Ref. No. CGTMSE/1684/44 February 12, 2016

Member Lending Institutions of CGTMSE

Circular No. 110/2015-16

Dear Sir,

Subrogation of rights and recoveries on account of claims Paid

Kind Attention : SME/Priority Sector Department

We invite your attention to Clause-11(iii), Chapter-V of Credit Guarantee Scheme whereby every amount recovered and due to be paid to the Trust shall be paid without delay, and if any amount due to the Trust remains unpaid beyond a period of 30 days from the date on which it was first recovered, interest shall be payable to the Trust by the lending institution at the rate which is 4% above Bank Rate for the period for which payment remains outstanding after the expiry of the said period of 30 days.

It has been observed during the course of few inspections carried out by the Trust recently that the recoveries made by MLls, post settlement of claims by CGTMSE, are not passed on to CGTMSE in most of the cases. It is once again clarified that MLls are required to pass on the entire amount recovered by it from Borrowers and CGTMSE, on its part, would refund the amount pertaining to the MLI, if any, after working out the actual loss. The sharing of loss is done by CGTMSE in the same proportion in which risks are being shared between CGTMSE and MLI for the underlying guarantee. It may further be mentioned here that the recoveries so passed on shall be duly factored by CGTMSE as "recoveries from MLls" while working out claim payout percentage for calculating risk premium under differential pricing model as advised by CGTMSE vide its circular No. 107/2015-16 dated January 28, 2016 (copy available on our website).

We also invite your attention to our letter reference No. 6707/Claims dated March 04, 2014 requesting MLls to provide certificate from Statutory Auditors that recoveries made post settlement of claims have been fully passed on to CGTMSE as per the provisions of the Credit Guarantee Scheme. The said certificate was requested to be submitted once in a year i.e. as on March 31 of every year by September 30 of every year commencing from the date ended March 31, 2014. We observe that very few certificates have been received by us. We once again reiterate that the MLls are required to submit these certificates within the given period of time.

You are requested to bring the contents of this circular to the notice of all your offices.

Yours faithfully,

General Manager