CGTMSE will bear 85% of the loss amounting to ₹2.98 lakh. The lending institution will bear the remaining 15% of the loss amounting to ₹0.53 lakh.

2. Let’s Answer-

3. Let’s Answer:
 You have funded a cash credit facility of Rs.50.00 Lakh
to a retail grocery shop. Can it be covered under
CGTMSE guarantee scheme ?
 What is RWA ? What is the capital requirement of the
bank and your branch? Do you analyze ?
 Whether NPA accounts covered under CGTMSE can be
considered for OTS ? What is the procedure ?
 A limit was sanctioned to a unit of Agri-Clinic with the
turnover of ₹350.00 Crore. Can it be covered under
CGTMSE?

4. Why CGTMSE?
 First, this is to give thrust to MSE units by exonerating
those from offering the collateral security or third
party guarantee.
 TAT as well as cost is reduced. No LSR & Valuation.
 This is the policy compliance: BCSBI, MSME Policy of
our bank and RBI guidelines.
 When the unit performs signifies the proper creation
of primary security, the imposition of the collateral
security becomes redundant.
 The portfolio covered Credit Guarantee Cover carries
0% risk weight.

5. Contiunued- Why CGTMSE
 Frauds getting mitigated.
 No over valuation at the time of sanction and under
valuation at the time of recovery.

6. As Prescribed
 7. SECURITY NORMS
 7.1. It is mandatory to extend collateral free loans up to Rs.10.00 lac to
the Micro and Small Enterprises (MSE) sector. No third party guarantee
is required up to this limit. Such loan will invariably be covered under
credit guarantee scheme of CGTMSE.
 7.1.2. It is also advised to cover all MSE loans under CGTMSE scheme
invariably without any exception; so long the quantum of finance does
not exceed the prescribed cap of Rs.2.00 crore(for Retail Trade up to
Rs.100 lakh.) If any finance is to be made outside the coverage of
CGTMSE scheme, the branch must appraise its immediate controlling
office on merits of such exclusion and obtain its approval for the same.
 7.1.3 It is advised to strongly encourage availing of the Credit Guarantee
Scheme cover, as it has been included for making performance in this
regard a criterion in the performance appraisal of staff.
 7.1.4 In all other cases security norms as under will be applicable.

7. Eligibilities: Who are and who not?
 MSE Loans sanctioned with limit up to 200 Lac
 Account should be standard and Regular on the material
date.
 All units must have Udyog Aadhar Number or Udyam
Number.
 Loans to SHGs, Agricultural Sectors, Educational
Institutions or Training Institutions are not covered.
 Both TLs AND Working Capital are covered
 Both Fund and non-fund based loans are covered.
 Retail Trades are covered subject to coverage of 50% and
loan limit of ₹100.00 Lac.

8. Eligibilities- Continued…
 For the purpose of calculating the exposure limit on outstanding basis,
the following is to be considered.
 In respect of fully disbursed T/ L, the outstanding as on the date of
consideration of fresh coverage is to be considered. In respect of
partially disbursed T/L, the entire sanction amount should be
considered. In case, if the MLI proposes to cancel the undrawn portion
of the sanctioned facility, MLI to update the same in CGTMSE portal.
 In respect of Working Capital Limits, the total sanctioned amount of
working capital limit (irrespective of the utilization) should be
considered. (At the time of Outstanding).
 With the above clarification, the one-time cap of Rs 200 lakh is
removed and the borrowers can avail incremental credit facilities (i.e.
to the extent of reduction in the outstanding exposure limit) under
Credit Guarantee Scheme of CGTMSE, subject to maximum cap of Rs
200 lakh. (06.12.2019).

