Explained: Why Rs 16,000 crore of soured COVID emergency loans aren't a worry - yet

Government officials say at the time of drafting the ECLGS, NPAs under the scheme were estimated to hit 15 percent of the total guarantees in a 5 year timeframe . Assuming the government had exhausted the total guarantees of Rs 5 lakh crore under the scheme and NPAs would have touched 15 percent, this would have amounted to Rs 75,000 crore hit.

But the scheme has ended in less than 3 years timeframe , with guarantees of Rs 3.65 lakh crore. Comparatively the hit is minimal so far with an NPA ratio of 4.38 percent amounting to Rs 16,000 crore end of FY23. Against this, the government has already provided Rs 17,945 crore during FY22 and FY23. The Rs 14,100 crore budget allocation is estimated for FY24 and it remains to be seen how much more of the government guarantees under ECLGS turn bad in the current fiscal.

Government officials also say since ECLGS loans are 100 percent guaranteed the banks need not worry about a hit on their bottom lines , just yet. Instead of having to recapitalise banks the government is instead recapitalising the trust fund from which the guarantee is flowing.

Hence, despite the scheme having ended March 31, the government may have to continue funding the guarantees to the banks and enhancing the amounts of infusion into the NCGTC, at least till the tenures of various subsets of the ECLGS, like 1.0, 2.0, 3.0 and 4.0.