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Cabinet approves Emergency Credit Line Guarantee Scheme 5.0

ICICIdirect Research 15 May 2026 DISCLAIMER

India’s small businesses are once again at the centre of a government-led relief push, with the Union Cabinet approving ECLGS 5.0 to support businesses impacted by disruptions arising from the ongoing West Asia crisis. The scheme aims to facilitate an additional ₹2.55 lakh crore of credit flow through guaranteed lending support.

Under ECLGS 5.0, the government will provide guarantee coverage through the National Credit Guarantee Trustee Company Limited (NCGTC) for loans extended by banks and financial institutions to eligible borrowers. The scheme offers:

  • Allowed additional loans of up to 20% of peak working capital utilisation during the Jan–Mar quarter of FY26
  • Loan support capped at ₹100 crore for eligible businesses
  • Separate support for airlines up to ₹1,500 crore per borrower
  • 100% guarantee coverage for MSMEs; 90% guarantee coverage for non-MSMEs and airlines
  • Nil guarantee fee for borrowers

The government has also capped interest rates under the scheme. Lending rates for banks and financial institutions will be capped at 9%, while rates for non-banking financial companies will be capped at 13% or benchmark-linked rates plus 0.75%, whichever is lower. The scheme will remain open until 31 March 2027. Loans for businesses will carry a five-year tenor with a one-year moratorium, while airlines will receive a seven-year repayment structure with a two-year moratorium.

Overall, the scheme is expected to support credit growth across the MSME ecosystem while reducing incremental credit risk for lenders through sovereign-backed guarantees. The development is positive for the banking system, particularly for banks with higher MSME exposure levels such as City Union Bank (~37%), Karur Vysya Bank (~36%) and RBL Bank (~30%).

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