New ECLGS 5.0 Framework May Include 9% Interest Cap for Banks, NBFC Rates Expected to Range Between 10-13%

Government Set to Launch Emergency Credit Line Guarantee Scheme 5.0

The government is likely to notify the next phase of the Emergency Credit Line Guarantee Scheme (ECLGS 5.0) this week after finalizing operational guidelines. According to sources, lending rates will be decided by individual banks but will be within a capped structure. A senior government official stated that the interest rate cap for banks and participating financial institutions under the scheme will be kept at 9 percent.

Under the scheme, the lending rate will be linked to the external benchmark lending rate (EBLR) followed by banks, with a spread. However, the overall rate will remain subject to a maximum cap of 9 percent for banks. For Non-Banking Financial Companies (NBFCs), the final structure is still under discussion but is likely to be in the 10-13 percent range, with an upper cap near 13 percent.

Key Scheme Details

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The government is putting in place a fully digital and centralized application process to address concerns around access and transparency. The application process will be routed through the Jan Samarth portal for seamless submission and tracking. The National Credit Guarantee Trustee Company Ltd (NCGTC) will centrally track the applications, and the Department of Financial Services will also monitor implementation.

However, in some cases, Micro, Small, and Medium Enterprises (MSMEs) may not qualify if there are issues linked to earlier borrowings, account classifications, or objections related to the company PAN and banking records. Despite this, the digital and centralized application process should facilitate the scheme reaching eligible entities.

The Union Cabinet approved the Emergency Credit Line Guarantee Scheme 5.0 on May 5 to support businesses facing short-term liquidity issues due to the West Asia crisis. The scheme aims to facilitate additional credit flow of up to Rs 2.55 lakh crore, including Rs 5,000 crore earmarked for the airline sector.

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Under the scheme, the government will provide credit guarantee cover of 100 percent for MSMEs and 90 percent for non-MSMEs, including the airline sector, to lending institutions through the National Credit Guarantee Trustee Company Ltd (NCGTC) for loans given to eligible borrowers. The additional credit will be up to 20 percent of peak working capital utilized in the fourth quarter of FY26, capped at Rs 100 crore, while airlines can avail up to 100 percent of their requirement subject to a cap of Rs 1,500 crore per borrower.

Loans under the scheme will have a tenure of five years, including a one-year moratorium, for MSMEs and other businesses, while airlines will get a longer tenure of seven years with a two-year moratorium. The guarantee cover will be co-terminus with the loan tenor, and the scheme will remain open for loans sanctioned until March 31, 2027. No guarantee fee will be charged.