ECLGS 5.0 Could Fund One-Third of Corporate Working Capital Needs, Says Report

The Emergency Credit Line Guarantee Scheme (ECLGS) 5.0 is expected to provide crucial liquidity support to businesses facing higher working capital requirements due to the ongoing West Asia conflict, according to CRISIL Ratings.

The rating agency said disruptions in global supply chains and rising crude-linked input costs have increased pressure on corporate cash flows and extended trade cycles across industries. It expects the ₹2.55 lakh crore scheme, which became operational last month, to help both micro, small and medium enterprises (MSMEs) and larger companies meet their immediate funding needs.

Under ECLGS 5.0, eligible standard borrowers, excluding SMA-2 accounts, can access additional funding of up to 20% of their peak working capital limits during the fourth quarter of FY25, subject to a maximum of Rs 100 crore. The loans come with a five-year tenure and a one-year moratorium. The scheme offers a 100% government guarantee for MSMEs and 90% for non-MSMEs and airlines.

Sectors Expected to See Higher Demand

CRISIL said the strongest demand for the scheme is likely to come from eight sectors that have been most affected by cost inflation and supply disruptions. These include ceramics, airlines, auto components, diamond polishing and basmati rice exports, along with three crude-linked industries.

The agency estimates that working capital requirements for its rated companies could rise by 25-30% this fiscal. While product realisations may improve by 10-15%, helping offset some of the higher input costs, volumes could face pressure if the impact of the conflict deepens.

“We believe ECLGS 5.0 can fund about a third of the increased working capital requirements of our rated companies immediately,” said Manish Gupta, Deputy Chief Ratings Officer, CRISIL Ratings. The remaining requirement is expected to be met through enhancements in bank credit lines during the year.

Early Uptake Strong

According to the Ministry of Finance, around 1.06 lakh guarantees worth ₹48,484.26 crore had been issued under ECLGS 5.0 as of June 9, indicating strong early adoption.

CRISIL estimates that loans raised under the scheme could add roughly 10% to the existing debt levels of its rated companies. However, it believes most borrowers have sufficient balance-sheet strength and cash flows to service repayments, which are scheduled to begin in FY28 and FY29.

 “The extent of ECLGS 5.0 utilisation will depend on how long and how intensely the West Asia conflict affects commodity prices and supply chains,” said Himank Sharma, Director, CRISIL Ratings, adding that a sustained recovery in operating cash flows will remain critical for maintaining comfortable liquidity levels.