ECLGS 5.0 to Enhance Credit Flow for MSMEs via Mid-Sized Banks
ECLGS 5.0 set to boost mid-sized banks with strong MSME focus
The Economic Times
Image: The Economic Times
The Emergency Credit Line Guarantee Scheme (ECLGS) 5.0 aims to facilitate an additional ₹2.6 lakh crore (approximately $312 billion USD) in credit, primarily benefiting mid-sized banks that have a higher exposure to micro, small, and medium enterprises (MSMEs). With interest rates capped at 9% for banks, the scheme is expected to boost lending and support economic recovery.
- 01ECLGS 5.0 is expected to facilitate an additional ₹2.6 lakh crore in credit.
- 02Mid-sized banks have a higher exposure to MSMEs, with City Union Bank at 37%.
- 03Interest rates are capped at 9% for banks and 13% for non-banking financial companies.
- 04Previous ECLGS saw 66% of disbursed loans going to MSMEs.
- 05Only about 10% of loans under earlier schemes turned non-performing.
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The recently approved Emergency Credit Line Guarantee Scheme (ECLGS) 5.0 is poised to significantly benefit mid-sized banks, which have a greater exposure to micro, small, and medium enterprises (MSMEs) compared to larger banks. The scheme aims to facilitate an additional ₹2.6 lakh crore (approximately $312 billion USD) in credit flow, with the government guaranteeing 100% of loans for MSMEs and 90% for non-MSMEs and airlines. As of March 2026, City Union Bank leads with a 37% exposure to MSME loans, while larger banks like HDFC Bank and ICICI Bank have about 21% of their loans in this segment. Interest rates for the scheme are capped at 9% for banks and 13% for non-banking financial companies (NBFCs). Previous iterations of the ECLGS during the COVID-19 pandemic saw 66% of the ₹3.68 lakh crore disbursed going to MSMEs, with only about 10% of those loans turning non-performing. This sovereign guarantee is expected to encourage banks to increase lending to MSMEs, which currently have outstanding advances totaling ₹15.1 lakh crore as of March 2026.
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The ECLGS 5.0 scheme is expected to enhance credit availability for MSMEs, which could lead to increased business operations and job creation in the sector.
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