9. Eligibilities-Continued:
 Though loans to agricultural sector are not covered yet
it does the exception to Agri-Clinic and Agri-
Infrastructure

10. Classification of MSME:
Manufacturing Enterprises and Enterprises rendering Services:
 Micro Enterprise: Investment in Plant and Machinery or Equipment:
Not more than Rs.1 crore and Annual Turnover ; not more than Rs. 5 crore
 Small Enterprise: Investment in Plant and Machinery or Equipment:
Not more than Rs.10 crore and Annual Turnover ; not more than Rs. 50 crore.
 Medium Enterprise: Investment in Plant and Machinery or Equipment:
Not more than Rs.50 crore and Annual Turnover ; not more than Rs. 250 crore

11. Extent of Coverage:
Category of the Borrower Maximum Guarantee coverage
Up to ₹5.00 Lakh ₹5.00Lakh-₹50.00
Lakh
₹50.00 Lakh-
₹200.00 Lakh
Micro Enterprise
85% of the amount in
default or ₹4.25 Lakh
75% of the amount
in default / ₹37.50
Lakh 75% of the amount
in default or
₹150.00 Lakh in
maximum.
Women Entrepreneur or units
located in North Eastern Region
including Sikkim, other than credit
facility up to ₹5.00 lakh for micro
enterprise
80% of the amount in default / ₹40.00 Lakh
at maximum.
All other borrower category 75% of the amount in default or ₹37.55 Lakh
at maximum.
Retail Trade up to ₹100.00 Lakh 50% of the amount in default or ₹50.00 Lakh
at maximum.

12. Find the extent of Coverage
Exercise:
One Micro Enterprise has been funded with Working
Capital limit of Rs.100.00 Lakh .
Find the maximum coverage?

13. Answer:
First 5 lakh=4.25
Next 45 Lakh=33.75
Next 50 Lakh=25.00
Total: 63.00 Lakh

14. Guarantee Fee:
Credit Facility Annual Guarantee Fee(AGF)
Micro Enterprise,
Women Entrepreneur
or for the units in NE
Region(Including
Sikkim)
Others
Up to ₹5 Lakh 1% 1%
₹5.00 Lakh - ₹50 Lakh 1.35%+ Risk Premium 1.50% + Risk Premium
₹50.00 Lakh-₹200.00
Lakh
1.80% + Risk Premium
For Retail Trade 2.00 % + Risk Premium

15. Differential Rate Mechanism:
 Applicable to credit facilities sanctioned by MLIs on or
after April 01, 2016
1) Risk premium on NPAs in
Guaranteed portfolio
(2) Risk premium on Claim
Payout Ratio
NPA
Percentage
Risk Premium Claim
Payout %
Risk
Premium
0-5% SR 0-5% SR
>5-10% 10% of SR >5-10% 10% of SR
>10-15% 15% of SR >10-15% 15% of SR
>15-20% 20% of SR >15-20% 20% of SR
>20% 25% of SR >20% 25% of SR

16. Some Points to remember regarding Fee:
Annual Fee (AGF) is to be paid for all live accounts for
which Guarantee Cover has been availed / is in force in a
financial year, at the beginning of the financial year i.e.,
ASF/AGF is collected in “advance ”. If fee is not paid in time
CGTMSE may allow payment interest BR + 4%.
If payment is not received within stipulated period,
Guarantee Cover lapses and account is liable to be closed.
Annual Fee is to be paid till intimation of closure of
account/ expiry of account/ settlement of first installment
of claim

17. Regarding Fee-Continued
 AGF / ASF is calculated on the outstanding amount on 31/12/0000 in
case of Term Loan.
 In case of working facility, the peak outstanding in the last calendar
year. (01/01/0000-31/12/0000)
 On approval of Guarantee Cover, Demand Advice for Guarantee Fee is
generated and is to be paid upfront for commencement of Guarantee
Cover . In enhancement cases for sanctioned on or after January 01,
2013, Guarantee Fee is calculated on pro-rata basis till financial year
end.
Time Limit for making the fee payment: 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.

18. Regarding Fee-Continued
 For credit facility sanctioned in a particular quarter, application for
Guarantee Cover should be lodged by the end of the next quarter
In case of renewal of Working Capital Credit, date of
renewal / review / enhancement can be taken as date of
sanction.

