The Reserve Bank of India (RBI) has allowed lenders to assign a zero-risk weight to a significant portion of loans guaranteed under the Emergency Credit Line Guarantee Scheme (ECLGS) 5.0, reducing capital requirements and potentially supporting credit growth under the programme. As reported by The Hindu BusinessLine, the central bank announced on Tuesday that 75% of the guaranteed portion will attract a 0% risk weight, and the remaining exposure will be assigned a 20% risk weight in line with existing norms. The RBI clarified that the zero-risk treatment applies to the portion where banks expect settlement within 30 days of invoking the guarantee. This capital relief measure is designed to boost bank lending capacity and facilitate faster credit flow to eligible borrowers.
The Union Cabinet, chaired by Prime Minister Narendra Modi, approved the fifth version of the Emergency Credit Line Guarantee Scheme (ECLGS 5.0) on Tuesday to provide additional financial support to businesses facing liquidity pressures due to the ongoing West Asia situation. As reported by The Economic Times, the scheme will enable banks and financial institutions to extend additional credit to eligible borrowers with government-backed guarantees through the National Credit Guarantee Trustee Company Limited. The initiative is aimed at helping businesses manage short-term liquidity challenges arising from global disruptions and is expected to support continuity in operations, safeguard employment, and ensure stability in supply chains, particularly for MSMEs and the aviation sector. ECLGS 5.0 builds on earlier versions of the scheme introduced to cushion the impact of economic disruptions and is intended to strengthen the resilience of India's business ecosystem.
The Emergency Credit Line Guarantee Scheme (ECLGS) 5.0 could increase the debt levels of rated corporates by around 10% as companies tap the facility to meet higher working capital requirements arising from the ongoing West Asia conflict, according to Crisil Ratings. As reported by Crisil, the incremental support will add nearly 10% of existing debt to the balance sheets of companies rated by the agency, with repayment obligations beginning in fiscal years 2028 and 2029. The additional support under ECLGS 5.0 could increase debt levels of its rated companies by around 10% over existing borrowings, though most companies have adequate balance sheet strength and cash flow generation to service these obligations. The latest RBI relaxation on capital norms is expected to further enhance the scheme's attractiveness to lenders and facilitate faster credit flow to eligible borrowers.
The ₹2.55 lakh crore ECLGS 5.0 scheme provides timely support to eligible companies facing elevated working capital needs due to disruptions in global supply chains and higher crude-linked input costs triggered by the West Asia conflict. According to The Economic Times, eligible standard borrowers, excluding SMA-2 accounts, can avail of incremental funding of up to 20% of their peak working capital in the fourth quarter of the previous financial year, subject to a cap of ₹100 crore per borrower. For airlines, the additional credit can go up to 100%, subject to a ceiling of ₹1,500 crore per borrower and compliance with specified conditions. The loans carry a five-year tenure for MSMEs and non-MSMEs, including a moratorium period of one year, while airlines will have a seven-year tenure with a two-year moratorium. The scheme provides 100% guarantee cover for micro, small and medium enterprises (MSMEs) and 90% for non-MSMEs and airlines, with the guarantee cover remaining valid for the entire loan duration.
As reported by Crisil, the rating agency expects the strongest demand for the scheme from ceramics, airlines, auto components, diamond polishing and basmati rice exports, as well as three crude-linked industries facing significant cost inflation and supply-chain disruptions. Companies in other sectors with stretched working capital positions, especially MSMEs with bank limit utilisation above 75-80%, are also likely to tap the facility. According to The Economic Times, eligible borrowers include MSMEs, non-MSMEs, and scheduled passenger airlines that had outstanding credit facilities as of March 31, 2026, with their accounts classified as standard. The scheme is applicable to loans sanctioned from the date of issuance of guidelines by NCGTC until March 31, 2027, indicating strong early adoption potential.
According to Crisil, working capital requirements of its rated companies are expected to rise by 25-30% this financial year, even as realisations improve by 10-15% and partly offset higher input costs. The rating agency expects ECLGS 5.0 can fund about one-third of the increased working capital requirements of its rated companies immediately, while the remaining requirement is likely to be met through additional enhancements in bank credit lines over the course of the fiscal. As noted by Crisil, the scheme provides relief by enabling companies to address their temporary working capital needs without disrupting operations. However, volume growth may moderate as the impact of the West Asia conflict becomes more pronounced, with the agency noting that higher realisations of 10-15% could partly offset rising input costs.
As reported by Crisil, the extent of ECLGS 5.0 utilization will be closely linked to the duration and intensity of the West Asia conflict and its impact on commodity prices and supply chains. According to Himank Sharma, Director at Crisil Ratings, utilisation of the scheme would depend on how long and how severely the West Asia conflict impacts commodity markets and global trade. "Demand for the scheme is expected to remain strong in the near term, but sustained improvement in operating cash flows will be critical to maintaining comfortable liquidity levels," Sharma said. The agency emphasized that the trajectory of the conflict and its impact on crude prices, commodities and trade flows will remain a key monitorable going forward.
