QA Series S No 58 - Credit Guarantees

 

The Banking Tutor

Question Answer Series 2025

S No 58                                                                  03-09-2025

Credit Guarantees 

01. What is CGS of CGTMSE? 

CGS stands for Credit Guarantee Schemes – MSME. The Ministry of MSME implements the Credit Guarantee Scheme (CGS) for Micro and Small Enterprises (MSEs) through the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), which was jointly set up by the Ministry of MSME, Government of India, and SIDBI in the year 2000. 

02. What is the aim of CGS of CGTMSE?

The scheme aims to provide credit guarantees for the credit facilities extended to MSEs by the Member Lending Institutions (MLIs), without the requirement of collateral security or third-party guarantees. 

03. Up-to what amount of loan Credit Guarantee is available under CGS? 

With effect from 01.04.2025, this scheme facilitates credit guarantees for credit support of up to Rs. 10 crore to MSEs, extended by the MLIs. 

04.What is CGS I of CGTMSE? 

CGS I is Credit Guarantee Scheme for Banks. Member Lending Institutions (MLIs) can apply for guarantee cover anytime during the tenure of Loan provided the credit facility was not restructured / remained in SMA2 status in last 1 year from the date of submission of application.   

05. Whether Credit to Trading and Educational Institutes eligible for coverage under CGS I ? 

Trading (Retail / Wholesale Trade) and Educational / Training Institution also made eligible activity under Credit Guarantee Scheme of CGTMSE and would attract fee, extent of coverage and other terms and conditions as applicable under existing normal Scheme. 

06. What is meant by Hybrid Security? 

“Hybrid Security” product has been introduced where the MLIs will be allowed to obtain collateral security for a part of the credit facility, whereas the remaining unsecured part of the credit facility, upto a maximum of ₹10 crore, can be covered under CGS-I. 

07. What are Aspirational Districts?

Aspirational districts are those identified by the Indian government as being socio-economically underdeveloped and lacking in key social indicators, with the aim of transforming them into engines of growth. 

08. What is the aim of Aspirational District Programme? 

The Aspirational Districts Programme (ADP) focuses on these districts to accelerate their development through data-driven governance, convergence of government schemes, collaboration, and healthy competition. 

09. What is the extent of guarantee cover ? 

The extent of guarantee cover depends on the classification of the Unit as under.

 

Loan upto Rs 5 lacs – 85%

 

Above Rs 5 lacs upto Rs 10 Crores – 75%

 

Above Rs 50 lacs upto Rs 10 Crores – 70%

 

Women entrepreneurs / MSE promoted by Agniveers – 90%

 

SC/ST entrepreneurs / Person with Disability (PwD)/ MSEs situated in Aspirational District/ZED certified MSEs/Transgender Entrepreneur  -  85%

 

10. What is the extent of guarantee cover for units in Identified Credit Deficient Districts? 

The extent of guarantee coverage for MSEs situated in Identified Credit Deficient Districts (ICDD) by RBI is additional 5% over and above the applicable guarantee coverage wef December 15, 2023. (i.e. for guarantee coverage of 75%, the coverage would be 80%, for 80% it would be 85% and for 85% it would be 90%) 

11. What are Credit Starved Districts? 

"Credit-Starved Districts" and "Identified Credit Deficient Districts" are used to describe the same situation. RBI identifies districts with per capita priority sector lending below a certain threshold (currently ₹9,000 for 2024-25). 

12. What is ZED Certification? 

ZED Certification, which stands for Zero Defect Zero Effect, is a certification scheme launched by the Indian Ministry of Micro, Small, and Medium Enterprises (MSME). It encourages MSMEs to adopt practices that ensure their products are manufactured with "zero defects" and have "zero adverse effect" on the environment. The scheme aims to improve the quality and environmental consciousness of Indian MSMEs, enhancing their competitiveness and promoting sustainable manufacturing practices.

