CREDIT GUARANTEE SCHEME FOR STARTUPS (CGSS)

PREAMBLE

The Central Government has approved the 'Credit Guarantee Scheme for Startups (CGSS)' for the purpose of providing credit guarantees to loans extended by Member Institutions (MIs) to finance eligible borrowers being Startups as defined in the Gazette Notification issued by the Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry.

CHAPTER I INTRODUCTION

Scheme - 1. Title and date of commencement.

(i)       The Scheme shall be known as the Credit Guarantee Scheme for Startups (CGSS).

(ii)      It shall come into force from the date of notification by the Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry, Government of India.

(iii)     Loan/Debt facilities sanctioned to an eligible borrower on or after the date of notification of the scheme shall be eligible for coverage under the scheme.

Scheme - 2. Objective of the scheme.

(i)       The broad objective of CGSS is to provide guarantee upto a specified limit against credit instruments extended by Member Institutions (MIs) to finance eligible Startups. This scheme would help provide the much needed collateral free debt funding to Startups.

Scheme - 3. Definitions.

For the purpose of this Scheme-

(i)       Trust or Fund means the Credit Guarantee Fund for Startups (CGFS) proposed to be set up by Government of India with the purpose of guaranteeing payment against default in loans or debt extended to eligible borrowers by eligible Member Institutions, managed by the Board of National Credit Guarantee Trustee Company Limited as the Trustee of the Fund.

(ii)      NCGTC means National Credit Guarantee Trustee Company Limited set up on March 28, 2014 by Government of India under the Companies Act 1956 to act as the Trustee to operate various Credit Guarantee Funds/Trusts, set up/to be set up by Government of India from time to time.

(iii)     Non-Performing Asset means an asset classified as a non-performing asset based on the instructions and guidelines issued by the Reserve Bank of India from time to time.

(iv)    Amount in Default means the loan amount outstanding in the loan account(s) of the borrower inclusive of accrued interest, as on the date of the account becoming NPA, or the date of lodgment of claim application whichever is lower or such other amount as may be specified by the Fund.

(v)      Primary security in respect of a credit facility shall mean the assets (tangible and intangible) created out of the credit facility so extended and/or existing unencumbered assets (tangible and intangible) which are directly associated with the project or business for which the credit facility has been extended.

(vi)    Collateral security means the security provided in addition to primary security.

(vii)   Transaction based Guarantee Cover means guarantee cover obtained by the lending/investing institution on single eligible borrower basis.

(viii)  Umbrella based Guarantee Cover means guarantee cover obtained by the lending/investing institution for a group of eligible borrowers.

(ix)    Lock in period-means the period during which no invocation of guarantee can be made.

(x)      Repo Rate is the interest rate at which Reserve Bank of India (RBI) lends to commercial banks.

(xi)    Member Institutions (MIs) means a financial intermediary (Banks, FIs, NBFCs, AIFs) engaged in lending/investing and conforming to the eligibility criteria duly approved under the scheme and as modified by the Trust, from time to time, and who have entered into an agreement with/submitted Undertaking to the Trust for availing the guarantee.

(xii)   Venture Debt Fund (VDF) means Debt Fund registered under Alternative Investment Fund (AIF) regulations of SEBI.

(xiii)  Pooled Investment in Startups (PIS) by a VDF mean cumulative Investments in DPIIT recognized Startups during the life of a fund.

(xiv)  Life of VDF means the period from the date of First Close (date of raising of first tranche of resources towards the Corpus) to the terminal date of VDF.

CHAPTER II SCOPE OF THE SCHEME

Scheme - 4. Eligible borrower.

The eligibility criteria for an entity to borrow under the Credit Guarantee Scheme for Startups shall be as follows, wherein an entity should be:

(i)       Startup as recognized by DPIIT as per Gazette Notifications issued from time to time, and

(ii)      Startups that have reached stage of stable revenue stream, as assessed from audited monthly statements over a 12 month period, amenable to debt financing, and

(iii)     Startup not in default to any lending/investing institution and not classified as Non-Performing Asset as per RBI guidelines, and

(iv)    Startup whose eligibility is certified by the member institution for the purpose of guarantee cover.

Scheme - 5. Eligible lending/investing institutions.

The eligibility criteria for the lending/investing institutions under the Credit Guarantee Scheme for Startups shall be as follows:

(i)       Scheduled Commercial Banks and Financial Institutions,

(ii)      RBI registered Non-Banking Financial Companies (NBFCs) having a rating of BBB and above as rated by external credit rating agencies accredited by RBI and having minimum networth of Rs. 100 crore. However, it may be noted that in case an NBFC subsequently becomes ineligible, due to a downgrade in the credit rating below BBB, the NBFC shall not be eligible for further guarantee cover till upgradation again to eligible category.

(iii)     SEBI registered Alternative Investment Funds (AIFs).

Scheme - 6. Agreement/undertaking to be executed/furnished by the lending/investing institution.

A lending/investing institution shall not be entitled to a guarantee in respect of eligible loan/venture debt facilities granted by it unless it has entered into an agreement with Trustee/submitted an undertaking to the Trustee in such form as may be required by the Trustee.

Scheme - 7. