Reading Material-8

CREDIT GUARANTEE TRUST FOR MICRO AND SMALL ENTERPRISES

 All the eligible credit facilities such as term loans and working capital
loans can be covered under CGTMSE.
 Tenure of the guarantee cover will be
♦ Term loan: through the agreed tenure of credit
♦ Working capital: 5 years or block of a 5 years or loan termination
date whichever is earlier.
 For RRBs loans up to Rs.50 lakhs can be covered under the scheme
and for commercial banks the limit is up to Rs.5 crore.

Ineligible accounts
•Any loan already covered under DICGC
•Any loan covered under any other Govt guarantee
•Mudra loans covered under NCGTC
•Loans to education institutes.
Extent of Guarantee cover

Category (including Maximum extent of Guarantee Coverage

Trading activity)

Where credit facility is

Up to Rs.5 lakh Above Rs.5 lakh and up Above Rs.50 lakh and
to Rs.50 lakh upto Rs.200 lakh**

Micro Enterprises 85% 75%

75%
MSEs located in North
East Region (incl. 80%
Sikkim)
Women 85%
entrepreneurs
MSEs situated in 85%
aspirational District
ZED certified MSEs
85%
SC/ST entrepreneurs 85%

All other category of

75%
borrowers

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Annual Guarantee Fee (AGF)

To bring down the cost of credit for MSEs, it has been decided by CGTMSE
to partially modify the above-mentioned Circular to reduce the guarantee
fee for loans upto `1 crore. Accordingly, the revised fee structure up to 50
lakhs (Since, Ceiling of guarantee coverage to RRBs remains at Rs. 50 lakhs)
is as under:
Slab Revised standard rate (%)
0-10 lakh 0.37
Above 10 lakh- up to 50 lakhs 0.55

 Now banks can apply for guarantee cover anytime during its tenure
provided:
The credit facility was not restructured or remained in SMA2 status
during last one year from the date of submission of application.

Computation of AGF
AGF will be charged on the guaranteed amount for the first year and on the
outstanding amount thereafter.
AGF is required to pay after lodgement of claim till settlement of first
instalment of 75% of the guaranteed amount.

Invocation of guarantee
For invocation of the guarantee

•The guarantee in respect of that credit facility should be in force at the time
of account turning NPA.
•The lock-in period of 18 months has lapsed.
•Lock-in period: 18 months from either the date of last disbursement of the
loan or the guarantee start date whichever is later
•Suit for recovery of primary security should be filed with Lok Adalat /Civil
Court / DRT / SARFAESI Act. Mere issuance of recall notice under the

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SARFAESI Act 2002 not sufficient to lodge a claim (action under 13(4)
should be done)
•The initiation of legal action can be waived, by the delegated authority, if
the outstanding is less than ₹ 10,00,000.
all such cases, where the filing of legal proceedings is waived, a committee
headed by an officer not below the rank of Scale V of Bank should examine
all such accounts and take a decision for not initiating legal action and filing
claim under the Scheme. The report of such committee may be submitted
along with the claim application.

Settlement of claims
•The trust will pay 75 per cent of the guaranteed amount on lodging the
eligible claim by the MLI within 30 days.
•The balance 25 per cent of the guaranteed amount will be paid on
conclusion of recovery proceedings or 3 years from the date of
settlement of first claim.
•AGF is required to be paid even after the lodgement of claim till settlement
of first instalment of 75% of the guaranteed amount.
•On conclusion of recovery proceedings, final loss is shared by CGTMSE and
MLI, in the ratio ranging from 85: 15 to 50: 50.
•In a FY, an MLI can claim only up to 2 times of the fee including recovery
remitted during the previous financial year.

As you are aware that as per existing process, the claim is settled in 2
instalments i.e. 75% of eligibility amount as first instalment & balance 25%
of eligibility amount as second instalment. In this connection, it has been
decided to offer MLIs/Banks two options for claim settlement at the time of
claim lodgement for cases where waiver of legal action is applicable. The
details are as under:
Option 1: Single instalment of claim settlement with reduced extent of
guarantee by 15%. Eg: in respect of extent of coverage of 75%, reduced
coverage would be 60%, 80% would be 65% and likewise.
Option 2: Existing claim settlement process in two instalments i.e. 75% of
eligibility amount as first instalment & balance 25% as second instalment.
For legal waiver accounts, second instalment of claim -would be settled after
three years from the date of settlement of 1st claim or OTS whichever is
earlier. (Our bank has chosen option 2 only for claim settlement)

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Hybrid security
 MLIs are allowed to obtain collateral security for a part of the credit
facility.
 Unsecured part of the credit facility up to a maximum of Rs. 50 lakhs
can be covered under CGS-I.
 CGTMSE to have notional second charge on the collateral security.
 No requirement for MLI to create security/charge in favour of
CGTMSE.
 Any amount of loan can be sanctioned by covering under CGTMSE,
however CGTMSE coverage is available for loan amount up to Rs.50
lakhs only.

Recovery in CGTMSE
 In case of any recovery the amount will be remitted to CGTMSE and if
any amount due to the Trust remains unpaid beyond a period of 30
days from the date on which it was first recovered, interest shall be
payable to the Trust by the lending institution at the rate which is 4%
above Bank Rate for the period for which payment remains
outstanding after the expiry of the said period of 30days.
 In case of recovery in hybrid security, if anything recovered by sale of
collateral, the proportionate amount to be remitted to CGTMSE.
 Right of subrogation.

