BTL 775 - CGS I Reforms – 2024-25

 

The Banking Tutor’s Lessons

BTL 775                                                                          21-04-2025

CGS I Reforms – 2024-25

Availability of bank credit without the hassles of collaterals / third party guarantees would be a major source of support to the first generation entrepreneurs to realise their dream of setting up a unit of their own Micro and Small Enterprise (MSE).

Keeping this objective in view, Ministry of Micro, Small & Medium Enterprises (MSME), Government of India launched Credit Guarantee Scheme (CGS) so as to strengthen credit delivery system and facilitate flow of credit to the MSE sector.

To operationalise the scheme, Government of India and SIDBI set up the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).

CGTMSE encourage Member Lending Institutes to lend MSMEs with relaxed norms and without insisting collaterals.

Member Lending Institutions

All Scheduled Commercial Banks (PSU, Private or Foreign Banks), Regional Rural Banks (RRBs), State Financial Corporations (SFCs) , NBFCs, Small Finance Banks (SFBs), Scheduled Urban Co-operative Banks(SUCB - including Non-Scheduled Urban Co-operative Banks, State Co-operative Banks and District Central Co-operative Banks), Microfinance Institutions (MFIs) etc. Small Industries Development Bank of India (SIDBI), National Small Industries Corporation Ltd. (NSIC) and North Eastern Development Finance Corporation Ltd. (NEDFi) have been included as eligible institutions.

In case of Commercial Banks, CGTMSE not specified any eligibility criteria. However, in case of SUCBs, NSUCBs, StCBs, DCCBs and RRBs. The eligibility criteria is as under:

Registration Criteria for SUCBs:

CRAR as per extant RBI guidelines (12% as on date)

Net profit during at least 2 out of 3 previous financial years

Gross NPAs of 7% or less

No major regulatory and supervisory actions as on date

 

Registration Criteria for NSUCBs, StCBs and DCCBs:

CRAR as per extant RBI guidelines (9% as on date)

Net profit during at least 2 out of 3 previous financial years

Gross NPAs of 7% or less

No major regulatory and supervisory actions as on date

 

Registration Criteria for RRBs:

RRBs should have a CRAR in line with extant RBI guidelines (9% as on date)

 

Net NPAs below 10% of advances

No major regulatory or supervisory concerns if any, as indicated in the auditor report

 

Net profit during the last completed FY

CGTMSE offers the following Guarantee Schemes MLIs (Member Lending Institutes – Commercial Banks, RRBs, Co-operative Banks, NBFCs etc.)

CGS I is Credit Guarantee Scheme for Banks

CGS II is Credit Guarantee for NBFCs

CGS III - Scheme for Co-Lending (CGSCL)

Credit Guarantee Scheme for PM Vishwakarma (CGS PMV)

Credit Guarantee Scheme for Co-Lending (CGSCL)

Credit Guarantee Scheme for Subordinate Debt (CGSSD)

In this lesson details/updates related to CGS I are covered.

 

CGS I covers the following :

# Micro & Small Enterprises as per MSMED Act are eligible.

# Credit guarantee for MSE loans up to Rs 10 crore, without collateral and third party guarantee are covered.

# Manufacturing, Service sectors and Trading are covered.

# Credit for educational / training institutions and SHGs are not eligible for coverage.

# All fund / non-fund based facilities are covered.

Updates during 2024-25

1. Increase in Guarantee Coverage: Maximum Credit limit for Guarantee coverage is enhanced from ₹5 crore to ₹10 crore under CGS-I.

2. Revised Guarantee Coverage (Percentages)   

Category	Coverage (%)
Micro Enterprises   Upto ₹5 lakh Above ₹5 lac & upto ₹50 lac Above ₹50 lac & upto ₹500 lac	85 75 75
MSEs located in North East Region, UT of J & K and Ladakh   Upto Rs 50 lacs Above Rs 50 lac upto Rs 500 lacs	80 75
Women-led Units / Agniveers	90
SC/ST/PwD/ZED/Aspirational Districts	85
Other MSEs	75
Credit Deficient Districts	Additional +5% on base @

@ Additional 5% over and above the applicable guarantee coverage (i.e. for guarantee coverage of 75%, the coverage would be 80%, for 80% it would be 85%, for 85% it would be 90% and for 90% it would be 95%)

Impact: Promotes credit penetration in underserved regions; enhances financial inclusion.

3. AGF (Annual Guarantee Fee (AGF)

In respect of loans sanctioned/renewed on or after 01-01-2013, only Composite All-in Guarantee Fee (AGF) was charged.

In respect of loans sanctioned on or after 01-04-2016 the Trust charges Annual Guarantee Fee (AGF) at differential rates depending upon NPA levels/ Claim Payout ratio of MLIs (Standard Rate + Risk Premium) is applicable.

The Trust charges AGF on pro-rata basis for the first and last year and in full for the intervening years.

AGF will be charged on the guaranteed amount for the first year and on the outstanding amount for the remaining tenure of the credit facility.

 

Loan Size (₹)	AGF Rate (%)
Up to 10 lakh	0.37
10 lakh – 50 lakh	0.55
50 lakh – 1 Cr	0.60
1 Cr – 2 Crs	0.85
2 Crs – 5 Crs	1.00
5 Crs – 8 Crs	1.10
8 Crs – 10 Crs	1.20

 

 

4. Social Inclusion: From March 1, 2025, transgender entrepreneurs get:

- 85% guarantee coverage

- 10% AGF concession

Impact: Boosts inclusive lending; promotes diversity in MSME sector.

Other points related to CGS I and other Schemes will be covered in further Issues.

 

Arun

Axis Bank

+91 94500 79741

 

(Source : CGTMSE Circular Nos. 241, 248 & 249/2024-25)