The Emergency Credit Line Guarantee Scheme (ECLGS 2.0) extended under Atmanirbhar Bharat 3.0² to eligible companies in 26 stressed sectors identified by the K V Kamath Committee, and also to the healthcare sector, can potentially infuse ~Rs 40,000 crore liquidity for CRISIL rated eligible companies.

That will be sufficient to help companies, including those hit by a sharp decline in cash flows because of the pandemic, to overcome liquidity pressures, a CRISIL study shows.

Under ECLGS 2.0, companies with outstanding loans of between Rs 50 crore and Rs 500 crore are eligible for additional credit of up to 20% of their outstanding debt as on February 29, 2020. The tenure of such additional credit will be 5 years, including a one-year moratorium on principal repayment.

Out of CRISIL’s rated portfolio, 1,414 companies from 27 sectors, including healthcare, were found eligible for ECLGS 2.0. Their total outstanding debt stood at ~Rs 2 lakh crore as on February 29, 2020. Further, this assumes that all eligible companies will avail of the entire fund-based debt facility available under the scheme.

The study indicates that ECLGS 2.0 can be a significant source of liquidity for sample set given the average cash flow of these companies is seen contracting 17%, or by ~Rs 11,000 crore, compared with the pre-pandemic assessment for the current fiscal.

Says Subodh Rai, Senior Director, CRISIL Ratings, “Borrowing under the ECLGS 2.0 scheme can provide additional liquidity equal to 3.5 times the cash-flow contraction for the sample set. This will help them overcome temporary liquidity challenges. Also, the one-year moratorium available under the scheme will provide further room for companies to stabilise their cash flows.”

The scheme will particularly benefit companies in low-resilience sectors such as hotels, gems and jewellery, travel, and real estate, as their accruals are expected to fall sharper at 23% this fiscal. For these sectors, the additional liquidity afforded by the scheme will be much higher at almost 10 times of cash flow decline (refer to Chart in annexure).

Companies in high-resilience sectors such as dairy, information technology, FMCG, chemicals, and pharmaceuticals are seen less impacted, with the decline in their cash flow restricted to 10%. They, too, will benefit from ECLGS 2.0, with additional liquidity being created of about 5 times of cash flow contraction. Several other sectors such as textiles and steel, which are debt-heavy, will also have similar additional liquidity against cash flow decline.

However, the benefits to individual companies may sharply vary depending upon the loan outstanding on the cut-off date and lenders’ willingness to extend credit to specific borrowers.

With the business environment continuing to evolve, the pandemic’s trajectory and attendant containment measures will be the key monitorable.

¹ Sector resilience is the ability of a sector to sustain the revenue impact of Covid-19 and bounce back to full production after the pandemic peters out
² https://static.pib.gov.in/WriteReadData/userfiles/MOF.pdf