Inview 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 memeber 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 CGTMSE credit guarantee scheme.RRBs provide facilities up to Rs.50 lakh
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.
Any facility given on the basis of third party guarantee and where the type of activity is not manufacturing, services and retail trade shall be disqualified for coverage under the scheme.
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.
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 upto Rs.10 lakh extended to units in the MSE sector. Banks are also advised to extend collateral-free loans upto Rs. 10 lakh to all units financed under the Prime Minister Employment Generation Programme of KVIC.
The scheme is advantageous for both the borrowers and lenders. The borrowers neither have to struggle for bringing collateral security nor get into the saddle of offering third party guarantee to the lenders. The lenders (Banks and financial institutions) are comfortable with CGTMSE credit guarantee scheme as they can claim a certain percentage of the amount in default from the trust under guarantee cover when the borrower is unable to repay the dues from cash generated from the operation or by the disposal of prime security. In terms of existing scheme, CGTMSE offers credit guarantee to banks and financial institutions up to Rs.200 lakh per eligible borrower. Thus, the banks and financial institutions can extend fund or non-fund credit facilities to Micro and Small Enterprises (MSEs) without the fear of complete default of money financed by them.
Revised guidelines on Guarantee coverage, ceiling of limits and interest rate:
The key condition for the availability of guarantee to banks and financial institutions from CGTMSE is that the interest rate on limits sanctioned by the credit institutions under the scheme shall not be more than 14% p.a.(including the cost of guarantee cover) to be eligible under credit guarantee scheme.The facilities extended by them should be without obtaining collateral security and/or third party guarantee. The guarantee limits varying from 70% to 85% for the fund or non-fund credit facilities to Micro and Small Enterprises (MSEs). The loan granted to borrowers of micro enterprises borrowing less than Rs.5lakhs are eligible for guarantee of 85% of the loan amount(subject to a maximum of Rs.4.25 lakh). Loan above 5 lakh up to 50 lakh is eligible for guarantee coverage of 75% to a maximum amount of Rs.37.50 lakh.Women borrowers and borrowers of the northeastern region including Sikkim are eligible for guarantee of 80% on loan amount. In the case of borrowings above Rs.50 lakhs up to Rs.2 Crore, CGTMSE offers guarantee coverage of 50% of the amount in default subject to a maximum of 100 lakh.
Guarantee fee/service fee: At present, guarantee fee is payable @1.5% (0.75% in case of North Eastern Region including the state of Sikkim) on the credit facility agreed to be covered by the Trust.