CGTMSE Ref. No. (44)/4425 January 10, 2017



All Member Lending Institutions of CGTMSE

Circular No. 122 / 2016 – 17

Dear Sir/Madam,

Credit Guarantee Scheme (CGS) –
Recovery by MLIs after settlement of CGTMSE claim

       As you are aware, we have recently automated the process of remitting of recovery made by the Member Lending Institutions (MLIs) post settlement of claims to CGTMSE (refer our Circular No.113/2016 – 17 dated May 12, 2016 a copy of which is available on our website www.cgtmse.in). However, it is observed from inspections conducted for various banks that recoveries made, post settlement of claims by CGTMSE in respect of proposals covered under the CGS, are sometimes not being passed on to CGTMSE as per the provisions of the CGS.

       We reiterate that in terms of Chapter VI, Point No. 13, of CGS of CGTMSE, the recoveries made by MLIs from the defaulting borrowers post settlement of 1st/2nd claim by CGTMSE are required to be passed on to CGTMSE in full after netting off the legal expenses. Please note that the payment of guarantee claim by the Trust to the lending institution does not in any way take away the responsibility of the lending institution to recover the entire outstanding amount of the credit from the borrower. The lending institution shall exercise all the necessary precautions and maintain its recourse to the borrower for entire amount of credit facility owed by it and initiate such necessary actions for recovery of the entire outstanding amount. Upon receipt of such recovery, CGTMSE works out the net loss and shares the recovery so passed on by the MLIs, with the respective MLI in the given proportion.

       You are once again requested to strictly adhere to the guidelines of CGTMSE and pass on the entire recovery made, be it in installments, to CGTMSE immediately upon recovering the amount after deducting the legal expenses. The CGTMSE, on its part, would refund its share of amount to MLIs in the ratio of net loss incurred only after receipt of entire recovery.

     Further, it has also been reported to us that the beneficiary borrower under the CGS presumes that once his credit facility is covered under CGS of CGTMSE, his liability towards his lender gets extinguished once the underlying claim is settled by CGTMSE based on the claim application lodged by the respective MLI. This is also corroborated from the number of legal notices received by the Trust from the council of the borrower making CGTMSE a party to the litigation. You may appreciate that the presumption of the borrower is not correct in the light of the relevant provisions of the scheme highlighted above. The MLIs need to educate the borrowers on this issue at the time of covering him under CGS itself.

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

                                                                                                                                 
Yours faithfully,

(S.S.Bakshee)
General Manager