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SUBORDINATE DEBT (CGSSD) FOR STRESSED MSMEs

Objective

To facilitate loans through Banks to the promoters of stressed MSMEs for infusion as equity / quasi equity in the business eligible for restructuring as per RBI Guidelines.

Name of the Scheme

The Scheme is named as ‘Distressed Assets Fund - Subordinate Debt for Stressed MSMEs’ and the credit product for which guarantee would be provided under the Scheme shall be named as ‘Credit Guarantee Scheme for Subordinate Debt (CGSSD).

Purpose of Finance

To provide guarantee coverage for the CGSSD to provide Sub-Debt support in respect of restructuring of MSMEs. 90% guarantee coverage would come from scheme/ Trust and remaining 10% from the concerned promoter(s).

Duration

The Scheme would be applicable to all credit facilities sanctioned under CGSSD for a maximum period of 10 years from the guarantee availment date or March 31, 2021 whichever is earlier, or till an amount of Rs.20,000 crore of guarantee amount is approved.

Eligible Borrowers

  • The Scheme is applicable for those MSMEs whose accounts have been standard as on 31.03.2018 and have been in regular operations, either as standard accounts, or as NPA accounts during financial year 2018-19 and financial year 2019-20.
  • Fraud/ Wilful defaulter accounts will not be considered under the proposed scheme.
  • Personal loan will be provided to the promoters of the MSME units. The MSME itself may be Proprietorship, Partnership, Private Limited Company or registered company etc.
  • The Scheme is valid for MSME units which are stressed, viz. SMA-2 and NPA accounts as on 30.04.2020 who are eligible for restructuring as per RBI guidelines on the books of the Lending institutions.

Loan Amount eligible under the Guarantee Coverage

Promoter(s) of the MSME unit will be given credit equal to 15 % of his/her stake (equity plus debt) or Rs 75 lakh whichever is lower.

Quantum of Finance

The quantum of finance to an individual borrower in a specific cluster should be need based and to be assessed as per requirement of business.

Facility Type

Personal Loan: Term Loan to be provided to the promoters of Stressed MSME accounts.

Interest Rate

2.50% over RBLR

Tenor

  • The tenor of sub-debt facility provided under CGSSD shall be as per the repayment schedule defined by the lender, subject to a maximum tenor of 10 years from the guarantee availment date or March 31, 2021 whichever is earlier.
  • The maximum tenor for repayment will be 10 years. There will be a moratorium of 7 years (maximum) on the payment of principal. Till the 7th year, only interest will be paid.
  • While the interest on the sub-debt under the scheme would be required to be serviced regularly (monthly), the principal shall be repaid within a maximum of 3 years after completion of moratorium.
  • Pre-payment of loan is permitted at no additional charge /penalty to the borrower.

Margin

The promoters are required to bring in 10% of the Sub Debt amount as margin money/Collateral.

Security

The sub-debt facility so sanctioned by MLIs will have 2nd charge of the assets financed under existing facilities for the entire tenor of the sub-debt facility.

Guarantee Coverage

90% guarantee coverage would come from scheme/ Trust and remaining 10% from concerned promoter(s) on the credit extended by MLIs under the scheme. The guarantee cover would be uncapped, unconditional and irrevocable credit guarantee.

Guarantee Fee

1.50% per annum on the guaranteed amount on outstanding basis. Guarantee fee may be borne by the borrowers as per the arrangements between the borrower and the MLIs.