Suspension of CGTMSE Scheme

Suspension of CGTMSE Scheme

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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