CGTSI/(44)/2297

March 22, 2005

All the Member Lending Institutions (MLIs) of CGTSI

Circular No. 23 /2004-05

Dear Sir / Madam,

Modifications in the Credit Guarantee Fund Scheme for Small Industries (CGS)

CGTSI has been receiving suggestions from its MLIs, regarding relaxation / modifications in Clause 7(vii) of the Credit Guarantee Scheme with respect to the following:

(i) Member Lending Institution (MLI) to obtain prior permission of CGTSI before entering into any compromise or arrangement with the borrower covered under CGS and

(ii) MLI to obtain prior written approval of the Trust before creating any charge on the security of the borrower covered under CGS.

The present Clause 7 (vii) under Chapter II "Scope and Extent of the Scheme" of the Credit Guarantee Scheme, states as under:

"The lending institution shall, in respect of any guaranteed account, exercise the same diligence in recovering the dues, and safeguarding the interest of the Trust in all the ways open to it as it might have exercised in the normal course if no guarantee had been furnished by the Trust. The lending institution shall, in particular, refrain from any act of omission or commission, either prior to or subsequent to invocation of guarantee, which may adversely affect the interest of the Trust as the guarantor . In particular, the lending institution should obtain prior permission of the Trust before entering into any compromise or arrangement, which may have the effect of discharge or waiver of personal guarantee(s) or security. The lending institution shall also ensure either through a stipulation in an agreement with the borrower or otherwise, that he shall not create any charge on the security held in the account covered by the guarantee for the benefit of any account not covered by the guarantee, with itself or in favour of any other creditor(s) without the prior written approval of the Trust . Further the lending institution shall secure for the Trust or its appointed agency, through a stipulation in an agreement with the borrower or otherwise, the right to list the defaulted borrowers' names and particulars on the Website of the Trust."

With a view to giving flexibility to MLIs in exercising arrangements with respect to one time settlement and creating any charge on the security of the borrower covered under CGS, the Clause 7 (vii) under Chapter II "Scope and Extent of the Scheme" of the Credit Guarantee Scheme has been modified as under:

"The lending institution shall, in respect of any guaranteed account, exercise the same diligence in recovering the dues, and safeguarding the interest of the Trust in all the ways open to it as it might have exercised in the normal course if no guarantee had been furnished by the Trust. The lending institution shall, in particular, refrain from any act of omission or commission, either prior to or subsequent to invocation of guarantee, which may adversely affect the interest of the Trust as the guarantor. In particular, the lending institution should intimate the Trust before entering into any compromise or arrangement which may have the effect of discharge or waiver of personal guarantee(s) or security . The lending institution shall also ensure either through a stipulation in an agreement with the borrower or otherwise, that it shall not create any charge on the security held in the account covered by the guarantee for the benefit of any account not covered by the guarantee, with itself or in favour of any other creditor(s) without intimating the Trust . Further the lending institution shall secure for the Trust or its appointed agency, through a stipulation in an agreement with the borrower or otherwise, the right to list the defaulted borrowers' names and particulars on the Website of the Trust."

The above modification shall come into effect from April 01, 2005.

Please feel free to get in touch with us in case any further clarifications are required.

Thanking you,

 

 

Yours faithfully,

Sd/-

(S N Sadhwani )

Deputy General Manage