CGTMSE Ref. No. 44/1559 January 28, 2016



Member Lending Institutions of CGTMSE

Kind Attention: SME/Priority Sector Department.

Circular No. 107/ 2015-16

Madam / Dear Sir,

Charging of Annual Service Fee (ASF) / Annual Guarantee Fee (AGF) at differential rates depending upon NPA levels/ Claim Payout ratio of MLIs

As you are aware, the Trust presently adopts non-discretionary approach in levying Guarantee Fee (GF)/Annual Service Fee (ASF)/Annual Guarantee Fee (AGF) without reference to the level of NPAs reported by the Member Lending Institutions (MLIs) on the CGTMSE portal vis-à-vis the guarantees issued to them as also without reference to the claims paid to the MLIs vis-à-vis the fees and recoveries received from the MLIs. Considering the very high level of NPAs reported by some of the MLIs as also significantly larger amount of claims settled for some of the MLIs, it has now been felt necessary to introduce risk based pricing structure rather than uniform fees being charged so far. The Trust with its over 15 years of working in the Credit Guarantee field, has built up adequate data to support the risk bases pricing. Therefore it has been decided to introduce following risk premium structure in place of existing guarantee fee structure:

(1) Risk premium on NPAs in Guaranteed portfolio

(2) Risk premium on Claim Payout Ratio

NPA Percentage

Risk Premium

Claim Payout Percentage

Risk Premium

0-5%

SR

0-5%

SR

>5-10%

10% of SR

>5-10%

10% of SR

>10-15%

15% of SR

>10-15%

15% of SR

>15-20%

20% of SR

>15-20%

20% of SR

>20%

25% of SR

>20%

25% of SR

SR–Standard Rate

The above Risk premium structure would be governed by the following:

  1. The risk premium, wherever applicable, would be charged with prospective effect i.e. credit facilities sanctioned by MLIs on or after April 01, 2016 and covered under the Credit Guarantee Scheme. The existing loans under credit Guarantee will continue to carry the old rates till their maturities or renewal.
  2. The rates under this mechanism will be floating and will undergo changes every year based on the NPA level and payout ratios of the concerned Bank.
  3. The MLIs having NPA percentage as well as claim payout ratio more than 5%, the risk premium under both the categories shall be applicable to such MLIs.
  4. The risk premium structure will also be applicable to renewal cases (i.e. renewals after expiry of guarantee period) in respect of working capital limits.
  5. In respect of working capital accounts covered under the Credit Guarantee Scheme where original sanctions are prior to April 01, 2016 and the subsequent enhancements in the limits are on or after April 01, 2016, the earlier fixed rate structure (i.e. pre-revised structure) would continue to apply even for the enhanced portion.
  6. The review of risk premium would be an annual exercise and the revised risk premium would be applicable from the first day of each financial year. The subsequent revisions in the risk premium would be applicable to all those guarantees originally approved under differential pricing structure.
  7. It is clarified here that while levying the guarantee fee for the first time, the fee is collected for the full 365 days from the guarantee start date (i.e. fee payment date) and the second and subsequent year onwards in respect of already issued guarantees, the fee is collected till the end of financial year excepting for the terminal year of guarantee where the fee is collected for the proportionate period. Thus, while the fee applicable for the first year would be for the entire 365 days at applicable rate, the fee at the revised rates in subsequent years, based on revisions in NPA percentage/claim pay-out ratio, would be applicable only for the broken period of the respective year. This has been explained in illustrations attached.
  8. It is further clarified that the guarantees approved under fixed rate structure i.e. in respect of credit facilities sanctioned by MLIs on or before March 31, 2016 would continue to be governed by the fixed rate structure till the expiry of respective guarantee period or first settlement of claim, whichever is earlier.
  9. For working out the percentages of NPAs/claim pay-out ratio with a view to arrive at the risk premium, the data generated as on September 30 of immediately preceding financial year would be relied upon. E.g. for working out the risk premium applicable as effective from April 01, 2016 onwards, the base data for working out the percentage of NPAs/claim pay-out ratio would be as on September 30, 2015 and so on. The MLIs would be advised by January every year about their respective NPA percentage and claim pay-out ratio as per the CGTMSE records and the risk premium applicable to them effective April 01 of subsequent financial year.
  10. As regards calculation of NPA percentages and claim pay-out ratio, it may be mentioned that while NPA percentage would be worked on the basis of cumulative NPAs upto September 30 each year as marked by the MLI in CGTMSE portal (net of upgraded accounts and the accounts where the claims would not hit CGTMSE in respect of the NPAs marked) in terms of amount (i.e. Guaranteed amount of the corresponding NPA account) vis-à-vis the cumulative guarantees issued by the Trust as on September 30 every year as indicated above, the claim pay-out ratio would be worked out on the basis of cumulative claims settled by the Trust and the cumulative receipts (includes Guarantee and Annual Service /Annual Guarantee Fee receipts, recoveries out of OTS and recoveries passed on by MLIs after first settlement of claim) as on September 30 each year. The cumulative claims paid upto 1.05 times of the cumulative receipts will not attract any risk premium as indicated in the table above.
  11. Initially, while introducing the differential rate structure for the first time w.e.f. April 01, 2016, while guarantees issued by the Trust could be taken till September 30, 2015, the cut-off date for NPA marked in the system would be extended till February 28, 2016, as a one-time measure, in order to allow adequate time to MLIs to upgrade/modify the status of NPAs in CGTMSE portal as also give time to pass on to CGTMSE recoveries, if any, in respect of settled cases. The MLIs would be intimated about their respective NPA percentage and claim payout ratio and the applicable risk premium effective from April 01, 2016 by the first week of March 2016.

