Credit Guarantee Scheme for Subordinate Debt (CGSSD)

Context:

The government launched Rs 20,000-crore ‘Credit Guarantee Scheme for Subordinate Debt (CGSSD)’ to support distressed small businesses.

About CGSSD:

• Under the Credit Guarantee Scheme for Subordinate Debt (CGSSD), the government will provide a subordinated debt facility to the promoters of micro, small and medium enterprises that are either distressed or classified under non-performing assets.
• In case of default, creditors giving subordinated debt are paid after the primary debt is settled in full.
• The scheme will provide a guarantee cover worth Rs 20,000 crore to more than two lakh MSMEs, the Ministry of Micro, Small & Medium Enterprises said in an official release.
• The scheme will be operationalized through the Credit Guarantee Fund Trust for MSEs (CGTMSE).
• Under the CGSSD program, the government will provide the guarantee cover to promoters who can take debt from banks to further invest in stressed MSMEs as equity.

How will it be done?

• Promoter(s) of MSMEs meeting the eligibility criteria may approach any scheduled commercial banks to avail benefit under the scheme.
• They will be given credit equal to 15% of their stake (equity plus debt) or Rs. 75 lakh whichever is lower.
• Promoters in turn will infuse this amount in the MSME unit as equity and thereby enhance the liquidity and maintain the debt-equity ratio.
• 90 percent guarantee coverage for this sub-debt will be given under the Scheme and 10 percent would come from the concerned promoters.
• There will be a moratorium of 7 years on payment of principal whereas the maximum tenor for repayment will be 10 years.