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The government’s decision to extend the Emergency Credit Line Guarantee (ECLG) schemes till 30 November is good news for banks. In fact, the scheme for micro, small and medium enterprises has saved banks from taking a hit on asset quality during the second quarter, as SMEs were hit hard by the pandemic and banks were worried about the impact on their asset quality from this segment.

However, bankers said loan disbursements under the ECLG scheme helped customers tide over the stress and some businesses even opted out of one-time restructuring.

HDFC Bank, for instance, had done a stress test at the end of February, which showed that 9% of the MSME (micro, small and medium enterprise) book could be under stress. However, the management in a post-earnings conference call with investors said the stress could come down sharply to over 3%.

“Cash flows in the MSME segment have been improving. Promoter savings have gone up. We are always collateralized. ECLGS has been a benefit to this segment. This segment could also see restructuring. As of now, signs are good. Utilization of limit, which had fallen during the pandemic, is creeping up, " said Rahul Shukla, group head, corporate banking, business banking and healthcare finance, HDFC Bank, told investors.

HDFC Bank has sanctioned 35,000 cror and disbursed 20,000 crore under the scheme.

Similarly, ICICI Bank, which had sanctioned 16,000 crore under the scheme, has so far disbursed 10,000 crore. Others, such as Kotak Mahindra Bank, have also disbursed close to 8,150 crore, or 6% of the banking sector share under this scheme.

“Of course, when we started in March and April, one of the sectors that we were most worried about was the SME book, and we expected the impact to be high on the asset quality of this book. But now, asset quality seems to be under control," said K.V.S. Manian, whole-time director, corporate, institutional, investment banking, and wealth management, Kotak Mahindra Bank.

DCB, which is one of the largest SME lenders, has sanctioned 2,000 crore under the scheme to around 38,000 customers so far. DCB’s management said customers did not want to restructure and are happy with the scheme.

“Some customers are mistaken that it is some kind of a grant given by the government. So, there is a lot of communication to the customer saying that they need to actually start repaying this as well because they should not treat it as a grant, which we have been successfully able to do," said Murli Natarajan, managing director and chief executive, DCB.

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