Know the various steps for Preferment of the CGTMSE Claim and Invocation of guarantee by Public Sector Banks and Lending Institutions – MSME loans are offered by various banks against the Guarantees by CGTMSE up to Rs 2,00,000,00, two crore for other than trade where the maximum limit for the guarantee coverage is Rs 1,00,000,00 or one crore. Once the loan account gets defaulted, the CGTMSE guarantees are invoked by the lending institutions following the stipulate guidelines as stipulated by the CGTMSE Trust.
Check out the step by step process for Preferment of the CGTMSE Claim and Invocation of guarantee by various banks like Canara Bank, SBI, Bank of Baroda, Union Bank, Punjab National Bank, Indian Banks etc. and other private banks. The lending institution may invoke the guarantee in respect of credit facility within a maximum period of one year from date of NPA, if NPA is after lock-in period or within one year from lock-in period. If NPA is within lock-in period (for cases sanctioned on or after 01/01/2013 time period for claim lodgement increased to two year), if the following conditions are satisfied: –
- The guarantee in respect of that credit facility was in force at the time of account turning NPA.
- The lock-in period of 18 months from either the date of last disbursement of the loan to the borrower or the guarantee start date in respect of credit facility to the borrower, whichever is later, has lapsed.
- The amount due and payable to the lending institution in respect of the credit facility has not been paid and the dues have been classified by the lending institution as Non-Performing Assets. Provided that the lending institution shall not make or be entitled to make any claim on the Trust in respect of the said credit facility if the loss in respect of the said credit facility had occurred owing to actions / decisions taken contrary to or in contravention of the guidelines issued by the Trust.
- The credit facility has been recalled and the recovery proceedings have been initiated under due process of law. Mere issuance of recall notice under SARFAESI Act 2002 cannot be construed as initiation of legal proceedings for purpose of preferment of claim under CGS. MLIs are advised to take further action as contained in Section 13 (4) of the above Act wherein a secured creditor can take recourse to any one or more of the recovery measures out of the four measures indicated therein before submitting claims for first instalment of guaranteed amount. In case the MLI is not in a position to take any of the action indicated in Section 13(4) of the aforesaid Act, they may initiate fresh recovery proceeding under any other applicable law and seek the claim for first instalment from the Trust.
- However in case of credit facility sanctioned on or after 01/01/2013, initiation of legal proceedings as a pre-condition for invoking of guarantees shall be waived for credit facilities covered under CGS up to ` 50,000/-, subject to the condition that for all such cases, where the filing of legal proceedings is waived, an Executive Committee of the Member Lending Institution (MLI) headed by an Officer not below the rank of General Manager should examine all such accounts and take a decision for not initiating legal action and filing claim under the Scheme. The waiver of the filling suit has been raised up to Rs One Lakhs.
(ii) The Preferment of the CGTMSE Claim should be preferred by the lending institution in such manner and within such time as may be specified by the Trust in this behalf.
(iii) The Trust shall pay 75 per cent of the guaranteed amount on preferring of eligible claim by the lending institution, within 30 days, subject to the claim being otherwise found in order and complete in all respects. The Trust shall pay to the lending institution interest on the eligible claim amount at the prevailing Bank Rate for the period of delay beyond 30 days. The balance 25 per cent of the guaranteed amount will be paid on conclusion of recovery proceedings or till the decree gets time barred.
As per circular No 62, for loans sanctioned on or after 01/01/2013, the balance 25 per cent of the guaranteed amount will be paid on conclusion of recovery proceedings by the lending institution or after three years of obtaining of decree of recovery, whichever is earlier.
On a claim being paid, the Trust shall be deemed to have been discharged from all its liabilities on account of the guarantee in force in respect of the borrower concerned. MLIs, however, should undertake to refund any amount received from the unit after payment of full guaranteed amount by CGTMSE.
(iv) In the event of default the lending institution shall exercise its rights, if any, to take over the assets of the borrowers and the amount realised, if any, from the sale of such assets or otherwise shall first be credited in full by the lending institutions to the Trust before it claims the remaining 25 per cent of the guaranteed amount.
(v) The lending institution shall be liable to refund the claim released by the Trust together with penal interest at the rate of 4% above the prevailing Bank Rate, if such a recall is made by the Trust in the event of serious deficiencies having existed in the matter of appraisal / renewal / follow-up / conduct of the credit facility or where lodgement of the claim was more than once or where there existed suppression of any material information on part of the lending institutions for the settlement of Claims. The lending institution shall pay such penal interest, when demanded by the Trust, from the date of the initial release of the claim by the Trust to the date of refund of the claim.
Also Read – CGTMSE To Cover Retail Trades & Collateral Loans also
(VI) MLIs can update the recoveries/ OTS amount received post settlement of first instalment of claim in the CGTMSE portal. Please refer Circular No.113/ 2016-17 dated May 12, 2016 for more details
(VII) While online lodgement of first claim, MLIs have to submit the Declaration & Undertaking (D& U) electronically along with the checklist displayed in the system. Please refer Circular No.130/ 2017-18 dated July 14, 2017 for more details.
(VIII) The Guarantee Claim received directly from the branches or offices other than respective operating-offices of MLIs will not be entertained.
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