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'Expanded ECLGS to aid liquidity needs of MECs'
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SME Times News Bureau | 06 Jun, 2021
The extension in the scope of Emergency Credit Line Guarantee Scheme
(ECLGS) will support the liquidity of around one third of mid and
emerging corporates (MECs), India Ratings and Research (Ind-Ra) said.
Centre had launched the ECLGS in May 2020 to protect the MSME sector from the massive economic upheaval caused by the pandemic.
Recently, the Centre expanded the scope of the scheme.
"The
additional funds made available for their working capital requirements
along with extending the moratorium period in their previously availed
ECLGS loans would lower repayment obligations in FY22," the ratings
agency said in a note.
"Furthermore, it will provide opportunity
to MECs to swap their previous availed high interest-bearing term loans
with lower cost ECLGS loans."
At present, ECLGS's rate of
interest is capped at 9.25 per cent for banks and 14 per cent for the
non-banks due to which a cost reduction of up to 200bp can be easily
achieved.
However, the working capital of MECs remaining stuck
either in form of inventory or with debtors due to the extension in
localised lockdown.
This will remain a key concern as it might deplete the newly sanctioned funds in short term, the agency said.
"The
liquidity cushion will improve in the key sectors such as consumer
discretionary goods & services (CDGS), fast moving consumer goods
(FMCG), industrials and basic materials sectors."
"While a
sizeable portion these MECs might continue to fully utilise their bank
limits along with availing additional funds due to weaker collections,
the additional funding will provide the much-needed liquidity support to
continue their operations."
According to the agency, the second
Covid wave has led to disruptions majorly for the CDGS, FMCG and
industrial sectors along with some impact in the basic materials sector.
"There
has been significant dependence on the bank limits by MECs rated in
these sectors in the last three months compared to preceding three
months which reflects presence of liquidity stress."
"In last
three months, the percentage of entities using their bank limits over 95
per cent in CDGS was 33 per cent, in FMCG sector was 36 per cent, in
industrials was 33 per cent and in basic materials was 27 per cent."
However,
the entities belonging to healthcare and other remaining sectors were
able to largely maintain a comfortable liquidity position.
"In
last three months, the percentage of entities using their bank limits
more than 95 per cent in healthcare was 9 per cent and there was no such
entity in the other remaining sectors."
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