13. How is Annual Guarantee Fee (AGF) is charged? 

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

 14. What is the System of Reporting NPAs to CGTMSE by MLIs? 

The Member Lending Institutions (MLIs) are required to inform the date on which the account was classified as NPA in a particular calendar  quarter, by end of subsequent quarter using the following option in the online system. 

15. What is Credit Guarantee Scheme for Co-Lending (CGSCL)? 

CGTMSE has framed a Scheme for the purpose of providing guarantees in respect of credit facilities extended by eligible Banks & NBFCs jointly to Micro and Small Enterprises (MSEs) borrowers under Co-Lending models as prescribed by RBI from time to time. 

16. What are the features of  Credit Guarantee Scheme for PM SVANidhi ? 

No guarantee fee is charged under the scheme. 

Guarantee provided will be a portfolio level guarantee by CGTMSE. 

All loans given by each Lender under the scheme will be considered as part

of one portfolio and the guarantee coverage on the portfolio will be as following: 

• 100% guarantee cover up to first 5% loss of the portfolio amount covered under the guarantee. 

• 75% guarantee cover beyond 5% upto 15% loss of the portfolio amount covered  under the guarantee. 

• Maximum guarantee coverage will be 15% of the year portfolio Out of a portfolio of Rs.100 crore, if Rs.10 crore turns into NPA, then  first Rs.5 crore will be paid in full (i.e. 100 % guarantee cover on the eligible amount) and for the remaining Rs.5 crore, 75% guarantee cover on the eligible amount would be paid (i.e. Rs.3.75 crore). The total amount paid towards claim would be Rs.8.75 crore. 

(ii) Out of a portfolio of Rs.100 crore, if Rs.20 crore turns into NPA, then first Rs.5 crore will be paid in full (i.e. 100 % guarantee cover on the eligible amount) and for the remaining Rs.15 crore, 75% guarantee cover on the eligible amount (Rs.10 crore) would be paid (i.e. Rs.7.50 crore). 

The total claim settlement would be Rs.12.50 crore as per the graded guarantee criteria. 

17. What is Credit Guarantee Fund for Micro Units (CGFMU) ? 

National Credit Guarantee Trustee Company Ltd (NCGTC) was set up by the Department of Financial Services, Ministry of Finance, Government of India to, inter alia, to act as a common trustee company to manage and operate various credit guarantee trust funds. 

Guarantees for loans up to the specified limit (currently Rs.10 Lakh) sanctioned by Banks / NBFCs / MFIs / other financial intermediaries engaged in providing credit facilities to eligible micro units. 

It also covers overdraft loan amounts sanctioned under Pradhan Mantri Jan Dhan Yojana (PMJDY) accounts of up to INR 10,000. 

Furthermore, the CGFMU also extends its guarantee to Self Help Group (SHG) portfolios ranging from INR 10 lakhs to INR 20 lakhs. 

18. What is the difference between CGTMSE Vs. CGFMU  ? 

CGTMSE and CGFMU are both government-backed schemes in India to provide collateral-free loans to Micro and Small Enterprises (MSEs). The key difference lies in the type of guarantee and the size of businesses they cater to. CGTMSE provides individual loan-level guarantees, while CGFMU offers portfolio-level guarantees for MUDRA loans.

19. What is CGFEL? 

Credit Guarantee Fund for Education loans (CGFEL) guarantees for Education Loans by the member banks of IBA up to ₹ 7.5 lakh extended without collateral or third-party guarantee and the fund has a Target of 10 lakh loans to be guaranteed in a year. 

20. What is CGFF? 

Credit Guarantee Fund for Factoring (CGFF) guarantees for domestic factored debts of MSMEs. 

21. What is CGFSD? 

Credit Guarantee Fund for Skill Development (CGFSD) guarantees for Skill Development Loans by the member banks of IBA up to ₹ 1.5 lakh extended without collateral or third-party guarantee and the fund has a Target of 10-20 lakh loans to be guaranteed in a year. 

22. What is CGFSI? 

Credit Guarantee Fund for Standup India (CGFSI) guarantees for credit facilities of over ₹ 10 lakh & up to ₹ 100 lakh sanctioned by the eligible lending institutions, under the Stand Up India Scheme(SC/ST/Women for setting up Greenfield enterprises). 

