Banks' discretion on credit guarantee irritates small industries
Updated: Dec 16, 2013 02:33:35pm
Baddi, Dec 16 (KNN) Industries particularly in the SME segment, are being subjected to guarantee fee for bank term loans without collaterals, according to arbitrary discretions of individual banks.
In this regard, BBN Industries Association here has taken a lead and raised the issue with several key banking authorities and intermediaries including the Reserve Bank and SIDBI.
The Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGMSE) was launched by the Government of India to make available collateral-free credit to the micro and small enterprise sector. Both the existing and new enterprises are eligible to be covered under the scheme.
The Ministry of MSME and Small Industries Development Bank of India (SIDBI), established a Trust named Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) to implement the Credit Guarantee Fund Scheme for Micro and Small Enterprises.
The fee payable to the Trust under the scheme is one-time guarantee fee of 1.5 per cent and annual service fee of 0.75 per cent on the credit facilities sanctioned. For loans up to Rs 5 lakh, the one-time guarantee fee and annual service fee is 1 per cent and 0.5 per cent respectively.
“According to the CGTMSE scheme, banks can lend up to Rs 1 crore without collateral. Against that loan, the borrower has to pay a guarantee fee every year,” said Senior Vice President of BBN Industries Association, Sanjay Khurana.
“The discretion of the banks to recover from the borrower is on the mutually agreed amount. This discretion creates a lot of problem and confusion,” he said.
“They charge differently from different customers on the basis of their will,” Khurana added.
The association has also taken up the issue with the Reserve Bank. The RBI authorities agreed with the contention of this association that there is too much ambiguity in the scheme which needs to be looked up on.
“Our major issue is when we take term loan from the banks, the credit guarantee fee is charged on the original amount of the term loan even in the subsequent years of repayment when the total term loan gets reduced,” said Khurana.
“We have discussed the issue with SIDBI as well, but they seem to be very adamant saying that they are strictly working according to the rules of the scheme,” he added.
However, CGTMSE told the association that their issue is logical and needs to be looked upon.
The CGTMSE scheme was formally launched on August 30, 2000 and is operational with effect from 1st January 2000.
The guarantee cover available under the scheme is to the extent of 75 per cent of the sanctioned amount of the credit facility.
The extent of guarantee cover is 80 per cent for - micro enterprises for loans up to Rs 5 lakh; MSEs operated and/or owned by women; and all loans in the North-East Region. (KNN/SD)
In this regard, BBN Industries Association here has taken a lead and raised the issue with several key banking authorities and intermediaries including the Reserve Bank and SIDBI.
The Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGMSE) was launched by the Government of India to make available collateral-free credit to the micro and small enterprise sector. Both the existing and new enterprises are eligible to be covered under the scheme.
The Ministry of MSME and Small Industries Development Bank of India (SIDBI), established a Trust named Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) to implement the Credit Guarantee Fund Scheme for Micro and Small Enterprises.
The fee payable to the Trust under the scheme is one-time guarantee fee of 1.5 per cent and annual service fee of 0.75 per cent on the credit facilities sanctioned. For loans up to Rs 5 lakh, the one-time guarantee fee and annual service fee is 1 per cent and 0.5 per cent respectively.
“According to the CGTMSE scheme, banks can lend up to Rs 1 crore without collateral. Against that loan, the borrower has to pay a guarantee fee every year,” said Senior Vice President of BBN Industries Association, Sanjay Khurana.
“The discretion of the banks to recover from the borrower is on the mutually agreed amount. This discretion creates a lot of problem and confusion,” he said.
“They charge differently from different customers on the basis of their will,” Khurana added.
The association has also taken up the issue with the Reserve Bank. The RBI authorities agreed with the contention of this association that there is too much ambiguity in the scheme which needs to be looked up on.
“Our major issue is when we take term loan from the banks, the credit guarantee fee is charged on the original amount of the term loan even in the subsequent years of repayment when the total term loan gets reduced,” said Khurana.
“We have discussed the issue with SIDBI as well, but they seem to be very adamant saying that they are strictly working according to the rules of the scheme,” he added.
However, CGTMSE told the association that their issue is logical and needs to be looked upon.
The CGTMSE scheme was formally launched on August 30, 2000 and is operational with effect from 1st January 2000.
The guarantee cover available under the scheme is to the extent of 75 per cent of the sanctioned amount of the credit facility.
The extent of guarantee cover is 80 per cent for - micro enterprises for loans up to Rs 5 lakh; MSEs operated and/or owned by women; and all loans in the North-East Region. (KNN/SD)
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