19. Hybrid Security
 Came into effect 04/10/2018.
 A part of the credit facility can be covered with
collateral security.
 Residual part of credit limit / oustanding can be
covered collateral security.
 CGTMSE will have 2nd charge instead of PARI PASSU
charge.
 CGTMSE Charge=O/S/ Peak Limit/ Peak
Ouststanding-Recovery of the Collateral Security.

20. Some facts about Coverage
 In case of Term Loan O/S is being covered instead of
Sanctioned Limit.
 In case of Working Capital Limit, the sanctioned limit is
the maximum extent coverage.
 ROI in the credit facilities will be as per RBI guidelines
instead of maximum ceiling of 14%.
 Personal guarantee of proprietor ,partners , Karta &
coparceners ,directors, where borrower constitution is
a company and owner of the immovable property in
case of guarantee under partial collateral security
model would not be treated as third party guarantee

21. Continued..
 Tenure of Guarantee Cover for Term Credit is tenure of Term
Credit or loan termination date, whichever is earlier
 Where Working Capital facility alone is covered , with effect
from 18.03.2020 maximum tenure of 10 years has been removed
however review would be undertaken after each block of 5 years
by CGTMSE before renewal of Guarantee coverage for next 5
years.
 If tenure of Term Loan is 3 years, tenure of working capital will
also be 3 years. After 3 years, if guarantee cover is to be
continued for working capital, application for renewal to be
lodged online.

22. CGS – Lodging of claims
 The lending institution may invoke the guarantee in
respect of credit facility within a maximum period of 3
years from the NPA date or lock-in period whichever is
later, if the NPA date is on or after 15/03/2018.
 The Member Lending Institutions (MLIs) are required
to inform the date on which the account was classified
as NPA in a particular calendar quarter, by end of
subsequent quarter.

23. Pre-requisites for lodging claims
 Guarantee Cover is in force
 Account classified as NPA but no guidelines of the trust is
violated.
 Recall Notice issued
 Lock-in period expired (Lock-in-Period=18 months).
 Recovery proceedings initiated
Suit for recovery of primary security should be filed with Lok
Adalat / RRA / Civil Court / DRT / SARFAESI Act 13(4)

24. Pre-requisites for lodging claim..
 Claims of the respective MLI will be settled to the
extent of 2 times of the fee including recovery remitted
during the previous financial year. Any claim lodged /
received exceeding 2 times of the total fee including
recovery remitted by MLI will be suspended till such
time the position is remedied i.e. payout is brought
within the payout cap limit

25. Claim Settlement:
 Two stage claim settlement process
 First installment of 75% of guaranteed portion of Amount in
Default within 30 days.
 Amount in default means the principal and interest
outstanding in the account in TL & CC as on the date of
NPA or date of lodgment of claim which ever is lower.
 Second installment of 25% of guaranteed portion shall be paid
on conclusion of recovery proceedings or the decree gets time
barred.
 On conclusion of recovery proceedings, final loss is shared by
CGTMSE and MLI, in the ratio ranging from 85 : 15 to 62.5 : 37.5,
as the case may be.

26. Claim Settlement-Continued….
 Pre-Condition of initiation of legal proceedings to the
lodgment of claim in the credit facilities up to ₹50000.00
has been waived.
The lending institution shall be liable to refund the claim
released by the Trust together with penal interest at the
rate of 4% above the prevailing Bank Rate, if such a recall is
made by the Trust in the event of serious deficiencies
having existed in the matter of appraisal / renewal / follow-
up / conduct of the credit facility or where lodgement of
the claim was more than once or where there existed
suppression of any material information on part of the
lending institutions for the settlement of claims.

27. Settlement of 2nd Installment:
Settlement of the 2nd Installment will have the pre-
conditions:
 Period of 3 years has been lapsed since the settlement
of the first installment.
If legal action is initiated only under SARFAESI Act
and whatever assets available were sold off and the
amount is remitted to the Trust. Also, the borrower is
not traceable and the Networth of the Personal
Guarantor is not worth pursuing further legal course.