An illustration taking various dates of sanctions and for different scenarios in different FYs is attached for better understanding of the proposed guidelines.

The above guidelines supersedes the guidelines issued by us on differential pricing structure vide our Circular Nos. 88/2015-16 and 92/2015-16 dated April 17, 2015 and July 08, 2015 respectively. We once again reiterate that any NPA upgradation in the accounts already reported to CGTMSE as NPAs may be advised to CGTMSE expeditiously for carrying out necessary corrections, as advised us vide our circular No. 96/2015-16 dated September 04, 2015, since the same will have bearing on the NPA% of the MLI as reported to the Trust. Further, the closure of accounts covered under the Credit Guarantee Scheme where the claims are not expected to be lodged may also be reported to CGTMSE for carrying out necessary corrections to enable CGTMSE to work out correct NPA percentage for levying risk premium. Please note that this exercise will have to be completed latest by February 29, 2015 since the new structure is proposed to be made applicable w.e.f. April 01, 2016 as mentioned above

We request you to kindly bring the contents of this Circular to the notice of your all offices.

                                                                                                                                 
Yours faithfully,

(S.S.Bakshee)
General Manager

 

Encl : As above.

Illustrations

Standard Rate taken as 1%

EG: 1 UVW Bank

Calculation: NPA Percentage Risk Premium
Position as on September 30, 2015

>5-10%

10% of SR

 

Claim Payout Ratio Risk Premium
Position as on September 30, 2015

0-5%

No risk premium

Effective rate applicable

 

1.10%



Sanctioned Date

01/04/2016

Guaranteed Amt

1000000

Approved Date

05/04/2016

Applicable rate as effective from 01/04/2016
would be applicable.

1.10%

AGF

11000

Guarantee start date/ Fee paid and valid till 11/04/2016 - 10/04/2017


The risk premium applicability for the above case for the next year is as follow:

Calculation:

NPA Percentage

Risk Premium

Position as on September 30, 2016

>15-20%

20% of SR

 

Claim Payout Ratio

Risk Premium

Position as on September 30, 2016

0-5%

No risk premium

Effective rate applicable

 

1.20%

Applicable rate as effective from 01/04/2017
would be applicable.

1.20%

Annual Fee for the period

11/04/2017 - 31/03/2018


EG: 2 YYZBank

Calculation: NPA Percentage Risk Premium
Position as on September 30, 2015

>20%

25% of SR

 

Claim Payout Ratio Risk Premium
Position as on September 30, 2015

>5-10%

10% of SR

Effective rate applicable

 

1.35%



Sanctioned Date

15/09/2016

Guaranteed Amt

1000000

Approved Date

18/09/2016

Applicable rate as effective from 01/04/2016
would be applicable.

1.35%

AGF

13500

Guarantee start date/ Fee paid and valid till 22/09/2016 - 21/09/2017


The risk premium applicability for the above case for the next year is as follow:

Calculation:

NPA Percentage

Risk Premium

Position as on September 30, 2016

>15-20%

20% of SR

 

Claim Payout Ratio

Risk Premium

Position as on September 30, 2016

>10-15%

15% of SR

Effective rate applicable

 

1.35%

Applicable rate as effective from 01/04/2017
would be applicable.

1.35%

Annual Fee for the period

22/09/2017 - 31/03/2018


EG: 3 ABC Bank

Calculation: NPA Percentage Risk Premium
Position as on September 30, 2016

>10-15%

15% of SR

 

Claim Payout Ratio Risk Premium
Position as on September 30, 2016

0-5%

No risk premium

Effective rate applicable

 

1.15%



Sanctioned Date

10/04/2017

Guaranteed Amt

1000000

Approved Date

12/04/2017

Applicable rate as effective 01/04/2017
since sanction date is after 01/04/2017.

