BTL 776 - CGSCL (of CGTMSE)

 

The Banking Tutor’s Lessons

BTL 776                                                                          24-04-2025

CGSCL (of CGTMSE)

The Credit Guarantee Scheme for Co-Lending (CGSCL), introduced by CGTMSE marks a strategic step toward strengthening MSME financing through collaboration between NBFCs and Scheduled Commercial Banks.

CGSCL was launched on February 25, 2022, to provide guarantee cover for loans extended under RBI’s co-lending model.

There are Two models under CGSCL:

Model 1: Joint Lending (Bank + NBFC jointly originate and disburse loan)

Model 2: Direct Assignment (Bank purchases pool of loans originated by NBFC)

Only pairs registered under CGS-I and CGS-II are eligible.

Eligibility Criteria

Eligible Borrowers: Micro and Small Enterprises (MSEs) without collateral or third-party guarantee

Loan Amount

Up to ₹5 crore for secured credit (secured by primary security)

Up to ₹2 crore for unsecured credit

Hybrid Security allowed – part collateral, part guarantee

Interest Cap: Maximum 21% blended interest rate

Guarantee Coverage

Secured Credit Facilities: 75% of the defaulted amount

Unsecured Credit Facilities: 50% of the defaulted amount

Hybrid Model: Net guarantee calculated after adjusting collateral value

Annual Guarantee Fee (AGF)

Loan Amount	AGF (%)
Up to ₹10 lakh	0.37
₹10 lakh – up to ₹50 lakh	0.55
₹50 lakh – up to ₹1 Cr	0.60
₹1 Cr – up to ₹2 Cr	0.85
₹2 Cr – up to ₹5 Cr	1.00

 

Claim Process and Lock-In

Lock-in Period: 18 months from disbursement/guarantee start date

Account must be NPA post lock-in

Legal recovery action must be initiated (except for loans ≤₹1 lakh)

1st claim: 75% paid within 30 days

2nd claim: 25% post-recovery or 3 years post-decree

 

Modifications Effective from March 1, 2025 (Circular No. 249/2024-25)

Subrogation norms aligned with CGS-I/II: recovery proceeds shared proportionally.

NBFCs made the "Dealing Institution" by default

Invocation Timeline: within 3 years of NPA/lock-in period expiry

Recovery certificate submission deadline: September 30 of following FY

Responsibilities of Lending Institutions

Maintain prudent documentation and follow-up

Ensure no double guarantee via NCGTC or other schemes

Avoid sanctioning loans with >21% interest

Upload legal and recovery actions on CGTMSE portal

Submit statutory audit certificate post-claim recovery

Impact of CGSCL on Bankers

Incentivizes collaboration with NBFCs

Enables risk mitigation for higher-ticket MSME loans

Faster portfolio churn with better capital utilization

Impact of CGSCL on MSMEs

Access to formal credit even with partial/no collateral

Reduced cost of borrowing via blended interest

Legal clarity on guarantee and claims

CGSCL is an evolving framework tailored to support MSMEs through risk-sharing in co-lending.

Arun

Axis Bank

+91 94500 79741

 

(Source : CGTMSE Circular Nos. 196 of 2022, 235 & 249/2024-25)

 

Tail Notes

 

Subrogation

 

In the context of a guarantee, subrogation means that the bank, after making a payment on the guarantee, steps into the shoes of the creditor and acquires all the rights and remedies against the principal debtor to recover the amount paid.

 

Hybrid Security

 

In the context of the Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGTMSE), "hybrid security" refers to a loan where a lender secures a portion of the loan amount with collateral, while the remaining unsecured portion is covered by the CGTMSE's credit guarantee. This allows lenders to mitigate risk by having both collateral and a guarantee for the loan.