Credit Guarantee Fund Trust for

Small Industries
CGTSI/(44)/2081

January 20, 2005

All Member Lending Institutions

Circular No. 21 /2004-05

Dear Sir,

Modifications in the Credit Guarantee Fund

Scheme for Small Industries (CGS)

CGTSI has been receiving suggestions from its stakeholders, more particularly from its MLIs, to cover
non-fund based working credit facilities and interest on the term loan when it becomes an NPA under the
CGS. MLIs have also been suggesting certain modifications / changes in some of the provisions of the
Scheme. With a view to making the Scheme more user-friendly and acceptable to the MLIs, CGTSI has
brought about certain modifications in the Scheme, which are given in the Annexure.
Please feel free to get in touch with us in case any further clarifications are required.

Thanking you,
Yours faithfully,
Sd/-

(S N Sadhwani)
Dy. General Manager

Annexure
Circular No. 21 /2004-05
Modifications in the Credit Guarantee Fund
Scheme for Small Industries (CGS)
The modifications brought in the Credit Guarantee Scheme are given below:
1) Extending additional term loan / working credit facilities to the borrowers already covered under the
Scheme upto the maximum extent of Rs 25 lakh.

Existing Provision:
Under Clause 4, Chapter II of the Scheme, there is a ceiling of Rs. 25 lakh for providing guarantee against the credit
facilities extended by the eligible lending institutions to a single eligible borrower. The maximum guarantee cover
available per eligible borrower shall not exceed 75% of the amount in default in respect of the credit facility extended by
the lending institution, subject to maximum of Rs. 18.75 lakh. In keeping with the spirit of the Scheme, CGTSI has
been advising its MLIs not to seek any collateral security and / or Third Party Guarantee (TPG) while extending
additional credit facility to those borrowers in respect of whom the credit facility of Rs. 25 lakh has already been covered
under CGS. CGTSI expects the MLIs to offer additional need-based credit to such borrowers based on their track record
and the risk perception, without insisting on collateral security and / or TPG.
Modified provision:
In respect of eligible borrowers already covered under the Scheme to the maximum extent of Rs.25 lakh, MLIs may now
extend additional term loans / enhanced working capital facilities to such borrowing units by taking collateral security
and / or TPG, if considered necessary, keeping in view the risk perception. The collateral security / TPG would, however,
be restricted to the additional loan / credit facility only. In such eventuality, the guarantee cover already extended by
CGTSI to the MLIs against such borrowing units would continue to remain in force through its normal tenor.
It is further clarified that in case of eligible borrowers already covered under the Scheme upto the maximum credit
ceiling of Rs. 25 lakh and to whom additional credit facilities are extended by the MLIs, by taking collateral security and /
or TPG, the Clause 11(ii) of the Scheme as reproduced below will continue to be applicable in case any payments are
made by the borrower to the MLI.
Clause 11(ii) of CGS In the event of a borrower owing several distinct and separate debts to the lending institution and making payments
towards any one or more of the same, whether the account towards which the payment is made is covered by the
guarantee of the Trust or not, such payments shall, for the purpose of this clause, be deemed to have been appropriated
by the lending institution to the debt covered by the guarantee and in respect of which a claim has been preferred and
paid, irrespective of the manner of appropriation indicated by such borrower or the manner in which such payments are
actually appropriated.
Date of effect of modification:

Effective February 01, 2005.

Rationale for the change:

Since, the ceiling of credit (Rs.25 lakh) eligible to be covered under the Scheme may not be sufficient to cover the
requirements of units which are growing fast, MLIs have been suggesting that they may be allowed to extend additional
credit beyond this ceiling against collateral security and / or TPG. In some instances, MLIs have been reluctant to
extend such additional credit facility without collateral security and / or TPG. Also, it has been provided in the Scheme
that the individual borrowing units should deal with a single lending institution for all their credit requirements
(exception has been made where the borrowing units have been extended term credit assistance by state level
institutions / other financial institutions). Hence, the proposed change will help the eligible SSI units in accessing
additional funds without hindrance. The above modification would ensure that the additional credit requirements above
Rs. 25 lakh of the borrowers already covered in the Scheme would also be met by the MLIs, in future.
2) Inclusion of Non-fund based working capital facilities under CGS within the overall limit of Rs. 25 lakh
Existing Provision:
In terms of Clause 2 (iii), Chapter I of CGS Credit facility means any financial assistance by way of term loan and / or fund based working capital facilities (cash

credit, overdraft, bills purchased or discounted, etc.) extended by the lending institution to the eligible borrower. For the
purpose of calculation of guarantee fee, the credit facility extended shall mean the amount of financial assistance
committed by the lending institution to the borrower, whether disbursed or not. For the purpose of the calculation of
annual service fee, the credit extended shall mean the amount outstanding as at March 31, of the relevant year.
Modified provision:
Credit facility means any financial assistance by way of term loan and / or fund based and non-fund based working
capital facilities (cash credit, overdraft, bills purchased or discounted, bank guarantee, Letter of credit, etc.) extended by
the lending institution to the eligible borrower. For the purpose of calculation of guarantee fee, the credit facility
extended shall mean the amount of financial assistance committed by the lending institution to the borrower, whether
disbursed or not. For the purpose of the calculation of service fee, the credit facility extended shall mean the credit
facilities (both fund and non-fund based) covered under CGS and for which guarantee fee has been paid, as at March 31,
of the relevant year.
Date of effect of modification:

Effective February 01, 2005

Rationale for the Change:

The change is being proposed in view of the persistent demand from the banks and the industry associations to cover
non-fund based facilities also. Presently, it is not permissible under the scheme to obtain any collateral security in
respect of accounts covered under the Scheme, even for the additional non-fund based credit facilities which are not
eligible for coverage under the scheme. Thus, in some instances the banks have been hesitant in extending non-fund
based credit facilities to the borrowers already covered under the Scheme. Accordingly, the non-fund based credit
facilities, as mentioned above, extended by the MLIs to the eligible borrowers can also be covered under CGS, within the
overall ceiling of Rs. 25 lakh per borrowing unit.
3) Inclusion of outstanding interest on term loan under CGS
Existing Provision:
In terms of Clause 2 (i), Chapter I of CGS:
Amount in Default means the principal amount outstanding in the account(s) of the borrower in respect of term loan
and amount of outstanding working capital facilities (including interest), subject to a maximum of fund based working
capital limits sanctioned as on the date of the account becoming NPA or such of the date as may be specified by the
Trust, for preferring any claim on the Trust against the guarantee cover.
Modified Provision:
Amount in Default means the principal and interest amount outstanding in the account(s) of the borrower in respect
of term loan and amount of outstanding working