Credit Guarantee Fund Trust for

Small Industries
CGTSI/(44)/2081

January 20, 2005

All Member Lending Institutions

Circular No. 21 /2004-05
Dear Sir,

Modifications in the Credit Guarantee Fund
Scheme for Small Industries (CGS)

CGTSI has been receiving suggestions from its stakeholders, more particularly from its MLIs, to cover
non-fund based working credit facilities and interest on the term loan when it becomes an NPA under the
CGS. MLIs have also been suggesting certain modifications / changes in some of the provisions of the
Scheme. With a view to making the Scheme more user-friendly and acceptable to the MLIs, CGTSI has
brought about certain modifications in the Scheme, which are given in the Annexure.
Please feel free to get in touch with us in case any further clarifications are required.

Thanking you,
Yours faithfully,
Sd/-

(S N Sadhwani)
Dy. General Manager

Annexure
Circular No. 21 /2004-05
Modifications in the Credit Guarantee Fund
Scheme for Small Industries (CGS)
The modifications brought in the Credit Guarantee Scheme are given below:
1) Extending additional term loan / working credit facilities to the borrowers already covered under the
Scheme upto the maximum extent of Rs 25 lakh.

The collateral security / TPG would. MLIs may now extend additional term loans / enhanced working capital facilities to such borrowing units by taking collateral security and / or TPG. by taking collateral security and / or TPG. Hence. The maximum guarantee cover available per eligible borrower shall not exceed 75% of the amount in default in respect of the credit facility extended by the lending institution. 25 lakh Existing Provision: In terms of Clause 2 (iii). such payments shall. 18. irrespective of the manner of appropriation indicated by such borrower or the manner in which such payments are actually appropriated. 25 lakh has already been covered under CGS. Chapter II of the Scheme. In such eventuality. however. the guarantee cover already extended by CGTSI to the MLIs against such borrowing units would continue to remain in force through its normal tenor. whether the account towards which the payment is made is covered by the guarantee of the Trust or not. if considered necessary. 2) Inclusion of Non-fund based working capital facilities under CGS within the overall limit of Rs. It is further clarified that in case of eligible borrowers already covered under the Scheme upto the maximum credit ceiling of Rs. be restricted to the additional loan / credit facility only. in future. In some instances. 25 lakh for providing guarantee against the credit facilities extended by the eligible lending institutions to a single eligible borrower. keeping in view the risk perception. Also. CGTSI expects the MLIs to offer additional need-based credit to such borrowers based on their track record and the risk perception. 2005. it has been provided in the Scheme that the individual borrowing units should deal with a single lending institution for all their credit requirements (exception has been made where the borrowing units have been extended term credit assistance by state level institutions / other financial institutions). without insisting on collateral security and / or TPG. be deemed to have been appropriated by the lending institution to the debt covered by the guarantee and in respect of which a claim has been preferred and paid.25 lakh. there is a ceiling of Rs. the proposed change will help the eligible SSI units in accessing additional funds without hindrance. 25 lakh of the borrowers already covered in the Scheme would also be met by the MLIs. the Clause 11(ii) of the Scheme as reproduced below will continue to be applicable in case any payments are made by the borrower to the MLI. Chapter I of CGS “Credit facility” means any financial assistance by way of term loan and / or fund based working capital facilities (cash . Modified provision: In respect of eligible borrowers already covered under the Scheme to the maximum extent of Rs. Rationale for the change: Since. Clause 11(ii) of CGS “In the event of a borrower owing several distinct and separate debts to the lending institution and making payments towards any one or more of the same. The above modification would ensure that the additional credit requirements above Rs. CGTSI has been advising its MLIs not to seek any collateral security and / or Third Party Guarantee (TPG) while extending additional credit facility to those borrowers in respect of whom the credit facility of Rs.75 lakh. the ceiling of credit (Rs.” Date of effect of modification: Effective February 01.Existing Provision: Under Clause 4. MLIs have been suggesting that they may be allowed to extend additional credit beyond this ceiling against collateral security and / or TPG.25 lakh) eligible to be covered under the Scheme may not be sufficient to cover the requirements of units which are growing fast. MLIs have been reluctant to extend such additional credit facility without collateral security and / or TPG. for the purpose of this clause. subject to maximum of Rs. 25 lakh and to whom additional credit facilities are extended by the MLIs. In keeping with the spirit of the Scheme.

etc. For the purpose of the calculation of service fee. 25 lakh per borrowing unit. Accordingly. For the purpose of the calculation of annual service fee. 3) Inclusion of outstanding interest on term loan under CGS Existing Provision: In terms of Clause 2 (i).credit. Date of effect of modification: Effective February 01. within the overall ceiling of Rs. Modified provision: “Credit facility” means any financial assistance by way of term loan and / or fund based and non-fund based working capital facilities (cash credit. bills purchased or discounted. etc. of the relevant year. Modified Provision: “Amount in Default” means the principal and interest amount outstanding in the account(s) of the borrower in respect of term loan and amount of outstanding working . bills purchased or discounted. for preferring any claim on the Trust against the guarantee cover.) extended by the lending institution to the eligible borrower. the non-fund based credit facilities. in some instances the banks have been hesitant in extending non-fund based credit facilities to the borrowers already covered under the Scheme. extended by the MLIs to the eligible borrowers can also be covered under CGS. it is not permissible under the scheme to obtain any collateral security in respect of accounts covered under the Scheme. subject to a maximum of fund based working capital limits sanctioned as on the date of the account becoming NPA or such of the date as may be specified by the Trust. whether disbursed or not. as at March 31. the credit extended shall mean the amount outstanding as at March 31. bank guarantee. For the purpose of calculation of guarantee fee.) extended by the lending institution to the eligible borrower. For the purpose of calculation of guarantee fee. even for the additional non-fund based credit facilities which are not eligible for coverage under the scheme. of the relevant year. Presently. as mentioned above. overdraft. the credit facility extended shall mean the credit facilities (both fund and non-fund based) covered under CGS and for which guarantee fee has been paid. Thus. Chapter I of CGS: “Amount in Default” means the principal amount outstanding in the account(s) of the borrower in respect of term loan and amount of outstanding working capital facilities (including interest). overdraft. 2005 Rationale for the Change: The change is being proposed in view of the persistent demand from the banks and the industry associations to cover non-fund based facilities also. the “credit facility extended” shall mean the amount of financial assistance committed by the lending institution to the borrower. whether disbursed or not. the “credit facility extended” shall mean the amount of financial assistance committed by the lending institution to the borrower. Letter of credit.