Nearly half of ECLGS funds used to pay supplier dues, one-third to restart business: RBI annual report

Credit and financing for MSMEs: Nearly half of the loans disbursed under the government’s Emergency Line of Credit Guarantee (ECLGS) scheme to MSMEs were used to pay the dues of suppliers supplying raw materials, while a third of the loans were used to restart businesses, and the remaining amount was used for payment. salaries and to meet other expenses, says the Reserve Bank of India (RBI) annual report for the financial year 2021-22. The ECLGS is the flagship post-Covid credit scheme for existing MSME borrowers launched in May 2020 under the special Atmanibhar Bharat economic package of Rs 20-lakh-crore.

Following the announcement of the ECLGS, the demand for MSME loans surged, especially loan disbursements to small businesses with loans below Rs 10 lakh in the second quarter of FY21. data shared in the report, 45% of these loans were used to settle existing vendor dues, followed by about 28% to resume business operations, about 13% for employee salaries, and the rest about 13% for d ‘other expenses. .

However, to support new borrowers thus impacted by the Covid pandemic, the central bank had announced in February 2021 a deduction of loans granted to new borrowers in the MSME sector from the cash reserve ratio (CRR) maintained by banks. . “This measure has increased the availability of loanable funds for new borrowers in the MSME sector, as loans to new borrowers have grown at almost the same rate as for existing borrowers,” the report notes.

This exemption was available for exposures up to Rs 25 lakh per borrower for extended credit until the fortnight ending 1 October 2021, for a period of one year from the date of loan issuance or the term of the loan, whichever comes first. , an RBI statement had said in February.

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In addition, ECLGS has also contributed to the recovery of stressed assets. Out of about 15 lakh ECLGS accounts, 88% were standard assets, 10% were special mention accounts (SMA) and 2% were non-performing assets (NPA), according to the annual report. Of the total NPAs, the transition from NPAs to standard assets was significantly higher in ECLGS accounts than in non-ECLGS accounts of the same borrowers in 2021-22.

Based on data shared by RBI in the annual report, 37% of ECLGS accounts upgraded from NPA to standard category, compared to 14% of non-ECLGS NPA accounts that upgraded to standard category. Similarly, the share of NPAs moving to SMA accounts was higher at 35% for ECLGS accounts compared to 16% for non-ECLGS accounts, while in terms of accounts, which remained NPAs, 70% belong to non-ECLGS accounts. category compared to 29 percent of ECLGS accounts.

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