2. Micro & Small Enterprises - Importance
Provide employment to more than 40 Million persons
Largest employment generating sector after agriculture
Employment potential at low capital cost
Constitute 95% of industrial units
Total of 13 Million registered / unregistered MSEs
Key contributors to national economy
45% of manufacturing output
40% of total exports
9% of Gross Domestic Product
2
3. What are the benefits which an MSME
derives post registration?
• MSME enterprises can get finance facility from Banks without collateral
requirements –CGTMSE
Credit Guarantee Fund Trust for Micro and Small
Enterprises
• Preference in procuring Government tenders
• Stamp duty and Octroi benefits
• Concession in electricity bills
• Reservation policies to manufacturing/production sector enterprises
• Time-bound resolution of disputes with Buyers through conciliation and
arbitration
• Reimbursement of ISO Certification Expenses
3
4. Erstwhile Udyog Aadhar Number (UAN)
Udyog Aadhar
• Introduced on 18th September, 2015
• No fees was required for Udyog Aadhar Registration
• Certificate was generated instantly after registration
• 88% percent registration under this method were done by Micro
Enterprises
4
Percentage of Registration Under
Udyog Aadhar from 2015 to
December 2019
5. Policy makers world over
Strive for equitable wealth distribution
Desire to direct credit flow to specific sectors
Seek to evolve mechanisms to achieve
developmental objectives
Aspire for financial inclusion / overall economic
development
Govern Banks for social empowerment
Guarantee Framework - Need
5
6. Banks exposed to various risks while lending
Default Risk factor - deterrent in MSE lending
Collateral - conventional risk mitigation tool
Lack of Collateral – commonly stated obstacle
Micro & Small Enterprises adversely affected
Need for alternate risk mitigation mechanism
Guarantee Framework - Need
6
7. Advocated as effective credit supplementation tool
Largely promoted / sponsored by Government
Dates back to 1936 in Japan
Gained acceptance in Europe – 1950’s
Well evolved in most developed economies
Credit Guarantee – Global scenario
7
8. Export Credit Guarantee Corporation of India Ltd – established in
1957 – to cover risk of exporting on credit
Credit Guarantee Scheme for Small Scale Industries introduced in
July, 1960 with Reserve Bank of India (RBI) as Administrator. RBI
operated the scheme up to March, 1981
Credit Guarantee Corporation of India Ltd – established in 1971 – to
guarantee loans under priority sector
Merged with Deposit Insurance Corporation in 1978 to form Deposit
Insurance and Credit Guarantee Corporation (DICGC)
Credit guarantee schemes of the Corporation discontinued as the
credit institutions gradually opted out of the scheme
Credit Guarantee in India
8
9. Set up as a Trust in August, 2000 and
administered by a Board of Trustees
Government of India and Small Industries
Development Bank of India (SIDBI) – the
settlors – Contribution ratio 4 :1
Initial Corpus – Rs.125 crore ; Present Corpus –
Rs.1907 crore ; Committed Corpus – Rs.2500
crore
CGTMSE - Establishment
9
10. Shift from collateral to merit based lending
Act as mechanism of entrepreneurship promotion
Facilitate institutional credit flow to MSE sector
Address growth constraints of MSE sector
Enable financial inclusion / employment generation
Revive confidence in credit guarantee mechanism
CGTMSE - Objectives
10
11. Credit Guarantee Scheme (CGS)
Operated through Banks / Lending Institutions
registered as Member Lending Institutions (MLIs)
Scheduled Commercial Banks / select Regional Rural
Banks (RRBs) / other lending institutions as
approved by Ministry of MSME eligible to register as
MLIs
97 Banks / RRBs / other lending institutions
registered as MLIs with CGTMSE
Operations done through web-based B2B E-Business
software
11
12. CGS - Definitions
Collateral Security – Security provided in
addition to the primary security, in connection
with the credit facility extended to the borrower
Primary Security – Assets created out of the
credit facility extended and / or existing
unencumbered assets which are directly
associated with the project or business for which
the credit facility has been extended
12
13. CGS – Cardinal Principles
Lender should extend credit without obtaining any
Collateral Security / Third Party Guarantee
Interest Rate levied should be in accordance with
Government / Reserve Bank of India guidelines /
not more than 14% including AGF
13
14. CGS – Eligible Credit facilities
Credit facility upto Rs.200 lakh sanctioned to MSEs (both
manufacturing and service sector including small road and water
transport operators, small business, professionals, self-
employed persons and all other service enterprises under the
ambit of MSEs as per RBI guidelines on “Lending to Priority
Sector”
Both Fund & Non-fund based Credit facilities viz., term loan,
working capital, composite credit, LCs, Guarantees, etc. can be
covered. Credit proposals above Rs.50 lakh will have to be
rated internally and should be of investment grade
14
15. CGS – Special inclusions
Certain activities under Agri-Clinics and Agri-Business Centres
(ACABCs) like Tissue Culture, Feed Processing & Testing Units,
Honey & Bee product processing units, Seed Processing Units,
Setting up of Information Kiosks / Cool Chain, etc. made eligible for
