ECLGS 5.0 set to boost mid-sized banks with strong MSME focus

ET Intelligence Group: The recently approved Emergency Credit Line Guarantee Scheme (ECLGS) 5.0 is expected to benefit mid-sized banks, which have a higher exposure to the micro, small and medium enterprises (MSME) segment than their larger counterparts. Yes Bank, City Union Bank, Karur Vysya Bank and Tamilnad Mercantile Bank have 29-37% of their loan books exposed to MSMEs compared with 12-21% for larger banks. Under the scheme, aimed at facilitating an additional ₹2.6 lakh crore of credit flow, the government guarantees 100% of the loan for MSMEs and 90% for non-MSMEs and airlines.

Among banks, City Union Bank has the highest exposure of 37% to MSME loans as of March 2026 followed by Karur Vysya Bank at 35%. In larger private sector banks such as HDFC Bank and ICICI Bank, MSME loans make up about 21% of total advances. Among public sector banks, SBI has an MSME loan share of 12% while Punjab National Bank and Bank of India have an exposure of 16% and 14% respectively.

Disbursements under the scheme may reach ₹1.8-1.9 lakh crore according to estimates by Nomura Financial Advisory and Securities, based on utilisation levels of 70-75% during the previous ECLGS rolled out during the Covid period.


Under the current scheme, the interest rates are capped at 9% for banks and 13% for non-banking financial companies (NBFC). MSMEs and non-MSMEs can avail additional credit up to 20% of their peak working capital utilised in the March-quarter capped at ₹100 crore, while airlines are allowed higher limits of up to 100%.

During the earlier Covid-era ECLGS launched in 2020, MSMEs accounted for 66% of the ₹3.68 lakh crore disbursed according to the data from National Credit Guarantee Trustee Company (NCGTC). Private sector banks led the disbursements with a 45% share, while public sector banks accounted for around 40%. Industry estimates suggest that under this scheme, just about 10% of the disbursed loans turned non-performing. The sovereign guarantee against defaults is expected to encourage banks to step up lending to MSMEs during the current scheme. Credit to MSMEs remain strong with outstanding advances by banks reaching ₹15.1 lakh crore as of March 2026, as per the Reserve Bank of India data.