FAQs on CGTMSE

All Scheduled Commercial Banks (either PSU, Private or Foreign Banks), selected Regional Rural Banks, selected state financial corporations , NBFCs, Small Finance Banks (SFBs) or such of those institutions as may be directed by GOI can avail of guarantee cover in respect of their eligible credit facilities under the Scheme. Small Industries Development Bank of India (SIDBI), National Small Industries Corporation Ltd. (NSIC) and North Eastern Development Finance Corporation Ltd. (NEDFi) have been included as eligible institutions. .

Yes, provided it is a commercial bank listed in the II Schedule to the Reserve Bank of India Act, 1934.

Yes, fulfilling the criteria of CGTMSE circular dated June 10, 2014 on "Review of Interest cap and other registration criteria of Regional Rural Banks (RRBs) as Member Lending Institutions (MLIs) of CGTMSE". The Trust shall cover credit facilities (Fund based and/or Non fund based) extended by select RRB(s) to a single eligible borrower in the Micro and Small Enterprises sector for credit facility not exceeding 50 lakh by way of term loan and/or working capital facilities on or after entering into an agreement with the Trust, without any collateral security and/or third party guarantees.

Select SFCs / NBFCs are being considered for inclusion as MLI, other institutions are not eligible to become a MLI.

The eligible lending institutions are required to enter into a "one time" agreement with CGTMSE for becoming Member Lending Institutions (MLIs) of the Trust. MLIs can then apply for guarantee cover in respect of eligible credit facility sanctioned to any eligible borrower. The MLIs can apply for guarantee cover in respect of credit proposals sanctioned in the quarter April-June, July-September, October-December and January-March prior to expiry of the following quarter viz. July-September, October-December, January-March and April-June respectively.

MLIs are expected to support only viable proposals using their commercial discretion and due diligence. CGTMSE will have full trust in their credit evaluation. The Trust will not re-evaluate the proposals sanctioned by MLIs. If the proposals satisfy the basic norms laid down under the CGS, the Trust will extend guarantee cover.

Our website www.cgtmse.in has "Reports and MIS" module to enable the MLIs to generate standard reports. MLI can log on to the website-member page, using member-ID allotted and generate the reports desired by it viz. status of the application lodged, Demand for GF/ASF, monthly reports etc.

New and existing Micro and Small Enterprises engaged in manufacturing or service activity excluding Educational Institutions, Agriculture, Self Help Groups (SHGs), Training Institutions etc.

As of now, all activities that come under service sector as per MSMED Act, 2006 are eligible for coverage under the scheme.

Yes. Small road and water transport loans are eligible for guarantee cover.

Under the Guarantee Scheme, a borrower is required to obtain IT PAN number prior to availing of 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, in respect of loans up to 5 lakh, CGTMSE is presently not insisting that the IT PAN be obtained at the time of availing of the guarantee cover. IT Pan No. is to be indicated in respect of credit facility above 5 lakh. Nevertheless, the MLIs have been advised to inform their borrowers to apply for IT PAN number. It is desirable to indicate IT Pan No. in all the application irrespective of the amount. It is advisable to obtain Udyog Aadhaar Number of every borrower and feed it in the system at the time of submission of new application.

In case of existing units, additional credit facilities in the form of term loan or renewal of working capital facilities can be covered as and when the facilities are extended, provided no collateral security and/ or third party guarantee is obtained. Under the "Hybrid Security" product, the 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 Credit Guarantee Scheme of CGTMSE.

Credit facilities can be extended by more than one bank and/or financial institution jointly and/or separately to eligible borrower up to a maximum limit of 200 lakh per borrower subject to ceiling amount of individual MLI or such amount as may be specified by the Trust. However, sharing of securities will not be permitted.

Yes, joint financing by a financial institution (e.g. SIDBI, NSIC, and NEDFi) and Commercial bank can be covered under the scheme. For e.g. MSE unit is financed by term loan from State financial institution and Working capital from a commercial bank. However, sharing of securities will not be permitted.

