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Credit guarantee scheme to cover more co-operative banks

February 17, 2022

Credit guarantee scheme to cover more co-operative banks

The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) has included non-scheduled urban co-operative banks (NSUCBs), state co-operative banks, and district central co-operative banks as part member lending institutions (MLIs) under a plan that gives assurance to the collateral-free loans given to micro and small enterprises (MSEs).

This is particularly beneficial for NSUCBs, which face a higher priority sector lending (PSL) target.

The Reserve Bank of India (RBI) had revised the PSL target for all metropolitan co-operative banks, expecting them to build this portfolio – including loans to agriculture, MSME (micro, small and medium ventures), send out credit, schooling, and housing, among others in a phased manner of 40% as at March-end 2020 to 75 percent as at March-end 2024.

The credit guarantee scheme (CGS) assures a lender that assuming an MSE unit that has avail itself of collateral free credit facilities (fund based or non-fund based) fails to discharge its liabilities, then, at that point, the trust would make good the loss, to the tune of 50-85 percent of the credit facility.

The trust covers credit facilities reached out by MLIs to a single eligible borrower in the MSE sector (I) not exceeding ₹50 lakh and (ii) not exceeding ₹2 crores by way of term loan and/or working capital facilities.

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