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CREDIT GUARANTEE FUND TRUST FOR MICRO AND SMALL

ENTERPRISES
(Earlier CGFT for Small Industries)
1.
Credit Guarantee Fund Trust for Micro and Small Enterprises, is a Trust
formed by the Government of India (GOI) and Small Industries Development
Bank of India (SIDBI) as settlers to operate the Credit Guarantee Fund Scheme
for Micro and Small Enterprises. This aims at providing guarantees in respect of
credit facilities to the borrowers in the small scale sector without any collateral
security and/or third party guarantees.
2.

The salient features of scheme are detailed as under

2.1

Eligible Credit Facilities


CGTMSE shall cover credit facilities (Fund based and/or Non fund
based) extended by Member Lending Institution(s) to a single eligible
borrower in the Micro and Small Enterprises sector for credit facility (i)
not exceeding Rs. 50 lakh (Regional Rural Banks/Financial Institutions)
and (ii) not exceeding Rs.100 lakh (Scheduled Commercial Banks and
select Financial Institutions) by way of term loan and/or working capital
facilities, without any collateral security and / or third party guarantees
to all new and existing Micro and Small Enterprises (both in the
manufacturing Sector as well as in the Services Sector excluding
Retail Trade), Credit facilities extended under KVICs Rural
Employment Generation Programme REGP.
All proposals for sanction of guarantee approvals for credit facilities
above Rs. 50 lakh and upto Rs.100 lakh will have to be rated
internally by the Bank and should be of investment grade. Proposals
approved on or after December 8, 2008 will be eligible for the
coverage upto Rs.100 lakh. (Refer e-circular No 214 dated 19.07.2007
& 47/ 2008-09 dated 19.01.2009)
A clarification has been sought from Govt of India, on the eligibility of
Educational Institutions under the Credit Guarantee cover and the
same is awaited.
Therefore till such time a clarification is received
from the Government the Trust has put applications for credit
guarantee cover from Educational institutions on hold (Circular No 30
dated October 20, 2008).
(i)

Dues to the lending institutions have not become bad or doubtful of


recovery and/or

(ii)

The business or activity of the borrower for which the credit facility was
granted has not ceased and/or

(vi)

(iii)

The credit facility has not been wholly or partly utilised for adjustment
of any debts deemed bad or doubtful of recovery without obtaining a
prior consent in this regard from the Trust.

(iv)

Sick Units If the eligible borrower unit which has been covered under
the scheme 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 Rs.50 lacs.

(v)

Rephasement / Reschedule of sanctioned limits -- In case of accounts


covered under CGTSI where rephasement / reschedulement is
required, the Member Lending Institutions (MLIs) concerned may
approve the proposal and intimate to the Trust the detailed terms and
conditions of rephasement. (CGFTSI Circular No. 6 / 2002-03 dated
October 22, 2002)

Additional Loan facilities sanctioned If sanction of additional credit


facility to the borrower is granted (within the overall eligible credit limit of
Rs. 100 lakh under CGFTSI), the MLI is required to pay to CGFTSI the
guarantee fee on the additional credit facility sanctioned at the stipulated
rate (presently 1.5%)
(vii) Units already enjoying credit facilities with collateral security Any
additional limits sanctioned to such units subsequently, without
obtaining collateral or TPG upto a limit of Rs.100 lacs is covered under
the scheme.
(viii)

Additional facilities sanctioned to units who have been already covered


under CGFTSI to a maximum extent of Rs.50 lacs -- If we extend
additional term loans / enhanced working capital facilities to such
borrowing units by taking collateral security and / or Third Party
Guarantee (TPG), if considered necessary, keeping in view the risk
perception. The collateral security / TPG would, however, be restricted
to the additional loan / credit facility only. In such eventuality, the
guarantee cover already extended by CGTSI to the MLIs against such
borrowing units would continue to remain in force through its normal
tenor.

(ix)

Limits sanctioned for Agri Clinics and Agri-Business Centres -- The


credit facilities extended by the Member Lending Institutions (MLIs) to
the nine activities under Agri-Clinic and Agri-Business Centres
(ACABCs) can be covered under the CGS provided the finance is
extended as per the terms and conditions of Credit Guarantee Scheme

2.2

Credit facilities not eligible


(i)

Any credit facility in respect of which risks are additionally covered by


Government or by any general insurer.