No. At present, as per the Scheme, the credit facility extended to Self Help Group cannot be covered.

Fund and non-fund based (Letters of Credit, Bank Guarantee etc.) credit facilities up to 200 lakh per eligible borrower are covered under the guarantee scheme provided they are extended on the project viability without collateral security or third party guarantee. However, under the "Hybrid Security" product, the 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 Credit Guarantee Scheme of CGTMSE.

Yes, the guarantee cover available will be restricted to credit of 200 lakh even though credit extended is more than 200 lakh to an eligible borrower. In other words, maximum of credit risk borne by CGTMSE is restricted to 150 lakh i.e. 75% of amount in default.

AGF would be charged on the outstanding loan amount instead of guaranteed amount for credit facilities sanctioned / renewed to MSEs on or after April 01, 2018.

Yes, a lender can extend either term loan or working capital facility alone and still be eligible for a guarantee cover if it meets the other eligibility parameters. Needless to say, the credit facility extended to a borrower should be without any collateral security and/or third party guarantee.

Yes, 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 Credit Guarantee Scheme of CGTMSE.

Any credit facility which has been sanctioned by the lending institution with the maximum interest rate not more than 14% p.a. and 18% p.a. including cost of guarantee cover/(Average Base Rate decided by the trust from time to time as applicable to RRBs prior to 01/08/2017.) would be eligible for coverage under CGS I and CGS II respectively.. This supersedes the existing guidelines of CGTMSE on ceiling of interest rate that could be charged by MLIs on guaranteed loans.The revised guidelines on ceiling on Interest Rate that could be charged for the guarantee covered credit facilities would be applicable also to those MLIs who would not be eligible for enhanced credit guarantee coverage from 100 lakh to 200 lakh

No, the credit facility that has already become NPA cannot be covered under the Scheme.

Primary security is the asset created out of the credit facility extended to the borrower and / or which are directly associated with the business / project of the borrower for which the credit facility has been extended. Collateral security is any other security offered for the said credit facility. For example, hypothecation of jewellery, mortgage of house, etc.

Example: Land, Plant & Machinery or any other business property in the name of a proprietor or unit, if unencumbered, can be taken as primary security.

As per the extent guidelines no third party guarantee should be obtained if the account is to be covered under the Credit Guarantee Scheme. However, in case the constitution of the borrower is proprietary or partnership, the personal guarantee of proprietor/ partner is not treated as third party guarantee. Similarly, Personal guarantee of directors, where borrower constitution is a company will not be treated as third party guarantee. Personal guarantee of spouse, friend etc. will be treated as third party guarantee.

The discretion is left to the MLI.

Any change in the Annual Guarantee Fee will be intimated to MLI from time to time. Any change in rate will have only prospective effect on the future proposals to be covered under the Scheme. As regards to Fee charged annually, it is payable on the outstanding loan amount instead of guaranteed amount for credit facilities sanctioned / renewed to MSEs on or after April 01, 2018.

Yes, Annual Service Fee/AGF is required to pay after lodgement of claim till settlement of first instalment of 75% of the guaranteed amount. However, no claim can be lodged before the expiry of the initial lock-in period (ie.18 months from the date of issue of the guarantee cover or the date of last disbursement, whichever is later).

The Annual Guarantee Fee payable would be on the outstanding loan amount instead of guaranteed amount for credit facilities sanctioned / renewed to MSEs on or after April 01, 2018.

In the first year of coverage of each guaranteed unit, the Annual Guarantee Fee is calculated for 1yr. In the succeeding year, it is worked out on pro-rata basis i.e. at the applicable rate of fee charged for the period (no. of days) of outstanding, till March 31. For calculation of Annual Guarantee Fee, number of days in a year is taken as 365. For subsequent years, service fee is charged for the whole year on the outstanding loan amount instead of guaranteed amount for credit facilities sanctioned / renewed to MSEs on or after April 01, 2018 except for terminal year or closed cases where it is on pro rata basis.

