CGTSI/44)/239                                                                                             June 20, 2001

All Member Lending Institutions

Circular No. 1 / 2001-02

Dear Sir / Madam,

Credit Guarantee Fund Scheme for Small Industries

We are pleased to inform that RBI, vide its circular  DBOD No. BP. BC. 128 / 21.04.048 / 00-01 dated June 07, 2001, addressed to all scheduled commercial banks, has advised that SSI advances guaranteed by CGTSI will attract zero risk weight for the guaranteed portion and that no provision needs to be made for the guaranteed portion in case of the advances covered by CGTSI, becomes non-performing assets. Copy of RBI circular is enclosed for your ready reference. Member Lending Institutions (MLIs) of CGTSI should consider the guidelines issued by RBI as a major fillip in nurturing the small-scale industrial units, including units in the Information Technology and Software Industry, in making available collateral-free credit to worthwhile projects.

As you are aware, based on the suggestions received from banks, the scheme was modified in September 2000. One of the suggestions was that there should not be any minimum loan amount for guarantee cover. Though maximum loan eligibility under the guarantee scheme is Rs.25 lakh, we observe that 95 per cent of the projects covered by MLIs, so far, are for loans up to Rs.1 lakh. We are sure that MLIs would view the guarantee scheme as a financial instrument to hedge their credit risk; and start supporting projects requiring higher quantum of loans, as well, under the guarantee scheme.

Thanking you,

Yours faithfully,



  (N. Venkatasubramanyan)

Chief Executive Officer