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Chapter- 3
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Credit Guarantee Scheme of CGTMSE and how it is Implemented by Bank of Baroda
Introduction: This chapter has been arranged into two parts. Part 1
describes the Credit Guarantee Fund Trust for Micro & Small
Enterprises. Part 2 deals with how the scheme is implemented in
Bank of Baroda.
PART - 1
3.1.1 Objective
Credit Guarantee Schemes are globally treated as instruments of credit
enhancement for targeted sections. As internationally, so also in India, the
main public policy purpose of the CGS for MSEs is to catalyze flow of bank
credit to first generation entrepreneurs for setting up their MSE units without
the hassles of secondary collateral/ third party guarantee. The Scheme is
intended to encourage Member Lending Institutions to rely in their appraisal
essentially on the viability of the project and the security of primary collateral
of assets financed. The other objective is to encourage lenders availing of
guarantee facility to extend composite credit facilities to borrowers comprising
both working capital and term loans. The CGS seeks to reassure lenders that, in
the event of a default by MSE unit covered by the guarantee, the Guarantee
Trust would meet the loss incurred by the lender up to 85 per cent of the
outstanding amount in default.
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Credit Guarantee Scheme of CGTMSE and how it is Implemented by Bank of Baroda
there were 110 MLIs registered with CGTMSE. Of this, 27 are Public Sector
Banks, 16 Private Sector Banks, 59 Regional Rural Banks, 6 financial
institutions and 2 foreign banks.
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Credit Guarantee Scheme of CGTMSE and how it is Implemented by Bank of Baroda
of the credit facility sanctioned. The guarantee fee is to be paid upfront to the
Trust by the lending institution. An annual service fee at specified rate
(currently 0.50% in the case of credit facility up to Rs. 5 Lakh sand 0.75% in
the case of credit facility above Rs. 5 Lakh) of the credit facility sanctioned
(comprising term loan and / or working capital facility) is charged to the MLIs.
The rates of guarantee and annual fees charged on the basis of the credit
facility sanctioned are furnished in Chapter 1.7, Table 1.3.
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Credit Guarantee Scheme of CGTMSE and how it is Implemented by Bank of Baroda
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Credit Guarantee Scheme of CGTMSE and how it is Implemented by Bank of Baroda
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Credit Guarantee Scheme of CGTMSE and how it is Implemented by Bank of Baroda
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Credit Guarantee Scheme of CGTMSE and how it is Implemented by Bank of Baroda
Table 3.1 shows that the Scheme was slow in taking off in the initial years
and the cover availed of remained below 10,000 proposals during the first five
years. However, since 2005-06, there has been a steady growth in the issue of
guarantees and the same has increased exponentially from 16,284 proposals
involving Rs.461.91 crore in the year 2005-06 to 53,708 proposals involving
Rs.2,199.40 crore in the year 2008- 09. During the ten month period ending on
January 31, 2010, 1,13,029 guarantee proposals for Rs. 5,110.09 crore were
approved. As of 31st Jan 2010, cumulatively 2,61,987 guarantee proposals have
been approved involving an aggregate amount of Rs.9,822.50 crore.
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Credit Guarantee Scheme of CGTMSE and how it is Implemented by Bank of Baroda
Graph 1: Trends in the growth of Micro and Small Enterprises (MSEs) and the
Employment Generated (in lakh)
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Credit Guarantee Scheme of CGTMSE and how it is Implemented by Bank of Baroda
Source: Annual Report, 2008 09. Ministry of Micro. Small and Medium Enterprises
Table 3.2 shows the data for the entire financial institution in India for the
year2007-08, 2008-09 &2009-10 has been grouped as PSU Banks, Old generation
private sector bank, new generation private sector banks, grameen banks, SIDBI
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Credit Guarantee Scheme of CGTMSE and how it is Implemented by Bank of Baroda
and others. Their average lending is found out to understand which segments leads
in lending as also who tops In lending both on number of borrowers as well as
absolute figures. Percentage of change is worked out for 2008-09 & 2009-10 to
find out where highest growth has taken place as also where the growth is tardy.
