Broad-based sector stress drove ECLGS 5.0 rollout, says finance secretary

Mumbai: The government expects the West Asia war to have a broad-based impact across industries, with only a handful of sectors seen escaping the fallout, financial services secretary M. Nagaraju said on Thursday while outlining the rationale behind the ₹2.55 trillion Emergency Credit Line Guarantee Scheme (ECLGS) 5.0.

“Most of the areas have been impacted except certain areas like educational institutions… horticulture sector… some of these sectors were actually not impacted by the West Asia crisis,” Nagaraju said at a briefing at the Indian Banks’ Association summit.

“For the rest of the sectors, the scheme is available, and they can avail the benefit,” he said.

On Wednesday, the government approved the scheme with a total outlay of ₹2.55 trillion, including a dedicated ₹5,000 crore window for airlines. The scheme allows additional credit of up to 20% of peak working capital utilised for eligible borrowers affected by the conflict.

Sectors dependent on imports from West Asia, exports to the region, or fuel-linked manufacturing supply chains have seen significant stress, Nagaraju said.

Nagaraju said the size of the scheme was based on banks’ credit exposure and expected stress levels. “The overall quantum is always based on the banks’ exposure, credit exposure and how much is outstanding,” he said. “Based on our past experience and the likely NPA, we provide the guarantee amount.”

For airlines, the separate ₹5,000 crore allocation was calculated based on the borrowing potential of the country’s major carriers. “Even if each one takes a maximum, it can’t exceed more than ₹4,500 crore, so we kept it ₹5,000 crore,” he said.

The latest version of the scheme also extends loan tenure to five years from four years earlier, with airlines getting seven-year repayment windows. “Some of the firms are not able to recover from the adverse impact. They require longer time to repay,” the secretary said.

The scheme has been designed as a pre-emptive support measure rather than a post-crisis rescue package. “This is a kind of proactive measure… not that there is widespread stress and then it needs to be addressed immediately,” State Bank of India (SBI) and the Indian Banks’ Association (IBA) chairman C.S. Setty said, adding the impact of the war includes second-order impacts across industries.

According to SBI estimates cited during the briefing, over 11 million beneficiaries could potentially benefit from ECLGS 5.0. SBI itself sees an eligible customer base of ₹70,000-80,000 crore under the scheme.

Officials also pointed to the relatively strong repayment track record under earlier ECLGS versions. “ECLGS default rate was lower than the average MSME default rate,” Setty said.

“The scheme broadly follows an early‐intervention approach, aimed at containing a self‐reinforcing slowdown in credit growth. However, outcomes will remain dependent on lender confidence and risk appetite, rather than guarantee availability alone,” Kotak Institutional Equities said in a report on 6 May.

Separately, the government indicated that benefits under flagship social security schemes such as Pradhan Mantri Jeevan Jyoti Bima Yojana and Pradhan Mantri Suraksha Bima Yojana may soon be revised after a review of their decade-long performance.

“If everything goes right, we are also likely to revise certain benefits,” the DFS secretary said, adding that the review is based on 11 years of experience under the Jan Suraksha schemes.