(ii)

Any credit facility which has been sanctioned against collateral security
and / or third party guarantee. (However Personal Guarantee of the
promoter can be obtained).

(iii)

Any credit facility with interest rate more than 3% over the prime
lending rate.

(iv)

Credit facility extended jointly by two or more banks to a single


borrower or credit facility extended jointly by two or more institutions to
a single borrower shall not be eligible for guarantee cover. Part of
credit facility with collateral and part of the same facility without
collateral for guarantee cover would not be entertained.

2.3

Guarantee Fee
A one-time guarantee fee @ 1.5% (earlier@ 2.5% Refer e-circular 1572006-07) of credit facility sanctioned comprising term loan and/or working
capital facility, and @ 1% for manufacturing units with credit facilities upto
Rs.5 lakhs (effective from 01.03.2008), shall be paid upfront to the Trust
by debit to the borrowers account within 30 days from the date of first
disbursement of credit facility or within 30 days from the date of demand
advice (CGDAN) of guarantee fee in respect of approved approval,
whichever is earlier.
For the purpose of calculation of guarantee fee, the credit facility
extended shall mean the amount of financial assistance committed by the
lending institution to the borrower, whether disbursed or not. (CGTSI
Circular No. 21 / 2004-05 dated January 20, 2005)
A one-time GF is to be paid to the Trust by debit to Banks Charges
Account. The GF is to be paid within 30 days from the date of approval of
Guarantee Application by the Trust OR from the date of first disbursement
of Credit extended by the Bank to a Borrower, whichever is later.

Credit Limits

One-time Guarantee Fee (GF)

Annual Service Fee


(ASF)

NE Region &
Sikkim

Others

Upto Rs. 5
lacs

0.75%

1.00%

0.50%#

Above Rs. 5
lacs

0.75%

1.50%

0.75%#

W.e.f. 16.08.08, the GF is to be paid by recovering it from the Unit upfront.


In respect of cases where the Bank has already paid the GF by debit to
Charges Account, the earlier procedure of loading into interest rate
structure will continue.
For loans with limits upto Rs. 2 lacs, the GF will be absorbed by the Bank
as hitherto.
In case of Borrowers already covered under the Scheme for WC Facilities,
the GF for additional WC Facilities extended shall be levied on pro-rata
basis for the remaining number of years in the block of 5 year period,
considering any part period in the year as full year.
The Guarantee Fee and Annual Service Fee are to be paid to the Trust by
means of separate Drafts in favour of CGTMSE, payable at Mumbai
2.4.1

Annual Service Fee


The Annual Service Fee at 0.50% p.a. on the amount of credit facility up to
Rs 5.00 lacs and 0.75% p.a. for units with credit facilities over Rs. 5 lakhs
extended by the MLI, which is covered under the scheme and in respect
of which guarantee fee has been paid as on March 31 shall be paid by the
lending institution within 60 days i.e. May 31 of every year.
Date of effect of modification: Applicable in respect of all guarantees
extended by the Trust since inception that are in force. The annual service
fee with revised rate is payable in respect of guaranteed accounts as on
March 31, 2005 and would remain applicable in respect of all credit
facilities covered under CGS, in future also. (CGTSI Circular No. 21 /
2004-05 dated January 20, 2005)

2.4.2 The guarantee fee and / or annual service fee once paid by the lending
institution to the Trust is non-refundable. Guarantee Fee / Annual Service
Fee, shall not be refunded, except under certain circumstances like
a) excess remittance,
b) remittance made more than once against the same credit
application,
c) guarantee fee & / or annual service fee not due,
d) guarantee fee paid in advance but application not approved for
guarantee cover under the scheme, etc.
(CGTSI Circular No. 21 / 2004-05 dated January 20, 2005)

