cgtmse presentation final

Credit Guarantee Fund Trust forCredit Guarantee Fund Trust for

Micro and Small Entreprises

(CGTMSE)

Presentation on Credit Guarantee Scheme

MSE as defined in MSMED Act 2006

Micro and Small Enterprises (MSE) in India

� MSE is governed by the MSMED Act 2006

� More than 26 million units Registered / Unregistered MSEs

� Provide employment to more than 60 Million persons

� Largest employment generating sector after agriculture

� Employment potential at low capital cost

� Constitute 95% of industrial units

� Key contributors to national economy

� 45% of manufacturing output

� 40% of total exports

� 8% of Gross Domestic Product

Products of MSEs

Chemical &

Chemical

Products

22%

Basic Metal

Industry

12%

Metal Products

More than 6000 products

Food products

36%

Metal Products

10%

Electrical &

Machinery

Parts

8%Rubber &

Plastics

Products

6%

Others

6%

CGTMSE Establishment & Corpus

EstablishmentEstablishment

• Set up as a Trust in August 2000

• Administered by a Board of Trustees (BoT)

Settlors of Trust

Settlors of Trust

• Govt. of India (GoI) & Small Industries Development Bank of India (SIDBI)

• Contribution ratio is 4:1

CorpusCorpus

• Initial Corpus Rs.125 crore

• Present Corpus Rs.2,156.56 crore

• Committed Corpus Rs.2500 crore

Objectives of CGTMSE

Shift from collateral to merit based lending

Act as catalyst of entrepreneurship promotion

Facilitate institutional credit flow to MSE sectorFacilitate institutional credit flow to MSE sector

Address growth constraints of MSE sector

Enable financial inclusion / employment generation

Revive confidence in credit guarantee mechanism

� Micro & Small Enterprises as per MSMED Act eligible

� Both Manufacturing and Service sectors covered

� Credit Facility up to Rs.100 lakh covered

Credit Guarantee Scheme (CGS)Salient Feature

� All fund / non-fund based facility covered

� Maximum Cover of up to 85% of credit facility

� All credit facility must be extended without any collateral security

� Credit for retail trade, educational / training institutions and SHGs are not eligible for coverage.

Borrower Category

Maximum Guarantee Cover, where Credit facility is

Upto Rs.5lakhAbove

Rs.5lakh to Rs.50lakh

Above Rs.50lakh to Rs.100lakh

Micro Enterprises85% of the amount in default /

75% of amount in default /

Rs.37.50lakh plus 50%of amount in defaultabove Rs.50lakh /

Extent of Guarantee cover

Micro Enterprises in default / Rs.4.25lakh

default / Rs.37.5lakh

above Rs.50lakh /Rs.62.50lakh

Women Entrepreneur / units located in North Eastern Region (Incl. Sikkim)

80% of amount in Default / Rs.40 lakh

Rs.40lakh plus 50% ofamount in defaultabove Rs.50lakh /Rs.65lakh

All other category of borrowers

75% of amount in Default / Rs.37.5lakh

Rs.37.50lakh plus 50%of amount in defaultabove Rs.50lakh /Rs.62.50lakh

Facilitating Collateral-free Credit to Micro & Small Enterprises

CGS – Tenure of Cover

� Tenure of Guarantee Cover for Term Credit, Combined WorkingCapital & Term Credit and Composite Credit is tenure of TermCredit / Composite Credit or loan termination date, whicheveris earlier

� Where Working Capital facility alone is covered, the tenure is� Where Working Capital facility alone is covered, the tenure isfor a block of five years or loan termination date, whichever isearlier. Thereafter, MLI should apply for renewal of GuaranteeCover

� If tenure of Term Loan is 3 years, tenure of working capital willalso be 3 years. After 3 years, if guarantee cover is to becontinued for working capital, application for renewal to belodged online


CGS – Application Lodgment

� For credit facility sanctioned in a particular quarter, application forGuarantee Cover should be lodged by the end of the next quarter

� In case of Working Capital Credit, date of renewal / review /enhancement can be taken as date of sanction

� In case of credit facility secured by collateral, application can be� In case of credit facility secured by collateral, application can belodged after release of collateral, subject to time limits specified forapplication lodgment

� Account should not have become overdue / bad / doubtful ofrecovery / adjusted for debts deemed bad or doubtful of recovery ason date of application / payment of guarantee fee


