Ref. No. CGTMSE/44/ November 16, 2015

Member Lending Institutions of CGTMSE

Kind Attention: SME/Priority Sector Department


Circular No. 100/2015-16

Madam / Dear Sir,

Modifications in the Interest Rate Cap under Credit Guarantee Scheme (CGS) of CGTMSE

Please refer to our Circular No. 94/2015-16 dated July 15, 2015 and Circular No. 97/2015-16 dated September 30, 2015 (available on our website) on the above subject.

Subsequent to the issue of revised guidelines on Interest Rate Cap, we have been receiving representations from our Member Lending Institutions (MLIs) as also from Indian Bank's Association requesting CGTMSE to revisit the revised guidelines communicated vide above referred Circulars on the plea that reducing the spread over Base Rate would exclude many of the MSME accounts from the guarantee cover and would affect the growth of MSME Sector badly.

The issue has been examined by us and it has now been decided to restore the Interest Rate Cap of 4% over the Base Rate as was advised by us vide our Circular No. 71/2013-14 dated December 17, 2013 (available on our website "www.cgtmse.in") i.e. any credit facility which has been sanctioned by MLI, under the Credit Guarantee Scheme (CGS), to an eligible borrower, with interest rate more than 4% over its Base Rate (BR) will not be eligible for coverage under the CGS. However, in case of those MLIs, other than Regional Rural Banks for whom separate guidelines are being issued, for whom Reserve Bank of India has not enjoined Base Rate concept, the existing provisions of CGS will continue. In the light of the above, our guidelines of restricting the interest cap to up to 2% and 3% over the Base Rate for loans up to 50 lakh and loans above 50 lakh respectively stands withdrawn. MLIs are requested to reapply in respect of those guarantees rejected by CGTMSE on account of its guidelines of restricting the interest cap to up to 2% and 3% above Base Rate for loans up to 50 lakh and loans above 50 lakh respectively.

The contents of the Circular may please be brought to the notice of all your offices.

                                                                                                                                 
Yours faithfully,
Sd/-
(S.S.Bakshee)
General Manager