2.5

Extent of Guarantee

Category

Micro Enterprises

Maximum extent of Guarantee where credit facility is


Upto Rs.5 lakh
Above Rs.5
Above Rs.50 lakh upto
lakh
Rs.100 lakh
upto Rs.50
lakh
85% of the
75% of the
Rs.37.50 lakh plus 50% of
amount in
amount in
amount in default above
default subject
default subject Rs.50 lakh subject to overall
to a maximum
to a maximum ceiling of Rs.62.50 lakh
of Rs.4.25 lakh
of
Rs.37.50 lakh
80% of the amount in default
Rs.40 lakh plus 50% of
subject to a maximum of Rs.40
amount in default above
lakh
Rs.50 lakh subject to overall
ceiling of Rs.65 lakh

Women
entrepreneurs/
Units located in
North East Region
(incl.
Sikkim)
(other
than
credit
facility
upto Rs.5 lakh to
micro
enterprises)
All other category 75% of the amount in default
of
subject to a maximum of Rs.37.50
borrowers
lakh

Rs.37.50 lakh plus 50% of


amount in default above
Rs.50 lakh subject to overall
ceiling of Rs.62.50 lakh

The guarantee cover will commence from the date on which the fee is
credited to Trust Account and shall run through the agreed tenure of term
credit/composite credit.
Where working capital facility alone is extended, guarantee shall be for a
period of 5 years or extendable for another block of 5 years on renewal of
the guarantee cover.
The guarantee fee for additional working capital facilities extended shall
be levied on pro-rata basis for the remaining number of years in the block
of year period, considering the any part period in the year, as full year.
(CGTSI Circular No. 21 / 2004-05 dated January 20, 2005)
2.6

Invocation of Guarantee
Invocation of guarantee in respect of eligible credit facility if the following
conditions are satisfied.

1. The Guarantee Cover in respect of that Credit Facility is in force.


2. The lock-in-period of 18 months from either the date of last disbursement
of the loan to the Borrower OR the date of payment of the Guarantee Fee
in respect of Credit Facility to the Borrower, whichever is later, has
elapsed.
3. The amount due and payable to the Bank in respect of the Credit Facility
has not been paid and the dues have been classified as NPA (Trust to be
informed when the account is classified as NPA).
4. The loss in respect of the said Credit Facility had not occurred owing to
actions / decisions taken contrary to or in contravention of the guidelines
issued by the Trust.
5. The Credit Facility has been recalled and legal proceedings have been
initiated under due process of law.
6. The Bank should intimate the Trust before entering into any Compromise
Settlement or arrangement which may have the effect of discharge or
waiver of Personal Guarantee or security.
2.7 Guidelines for lodging of claim.
1. . The guarantee is in force as on date of claim and the GF) and ASF have
been paid regularly. ASF is to be paid till the issue of 1st instalment of the
claim to keep guarantee in force.
2. Lock in period of 18 months from the date of last disbursement OR the
date of issuance of guarantee cover, whichever is later, is completed.
3. The borrower account is classified as NPA as per norms.
4. Date of issue of Recall Notice is furnished.

5. Legal Proceedings have been initiated. Furnish the relevant details such
as date of initiation of legal action and legal authority such as DRT /
Revenue Recovery Authority / SARFAESI, etc., to which the legal
application is filed. In case of action under SARFAESI, possession of the
surety has been taken.
6. Forward the claim application form duly filled in to the Nodal Officer who
will apply on line in the CGTMSE Website.
7. The Declaration & Undertaking duly signed by Asst. General Manager is
enclosed with the Claim Application Form.
8. Details of subsidy (amount & date of credit) received after date of NPA, if
any, availed by the Borrower may also be furnished.
2.8

Settlement of claim by Trust


1. The Trust shall pay 75% of the amount payable by the Trust, i.e., 75% of
the guaranteed amount OR amount in default, whichever is less, on
preferring a claim by the Bank within 30 days, subject to the claim being
otherwise found in order and complete in all respects.
2. The balance 25% of the amount payable will be paid on conclusion of
recovery proceedings.
3. Amount realised, if any, from the Unit by sale of assets or otherwise shall
first be credited in full by the Bank to the Trust before it claims the
remaining 25% of the guaranteed amount.
4. In the event of the Borrower owing several distinct and separate debts to
the Bank and making payments towards any one or more of the same,
whether the account towards which the payment is made is covered by
the guarantee of the Trust or not, such payments shall be deemed to have
been appropriated by the Bank to the debt covered by the guarantee and
in respect of which a claim has been preferred and paid, irrespective of
the manner of appropriation indicated by such Borrower or the manner in
which such payments are actually appropriated.

