₹2.5 Crore Loan Guarantee Scheme Announced to Help Companies Cope With War Impact

New Delhi, May 06 : The Union Cabinet on Tuesday approved a massive financial relief package worth more than ₹2.5 lakh crore aimed at helping Indian businesses manage the economic fallout arising from the escalating crisis in West Asia. The move is expected to provide urgent liquidity support to sectors facing rising operational costs, supply chain disruptions and delayed international payments.
The newly approved Emergency Credit Line Guarantee Scheme (ECLGS) 5.0 is designed to offer additional working capital assistance to companies ranging from micro, small and medium enterprises (MSMEs) to large industries and airlines.
Prime Minister Narendra Modi described the initiative as a major step towards protecting economic activity during uncertain global conditions and reaffirmed the government’s commitment to supporting businesses and employment generation.

Additional Credit Support for Affected Industries
Under the new framework, eligible businesses can access extra credit of up to 20% of the peak working capital they utilized during the fourth quarter of the previous financial year. The total assistance available for most borrowers has been capped at ₹100 crore.
For the aviation industry, which has been severely impacted by higher fuel prices and international route disruptions, the government has allowed funding support of up to 100% of the working capital used during the specified period. Airlines can receive assistance of up to ₹1,500 crore per borrower.
Officials said the measure is expected to ease financial pressure on companies struggling with increased transportation expenses, costlier imports and delayed cargo movement due to the conflict situation in the Gulf region.

Shipping Delays and Rising Costs Trigger Concerns
Government sources indicated that the prolonged geopolitical tensions in West Asia have significantly affected global trade operations. Cargo vessels are being forced to take longer routes to avoid conflict-prone regions, resulting in higher freight charges and longer delivery schedules.
Several businesses have also reported increased expenditure on fuel, raw materials and imported components. The disruption has stretched payment cycles and created additional working capital requirements across multiple industries.
The Centre believes the new credit guarantee programme will help companies maintain cash flow and continue operations without severe financial stress.

Cabinet Approves ECLGS 5.0 Model
The latest package follows the structure of the emergency lending programme introduced during the Covid-19 pandemic. The government-backed guarantee mechanism had earlier played a key role in supporting businesses during the nationwide lockdown period.
Under ECLGS 5.0, the National Credit Guarantee Trustee Company Limited (NCGTC) will provide guarantee coverage on the additional loans extended by banks and financial institutions.
The scheme offers:

100% guarantee coverage for MSMEs

90% guarantee support for other sectors, including airlines

This arrangement is intended to encourage lenders to extend fresh loans without fear of large-scale defaults.

PM Modi Highlights MSME Protection
Prime Minister Narendra Modi, while announcing the Cabinet decision, stated that the scheme demonstrates the government’s focus on safeguarding Indian enterprises during challenging global conditions.
He emphasized that MSMEs remain central to India’s economic growth and employment generation. According to the Prime Minister, enhanced credit access and stronger guarantee protection will help businesses sustain operations and preserve livelihoods despite external economic shocks.

Govt Waives Guarantee Fees
Information and Broadcasting Minister Ashwini Vaishnaw informed reporters that the total financial outlay for the scheme has been fixed at ₹18,100 crore.
He added that guarantee fees under the programme have been completely waived, reducing the financial burden on borrowers and making the scheme more accessible for struggling enterprises.
The waiver is expected to improve participation among smaller firms that often face difficulties in arranging collateral-backed finance.

Scheme Valid Till March 2027
The government has kept the programme open until March 31 next year, signaling expectations that global supply-chain disruptions and energy market volatility may continue for an extended period.
Industry experts believe the decision reflects concerns over the long-term economic implications of instability in the Gulf region, especially after damage to refining and gas infrastructure affected global energy supplies.

Eligibility Conditions for Borrowers
Businesses seeking support under the scheme must meet specific eligibility conditions. Companies should have existing bank loans as of March 2026, and their accounts must be classified as “standard” by lenders.
The repayment structure includes:

Up to five years repayment tenure for most industries

One-year moratorium on principal repayment

Up to seven years repayment period for airlines

The extended repayment timeline is aimed at giving businesses adequate time to recover from financial pressures linked to the international crisis.

Industry Expects Major Relief
Business associations and export-oriented sectors welcomed the announcement, saying the additional liquidity support would help firms manage rising operational expenses and prevent disruptions in production cycles.
Economists noted that the move could stabilize credit flow in vulnerable sectors while reducing the risk of widespread financial stress caused by geopolitical uncertainty.
The latest package is also expected to strengthen confidence among lenders and investors at a time when global markets remain volatile due to ongoing tensions in West Asia.