guarantee cover under the scheme
Borrower may be sanctioned distinct / separate credit facilities, but
only credit facility not backed by collateral security / third party
guarantee can be covered under the Scheme
15
16. CGS – Extent of Guarantee
Credit facilities extended by more than one
bank and / or financial institution jointly and
/ or separately to eligible borrower upto a
maximum of Rs.200 lakh per borrower subject
to ceiling amount of individual MLI or such
amount as may be specified by the Trust, in
the order in which the application for
guarantee cover has been lodged
16
17. CGS – Tenure of Guarantee
Tenure of Guarantee Cover for Term Credit,
Combined Working Capital & Term Credit and
Composite Credit is tenure of Term Credit /
Composite Credit or loan termination date,
whichever is earlier
Where Working Capital facility alone is covered, the
tenure is for a block of five years or loan termination
date, whichever is earlier. Thereafter, MLI should
apply for renewal of Guarantee Cover
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
17
18. CGS – Application Lodgement
For credit facility sanctioned in a particular quarter, application for
Guarantee Cover should be lodged by the end of the next quarter
To illustrate, for credit sanctioned during Jul-Sep quarter, application
for Guarantee Cover can be lodged upto December 31 (last date of next
quarter). Thus maximum time of 6 months and minimum time of 3
months is available for lodging of application
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 lodged
after release of collateral, subject to time limits specified for
application lodgement
Account should not have become overdue / bad / doubtful of recovery /
adjusted for debts deemed bad or doubtful of recovery as on date of
application / payment of guarantee fee
18
19. CGS – Guarantee Fee
On approval of Guarantee Cover, Demand Advice for
Guarantee Fee is generated by the system 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 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
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20. CGS – Lodging of claims
Claim to be lodged by 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
Pre-requisites for lodging claims are
Guarantee Cover is in force
Account classified as NPA
Recall Notice issued
Lock-in period expired
Recovery proceedings initiated
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21. CGS – Lodging of claims
Guarantee Cover is in Force
Guarantee Cover in respect of the facility was in force at
the time of account turning NPA and there are no arrears
in payment of ASF.
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
Lok Adalat / RRA / Civil Court / DRT / SARFAESI Act
21
22. CGS – Lodging of claims
If recovery proceedings are initiated under
SARFAESI Act, action as 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 not below the rank of Assistant General
Manager
22
23. CGS – Claim Settlement
Two stage claim settlement process
First installment of 75% of guaranteed portion of
Amount in Default will be paid within 30 days of
receipt of complete information
Interest at prevailing Bank Rate will be paid in case
of delay beyond 30 days
Second installment shall be paid on conclusion of
recovery proceedings
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24. CGS – Claim Settlement
Amount in Default - Outstanding in the account, both
principal & interest, as on date of NPA or the date of
lodgement of the claim application, whichever is
lower, subject to maximum of amount guaranteed
Recoveries made after NPA date / payment of first
installment of claim should be remitted to CGTMSE
after deducting legal expenses, if any
MLI’s may use OTS / Compromise settlement route for
recovery. CGTMSE has to be informed if such
settlement is negotiated
24
25. CGS – Claim Settlement
Amount in Default on NPA Date Rs.8 lakh
CGTMSE’s Liability (75%) Rs.6 lakh
First installment paid by CGTMSE (75% of liability) Rs.4.5 lakh
Recovery from Primary Security remitted to
CGTMSE, after adjusting legal expenses
Rs.1 lakh
Net Amount in Default (Final Loss) Rs.7 lakh
Second installment payable by CGTMSE
(Rs.5.25 lakh minus Rs.4.50 lakh)
Rs.75,000
Final payout to MLI (Recovery from Primary
Security remitted + 2nd Installment)
Rs.1.75 lakh
Scenario-I
25
26. CGS – Claim Settlement
Amount in Default on NPA Date Rs.8 lakh
CGTMSE’s Liability (75%) Rs.6 lakh
First installment paid by CGTMSE (75% of liability) Rs.4.5 lakh
Recovery from Primary Security remitted to
CGTMSE, after adjusting legal expenses
Rs.2 lakh
Net Amount in Default (Final Loss) Rs.6 lakh
Second installment payable by CGTMSE
(Rs.4.50 lakh minus Rs.4.50 lakh)
NIL
Final payout to MLI (Recovery from Primary
Security remitted + 2nd Installment)
Rs.2 lakh
Scenario-II
26
27. CGS – Claim Settlement
Amount in Default on NPA Date Rs.8 lakh
CGTMSE’s Liability (75%) Rs.6 lakh
First installment paid by CGTMSE (75% of liability) Rs.4.5 lakh
Recovery from Primary Security remitted to
CGTMSE, after adjusting legal expenses
Rs.4 lakh
Net Amount in Default (Final Loss) Rs.4 lakh
Second installment payable by CGTMSE
(Rs.3 lakh minus Rs.4.50 lakh)
(-)Rs.1.5 lakh
Final payout to MLI (Recovery from Primary
Security remitted + 2nd Installment)
Rs.2.5 lakh
Scenario-III
27
28. Performance
Approvals Time Period
1st 50,000 6 years 1 month
(Aug. 2000 to Sep.