The guarantee cover will commence from the date on which guarantee fee proceeds are credited to bank account of the Trust.

Guarantee will commence from guarantee start date and shall run through the agreed tenure of the term loan / composite loans. Where working capital facilities alone are extended to eligible borrowers, it would be for a period of 5 years or block of 5 years on renewal of the guarantee cover, provided MLI pays the Annual Service Fee due as on March 31, latest by within 60 days from the date of demand by CGTMSE.

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

1. Term Loan: - Defaulted amount (inclusive of 1 Quarter interest).
2. Working capital facility: - Outstanding working capital advance (inclusive of interest up to the date of NPA). Other charges such as penal interest, commitment charge, service charge or any other levies / expenses shall not qualify for the guarantee cover.

The eligible borrower unit which has been covered under the Scheme and subsequently becomes sick due to factors beyond the control of the management, the assistance / credit for rehabilitation extended by the lender could also be covered under the Scheme provided the overall assistance is within the credit cap of 200 lakh, for such extended period of guarantee and on such terms as may be decided by the Trust.

The tenure for coverage of working capital facilities is 5 years, where working capital alone is covered under the scheme. In case term credit and working capital both are covered under the scheme, the tenure relating to working capital facility would match the normal repayment period of term credit. The reason for keeping a limit of 5 years wherever working capital alone covered are that the period for which the same are extended by the lending institutions are not time bound. The same are reviewed periodically for increase/ decrease in the limit sanctioned, and are expected to continue for a time frame much longer than 5 years. CGTMSE welcomes any renewal of guarantee cover beyond 5 years on a payment of applicable guarantee fee.

If the new promoters / management meets / satisfy the norms of the eligible borrower viz. maximum credit availed and outstanding, MSE status etc., and continues to perform the existing activities of borrower or undertakes the new activities which otherwise are eligible under the Scheme for guarantee then the lender can continue such borrower with existing liabilities under the scheme of guarantee. However, if the new promoter / management do not satisfy any of the norms of the Scheme, the guarantee in respect of the credit facility shall be deemed to be terminated from the date of said transfer or assignment.

The guarantee cover given by the Trust to the lender in respect of credit facility to a particular borrower will lapse if

1. It is subsequently brought to the knowledge of the Trust that the lender has obtained collateral / third party guarantee from the borrower while sanctioning the particular credit facility which has been covered under the guarantee, however, 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 Credit Guarantee Scheme of CGTMSE
2. It is subsequently gathered that the lender has advanced second / subsequent credit facility to the borrower with collateral / third party guarantee and extended the scope of collateral / third party guarantee to the existing credit facility for which guarantee cover has been obtained from the Trust.
3. Annual service charge is not paid to the Trust by the specified period or such extended time limit as may be granted by the Trust,
4. The tenure of guarantee cover has expired.

The lender shall prefer a claim on the defaulted account on recall of loan and initiation of recovery proceedings under due process of Law. The lender can, however, invoke the guarantee given by the Trust only after the lock-in period of 18 months either from the date of last disbursement of credit to the borrower or from the date of the guarantee cover coming into force in respect of the particular credit facility, whichever is later.

After satisfying itself about the procedural aspects met by the lender, regarding lodgement / preferment of claim for guarantee, the Trust will honour 75% of the guaranteed portion of the amount in default, subject to maximum of 50% / 75% / 80%/85% of the amount in default. The balance 25% shall be paid on conclusion of the recovery proceedings.For credit facilities sanctioned by Member Lending Institutions (MLIs) on or after 01/01/2013, the balance 25% shall be paid on conclusion of the recovery proceedings or after three years of obtention of decree of recovery, which is earlier.

Guarantee cover is available for the second term loan provided the aggregate credit does not exceed 200 lakh. Where working capital is sanctioned along with the term loan facility, the tenure of such working capital facility shall be co-terminus with that of term loan facility and shall run concurrently with the scheduled repayment period of the term loan facility. Subsequent to the repayment of the term loan along with which working capital was sanctioned, the guarantee cover in respect of working capital can be renewed by paying applicable guarantee fee on the sanctioned working capital facility or the renewal of working capital may also be clubbed with the second term loan facility so that both are sanctioned together, thus getting guarantee cover for both the facilities for a period equal to the repayment period of second term loan, on payment of guarantee fee on the sanctioned (term loan + working capital) account.

