Credit Guarantee Scheme Overview

Questions and Answers

Which of the following scenarios would disqualify a credit facility from conforming to the provisions mentioned?

A facility granted to a borrower with an outstanding amount due under other schemes. (correct)

A facility that complies with all directives issued by the Reserve Bank of India.

A facility with a blended interest rate not exceeding 18%.

A facility sanctioned against a third-party guarantee. (correct)

What is the maximum blended interest rate allowed for MSE borrowers under the CLM arrangement?

20%

22%

18% (correct)

15%

Which of the following situations would be permissible under the Credit Guarantee Scheme?

A facility partially covered under the Hybrid model of the Credit Guarantee Scheme. (correct)

A facility secured by third-party guarantee only.

A facility without any form of collateral security.

A facility where the lender has not invoked the guarantee despite default.

Which type of credit facility is ineligible for coverage under the Credit Guarantee Scheme?

Facilities exceeding the prevailing interest rate guidelines. Signup and view all the answers

What consequence follows if a borrower has availed of multiple credit facilities and defaulted on one?

Guarantees may be invoked by the lending institution. Signup and view all the answers

What is the maximum limit for a secured credit facility under the Scheme?

₹200 lakh Signup and view all the answers

Which condition must be met for a credit facility to be eligible under the Scheme?

The credit facility must be standard and regular. Signup and view all the answers

What is the maximum limit for an unsecured credit facility under the Scheme?

₹100 lakh Signup and view all the answers

What does the term 'incremental credit facilities' refer to in the context of the Scheme?

Loans with a reduced outstanding exposure limit. Signup and view all the answers

Which type of borrower is eligible for credit facilities under the Scheme?

Micro and Small Enterprises Signup and view all the answers

Which of the following is NOT a condition for credit facilities under the Scheme?

The borrower must provide collateral security. Signup and view all the answers

What could happen if a borrower partly uses the credit facility for bad debt without consent?

The eligibility may be compromised. Signup and view all the answers

How is the maximum guarantee coverage limit determined for borrowers?

Based on the outstanding credit facilities extended by member institutions. Signup and view all the answers

What does 'Member Lending Institution(s)' (MLIs) refer to under the Scheme?

A combination of a Bank and NBFC registered with CGTMSE Signup and view all the answers

Which entity is defined as an NBFC in the context of the Scheme?

A non-banking financial company registered with RBI under Section 45-IA of the RBI Act Signup and view all the answers

What is meant by 'Joint Lending' in Model-1 of the Co-Lending options?

Both institutions lend jointly with shared responsibilities for due diligence Signup and view all the answers

What is a key feature of the 'Direct Assignment' model in co-lending?

The partner bank can choose which loans to keep on its books Signup and view all the answers

Which document governs the eligibility of banks and NBFCs under this Scheme?

Eligibility norms set by the Trust and reviewed regularly Signup and view all the answers

What happens if a Member Lending Institution does not perform satisfactorily?

The Trust may remove it from the list of eligible institutions Signup and view all the answers

Which type of bank participates in the Credit Guarantee Scheme for Co-Lending?

Only Scheduled Commercial Banks approved by the RBI Signup and view all the answers

What is the guarantee cover under Model-1 for joint lending based on?

The individual loans or credit facilities originated by the NBFC Signup and view all the answers

What is the maximum unsecured part of the credit facility that can be covered under CGSCL?

₹200 lakh Signup and view all the answers

Which of the following is NOT a requirement under the Hybrid Security product?

Creation of security in favour of CGTMSE Signup and view all the answers

What is the minimum investment grade requirement for credit guarantee approvals above ₹50 lakh?

Investment grade requirement is obligatory Signup and view all the answers

Which type of credit facility is explicitly excluded from the scheme?

Credit facilities covered under another guarantee scheme Signup and view all the answers

Which condition eliminates eligibility for micro enterprises to receive guarantee coverage?

If covered under MUDRA guarantee scheme Signup and view all the answers

What type of charge does CGTMSE hold on the collateral security provided by the borrower?

