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Prior to lender (also referred to as MLI) preferring any claim on the Trust, there shall be a lock-in-period of 18 months from either the date of last disbursement of loan to the borrower or the date of the guarantee cover coming into force in respect of the particular credit facility, whichever is later. The lender shall, however, prefer a claim on the defaulted account, which has become NPA, immediately after recall of loan and initiation of recovery proceedings by way of legal action as specified by the Trust from time to time. The Trust shall honour 75 per cent of the guaranteed portion in default subject to maximum of 50/75/80/85 per cent of the guaranteed cap amount (based on the credit facility guaranteed), immediately on preferring of claim by the lender to the extent of 2 times of the fee including recovery remitted during the previous financial year. Additional risk premium of 15% will be charged on the applicable rate to MLIs who exceed the pay-out threshold limit of 2 times more than thrice in last 5 years. This premium will be applicable for all guarantee accounts irrespective of the sanction date. The balance 25 per cent of the defaults or guaranteed cap amount, as the case may be, will be paid on conclusion of recovery proceedings by the lender.For credit facilities sanctioned by Member Lending Institutions (MLIs) on or after 01/01/2013, the balance 25% shall be paid on conclusion of the recovery proceedings or after three years of obtention of decree of recovery, which is earlier. Please refer Circular No.135/2017-18 for more details.

Lenders responsibilities

The lender shall evaluate the loan applications and conduct the account of the borrowers with normal banking prudence and shall use their business discretion in selecting commercially viable proposals. This includes closely monitoring the account as also safeguarding the primary securities taken in good and enforceable condition. In order to ensure continuance of guarantee cover, MLI concerned should pay the annual guarantee fee/ annual service fee to CGTMSE within two months from the demand date. The lender should ensure that the claim is filed within the prescribed time limit and there is no delay on the part of lender to notify the defaults, which result in Trust facing a higher claim.

The payment of claim by the Trust under question does not in any way take away the responsibility of the borrower to repay the entire amount of outstanding to the lender. The lender shall exercise all caution and maintain its recourse to the borrower for full amount owed by him and effective action for recovering the amount including such action as may be suggested by the Trust.

Appropriation of Residual Recovery

In case of default, the lenders would exercise the right to takeover the assets. However, the Trust would have the priority in appropriation of sale of assets by the lenders before making the final settlement of the claim. Therefore, the amount realised from the sale of assets (residual recovery) must first be credited in full by the lenders to the Trust before they can finally claim the remaining 25 per cent of the default / guaranteed cap amount.

 

Claim Application [to be submitted by MLI]

 

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