J&K Bank extends GOI’s Credit Guarantee Scheme for Subordinate Debt for stressed MSMEs

J&K Bank extends GOI’s Credit Guarantee Scheme for Subordinate Debt for stressed MSMEs

As part of Atmanirbhar Bharat economic package, J&K Bank has extended the Government of India’s Credit Guarantee Scheme for Subordinate Debt (CGSSD) to provide personal loan to the promoters of stressed MSMEs for infusion as equity / quasi equity in the business eligible for restructuring, as per RBI guidelines.
Pertinently, as a special dispensation, RBI has permitted banks to reckon the funds infused by the promoters in their MSME units through loans availed under the scheme as equity/quasi equity from the promoters for debt-equity computation.
“The biggest challenge for stressed MSMEs is in getting capital either in the form of debt or equity. It is expected that this scheme would provide much required support to eligible MSMEs and will help in reviving the economic activity of this sector which is presently experiencing financial difficulties due to the economic fallout of Covid-19 Pandemic”, the bank’s Chairman and Managing Director (CMD), R K Chhibber said.
Highlighting the features of the scheme, the bank’s Executive President Arun Gandotra said, “This innovative mechanism of financing stressed MSMEs through promoters’ personal credit route which is also backed by Govt security is a first of its kind in the Indian Banking industry. We were prompt in making sure that this facility is being provided to the potential beneficiaries without any delay and much hassle. We are hopeful that with a long moratorium and soft interest rates, this will help a good number of stressed MSMEs in J&K (UT) to come out of this liquidity quagmire”.
Notably, the scheme has been operationalised through Credit Guarantee Fund Trust for MSEs (CGTMSE).

The major highlights of the scheme are:

  • The scheme seeks to extend support to the promoter(s) of the operational MSMEs which are stressed (SMA-2) or have become NPA as on April 30, 2020, but were standard as on March 31, 2018.
  • The Promoter(s) of the MSMEs will be given credit equal to 15% of their stake (equity plus debt) or Rs. 75 lakh whichever is lower. The Promoter(s) in turn will infuse this amount in the MSME unit as equity and thereby enhance the liquidity and maintain debt-equity ratio.
  • 90% guarantee coverage for this sub-debt under the scheme will be provided by CGTMSE and 10% would come from the concerned promoters.
  • There will be a moratorium of upto 7 years on payment of principal and after completion of the moratorium period, the principal amount shall be repaid within a maximum period of 3 years, while the interest shall be served during the entire tenor of the facility. As such the maximum door to door tenor of the loan will be 10 years.

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