Notional second charge Signup and view all the answers

Under the CGSCL, which credit facility is NOT eligible when insurance coverage exists?

Any credit facility with additional risk coverage Signup and view all the answers

What obligation do MLIs have under the Hybrid Security product regarding CGTMSE?

No obligation to create security in favour of CGTMSE Signup and view all the answers

What must a lending institution ensure regarding contracts related to accounts guaranteed under the Scheme?

They must not be in conflict with Scheme provisions. Signup and view all the answers

What happens to rights or obligations from a guarantee once the Scheme is modified, canceled, or replaced?

They remain unaffected until the modification takes effect. Signup and view all the answers

What is the Trust's position on altering terms for accounts without an issued guarantee?

The Trust can alter terms regarding these accounts. Signup and view all the answers

What is required for a claim against the Trust in the event of Scheme cancellation?

Compliance with Clause (i) and (ii) is required. Signup and view all the answers

What is the Trust's role regarding the interpretation of the Scheme's provisions?

The Trust has the final say on interpretations. Signup and view all the answers

Which of the following is a right reserved by the Trust concerning the Scheme?

The right to modify, cancel, or replace the Scheme. Signup and view all the answers

What carries the condition that obligations arise under the Scheme must be complied with before cancellation?

Obligations stipulated in Clause (i) and (ii). Signup and view all the answers

What is the primary purpose of the Scheme according to its provisions?

To provide guarantees for accounts through the Trust. Signup and view all the answers

Study Notes

Credit Facilities and Eligibility Criteria

Credit facilities must comply with laws and directives from the Central Government and RBI.
Any borrower with outstanding amounts to the Trust from previously availed credit under similar schemes is ineligible.
Credit facilities secured by collateral or third-party guarantees are excluded, but uncollateralized portions can be covered under the Hybrid model.
Blended interest rates exceeding 18% on loans to MSEs disqualify credit facilities from coverage.

Member Lending Institutions (MLIs)

MLIs consist of a Bank and an NBFC registered with CGTMSE under respective schemes.
NBFCs must be registered under Section 45-IA of the Reserve Bank of India Act, 1934.
Scheduled Commercial Banks authorized by RBI for co-lending are accepted as MLIs.
The Trust has the authority to remove non-performing lending institutions from eligibility lists.

Scheme Overview

The Credit Guarantee Scheme for Co-Lending involves eligible banks and NBFC collaborations.
Two operational models are available:
- Joint Lending: Both Bank and NBFC co-lend through an escrow account with both performing due diligence.
- Direct Assignment: Banks have discretion to recognize loans made by NBFCs per their agreements.

Credit Facility Limits

Maximum coverage under CGSCL is ₹200 lakh for secured loans and ₹100 lakh for unsecured loans.
Incremental credit facilities may be accessed as reductions in outstanding limits occur.
Facilities must meet RBI's standards to remain eligible.

Hybrid Security Product

MLIs can secure part of the credit facility with collateral while the rest can be unsecured up to ₹200 lakh under CGSCL.
No formal security charge is required for CGTMSE under hybrid security agreements.

Ineligible Credit Facilities

Facilities with overlapping coverage from other guarantee schemes or insurers are not eligible.
Loans of up to ₹10 lakh to micro enterprises covered under the MUDRA guarantee scheme cannot also be covered under CGSCL.
Institutional compliance with scheme conditions is mandatory.

Modifications and Exemptions

The Trust retains rights to modify or replace the scheme without affecting guarantees issued prior to modifications.
Changes may also apply to accounts not issued guarantees as of the modification date.
Claims against the Trust are only valid if conditions are met before scheme cancellations.

Interpretation and Final Decisions

The Trust's decisions on scheme interpretations are considered final.

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Description

This quiz focuses on the Credit Guarantee Scheme for Co-Lending, covering its credit facilities, eligibility criteria, and participating Member Lending Institutions (MLIs). Test your knowledge on the legal requirements and specifics related to the scheme as outlined by the Central Government and RBI.