Rs 2.5 crore loan guarantee plan to help cos tackle war impact

NEW DELHI: The Modi govt on Tuesday approved an over Rs 2.5 lakh crore loan facility, backstopped by the Centre, to help businesses – from MSMEs to airlines – deal with the impact of the West Asia crisis by providing additional funding.

For several companies, payment cycles have become longer as ships are taking longer routes and freight rate has shot up, while there are others who are shelling out more for inputs, raw material and fuel. This has increased their requirement for finance, and the scheme seeks to fill that gap through additional credit up to 20% of the peak working capital used during the fourth quarter of last year, with an overall cap of Rs 100 crore. For airlines, up to 100% of the working capital used with a Rs 1,500 crore cap per borrower has been prescribed by the Union cabinet.

Using the Covid-era playbook, the cabinet approved Emergency Credit Line Guarantee Scheme 5.0 to provide credit guarantee coverage of 100% for MSMEs and 90% for other companies, including airlines. National Credit Guarantee Trustee Co Ltd will provide guarantees for the amount in default under the additional credit facility extended to eligible borrowers.

PM Narendra Modi tweeted, “The ECLGS 5.0 approved by the Cabinet reflects our commitment to supporting India’s businesses, especially the MSME sector in challenging global times. By enabling additional credit flow with strong guarantee coverage, this initiative will help a wide range of sectors. Our focus remains on empowering enterprises, sustaining growth momentum and safeguarding livelihoods.”

I&B minister Ashwini Vaishnaw told reporters that ECLGS will have an outlay of Rs 18,100 crore. The guarantee fees have been waived, he said in a presentation. The scheme will be open up to March 31, indicating that govt is preparing for the impact of the conflict to be long drawn given the disruption in supply chains and the destruction of refining and gas facilities in the Gulf region.

The scheme will be open to entities that had bank loans at the end of March 2026 and their accounts were classified as “standard”. Companies other than airlines will get up to five years from the first disbursement to repay the loan, including a one-year moratorium on principal payment. For airlines, the tenor is up to 7 years.
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