28. Settlement of 2nd Installment
continued..
 If amount is recovered through sale of assets under SARFAESI and no
other assets are available and legal action is taken under any forum
such as RRA, Civil Court, Lok Adalat or DRT where there is no further
means to recover the money from the borrower and the Networth of
the Personal guarantor is significantly eroded.
 If no assets are available and the borrower is absconding, and the
Networth of the Personal guarantor is significantly eroded
 If no assets are available and the legal action is withdrawn as the
borrower is absconding and it may not be worth pursuing legal action.

29. Rejection of claims
 Case was already NPA at the time of applying for guarantee coverage.
 Case was overdue or doubtful of recovery as on guarantee start date.
 Claim not lodged within time frame.
 Legal action not initiated /Legal action initiated after the due date.
 Annual service fee not paid/paid after the due date.
 Internal rating not done for case of above Rs 50 lakh.
 Irregularities /fault/negligence pointed out by internal/external
auditors of the MLI.
 Activity of the borrower not eligible under CGS.

30. Right of Subrogation:
 Details of the efforts of recovery and realization have
to be shared with the trust.
 Lien on the primary security.
 Recovery of Dues, sale of assets or take over of assets
and the responsibility lies with the lending institution
 Recovery amount to be remitted within 30 days else
interest to be paid @ BR+4% for the delayed period.

31. Appropriation of the Claim
 Appropriation will be done as:
1. First towards ASF/AGF
2. Next towards any penal interest due.
3. Next towards any charges due.
4. Next towards the claim amount.

32. Treatment of Recovery post Installment.
 On Payment of first installment of claim, MLIs should undertake to
remit all such recoveries from the borrower/ unit made after the
settlement of 1st installment claim (after adjusting towards legal
expenses) to CGTMSE without delay.
 IF OTS is received then remit the entire amount of OTS to arrive at the
total loss for settling the final installment of claim.
 Losses on account of deficit in recovery of the credit facility between
the Trust and the lending institution are in the proportion of 50%/75%
/ 80% / 85% and 50%/ 25% / 20% / 15%, respectively

33. Example of the treatment of Recovery post
installment and losses.
 Outstanding on the date of NPA: ₹21.50 Lakh.
 Unit: Micro Enterprise
 First Installment already received.
 Recovery realized post settlement: ₹18.00 Lakh
 Find out the losses to shared between the trust and
MLI ?

34. Example-Continued…
 Guarantee Coverage: ₹16.625 Lakh
 First Installment: ₹15.56 Lakh
 Recovery Proceeding received and concluded @:₹18.00
Lakh.
 Loss occurred: ₹21.50-₹18.00=₹3.50 Lakh
 85:15=2.98:0.53
 Amount to the trust-₹15.56-₹2.98=₹12.58 Lakh
 Net amount from the trust: ₹18.00-₹12.58=₹5.42 Lakh.

35. Role of the Branch:
 See the report: http://ditportals.cbi.co.in/cgtmse/
 Intimate the controlling office for marking NPA by
maximum within subsequent quarter of the date of
NPA.
 Initiate the legal action or remedies.
 Inform the controlling office for invoking guarantee.
 Receive the first installment and park in the NL.
 Maintain a physical register or register virtual for
recording the recovery with the borrower details.

36. Role of the Branch:
 Pursue the legal action or recovery measures.
 Remit the RP to the trust if any after that.
 Furnish the required information to the trust via the
controlling office
 Conclude the legal action.
 Intimate the controlling office for claiming 2nd or last
installment.

37. CGTMSE
Credit Guarantee Fund Trust for Micro and Small
Entreprises.
 Set up as a Trust in August, 2000 and administered by
Board of Trustees
 Initial Corpus ` 2,500 crore; Government of India and
Small Industries Development Bank of India (SIDBI) –
the settlors – Contribution ratio 4 :1
 The committed Corpus of the Trust was enhanced by the
Govt. of India from ` 2,500 crore to ` 8000 crore.
 Completed 18 years of operations

38. Every Suggestion or feedback or value addition or query is
welcome.
Reach me @titamita2009@live.com
MO: 7718727341