ECLGS 5.0 likely to ease working capital stress amid West Asia conflict: Crisil Ratings

The Emergency Credit Line Guarantee Scheme (ECLGS) 5.0, launched with an outlay of ₹2.55 lakh crore, is expected to provide timely liquidity support to companies facing rising working capital requirements due to disruptions triggered by the ongoing West Asia conflict, according to a report by Crisil Ratings.

The agency said the geopolitical tensions have disrupted global supply chains, raised crude-linked input costs and extended trade cycles, resulting in elevated funding needs across industries. ECLGS 5.0, which became operational last month, is expected to play a key role in meeting these near-term liquidity pressures for both micro, small and medium enterprises (MSMEs) and non-MSMEs.

Under the scheme, eligible standard borrowers, excluding SMA-2 accounts, can access incremental funding of up to 20% of their peak working capital utilisation recorded in the fourth quarter of the previous fiscal, subject to a cap of ₹100 crore. The loans carry a five-year tenure and include a one-year moratorium.

The scheme offers a 100% government guarantee for MSMEs and 90% for non-MSMEs and airlines, reducing borrowing costs and improving access to credit. Of the total outlay, ₹5,000 crore has been earmarked for airlines due to sector-specific stress and higher eligibility requirements.

Crisil expects strong uptake of the scheme, particularly across eight sectors that are most exposed to supply disruptions and input cost inflation. These include ceramics, airlines, auto components, diamond polishing and basmati rice exports, along with three crude-linked industries. 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.

The report noted that for Crisil-rated corporates, higher realisations of 10–15% could partly offset rising input costs. However, volume growth may moderate as the impact of the West Asia conflict becomes more pronounced.

Working capital requirements are projected to expand by 25–30% this fiscal, increasing reliance on both internal cash generation and external funding. “We believe ECLGS 5.0 can fund about one-third of the increased working capital requirements of our 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,” said Manish Gupta, Deputy Chief Ratings Officer at Crisil Ratings.

“The scheme provides relief by allowing companies to meet temporary liquidity needs without disrupting operations,” he added.

According to Crisil, the additional support under ECLGS 5.0 could increase debt levels of its rated companies by around 10% over existing borrowings. Repayment obligations are expected to begin in fiscals 2028 and 2029, though the agency believes most companies have adequate balance sheet strength and cash flow generation to service these obligations.

Himank Sharma, Director at Crisil Ratings, said 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.

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