What is CGTMSE Credit guarantee scheme?

In view of enhancement in CGTMSE coverage up to Rs.2 crore from the earlier limit of Rs.1 crore, the Indian Banks Association (IBA) has formulated a common  MSME loan application for adaption of all member bank of IBA.  Scheduled Commercial Banks, Regional Rural Banks, and select Financial Institutions who are member institutions of CGTMSE extend credit facilities to  Micro or Small Enterprises units by way of term loan and/or working capital facilities, without the hassles of collateral security and/or third-party guarantee.

Commercial Banks / Financial Institutions extend facility up to Rs.200 lakh* under the scheme if the borrower is eligible for the CGTMSE credit guarantee scheme.RRBs provide facilities up to Rs.50 lakh.

* Guarantee cover is available for the second term loan provided the aggregate credit does not exceed 200 lakh.

Eligible:

New as well as existing Micro and Small Enterprises units who have availed credit facilities by way of term loan and/or working capital facilities,  are eligible for Credit Guarantee cover without the hassles of collateral security and/or third-party guarantee.

Not eligible:

Any facility is given on the basis of a third-party guarantee, and where the type of activity is not manufacturing, services and retail trade shall be disqualified for coverage under the scheme.

Partially Eligible:

Partial collateral security model introduced by CGTMSE where the Member Lending Institutions (MLIs) will be allowed to obtain collateral security for a part of the credit facility, whereas the remaining part of the credit facility, up to a maximum of ₹ 200 lakh can be covered under the scheme.

In case of default by the borrower subject to the overall guarantee cap amount, the liability of the Trust in respect of credit facility shall be as follows: –

Up to Rs. 5 lakh: 85 percent of the default amount maximum of Rs. 4.25 lakhs.

More than Rs. 5 lakh to Rs. 50 lakh: 75 percent of the default amount maximum of Rs. 37.50 lakhs.

More than Rs.50 lakh to Rs. 2 crores: 75 percent of the default amount maximum Rs.1.5 crores

The extent of guarantee cover is 80%(i) Micro and Small Enterprises operated and/or owned by women; and (ii) all credits/loans in the North East Region (NER) for credit facilities up to 50 lakh. In case of default, Trust settles the claim up to 75% of the amount in default of the credit facility extended by the lending institution for credit facilities up to 200 lakh.

For MSME Retail Traders* (Credit from Rs.10 lakhs to Rs. 1 crore):50% of the default amount maximum of Rs.50 lakhs

*Retail traders dealing in essential commodities (Fair Price Shops) and Consumer Co-operative Stores are classified under MSME retail traders.

Initially, only 75% of the guaranteed portion of the amount in default will be settled and the balance 25% shall be paid on the conclusion of the recovery proceedings.

The familiar grounds upon which claim from MLIs normally rejected by the Trust is as under;

Legal proceedings not initiated, or just a notice under the SARFAESI act issued but charge on primary security is not taken.

Guarantee cover was not in force i.e. service fee was not paid for one particular period.

The account was doubtful of repayment when the cover was taken and it was obvious from the conduct of the account that it will turn NPA subsequently i.e. applied for guarantee cover when the asset became stressed.

Claim application not submitted within the due date for claim lodgement.

Legal action against the borrower/ default unit not initiated or is initiated after the due date of claim lodgement.

RBI guidelines:

RBI circular RPCD.MSME & NFS.BC.No.5/06.02.31/2013-14 dated July 1, 2013, Banks are mandated not to accept collateral security in the case of loans up to Rs.10 lakh extended to units in the MSE sector. Banks are also advised to extend collateral-free loans up to Rs. 10 lakh to all units financed under the Prime Minister Employment Generation Programme of KVIC.

Guarantee fee/service fee: At present, the guarantee fee payable @1.00% in the case of credit facility up to Rs. 5 Lakh and  @1.5% for above Rs.5 lakh (0.75% in case of North Eastern Region including the state of Sikkim) on the credit facility agreed to be covered by the Trust.

Under the Guarantee Scheme, a borrower is required to obtain an IT PAN number prior to availing of a credit facility from the eligible lending institution. Also, it is a mandatory requirement under section 139A(5) read with section 272(C) of the I.T Act 1961 to indicate IT PAN on all tax documents which include returns, challans, appeals, etc. However, for credit limit up to Rs.10 lakh CGTMSE not insisting for PAN card details.

The entities like Retail Trade, Educational Institutions,   Agriculture,     Self Help Groups (SHG),  Training Institutes are excluded from the CGTMSE coverage.