CGS – Guarantee Fee

� On approval of Guarantee Cover, Demand Advice for Guarantee Fee

and is to be paid upfront for commencement of Guarantee Cover

� In enhancement cases, Guarantee Fee is calculated on pro-rata basis

for residual tenure of guaranteefor residual tenure of guarantee

� In case of working capital, payment is to be made within one month

from Demand Advice date and in case of term credit, one month

from date of first disbursement / demand advice date, whichever is

later


CGS – Annual Service Fee

� Annual Service Fee (ASF) is to be paid for all accounts for which

Guarantee Cover has been availed / is in force in a financial year, at

the beginning of the next financial year i.e., ASF is collected in

“arrears” and is calculated pro-rata for the first and last years.

� If payment is not received within stipulated period, Guarantee Cover

lapses and account is liable to be closed. Annual Service Fee is to be

paid till disbursement of first installment of claim

� Present Service Fee rate is 0.50% of credit facility sanctioned for

loans upto Rs.5 lakh and 0.75% of credit facility sanctioned for loans

above Rs.5 lakh


Cost of Cover

Credit Facility

Upfront Guarantee FeeAnnual

Service

Fee

North East

Region

(incl. Sikkim)

Others

Upto Rs.5 lakh 0.75% 1.00% 0.50%Upto Rs.5 lakh 0.75% 1.00% 0.50%

Above Rs.5 lakh & upto Rs.50 lakh 0.75% 1.50% 0.75%

Above Rs.50 lakh & upto Rs.100 lakh 1.50% 1.50% 0.75%


MLI is at their discretion may pass on the cost of Guarantee cover to the borrowers.

However, responsibility of payment of Guarantee / Service Fee to the Trust will be on MLIs

CGS – Handicraft Artisans

� Guarantee Fee / Annual Service Fee in respect of credit facilitiessanctioned to artisans in the handicrafts sector and covered underthe Credit Guarantee Scheme are reimbursable by Office of DC(Handicrafts)

� Disbursement date / amount to be indicated while entering the� Disbursement date / amount to be indicated while entering thedetails to enable system to appropriate the fee

� Guarantee Fee for eligible cases from April 01, 2009 is beingappropriated out of the fund.

� For earlier cases, MLI’s may inform in writing to enableappropriation of Annual Service Fee out of the fund.


CGS – Govt. Sponsored Schemes

� Government of India has been coming up with new and innovativeideas for the upliftment of the under privileged and theunemployed by bringing sponsership schemes.

� PMEGP is one of such schemes which was formed by merger of twoschemes namely PMRY (Prime Ministers Rojgar Yojana) & REGPschemes namely PMRY (Prime Ministers Rojgar Yojana) & REGP(Rural Employement Generation Program)

� The Scheme will be implemented by Khadi and Village IndustriesCommission (KVIC) under the administrative control of theMinistry of MSME at the National level.

� Loan upto a limit of Rs.25Lakh for manufacturing sector and uptoRs.10Lakh for service sector can be sanctioned by banks and thesame can be covered under CGTMSE.


CGS – Lodging of claims

Pre-requisites for lodging claims are

� Guarantee Cover is in force

� Account classified as NPA & reported to CGTMSE

Recall Notice issued� Recall Notice issued

� Lock-in period expired

� Recovery proceedings initiated



Guarantee Cover is in Force

� Guarantee Cover in respect of the facility was in force at the time ofaccount turning NPA and there are no arrears in payment of ASF.

Account classified as NPA & reported to CGTMSE

� Account should be classified as NPA and the status updated toCGTMSE by the end of the next quarter.

Lock-in Period

� 18 months from guarantee start date or last date of disbursement,which ever is later.



Recovery proceedings initiated

� Suit for recovery of primary security should be filed with LokAdalat / RRA / Civil Court / DRT / SARFAESI Act

� If recovery proceedings are initiated under SARFAESI Act, actionas per Section 13(4) of the Act, has to be takenas per Section 13(4) of the Act, has to be taken

� Back–ended Subsidy, if any, should be indicated

� Declaration and Undertaking is to be signed by an officer notbelow the rank of Assistant General Manager