23. What is SPOC in the context of CGFMU? 

SPOC related to CGFMU - SPOC stands for Single Point of Contact for creating creator/approver roles at the Central office of MLI. It is a standardized format (SPOC form) that is shared with MLI for sending MLI and MLI Administrator related information/details.

24. What is the difference between Policies and Guarantees offered by ECGC? 

The Insurance Cover offered directly to Exporters by ECGC Ltd is known as “Policy” and the Insurance Cover offered to Banks is known as “Guarantee”. 

25. Whether ECGC charge same premium to different Banks? 

No, ECGC does not charge the same premium to all banks for guarantee covers. The premium rate varies based on factors like the credit rating of the exporter's clients, the classification of the buyer's country, the specific type of risks covered, and other terms and conditions stipulated by ECGC for each specific policy or approval. 

26. What are different products are available from ECGC Ltd to Banks ? 

ECGC offers 14 different Covers to Banks which are grouped as under: 

a) ECIB – Short Term – Pre-Shipment

 

b) ECIB – Short Term – Post-Shipment

 

c) ECIB – Cover against Bank Guarantees

 

d) ECIB – Medium & Long Term.

 

27. What are different Short-term Covers offered by ECGC Ltd for Banks at Pre Shipment Stage ? (ECIB – Short Term – PC)

 

a) Individual Packing Credit (INPC)

 

b) Whole Turnover Packing Credit (WTPC)

 

c) Branch Wise Packing Credit (BIPC)

28. What are different Short-term Covers offered by ECGC Ltd for Banks at Post Shipment Stage ? (ECIB – Short Term – Post Shipment)

 

a) Individual Post Shipment (INPS)

 

b) ECIB- INPS (with Exclusions)

 

c) ECIB- INPS (Without Exclusions)

 

d) ECIB – INPS (Not Holding Standard Policy)

 

e) Whole Turnover Post Shipment (WTPS)

 

f) Export Finance (EF)Page 89 of 136

 

29. What are essential features of ECGC’s Short-term Whole Turnover Packing Credit (WTPC) Guarantee available for Banks ? (Export Credit Insurance for Banks Packing Credit (ECIB-WTPC) 

Eligibility: A bank or a financial institution dealing in foreign exchange is eligible to obtain this Whole-turnover Cover for all its accounts. 

Period of Cover : 12 months 

Eligible Advances: All packing credit advances as per RBI guidelines 

Protection offered : Against losses that may be incurred in extending packing credit advances due to protracted default or insolvency of the exporter-client. 

Percentage of Cover: For banks taking the cover for the first time it is 75% up to certain Limit and 65% beyond the said Limit. (For others varies from 55% to 75% depending on claim premium ratio of the bank). For Small Scale Exporters (SSE)/ Small Scale Industrial Units (SSI), it is 90%. 

30. What are essential features of ECGC’s Individual Post-Shipment (ECIB – INPS) Guarantee available for Banks ? 

Eligibility: Any bank or financial institution who is an authorized dealer in foreign exchange that provides post-shipment finance to the exporter by way of purchase, negotiation or discount of export bills after the shipment has been affected pertaining to a particular project.

Risks Covered: Protracted default or insolvency of the exporter-client. 

Period of Cover: 12 months 

Percentage of Cover: 60% 

31. What are essential features of ECGC’s Export Finance (EF) Policy ? 

Eligibility: Any bank authorized to deal in foreign exchange can obtain the Export. Finance Cover in respect of its exporter-client who has been classified as a standard asset and whose Credit Rating is acceptable to ECGC.

 Period of Cover: 12 months 

Eligible Advances : Advances against incentives such as cash assistance, duty drawback, etc., receivable at post-shipment stage. 

Protection offered: Against losses that may be incurred in extending post-shipment advances against incentives due to protracted default or insolvency of the exporter client.

Percentage of Cover: 75%

Sekhar Pariti

+91 9440641014