CREDIT GUARANTEE SCHEME FOR SUBORDINATE DEBT (CGSSD)

 CREDIT GUARANTEE SCHEME FOR SUBORDINATE DEBT (CGSSD) 

Ministry of Micro, Small and Medium Enterprises, has framed a Scheme for the purpose of providing guarantees in respect of credit facilities extended by eligible and registered scheduled commercial banks to borrowers in Micro, Small and Medium Enterprises (MSMEs). The scheme will be operationalized through a special window created for this purpose under Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE). 

Details of the scheme are as under: The Scheme is named as ‘Distressed Assets Fund - Subordinate Debt for Stressed MSMEs’ and the credit product for which guarantee would be provided under the Scheme shall be named as ‘Credit Guarantee Scheme for Subordinate Debt (CGSSD)’(hereinafter referred as the ‘Scheme’) 

Purpose of the Scheme: To provide guarantee coverage for the CGSSD to provide Sub-Debt support in respect of restructuring of MSMEs. 90% guarantee coverage would come from scheme/ Trust and remaining 10% from the concerned promoter(s). The objective of the scheme is to provide personal loan through banks to the promoters of stressed MSMEs for infusion as equity / quasi equity in the business eligible for restructuring, as per RBI guidelines for restructuring of stressed MSME advances.

The Scheme is applicable for those MSMEs whose accounts have been standard as on 31.03.2018 and have been in regular operations, either as standard accounts, or as NPA accounts during financial year 2018-19 and financial year 2019-20. 

Fraud/ Willful defaulter accounts will not be considered under the proposed scheme.  Personal loan will be provided to the promoters of the MSME units. The MSME itself may be Proprietorship, Partnership, Private Limited Company or registered company etc. iv. The Scheme is valid for MSME units which are stressed, viz. SMA-2 and NPA accounts as on 30.04.2020 who are eligible for restructuring as per RBI guidelines on the books of the Lending institutions. 

 Loan Amount eligible under the Guarantee Coverage  The guarantee coverage will be provided to the eligible borrower for the credit facilities extended under this scheme. Under this arrangement, promoter(s) of the MSME unit will be given credit equal to 15 % of his/her stake (equity plus debt) or Rs 75 lakh whichever is lower. 

The financial assistance provided as part of the scheme is to be operated as a separate loan account and the promoter need to infuse the sub-debt / loan amount as promoter’s contribution in the form of equity (including sub-debt or quasi equity) into MSME entity.

 Any guarantee approved under this scheme shall be over and above the existing loan / guarantee sanctioned by the trust (over and above the eligible limit of Rs.200 lakh). In case a borrower has existing limits with more than one lender, the CGSSD can be availed by the borrower through one lender only. A declaration from the borrower regarding its other banking arrangements and that it has not availed funding under the scheme from the other lenders to be obtained by the lending MLI. 

Post-restructuring, NPA classification of these accounts shall be as per the extant IRAC norms. 

The tenor of sub-debt facility provided under CGSSD shall be as per the repayment schedule defined by the lender, subject to a maximum tenor of 10 years from the guarantee availment date or September 30, 2021 whichever is earlier.

The maximum tenor for repayment will be 10 years. There will be a moratorium of 7 years (maximum) on the payment of principal. Till the 7th year, only interest will be paid. 

The sub-debt facility so sanctioned by MLIs will have 2nd charge of the assets financed under existing facilities for the entire tenor of the sub-debt facility. Guarantee Fee i. 1.50% per annum on the guaranteed amount on outstanding basis. Guarantee fee may be borne by the borrowers as per the arrangements between the borrower and the MLIs. 

Extent of the Guarantee Coverage - 90% guarantee coverage would come from scheme/ Trust and remaining 10% from concerned promoter(s) on the credit extended by MLIs under the scheme.