2.9

Risk Weights and Provisioning


Bank may assign zero risk weight for the guaranteed portion. The balance
outstanding in excess of the guaranteed portion would attract a risk-weight
as appropriate to the counter party.
Example
(a)

Balance Outstanding

Rs.10 lacs

(b)

Realisable value of security

Rs.1.50 lacs

(c)

Unsecured amount (a-b)

Rs.8.50 lacs

(d)

Guaranteed portion
(75% of (c))

Rs.6.38 lacs (Zero Risk)

(e)

Uncovered portion

Rs.2.12 lacs

In case of advance covered by CGTSI guarantee becomes nonperforming, no provision needs to be made towards the guaranteed
portion. The amount outstanding in excess of the guaranteed portion
should be provided for as per extant guidelines on provisioning for nonperforming advances.
2.10

Responsibility of the Bank

(i)

Evaluation of credit application with prudence and due diligence.

(ii)

To monitor the borrower account closely.

(iii)

To ensure the safeguarding of primary security taken from the borrower


in good and enforceable conditions.

(iv)

To exercise all necessary precautions and due diligence and maintain


its recourse to the borrower for entire amount of credit facility owed by
it and initiate such necessary actions for recovery of the outstanding
amount.

(v)

To obtain prior permission of the Trust before entering into any


compromise.

2.11

Operation of the Scheme


Branch must ensure that unit is eligible under the Credit Guarantee
scheme and obtain a consent letter in the given format (Annexure-CGS-2)
as part and parcel of arrangement letter duly acknowledged from the
borrowers so as to avoid any ambiguities in implementation of scheme.

(i)

All branches will submit the application form to Zonal Office


(Computerised Branches should send in floppy) where Maker I, Maker
II will enter the details of the application either using 'thin-clientware'
software or using internet (www.creditguarantee.org.in). Maker I and
Maker II will be junior officers so designated by Zonal authorities.
Checker Officer will be relatively senior officer (MM II / III).

(ii)

In case of proposals of Rs.10 lacs and above, the Bank shall furnish
the details of IT PAN of the concerned borrower in the application form,
while lodging the claim to the Credit Guarantee Trust. However, in
cases where credit assistance to be granted exceeds Rs.10 lacs and
the prospective borrowers dont possess IT PAN, guarantee cover may
be sought from the Trust with APPLIED FOR in the IT PAN field,
while simultaneously advising the prospective borrowers to apply for IT

PAN. Wherever available, the IT PAN number may be given even in


case of proposals below Rs.10 lacs.
(iii)

All mandatory fields in the application form need to filled up by the


operating officer and then upload it to the Trust.

(iv)

Bank should apply for guarantee cover in respect of credit proposal


sanctioned in the quarter say, April June prior to expiry of the
following quarter viz., July Sept. (i.e. by 30 th September).

(v)

On receipt of confirmation advice from the Trust, the advance payment


of guarantee fee will be sent either by e-mail to
payments@creditguarantee.org.in or by ordinary post or fax quoting
therein Member ID, CGDAN, Amount Remitted, Instrument Number
and Date of Remittance.

(vi)

To resolve disputes arising out of the interpretations of scheme, IBA


Review Forum and National Advisory Committee (CGM-DB nominated
as a member) have been constituted.
They will be only be
recommendatory bodies to the Trust. However Disputes Resolution
Committee (DRC) is being setup shortly.

(vii)

Once a claim is preferred, all monies received subsequently have to be


apportioned.

(viii)

Even existing working capital limits can be covered as long as


collateral security has not been obtained. This can be done at the time
of renewal as it has been clarified by the Trust that renewal would
amount to sanction.
All eligible loans including Government Sponsored Schemes need to
be covered under the Scheme. Credit facilities extended under KVICs
Rural Employment Generation Programme (REGP).

(ix)