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General matters
Sl. General Query Guideline / Clarification
No
Working Capital (WC) Account
Present / Expected Outstanding is to be updated.
Updated Outstanding will be treated as Guarantee
1 What Outstanding is to be
amount and Fee shall be charged on such
updated?
Outstanding only.
No fee will be charged for NIL outstanding and the
What incase
2 outstanding is negligible account will be closed.
/NIL?
What in case MLI missed Fee shall be charged on last year’s outstanding /
Guarantee Amount.
3 to update outstanding?
Expected Maximum Outstanding may be updated
What outstanding to be
for calculation of fee amount.
4 updated where WC is not
availed in last FY?
The maximum eligible limit for claim shall be the
outstanding on which fee is paid.
5 Maximum Claim Limit
In case of Hybrid Model, Present / expected outstanding without deducting
what outstanding amount collateral value (as the collateral value will be
6 is to be updated? deducted by our system from the updated
outstanding for calculation of guarantee fee).
Fee is calculated on derived outstanding by netting
off collateral value (as provided by MLI) from the
updated outstanding.
In case of Hybrid Model,
7 how is the fee calculated? Derived O/s for fee generation = Present /
expected outstanding less collateral value
mentioned at the time of guarantee coverage.
What if the outstanding Fee will be charged on Outstanding as updated by
updated / derived is MLI.
8
greater than the
guarantee amount

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Term Loan (TL) account

What Outstanding is to be Principal outstanding amount as on
10
updated? 31stDecember.
No fee will be charged for NIL outstanding
What in case outstanding
and the account will be closed.
11
Fee shall be charged on last year’s
What in case MLI missed to
outstanding / Guarantee Amount.
12 update outstanding?
Maximum eligible limit for claim shall be the
outstanding on which fee is paid.
13 Maximum Claim Limit
In case of undisbursed/ partially disbursed
If the TL is undisbursed/
TL, fee shall be generated on Guarantee
14 partially disbursed, how is
amount (including Hybrid case).
the
AGF calculated?
No, in case of fully disbursed TL, the
outstanding cannot be higher than
Can Outstanding amount be
outstanding updated last year.
Higher than amount
15 provided last year? However, in case of undisbursed/ partially
disbursed Term Loans, system will allow
feeding higher o/s amount as compared to
last year.
In case of Hybrid Model, Actualprincipaloutstandingason31st
what outstanding amount is December without deducting the collateral
16
to be value.
updated?
Fee is calculated on derived outstanding by
netting off collateral value from the
outstanding as provided by MLI.
In case of Hybrid Model, how
17 is the fee calculated? Derived outstanding for fee generation =
Actual principal outstanding as on 31st
December less
collateral value as mentioned at the time of
guarantee coverage.
What if the Outstanding Fee will be charged on Outstanding or
updated / derived is greater Guarantee Amount whichever is low.
18
than Guarantee amount?

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General
MLIs are required to update outstanding data every
Data Collection year on CGTMSE portal by January 15 thor any such
19 frequency
date as prescribed by the Trust for calculation of AGF.

In case of Working Capital, MLI can apply for

Can Outstanding be
enhancement of limit/ outstanding by paying
updated or modified
additional guarantee fee for the enhanced limit.
after generation of
20 In case of Term Loan, System will not allow any
AGF?
modification in Outstanding data after Jan 15 or any
such date prescribed by the Trust or after generation
of AGF.

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Timeline for CGTMSE covered accounts in brief

Various steps Timeline
Coverage/  Norms: The credit facility can be covered under
initialization of credit CGTMSE anytime during its tenure, provided
facility the credit facility was not restructured /
remained in SMA2 status in last 1 year from the
date of submission of application.
 Advisory guidelines: However, in order to
ensure timely coverage and avoid potential
complications, credit facility shall be covered
within a reasonable time, preferably within a
fortnight from the date of release of credit
facility

Marking of NPA in Norms: Within subsequent quarter.

portal Advisory guidelines: However, in order to avoid
delay in final claim settlement and avoid potential
complications in future, marking shall be done
within a reasonable time, preferably within a
fortnight from
the date of account slipped into NPA.

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Invocation of Norms:
guarantee The lending institution may invoke the guarantee
in respect of credit facility within a maximum
period of 3 years from the NPA date or lock-in
period whichever is later, if the NPA date is on or
after 15/ 03/ 2018
For NPAs prior to 15/ 03/ 2018, time period for
claim lodgment will be 1 year for cases sanctioned
prior to 01 / 01 /2013 and 2 years for cases
sanctioned after 01/ 01/ 2013 .
Advisory guidelines: However, in order to avoid
delay in final claim settlement and avoid potential
complications in future, invocation shall be done
within a reasonable time, preferably within
3months from the date of marking of NPA.
Recoveries in CGTMSE Norms:
claim received account Every amount recovered and due to be paid has to
be returned to trust within 30 days of recovery.
Trust remains unpaid beyond a period of 30 days
from the date on which it was first recovered,
interest shall be payable to the Trust by the lending
institution at the rate which is 4% above Bank Rate
for the period for which payment remains
outstanding after the expiry of the said period of 30
days.
Advisory guidelines: However, in order to avoid
penalties/ interest, remittance shall be done within
a reasonable time, preferably within 10 working
days.
from the date of recovery.

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