CGS – Lodging of claims – Important*

� Accounts classified as Non-Performing Asset (NPA) in a particular

calendar quarter, to be reported to the Trust by end of subsequent

quarter

� Claim to be lodged within a maximum period of one year from date

of NPA, if NPA is after lock-in period or within one year of expiry of

lock-in period, if NPA is within lock-in period


CGS – Claim Settlement

� Two stage claim settlement process

� First installment of 75% of guaranteed portion of Amount in Defaultwill be paid within 30 days of receipt of complete information

� Interest at prevailing Bank Rate will be paid in case of delay beyond� Interest at prevailing Bank Rate will be paid in case of delay beyond30 days

� Second installment shall be paid on conclusion of recoveryproceedings

� On conclusion of recovery proceedings, final loss is shared byCGTMSE and MLI, in the ratio ranging from 85 : 15 to 62.5 : 37.5, asthe case may be



� Amount in Default - Outstanding in the account, both principal &interest, as on date of NPA or the date of lodgment of the claimapplication, whichever is lower, subject to maximum of amountguaranteed

� Recoveries made after NPA date / payment of first installment ofclaim should be remitted to CGTMSE after deducting legalclaim should be remitted to CGTMSE after deducting legalexpenses, if any

� MLI’s may use OTS / Compromise settlement route for recovery.CGTMSE has to be informed if such settlement is negotiated


Common discrepancies

� Non-lodgment of claim online

� Legal proceedings not initiated / action as per section 13(4) notinitiated in SARFAESI cases

� Repayment / Outstanding details not fed properly

� Outstanding mentioned as on date of NPA considerably higher than� Outstanding mentioned as on date of NPA considerably higher thanthe sanctioned amount

� Value of security as on date of NPA / lodgment of claim notmentioned

� Non-indication of date of issue of recall notice after NPA

� Declaration & Undertaking not enclosed / not signed by appropriateauthority



Amount in Default on NPA Date Rs.8lakh

CGTMSE’s Liability (75%) Rs.6lakh

First installment paid by CGTMSE (75% of liability) Rs.4.5lakh

Recovery from Primary Security remitted to CGTMSE,

Scenario

Recovery from Primary Security remitted to CGTMSE,after adjusting legal expenses Rs.1lakh

Net Amount in Default (Final Loss) Rs.7lakh

Second installment payable by CGTMSE

(Rs.5.25lakh minus Rs.4.50lakh)Rs.75,000

Final payout to MLI (Recovery from Primary Securityremitted + 2nd Installment) Rs.1.75lakh


CGS – Benefits

Credit Guarantee Scheme - A tool for

� Widening of credit portfolio

� Better management of risk� Better management of risk

� Faster recovery of dues

� Enhancement of profitability


Role of Credit Guarantee

� A weak project cannot be turned into a viable one with guarantee

cover and is only an additional comfort to the lender, as is collateral

security

� Banks should evaluate credit applications by using prudent

banking judgment / due diligence / business discretion in

supporting only viable projects under the Credit Guarantee

Scheme and conduct the account(s) of the borrowers with normal

banking prudence


Guarantee Approval and Amount As on March 31, 2011

254000

12589

200000

250000

300000

GA

10000

12000

14000

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27457 30285

53708

150034

7051056

2199

6875

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50000

100000

150000

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2000

4000

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Approved

Amount(R s . C rore)


RBI Working GroupMajor recommendations

� Limit for collateral free loan be raised to Rs.10 lakh

� Composite Guarantee Fee of 1% p.a.

� Restoration of Income Tax exemption

� Guarantee Cover upto 85% of amount in default to Micro Enterprises� Guarantee Cover upto 85% of amount in default to Micro Enterprises

for loans upto Rs.10 lakh

� Legal proceedings as pre-condition for invoking guarantee be waived

for credit facilities upto Rs.50,000/-

� Claim lodgment period be increased to two years

� Final claim to be paid after three years of obtention of decree of

recovery


We welcome suggestions, advice andother inputs to improve our services

Contact us at :Credit Guarantee Fund Trust for Micro and

Small Enterprises7th Floor, MSME Development Centre7th Floor, MSME Development Centre

Plot No.C-11, ‘G’ BlockBandra Kurla Complex

Mumbai-400051Phone : 022-26541803-07, 61437800 (24 lines)

Fax : 022-26541821E-mail: [email protected] : www.cgtmse.in

cgtmse presentation final

Documents

annual service fee

credit guarantee scheme

credit facility sanctioned

loan termination date

loans upto rs

50lakh rs

default rs

guarantee fee