1.15%

AGF

11500

Guarantee start date/ Fee paid and valid till 15/04/2017 - 14/04/2018


The risk premium applicability for the above case for the next year is as follow:

Calculation:

NPA Percentage

Risk Premium

Position as on September 30, 2017

>5-10%

10% of SR

 

Claim Payout Ratio

Risk Premium

Position as on September 30, 2017

0-5%

No risk premium

Effective rate applicable

 

1.10%

Applicable rate as effective from 01/04/2018
would be applicable.

1.10%

Annual Fee for the period

15/04/2018 - 31/03/2019


EG 4 :XYZ Bank

Calculation: NPA Percentage Risk Premium
Position as on September 30, 2016

>15-20%

20% of SR

 

Claim Payout Ratio Risk Premium
Position as on September 30, 2016

0-5%

No risk premium

Effective rate applicable

 

1.20%



Sanctioned Date

11/11/2017

Guaranteed Amt

1000000

Approved Date

15/11/2017

Applicable rate as effective 01/04/2017 since
sanction date is after 01/04/2017.

1.20%

AGF

12000

Guarantee start date/ Fee paid and valid till 19/11/2017 - 18/11/2018


The risk premium applicability for the above case for the next year is as follow:

Calculation:

NPA Percentage

Risk Premium

Position as on September 30, 2017

>10-15%

15% of SR

 

Claim Payout Ratio

Risk Premium

Position as on September 30, 2017

0-5%

No risk premium

Effective rate applicable

 

1.15%

Applicable rate as effective from 01/04/2018
would be applicable.

1.15%

Annual Fee for the period

19/11/2018 - 31/03/2019


EG 5 :PQR Bank

Calculation: NPA Percentage Risk Premium
Position as on September 30, 2015

>10-15%

15% of SR

 

Claim Payout Ratio Risk Premium
Position as on September 30, 2015

>5-10%

10% of SR

Effective rate applicable

 

1.25%



Sanctioned Date

28/03/2017

Guaranteed Amt

1000000

Approved Date

03/04/2017

Applicable rate as effective from 01/04/2016
would be applicable since sanction date
is prior to 01/04/2017 although guarantee
approved date is 03/04/2017.

1.25%

AGF

12500

Guarantee start date/ Fee paid and valid till 05/04/2017 - 04/04/2018


The risk premium applicability for the above case for the next year is as follow:

Calculation:

NPA Percentage

Risk Premium

Position as on September 30, 2017

>5-10%

10% of SR

 

Claim Payout Ratio

Risk Premium

Position as on September 30, 2017

>5-10%

10% of SR

Effective rate applicable

 

1.20%

Applicable rate as effective from 01/04/2018
would be applicable.

1.20%

Annual Fee for the period

05/04/2018 - 31/03/2019


EG 6 :EFG Bank

Calculation: NPA Percentage Risk Premium
Position as on September 30, 2016

>10-15%

15% of SR

 

Claim Payout Ratio Risk Premium
Position as on September 30, 2016

>5-10%

10% of SR

Effective rate applicable

 

1.25%



Sanctioned Date

20/01/2018

Guaranteed Amt

1000000

Approved Date

22/01/2018

Applicable rate as effective from
01/04/2017 would be applicable.

1.25%

AGF

12500

Guarantee start date/ Fee paid and valid till 25/01/2018 - 24/01/2019


The risk premium applicability for the above case for the next year is as follow:

Calculation:

NPA Percentage

Risk Premium

Position as on September 30, 2017

>5-10%

10% of SR

 

Claim Payout Ratio

Risk Premium

Position as on September 30, 2017

>20%

25% of SR

Effective rate applicable

 

1.35%

Applicable rate as effective from 01/04/2018
would be applicable.

1.35%

Annual Fee for the period

25/01/2019 - 31/03/2019


EG 7 :MNO Bank

Calculation: NPA Percentage Risk Premium
Position as on September 30, 2016

0-5%

No risk premium

 

Claim Payout Ratio Risk Premium
Position as on September 30, 2016

>5-10%

10% of SR

Effective rate applicable

 

1.10%



Sanctioned Date

30/06/2017

Guaranteed Amt

1000000

Approved Date

05/07/2017

Applicable rate as effective 01/04/2017
since sanction date is after 01/04/2017.

1.10%

AGF

11000

Guarantee start date/ Fee paid and valid till 09/07/2017 - 08/07/2018


The risk premium applicability for the above case for the next year is as follow:

Calculation:

NPA Percentage

Risk Premium

Position as on September 30, 2017

0-5%

0-5%

 

Claim Payout Ratio

Risk Premium

Position as on September 30, 2017

>5-10%

>5-10%

Effective rate applicable

 

1.10%

Applicable rate as effective from 01/04/2017
would be applicable.

1.10%

Annual Fee for the period

09/07/2018 - 31/03/2019