Government of India launches Credit Guarantee Scheme for Startups

Tags: Economy/Finance

To boost funding to the Startups in the country, Department for Promotion of Industry and Internal Trade (DPIIT), under the Union Ministry of Commerce and Industry has notified the establishment of the Credit Guarantee Scheme for Startups (CGSS).  The CGSS will provide credit guarantees to loans upto Rs 10 crore extended by Scheduled Commercial Banks, Non-Banking Financial Companies and Securities and Exchange Board of India (SEBI) registered Alternative Investment Funds (AIFs) to the Startups registered with DPIIT. 

It means that if the eligible Startups fail to repay the loan taken from eligible financial institutions then the lender will be compensated by the government of India. This guarantee by the government is likely to increase the flow of credit to the Startups.

Extent of Loan Guarantee 

The credit guarantee cover under the Scheme would be transaction based and umbrella based. The exposure to individual cases would be capped at Rs. 10 crore per case or the actual outstanding credit amount, whichever is less.

• The extent of transaction-based cover will be 80% of the amount in default if the original loan sanction amount is up to Rs. 3 crore;
•  75% of the amount in default if the original loan sanction amount is above Rs. 3 crore, and up to Rs. 5 crore, and
•  65% of the amount in default if the original loan sanction amount is above Rs. 5 crore (up to Rs. 10 crore per borrower). 

The umbrella-based guarantee cover will provide guarantee to Venture Debt Funds (VDF) registered under AIF regulations of SEBI.

The extent of umbrella-based cover will be the actual losses or up to a maximum of 5% of Pooled Investment on which cover is being taken from the fund in eligible startups, whichever is lower, subject to a maximum of Rs.10 crore per borrower.

Who will operate the scheme? 

The National Credit Guarantee Trustee Company Limited (NCGTC) will be operating the Scheme.

The National Credit Guarantee Trustee Company Limited is a private company set up on 2014, under the company’s act 2013. It is under the administrative control of the Union Ministry of Finance. It is owned by the Government of India.

Other Important Information for Exam 

National Startup Day is observed in India on 16 January .

India’s first dedicated start-up branch was opened by SBI in Koramangala, Bengaluru on 16 August 2022.