Credit Guarantee Scheme for Subordinate Debt (CGSSD)

Name

• The Scheme is named as ‘Distressed Assets Fund - Subordinate Debt for Stressed MSMEs’.
• The credit product for which guarantee would be provided under the Scheme is named as ‘Credit Guarantee Scheme for Subordinate Debt (CGSSD)’

Purpose

• 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 (CGTMSE) and remaining 10% from the concerned promoter(s).
• The objective of the scheme is to provide credit facility through lending institutions to the promoters of stressed MSMEs viz. SMA-2 and NPA accounts who are eligible for restructuring as per RBI guidelines on the books of the Lending institutions. The promoter would infuse the credit in the MSME as quasi equity or sub-debt.

MSME’s constitution included under the Scheme

MSME units such as Individuals / Proprietorship, LLP, Partnership, Private Limited Company or registered company are eligible to be covered under the scheme.

Nature of Facility

Term Loan

Duration/ Scheme Validity

The Scheme would be applicable to sub-debt sanctioned under CGSSD for a maximum period of 10 years from the guarantee availment date or March 31, 2023 whichever is earlier, or till an amount of Rs.20,000 crore of guarantee amount is approved.

Eligible Criteria of Borrower

1. All MSME borrower / entities who are stressed viz. SMA2 and NPA accounts and are eligible for restructuring (as per RBI guidelines) and are commercially viable as per the assessment of Bank.
2. It is applicable for those MSMEs whose accounts have been standard as on 01.01.2016 and have been in regular operations, either as standard accounts, or as NPA accounts during financial year 2018-19 and financial year 2019-20.
3. It is valid for only for MSME units (accounts) which are stressed, viz. classified as SMA-2 and NPA accounts as on 30.04.2020.
4. Fraud/ Willful defaulter accounts will not be considered under the proposed scheme.  
5. 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. 
6. Accounts that were opened after 31.03.2018 are currently not eligible under the Scheme. 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 is to be obtained by Branch.

Quantum of Finance

• Under this Scheme, Promoter(s) of the MSME unit will be given credit facility equal to 50% of his/her stake in the MSME entity (equity plus debt) or Rs.75 lakh whichever is lower as per last audited Balance Sheet.
• For entities which are not mandated to get their balance sheets audited, Bank may obtain a CA’s certificate or the latest ITR return for calculating the equity /debt contribution of the promoter.
• This personal loan shall not exceed the original debt of the beneficiary.
• Further, the Equity shall be calculated on the basis of the last available audited balance sheet of a Financial Year.

Rate of Interest (RoI)

Applicable RoI for the proposed facility will be in line with the existing facilities enjoyed by the unit. (RoI for CGSSD should be RLLR based) 

Note:

• In case of multiple facilities, the rate of interest for CGSSD would be the highest rate, among RoI for all the existing loans.
• The spread on rate of interest for existing credit facilities which are not linked to RLLR, should be adjusted accordingly in order to reach the rate of interest as per sanction under this scheme.

Tenor of Credit facility under this scheme

1. Maximum tenor would be 10 years from the guarantee availment date or March 31, 2023, whichever is earlier.
2. There can be a moratorium of 7 years (maximum) on the payment of principal. Till the 7th year, only interest will be paid.
3. The interest on the facility would be required to be serviced regularly (as and when applied) and the principal shall be repaid within the sanctioned tenor for the facility after completion of moratorium.
4. Pre-payment of loan is permitted at no additional charge /penalty to the borrower.

Moratorium

There can be a moratorium of 7 years (maximum) on the payment of principal. However, interest will be paid as and when applied.

Repayment

1. Interest- As and when applied after disbursement.
2. Principal – After completion of moratorium period, principal shall be fully repaid within the tenor of loan (as per sanction) in form of Principal Equally Distributed (PED)

Margin

Yes. (The promoters are required to bring in 10% of the sub-debt amount as cash collateral.)

Security

The sub-debt facility so sanctioned will have 2^nd charge of the assets financed under existing facilities for the entire tenor of the sub-debt facility.

Loan Amount eligible under the Guarantee Coverage 

1. 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 50% of his/her stake (equity plus debt) or Rs.75 lakh whichever is lower.
2. 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.
3. 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).
4. 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 Sanctioning Authority.
5. Post-restructuring, NPA classification of these accounts shall be as per the extant IRAC norms.
6. It shall be ensured that the sub-debt /credit released to the promoter is brought back as equity/quasi equity/sub-debt in the MSME unit. 

Guarantee Fee

1. 1.50% per annum on the guaranteed amount on outstanding basis.
2. Guarantee fee will be borne by the borrowers.
3. Guarantee Fee is payable for NPA cases / claim lodged cases, till the settlement of first claim.
4. The guarantee service fee once paid by the lending institution to the Trust is non-refundable.

Extent of the Guarantee Coverage 

1. 90% guarantee coverage would come from CGTMSE and remaining 10% from concerned promoter(s) on the credit extended by Bank under the scheme.
2. Guarantee will commence from guarantee start date and shall run through the agreed tenure of the facility subject to payment of guarantee fee on annual basis.
3. The guarantee cover would be uncapped, unconditional and irrevocable credit guarantee.    

Insurance

Nil

Processing Fee

As per extant guidelines

Prepayment Charges

Nil

Documentation/Other Charges

As per extant guidelines