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The Emergency Credit Line Guarantee Scheme (ECLGS) 5.0 is expected to provide timely relief to companies grappling with higher working capital requirements arising from disruptions caused by the ongoing West Asia conflict, according to a report by CRISIL Ratings.
The rating agency said the conflict has disrupted global supply chains, pushed up crude-linked input costs and stretched trade cycles, leading to elevated working capital needs across industries. The scheme, which became effective last month and has an outlay of Rs 2.55 lakh crore, is expected to support both micro, small and medium enterprises (MSMEs) and non-MSMEs facing near-term liquidity pressures. Under ECLGS 5.0, eligible standard borrowers can avail incremental funding of up to 20 per cent of their peak working capital in the fourth quarter of the previous fiscal, subject to a cap of Rs 100 crore. The loans come with a five-year tenure and a one-year moratorium. The scheme offers 100 per cent guarantee cover for MSMEs and 90 per cent for non-MSMEs and airlines. CRISIL said the strongest demand for the scheme is likely to emerge from eight sectors, including ceramics, airlines, auto components, diamond polishing and basmati rice exports, as well as polyester textiles, speciality chemicals and flexible packaging manufacturers, which are among the most affected by cost inflation and supply-chain disruptions. The agency expects working capital requirements of its rated companies to rise by 25-30 per cent this fiscal. While realisations are likely to improve by 10-15 per cent and partly offset higher input costs, volume growth may moderate as the impact of the conflict becomes more visible. "We believe ECLGS 5.0 can fund about a third of the increased working capital requirements of our rated companies immediately, while the rest will be funded by additional enhancements in bank lines by lenders over the remaining part of the fiscal. The scheme thus provides relief by enabling companies to address their temporary working capital needs without disrupting operations," said Manish Gupta, Deputy Chief Ratings Officer, CRISIL Ratings. According to the report, the additional support under ECLGS 5.0 could increase debt levels of rated companies by around 10 per cent. However, CRISIL expects most companies to have sufficient cash flows to meet repayment obligations beginning in fiscal years 2028 and 2029. "The extent of ECLGS 5.0 utilisation will be closely linked to the duration and intensity of the West Asia conflict and its impact on commodity prices and supply chains. While reliance on the scheme is likely to be high in the near term, sustained recovery in operating cash flows will be critical to ensure that liquidity remains at comfortable levels," said Himank Sharma, Director, CRISIL Ratings. As per data from the Ministry of Finance, around 1.06 lakh guarantees worth Rs 48,484.26 crore had been issued under ECLGS 5.0 till June 9, indicating strong early traction for the scheme. (ANI)
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