Media reports indicate that the Credit Guarantee Fund Trust for Medium and Small Enterprises (CGTMSE) plans to rationalise the annual guarantee fee payable by banks for insuring their loan to small business units.
Presently, CGTMSE collects guarantee fee at 1 per cent of the loan limit per annum throughout the tenure of the loan.
According to the current formula for fee payment, as the outstanding loan amount comes down with repayment, the fee paid as percentage of the average balance increases from year to year, going up to 10 per cent of the average balance in the fifth year on a five-year term loan.
Now, the CGTMSE is examining a proposal whereby the annual guarantee fee should be payable on the sanctioned limit till the term loan is fully disbursed. Thereafter, the fee should be payable on the outstanding loan as at the end of March 31 of the previous year, reports suggest.
According to Reserve Bank of India data, in the financial year so far (up to May-end) bank credit to the MSE segment grew 7.25 per cent (or by Rs 40,800 crore) to Rs 6,03,100 crore.
Once the guarantee fee gets rationalised, banks may be able to reduce the interest rate they charge borrowers in the micro and small enterprise (MSE) segment, reports indicate.
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