No, the lender continues to remain responsible to take all efforts in recovery of credit advanced to the borrower who had defaulted, even after the initial settlement of the claim by the Trust. However such recovery should be remitted by the lender (after adjusting towards legal expenses) to CGTMSE without delay..

Any credit facility in respect of which risks are additionally covered by Government or by any general insurer or any other person or association of persons carrying on the business of insurance, guarantee or indemnity, to the extent they are so covered is not eligible for credit guarantee cover of the Trust.

Yes, for the purpose of the scheme, issue of notice under Lok Adalat is sufficient to prove the legal proceedings have initiated.

No, mere issuance of recall notice under SARFAESI Act cannot be construed as initiation of legal proceedings for purpose of preferment of claim under CGS. Lending institution should take further action as contained in Section 13 (4) of the above Act.

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

1. Guarantee cover was not in force i.e. service fee was not paid for one particular period.
2. 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.
3. Claim application not submitted within the due date for claim lodgement.
4. Legal action against the borrower/ default unit not initiated or is initiated after the due date of claim lodgement.

The recovery proceedings would be stated as concluded after the decree has been enforced and recovery has been completed by the MLI and outstanding amount has been recovered by the MLI or decree to get time barred if no further recovery possible.

Yes. The lending institution is, however, required to keep the Trust informed. In order to avail claim, legal action must be initiated by the MLI even in the event of OTS.

Initially, the legal expenses will be borne by the MLI. At the time of remittance of recovery proceeds to CGTMSE by the MLI, same may be deducted.

The operations of this Scheme are fully computerized using B2B e-business concept to enable the Trust to deliver prompt service to the lenders.

The lending institution has to submit an undertaking (download from http://www.cgtmse.in/files/Undertaking.pdf) on a stamp paper of appropriate value to the registered office of the Trust. Subsequently, MLIs are required to give the names and addresses of the Zonal / Regional / Branch offices through which they would like to operate the Scheme. They are also required to furnish the names of a nodal officer and two other officers who will be operating the Scheme at each of the operating offices. On receipt of this information, Member ID and Passwords would be allotted by the Trust, after which it would be possible for MLIs to lodge applications for guarantee cover. Applications are required to be lodged online.

CGTMSE gives guarantee to its MLIs. Therefore, entrepreneurs in the Micro and Small Enterprises sector have to approach the Banks or financial institutions (who have already registered with the Trust as MLIs) with their viable proposals for their credit requirements. The List of MLIs of the Trust can be seen at CGTMSE web-site at http://www.cgtmse.in.

No, single guarantee cover or enblock guarantee cover for all outstanding loans is not permissible. Under the Scheme, applications are required to be filed by the MLIs, individually, in respect of each of the borrower. The Scheme provides for coverage of only new loans / renewed working capital limits sanctioned to manufacturing units in the micro & small enterprises in service sector excluding retail trade. The new credits sanctioned by MLIs in a quarter have to be covered under Guarantee Scheme as early as possible, in any case, not beyond the subsequent quarter. The applications are to be submitted by the identified branches, which have been allotted member Id, passwords by CGTMSE, using the member id in CGTMSE website (http://www.cgtmse.in).

Annual Guarantee Fee (AGF) will be charged on the guaranteed amount for the first year and on the outstanding amount for the remaining tenure of the credit facility for credit facilities sanctioned / renewed to MSEs on or after April 01, 2018. Under the Scheme, applications are required to be filed by the Operating Offices of MLIs, individually, for each of the borrower for credit facilities extended.

CGTMSE has its Registered Office at Mumbai and does not have any branches. Since the entire operations are online, CGTMSE is able to cater to the needs of its MLIs from Mumbai.