State Bank of India, the largest lender to the SME sector in India, today signed a MOU with the CGTMSE to cover the Micro and Small Enterprises financed by the Bank under the Portfolio Credit Guarantee Scheme (PCGS) for Micro and Small Enterprises of the Trust. The Trust has recently launched this scheme and SBI is the first Bank to enter into this MOU with the Trust.
The Scheme: Hitherto, the Trust was providing guarantee cover on a case-to-case basis for loans sanctioned by various member lending institutions. With the introduction of PCGS, the Trust will cover the entire portfolio of eligible accounts financed by SBI. Enterprises that are extended credit limits of up to Rs 100 lacs are eligible for cover by the Trust. Instead of securing guarantee cover for individual accounts as hitherto, the Bank can now include all eligible loans on a consolidated basis at quarterly intervals and obtain guarantee cover from the Trust from the date of sanction / relevant quarter.
Eligibility of Accounts: All loans sanctioned to MSEs by the Bank without any collateral security cover or third party guarantee and having fund based as well as non-fund based limits up to Rs 100 lacs are eligible for cover. This includes term loans as well as working capital assistance provided by the Bank. At the time of obtaining the guarantee cover, the loan accounts should be performing accounts in the books of the Bank.
Loans to trade, educational institutions and SHGs are not eligible for cover. Similarly, if any SME unit financed by the Bank is eligible for any risk cover under any other scheme operated by Government of India or other agencies, then such cases will not be eligible for cover under PCGS.
Benefits to Micro & Small Enterprises: PCGS makes it operationally convenient for banks like SBI to extend coverage to all eligible MSEs at one go. With SBI’s Core Banking technology covering all its branches, any eligible loan sanctioned by the Bank across the country can be brought under the cover of the Trust. This will encourage the Bank to lend more to the Micro & Small Enterprise sector, without any collateral security or third party guarantee. This will ensure better credit flow to the sector which is currently facing the brunt of the economic slowdown.
The risk cover available from the Trust may also encourage SBI to bring down the cost of loans to the sector. SBI is already operating two schemes for the sector since May 2009 at 8.00% p.a and 10.00% p.a. for loans upto Rs 5 lacs and for loans between Rs 5 lacs and Rs 25 lacs with CGTMSE cover. These schemes are currently available till the end of Sep ’09. After operationalisation of PCGS, the Bank will review the two schemes and offer loans at attractive rates to the Micro & Small Enterprise Sector.
Coverage so far: SBI has covered about 10,000 MSE units under CGTMSE cover during the financial year 2008-09. With the launch of the two new schemes in May 2009, the Bank has lent over 1,972 new loans to Micro & Small Enterprises at these attractive rates. CGTMSE has during the year 2008-09 approved guarantees in respect of over 53,700 enterprises amounting to Rs 2,100 crores. Cumulatively, the Trust has approved 1,70,000 guarantees for Rs 5,850 crores.
Details of the PCGS Scheme
Portfolio Credit Guarantee Scheme for Micro and Small Enterprises (PCGS)
Scheme
Portfolio Credit Guarantee Scheme for Micro and Small Enterprises (PCGS)
Corpus
The existing corpus of CGTMSE will be leveraged to guarantee the credit under Portfolio Credit Guarantee Scheme (PCGS)
Objective
To guarantee the entire portfolio of Member Lending Institutions (MLIs) of eligible collateral-free and / or third party guarantee-free credit upto Rs.100 lakh per borrower extended to enterprises in Micro and Small Enterprises (MSE) sector.
Eligible Credit Facility
- The entire portfolio of collateral-free and / or third party guarantee-free credit facility upto Rs.100 lakh per borrower (Term Loan plus Working Capital) sanctioned by the Member Lending Institutions (MLIs) to eligible MSEs shall be covered under the PCGS.
- All eligible proposals for guarantee cover sanctioned by the MLI during a calendar quarter should be lodged with CGTMSE before expiry of the subsequent quarter. However, MLI will lodge only one application every month containing details of individual cases.
- All credit facility to be covered will be standard asset at the time of lodgement of application for guarantee.
- Any credit facility in respect of which risks are additionally covered under a Scheme operated by the Government of India or other agencies will not be eligible under the Scheme to the extent they are so covered.
- Loans for retail trade, educational / training institutions and SHGs are not eligible for the present.
Tenure of Guarantee
The guarantee cover under the PCGS would be the for agreed tenure of the term loan/ composite credit. The tenure is 5 years or block of 5 years, in case of working capital credit facility covered under PCGS.
Guarantee Fee (GF)
- The fee payable to the Trust under the PCGS is one-time guarantee fee [which ranges from 0.75% to 1.5% of the credit facilities sanctioned] and annual service fee [which ranges from 0.5% to 0.75% per annum on the credit facilities sanctioned as on March 31, each year] as detailed below:
| Credit Facility |
Upfront Guarantee Fee (%) |
Annual Service Fee (%) | |
| North East Region (incl. Sikkim) | Others | ||
| Upto Rs.5 lakh | 0.75 | 1.00 | 0.50 |
| Above Rs.5 lakh to Rs.50 lakh | 0.75 | 1.50 | 0.75 |
| Above Rs.50 lakh to Rs.100 lakh | 1.50 | 1.50 | 0.75 |
- The upfront Guarantee Fee (GF) is to be paid within 30 days of Demand Advice Note (DAN) at the applicable rate for the entire portfolio being covered during the month by means of a single Demand Draft / RTGS transfer. Guarantee will start from the date of receipt of GF by the Trust.
- The Annual Service Fee (ASF) is to be paid within 30 days of issue of DAN by means of a single Demand Draft / RTGS transfer by the MLI after the end of the financial year.
- If payment is not received within 30 days of DAN, MLI will have to pay the amount together with penal interest thereon at the Bank Rate as on the due date plus 4% within next 30 days failing which the guarantee cover will lapse and CGTMSE will have the right to recover the ASF dues together with penal interest till date of receipt of payment.
Claim Settlement
- Lock-in period of 18 months from guarantee start date.
- All claims should be filed within a maximum of 180 days from lock-in period or date of NPA whichever is later.
- All NPAs during the tenure of the guarantee period will be eligible for claim provided the same is made within 180 days from date of expiry of guarantee.
Others
- All other terms and conditions will be as per extant guidelines of Credit Guarante