2006)
2nd 50,000 1 year 7 months
(Oct. 2006 to Jun.
2008)
3rd 50,000 9 months
(Jul. 2008 to Mar.
2009)
4th 50,000 6 months
(Apr. 2009 to Sep.
2009)
28
30. CGS – Top 10 MLIs - Cumulative
SNo MLI No.
Amount
(Rs. Crore)
1 State Bank of India 43171 1253.61
2 Canara Bank 33519 785.67
3 Punjab National Bank 29069 800.05
4 Bank of India 25325 1302.01
5 Allahabad Bank 7697 197.19
6 Union Bank of India 7278 262.13
7 State Bank of Bikaner & Jaipur 6284 65.10
8 Central Bank of India 4792 277.12
9 Syndicate Bank 4729 255.27
10 State Bank of Travancore 4689 103.62
(As on October 31, 2009)
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31. CGS – Top 10 MLIs – FY2010
S.No MLI No. Amount (Rs. Crore)
1 State Bank of India 11793 435.95
2 Punjab National Bank 11693 470.60
3 Bank of India 9394 604.24
4 Canara Bank 4056 161.53
5 Allahabad Bank 3719 101.73
6 State Bank of Bikaner & Jaipur 2957 29.57
7 Syndicate Bank 2098 102.57
8 Bank of Baroda 2067 148.78
9 Indian Overseas Bank 1690 51.86
10 Union Bank of India 1660 93.14
( As on October 31, 2009)
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32. BOB- CGS – Top 10 Regions – FY2010
S.No MLI No. Amount (Rs. Lakhs)
1 Ajmer 476 663.80
2 Jaipur 473 1787.71
3 Udaipur 452 433.51
4 Ahmedabad 309 4880.31
5 Pune 247 1821.45
6 Kanpur 242 2387.23
7 Jodhpur 239 1480.61
8 Lucknow 215 1522.37
9 Mumbai Metro North 207 735.39
10 Kerla 181 1355.94
(Based on Cumulative guarantee approval on November 15, 2009)
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33. BOB- CGS – Top 10 Regions – FY2010
S.No MLI No. Amount (Rs. Lakhs)
1 Jaipur 267 1012.79
2 Ajmer 234 565.80
3 Udaipur 194 223.19
4 Mumbai Metro North 187 473.89
5 Ahmedabad 136 2142.34
6 Jodhpur 132 672.51
7 Mumbai Metro East 101 390.80
8 Varanasi 89 486.80
9 Pune 78 444.26
10 Allahabad 78 294.19
(Based on approvals for FY2010 as on November 15, 2009)
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34. CGS – Benefits
Credit facilities guaranteed under the Scheme carry Zero per
cent Risk Weight / Provisioning for guaranteed portion (RBI
Circular DBOD No.BP.BC.128/21.04.048/00-01 dated June 07,
2001)
Reduction in waiting period for recovery through legal process,
realising the time value of money with hassle free & quick
recovery of major portion of defaulted amount
Quicker dispensation of credit due to time saved on security
creation / Title related issues of collaterals
In case of collateral, it is Bank’s responsibility to insure / secure
the property when asset is taken over
Overall significant saving in Time & Energy cost of Bank’s Human
Resources
34
35. CGS - Benefits
Credit Guarantee Scheme - A tool for
Widening of credit portfolio
Better management of risk
Faster recovery of dues
Enhancement of profitability
35
36. 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 judgement / 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
36
