The Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry has notified the establishment of the Credit Guarantee Scheme for Startups (CGSS) for providing credit guarantees to loans extended by Scheduled Commercial Banks, Non-Banking Financial Companies and Securities and Exchange Board of India (SEBI) registered Alternative Investment Funds (AIFs).

CGSS is aimed at providing credit guarantees up to a specified limit against loans extended by Member Institutions (MIs) to finance eligible borrowers viz. Startups as defined in the Gazette Notification issued by DPIIT and amended from time to time.

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 crores per case or the actual outstanding credit amount, whichever is less.

In respect of transaction-based guarantee cover, the guarantee cover is obtained by the MIs on a single eligible borrower basis. Transaction-based guarantees will promote lending by Banks/ NBFCs to eligible startups.

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

The umbrella guarantee cover will provide a guarantee to Venture Debt Funds (VDF) registered under AIF regulations of SEBI (a growing segment of funding in the Indian startup ecosystem), given the nature of funds raised by them and debt funding provided by them. The extent of umbrella-based cover will be the actual losses or up to a maximum of 5 per cent 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.

Along with institutional mechanisms for operationalizing the Scheme, DPIIT will be constituting a Management Committee (MC) and a Risk Evaluation Committee (REC) for reviewing, supervising and operational oversight of the Scheme. The National Credit Guarantee Trustee Company Limited (NCGTC) will be operating the Scheme.

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