CGTSI/ (44)/1191                                                                                                                                                                             April 22, 2002

All Member Lending Institutions

Circular No. 4/2001-02

Dear Sir / Madam,

Credit Guarantee Scheme - Modifications

As you may be aware the Credit Guarantee Scheme (CGFSI) is in operation since August 2000. In order to make the Scheme more attractive and convenient for its Member Lending Institutions (MLIs), the Trust has been carrying out modifications in the Scheme based on the suggestions received from various quarters and after discussing the same at different forums like IBA Review forum, National Advisory Committee etc. Recently we have decided to further modify the Scheme and enlarge its scope as follows:

Chapter II - "Scope and Extent of the Scheme", Clause 5(vii) on "Credit facilities not eligible under the Scheme":

Existing Provision:

"Credit facilities extended by the lending institution jointly with any other institution shall not be eligible for guarantee cover."

Modified Provision:

The above Clause 5(vii) has been modified as follows:

"Credit facilities extended jointly by two or more banks to a single borrower or credit facilities extended jointly by two or more institutions to a single borrower, shall not be eligible for guarantee cover."

Reasons for modification:

Under the Credit Guarantee Scheme, we encourage composite credit being extended to a single borrower by a Member Lending Institution of the Trust. However, the Trust has received requests for consideration of credit facilities extended by a bank for a SSI unit already assisted by State Level Institution(s) (SLIs). Modification has, therefore, been carried out to help the SSI borrowers already assisted by Institutions [State Level Institutions (SLIs) / NSIC / NEDFi] in seeking credit facilities from a bank under the Credit Guarantee Scheme. However, joint financing by two commercial banks to a single borrower shall not be eligible for guarantee cover. Similarly, joint financing by two institutions to a single borrower, would not be eligible for guarantee cover.

2. Chapter III - Clause 8(i) on Guarantee Fee:

Existing Provision:

"A one time guarantee fee at specified rate (currently 2.5 per cent) of the credit facility sanctioned, (comprising term loan and / or working capital facility) shall be paid upfront to the Trust by the eligible institution availing of the guarantee."

Modified Provision:

Clause 8(i) has been modified as follows:

"A one time guarantee fee at specified rate (currently 2.5 per cent) of the credit facility sanctioned, (comprising term loan and / or working capital facility) shall be paid upfront to the Trust by the eligible institution availing of the guarantee within 30 days from the date of first disbursement of credit facility."

Reasons for modifications:

Presently there is no due date prescribed under the Scheme by which a MLI has to pay the guarantee fee against the proposal(s) approved by the Trust. With the above modification, the MLI is required to pay the guarantee fee within 30 days from the date of first disbursement of credit facility. However, wherever the MLI had already disbursed / released, either partly or fully, the credit facility to the borrower before applying for guarantee cover to the Trust, the MLI will have to pay the guarantee fee within 30 days from the date of Demand Advice (CGDAN) of guarantee fee in respect of the approved proposal. A MLI would be said to have complied with the due date requirement provided the payment is remitted to the collecting banker of the Trust within 30 days.

Other -

Furnishing details of "IT PAN of the Chief Promoter" in the Application form for Guarantee Cover:

Existing Provision:

Presently while lodging the proposals for Guarantee cover, the MLIs have to indicate in the relevant field the unique Income Tax Permanent Account No. (IT PAN) allotted by Tax Authorities to the Chief promoter of the SSI Unit or the MLI have to mention " Applied For " after satisfying itself that the promoter had applied for allotment of IT PAN to the Authorities. After receipt of details of IT PAN from the promoter the same are required to be advised to the Trust for incorporation in the database.

Modified Provision:

The discretion to indicate the details of IT PAN of the Chief Promoter of the borrower, in the Application Form, has been left to the MLI in respect of proposals involving credit facility upto Rs. 10 lakh. However, in case of proposals involving credit facility of Rs. 10 lakh and above, the MLI shall furnish the details of IT PAN, in the Application Form, while lodging the applications for guarantee cover.

The circular comes into effect from March 1, 2002.

You are requested to advise your operating offices (Zonal / Branch Offices) about the modification made to the Scheme as above. We solicit your cooperation in covering maximum proposals under the Scheme.

Thanking you,

Yours faithfully,

Sd/-

(N. Venkatasubramanyan)

Chief Executive Officer