For the year 2007-08, SIDBI has lend the highest number of borrowers at
289, followed by old generation private sector banks with an average of 114
borrower per bank. The lowest number of average borrowers are for grameen
banks, at just 3 accounts per grameen bank.
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Credit Guarantee Scheme of CGTMSE and how it is Implemented by Bank of Baroda
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Credit Guarantee Scheme of CGTMSE and how it is Implemented by Bank of Baroda
PART - 2
All Banks
2005 06
2008 -09
Average
Average
2004-05
2006-07
2007-08
2008-09
2008-09
Groups
Items
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Credit Guarantee Scheme of CGTMSE and how it is Implemented by Bank of Baroda
Table 3.4 shows that Bank of Baroda is having advance base of Rs.
143986/- crores as on 08-09, against the national average of Rs.38389 crores.
The net NPA is showing signs of substantial improvement over the years from
1.45% in 04-05, 0.87% in 05-06, 0.60 in 06-07, 0.47 in 07-08 and 0.31% in 08-
09 against the national average of 1.05%, revealing robust asset management
for the Bank.
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Credit Guarantee Scheme of CGTMSE and how it is Implemented by Bank of Baroda
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Credit Guarantee Scheme of CGTMSE and how it is Implemented by Bank of Baroda
which the cost has been shown in its books. For computing the value of the
investment in Plant and Machinery, cost of the following items should be
included: 1. Original cost of Plant and Machinery (price paid by the owner /
hirer / lesser), 2. Cost of control panels, starters, Electric Motors, other
electrical accessories mounted on individual machines,3. Cost of only those
testing and quality control equipments, which are, used for/in process testing.
Banks are advised to fix their own target in order to achieve a minimum 20%
YOY growth over the SME advances as of March, 2005 so as to double flow of
credit to SME sector by the year 2009-10. Sub-targets for lending to Micro
Enterprises within the Small Enterprises, which are included under Priority
Sector lending, are as under : a. 40% of total advances to Small Enterprises
Sector should go to Micro (Manufacturing) enterprises having investment in
Plant and Machinery up to Rs. 5/- lakh and Micro (Service) Enterprises having
investment in equipment up to Rs. 2/- lakh; , b. 20% of total advances to Small
Enterprises Sector should go to Micro (Manufacturing) Enterprises with
investment in Plant and Machinery above Rs. 5/- lakh and up to Rs. 25/- lakh,
and Micro (Service) Enterprises with investment in equipment above Rs. 2/-
lakh and up to Rs. 10/- lakh. (Thus, 60% of Small Enterprises advances should
go to Micro Enterprises). . With a view to facilitate timely sanction of adequate
credit facilities, the following guidelines have been issued to the branches:
An acknowledgment with the date of receipt for credit application received to
be given. A definite date to be intimated to the applicant for discussions,
clarifications etc. if considered necessary. The banks decision regarding
credit assistance to be communicated to the applicant within the prescribed
period. All applications received should be entered in a Register of Loan
Applications Received for recording therein the complete particulars such
as date of sanction, rejection, reasons for rejection etc. In order to provide
better customer service and to ensure that applications for loans for all
categories of borrowers are dealt with and disposed off expeditiously, the
following norms shall be adhered to, provided the loan applications
received are complete in all respects and duly accompanied by a check list
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Credit Guarantee Scheme of CGTMSE and how it is Implemented by Bank of Baroda
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Credit Guarantee Scheme of CGTMSE and how it is Implemented by Bank of Baroda
capital limits up to Rs.5.00 crore from the banking system, will be computed on
the basis of a minimum of 20 % of their acceptable projected annual turnover for
new as well as existing units as per Nayak Committee recommendations. For
assessment of Working Capital requirements beyond Rs.5/- crores of Small
Scale Industrial Units / Medium Enterprises, the guidelines on PBF method of
lending is being followed.
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Credit Guarantee Scheme of CGTMSE and how it is Implemented by Bank of Baroda
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