MSMEs seen as next stress area as banks wary of loan repayments under ECLGS

Micro, small and medium enterprises (MSMEs) could turn out to be the next stress area for banks, with many lenders and analysts worried about loans given under the Emergency Credit Line Guarantee Scheme (ECLGS).

 

These loans have a 12-month moratorium, and many lenders say there is no clarity on how many of the borrowers would be able to repay.

A better understanding of the repayment behaviour and possible defaults is likely to emerge in the second half of the fiscal year, but could take at least another year for full clarity on the issue.

“There is a one-year moratorium on the loans. As the economy revives, there is expectation that the companies that take loans under this scheme will benefit. But no one knows what will happen one year down the lane,” noted a senior banker who did not wish to be quoted on the issue.

The cumulative amount sanctioned under ECLGS by January 25 was ?2.39-lakh crore, according to a reply by Finance Minister Nirmala Sitharaman in Rajya Sabha to a question by Rajeev Chandrasekhar on Tuesday.