Covid-19 induced lockdown has further complicated the return of local (J&K) businesses to normal after a setback they received after August 2019. Almost all the businesses, big or small, are linked to the bank loans and downing the shutters of various sectors of economy through a series of lockdowns here has compounded the financial miseries of the people, especially the business class. Loss of income and mounting stress on capital in the given coronavirus pandemic situation has put the business community in dilemma.
Shivers down the spine unleashed by the pandemic has kept governments across the globe on tenter hooks. Even as the pandemic is an acute health emergency threatening the existence of humans first time in hundred years, the crisis it induced has forced the governments to approach it more as an economic emergency.
Soon after the eruption of the pandemic, central government rolled out various stimulus packages and tailor-made schemes to infuse new blood in businesses and financial system of the country. Regulatory packages have been rolled out at regular intervals to help the individuals as well as the businesses to rebuild their financial position to remain afloat in the given pandemic situation.
This time the market is abuzz with the government’s tailor-made Guaranteed Emergency Credit Line (GECL) scheme to pump Rs 3 lakh crore into the economy through business loans to the businesses which have suffered due to the Covid-19 induced lockdown.
Remarkably, J&K Bank which is a lead banking player in J&K has launched aggressive plan to bring all its eligible borrowers into the fold of GECL Scheme. The Bank’s Chairman & Managing Director (CMD), Rajesh Kumar Chhibber, has directed all operative levels to approach the borrowers of the bank proactively without waiting for them to visit the Business Units.
The CMD has shot warning to its operative levels while asking them to avoid unnecessarily delaying the proposals by raising frivolous queries.
As the scheme has been given wide publicity across the country, the borrowers, especially those falling in micro, small and medium enterprises (MSME) category, have been enthusiastic to take route of the scheme to get their businesses back on track amid Covid-19 crisis. However, as per the feedback received from various corners, the borrowers have desired clarity about the scheme. Some have expressed reservation to access to the scheme as they call it yet another restructuring of their loan accounts. Some are clueless about the pattern of funding through the scheme, while most of them have mailed volleys of questions seeking guidance to understand the exact benefits as well as burdens of this GECL scheme. Here, borrowers’ understanding about the design of the scheme is key to its successful implementation.
What’s the design of GECL scheme?
The Guaranteed Emergency Line of Credit (GECL) scheme is simply a loan facility for the businesses to restart their operations amid the pandemic crisis. The loan is given in the shape of additional Working Capital Term Loan facility. It would be a top-up loan of 20% of the outstanding loan facility as on February 29, 2020. This top up facility is entirely guaranteed by National Credit Guarantee Trustee Company (NCGTC).
The additional funding will run as a separate parallel facility, along with the main facility. The GECL loan will have its own term, moratorium, EMIs, and may be rate of interest as well. Of course, the GECL will share the security interest with the original facility, and will rank pari passu, with the main facility, both in terms of cashflows as in terms of security interest.
Precisely, this is a pre-approved loan. An offer will go out from the banks to the eligible borrowers for a pre-approved loan which the borrower may choose to accept. An ‘opt-out’ option is provided to eligible borrowers and if a borrower is not interested in availing the loan, he/she may have to indicate accordingly.
Who is eligible for the scheme?
The scheme is exclusively for the exiting borrowers of the banks.
The size of existing facility of the borrowers as on 29th Feb. 2020, should not be more than Rs 25 crores., with a turnover of Rs.100 crores for FY 2019-20.
Wherever GST registration is mandatory, the entity must have GST registration.
Borrower accounts should be less than or equal to 60 days past due as on 29th February, 2020. Precisely, borrowers which have not been classified as SMA 2 or NPA by any of the banks as on 29th February, 2020 will be eligible for the Scheme.
Are the borrowers who have availed loans through Pradhan Mantri Mudra Yojana (PMMY) also eligible to avail the facility?
Yes, the scheme also covers Mudra Yojana borrowers. In other words, business enterprises / MSMEs would include loans covered under Pradhan Mantri Mudra Yojana extended on or before 29.2.2020, and reported on the MUDRA portal.
How much loan is given under the scheme?
As already mentioned above, the amount of GECL funding is linked to the total outstanding loans (existing) up to Rs. 25 crore as on 29th February, 2020, which is 20%. As such the maximum permissible finance is Rs. 5.00 Cr.
The loan amount will be disbursed by credit to the primary Working Capital limit. In case the borrower is not availing Working Capital limit, then the facility shall be disbursed into the Current account that is maintained with the Bank.
The disbursement of loan shall be made in bullet or in tranches as per the request of the borrower.
What’s the repayment schedule of the loan?
It’s repayable in 36 equated monthly instalments after initial moratorium period of 12 months from the date of first disbursement of the loan. The interest component during the moratorium is to be paid by the borrower whenever applied.
What is the security against which the loan is disbursed?
No fresh collateral security is required as the additional working capital term loan shall be covered by 100% Government guarantee.