., since the demand and supply have suddenly become imbalanced. Similarly, the cost of supply chains has also increased significantly.  Therefore, any relief by the government to help the industry is always welcome. And the scheme announced by the government to give a 20 per cent increase in working capital will give some breather to the industry, if not fully. Something is better than nothing. We acknowledge the gesture of the government at this crucial juncture and convey our sincere gratitude for the same.”

Applauding the government’s move, Dr Rajesh Gupta, All India Head, Laghu Udyog Bharati – Pharma Wing and President of Himachal Drug Manufacturers Association, said, “We welcome this step as it will help to maintain the liquidity of MSMEs of pharma, their ancillaries and active pharmaceutical ingredients (API) traders too. The Central Government’s initiative will certainly give a boost to the sector.  And from July 1, 2020, the interest rate will see a decrease from 7.5 per cent to 7.4 per cent and one year moratorium period is really hand holding the initiative, at this critical juncture. We are highly thankful to the Government for providing the ECLGS facility.”

However, some from the pharma sector also feel that certain crucial aspects have been overlooked in the GECL schemes. For instance, Nipun Jain, Chairman, Small and Medium Pharma Manufacturers Association (SMPMA) stated, “The GECL scheme is applicable to only those who are availing banking limits/facilities. However, there is no provision for those companies who have not yet utilised limits from banks. And considering banking procedures, which are so tedious in the case of fresh applications, it will take a minimum two to three months’ time to avail the benefits. Therefore, taking those firms into consideration, we request the government to link the GECL scheme with the collateral-free scheme which is available under the Credit Guarantee Fund Trust Scheme for Micro & Small Enterprises (CGTMSE) and defined under the MSMED Act, 2006, which can provide financial assistance up to Rs one crore.”

Jain also suggested, “To ensure fund utilisation, the government can the applicants to provide details of GST return and companies’ balance sheet documents for minimum two to three years along with other applicable details.”

He also proposed, “Besides this, the government can also consider giving interest subsidy on working capital limits, which will benefit those who do not wish to opt for the GECL scheme but continue their business operations in such a critical time.”

A few terms and conditions under the scheme are:

1. lt is valid only for existing customers. All borrowers who have not been classified as special mention accounts 2 (SMA 2) or non-performing asset (NPA) by any of the Banks/Financial institutions (FIs) as on February 29, 2020, are eligible under the scheme

2. Borrower accounts should be less than or equal to 60 days past due as on February 29, 2020

3. The sanctioning authority from Credit Bureau will be checking the days past due status as on February 29, 2020

4. The period of loan tenure is maximum four years from the date of disbursement and one year moratorium period will be provided on the principal amount to the borrowers during which interest the is payable.

5. The borrower must be GST registered in all cases where such registration is mandatory

6. Loans provided in individual capacity are not covered under the Scheme

7. The disbursement of a loan shall be made only after approval of guarantee coverage from the NCGTC

8. Pre-approved loan up to 20 per cent of the total outstanding loans of up to Rs 25 crores for eligible borrowers as on February 29, 2020, i.e. a maximum loan amount of Rs 5 crores, subject to the borrower meeting all eligibility criteria. However, the amount of loan may be decided in consultation with the borrower as per his requirement

9. The total outstanding amount would comprise the on-balance sheet exposure such as outstanding amount across Working Capital Loan, Term Loan. Off-balance sheet and non-fund based exposures will be excluded while arriving at a total outstanding amount

10. The disbursement of the facility may be done in bullet or in tranches as per the request of the borrower

11. Interest Rate shall be capped as under 7.50 per cent per annum for the entire tenure of the loan. And the account may be operated in combination with applicable Interest Subvention Scheme(s) as far as feasible