Loan Guarantee Scheme for Covid Affected Sectors (LGSCAS)
22 February, 2023
If there's one thing the COVID-19 pandemic taught us, it's that health must be made a priority for everyone. While it opened our eyes to shortfalls in the healthcare sector, particularly in the country's non-urbanised regions, it also created a path to drive necessary change. In mid-2021, the Union Cabinet approved The Loan Guarantee Scheme for Covid Affected Sectors (LGSCAS) in response to the aftermath of the second COVID-19 wave.
LGSCAS and its main objectives
LGSCAS was introduced to support private sector hospitals in upgrading or setting up medical units in towns and non-metro cities. LGSCAS also seeks to provide financial guarantee cover of ₹50,000 crores to greenfield and brownfield expansion projects, along with ₹1,50,000 crore funding under the Emergency Credit Line Guarantee Scheme (ECLGS).
Along with improved healthcare facilities, projects under this scheme are expected to generate additional employment. LGSCAS provides bank credit at affordable rates to interested borrowers to mitigate credit risk from loans to the healthcare sector. Here are some important factors you must know about this scheme:
Validity - It covers loans sanctioned on and after 7 May, 2021. The scheme is valid until it reaches an issuance of ₹ 50,000 crores or till 31 March, 2023. Previously, this date was set for 31 March, 2022.
Sectors - It provides guaranteed coverage to scheduled commercial banks for lending they provide to eligible projects in the healthcare sector. These scheduled commercial banks act as Member Lending Institutions (MLIs) of the scheme.
Projects covered - It covers projects that are setting up, expanding or modernising clinics, hospitals, dispensaries, pathology labs, diagnostic centres, medical colleges and public healthcare facilities. It also covers projects engaged in manufacturing oxygen, vaccines, and vital medical equipment, such as ventilators.
Progress - Until 30 September, 2022, 1,538 entities have availed of the loan guarantee benefits. As of the same date, ₹1,489 crores have been disbursed under this scheme.
Maximum coverage - Banks can decide the project funding amount based on internal assessments. However, there is a limit of ₹100 crores for such funding.
Interest rate - The interest rate on loans under LGSCAS is governed by RBI guidelines, with a maximum of 7.95% during the guarantee cover.
Security - The lender must create a charge on itself on the existing and proposed assets, with a second charge on behalf of National Credit Guarantee Trustee Company Limited (NCGTC).
Extent of guarantee coverage - The extent of guarantee coverage differs based on various factors:
Greenfield and brownfield projects in aspirational districts are offered 75% of the outstanding amount.
Coverage for brownfield projects is 50% in areas other than aspirational districts. These are districts identified by the Niti Aayog for transformation.
Projects in metro cities, whether greenfield or brownfield, are not eligible for this scheme.
Borrowers must open a separate loan account (apart from other existing loan accounts) to get coverage under LGSCAS.
MLIs are also assigned specific responsibilities under the scheme. This includes;
Providing data and information to NCGTC, the department of financial services or its constituents
Communicating scheme details and the scheme web link on their websites
Defining realistic repayment schedules and monitoring project completion
Inserting conditions upon which borrowers must comply with health quality regulations and proper certification
Ensuring close monitoring and regular servicing of the client's account
Safeguarding the securities provided
Guaranteeing claims are lodged with NCGTC in time and in the prescribed manner, and defaults are timely notified to the trustee company
MLIs must exercise all steps necessary to recover the outstanding amount from borrowers, including steps suggested by NCGTC. MLIs are expected to apply the same level of diligence they would in case of loans without the scheme guarantee
MLIs must ensure that borrowers agree not to create a charge on the securities held in the account under guarantee with any other creditor or itself
MLIs must submit an undertaking with NCGTC to be entitled to any credit facility granted.
LGSCAS is a part of the ₹ 6.29 lakh crore stimulus package that India's Finance Minister, Ms Nirmala Sitharaman, announced in 2021. While the NCGTC provides a guarantee against these loans for a maximum of three years, loans extended to Non-Banking Finance Companies (NBFCs) and/or Micro-Finance Institutions can have longer tenures.
With this scheme, healthcare facilities in underserved areas can be improved and can contribute to helping the country face future medical emergencies in a streamlined manner, should they arise again.
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*Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. This loan is at the sole discretion of HDFC Bank Limited. Loan disbursal is subject to documentation and verification as per Bank's requirement. Interest rates are subject to change. Please check with your RM or closest bank branch for current interest rates.
