Temporary Suspension of CGTMSE Scheme

The availability of bank loan without the requirement for collateral security or guarantees would help many first generation Entrepreneurs start their business. Keeping this in mind, the Ministry of Micro, Small & Medium Enterprises (MSME), Government of India has been operating the Credit Guarantee Scheme, wherein a business loan of upto Rs.1 crore can be availed by an Entrepreneur without any collateral security. In light of the rising Non-Performing Assets (NPAs) in the bank, the CGTMSE Scheme has been temporarily suspended for certain Banks.

Suspension of Guarantee Approvals under CGTMSE Scheme

The Credit Guarantee Fund Trust vide CGTMSE Circular Dated 28th April, 2015 announced the suspension of guarantee approvals under Credit Guarantee Scheme. The recent economic downturn and tight liquidity conditions has led to a raise in the NPAs in the banking sectors.

The CGTMSE Organization, is witnessing very high level of NPAs reported by some of the Banks going upto more than 40%. The high levels of claim due to NPAs, coupled with a highly leveraged CGTMSE Corpus - has led to the temporary Suspension Of Cgtmse Scheme by the Credit Guarantee Fund Trust.

Towards this direction, it has been decided by the Credit Guarantee Fund Trust that no credit guarantees (includes fresh, renewals and enhancements) will be issued to Banks which have marked cumulative NPAs (in terms of amount) of 10% or more vis-à-vis the cumulative amount of guarantees issued by the Trust to the Bank. Such Banks would be advised by the Credit Guarantee Fund Trust to separately giving them reasonable time to submit its eligible pending sanctions for guarantee approval. Further, if the NPA level crosses/has crossed the 12% mark, the claims of such Banks will be settled after giving notice and only after thorough scrutiny of each claim.

Remedial Action to Re-instate CGTMSE Scheme

Though the CGTMSE Scheme has been temporarily suspended for certain Banks which has crossed a certain level of NPAs, the Credit Guarantee Fund Trust has proposed certain remedial actions to be taken by all the Banks as under:

The MLIs should select good projects for coverage under the Credit Guarantee Scheme;
No collateral security and/or third party guarantee to be taken under any guise; and
Proper appraisal and due diligence to be done of the credit proposals which are being submitted to the Trust for guarantee approval.

Know more about the CGTMSE Scheme

You can know more about the CGTMSE Scheme from the following articles:

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Frequently Asked Questions

Common questions about CGTMSE Scheme Suspension and Guidelines for Banks.

The CGTMSE Scheme, or Credit Guarantee Scheme for Micro and Small Enterprises, is a government initiative that allows entrepreneurs to avail business loans up to Rs. 1 crore without providing any collateral security. The scheme aims to promote entrepreneurship by facilitating easy access to credit for first-generation entrepreneurs and small businesses.

The CGTMSE Scheme has been temporarily suspended for certain banks due to the rising level of Non-Performing Assets (NPAs) in the banking sector. The Credit Guarantee Fund Trust has observed that some banks have reported NPAs of more than 40% in loans covered under the scheme, leading to a highly leveraged CGTMSE corpus.

The temporary suspension of the CGTMSE Scheme means that entrepreneurs may face difficulties in obtaining collateral-free loans from banks where the scheme has been suspended. This could hamper the ability of first-generation entrepreneurs and small businesses to access credit for starting or expanding their ventures.

The Credit Guarantee Fund Trust has decided not to issue credit guarantees (fresh, renewals, or enhancements) to banks that have marked cumulative NPAs (in terms of amount) of 10% or more vis-à-vis the cumulative amount of guarantees issued by the Trust to the bank.

The Credit Guarantee Fund Trust has proposed the following remedial actions for banks to reinstate the CGTMSE Scheme: (1) Select good projects for coverage under the scheme, (2) Refrain from taking collateral security or third-party guarantees, and (3) Conduct proper appraisal and due diligence of credit proposals submitted for guarantee approval.

During the temporary suspension of the CGTMSE Scheme, entrepreneurs may explore alternative financing options, such as seeking loans from banks or financial institutions that are still offering the scheme, or exploring other government-backed loan schemes for small businesses.

The CGTMSE Scheme is particularly significant for first-generation entrepreneurs who may lack access to collateral or financial resources. By providing collateral-free loans, the scheme aims to promote entrepreneurship and support the establishment of new businesses.

To increase the chances of loan approval under the CGTMSE Scheme, entrepreneurs should ensure they have a well-prepared business plan, adequate financial projections, and a viable business model. Additionally, they should maintain a good credit history and provide all necessary documentation to the lending institution.

The Credit Guarantee Fund Trust is responsible for managing and administering the CGTMSE Scheme. It issues credit guarantees to lending institutions, enabling them to provide collateral-free loans to eligible entrepreneurs and small businesses.

Entrepreneurs can find more information about the CGTMSE Scheme, eligibility criteria, and application processes on the official website of the Ministry of Micro, Small & Medium Enterprises (MSME), Government of India, or by contacting their nearest bank branch or entrepreneurship development center.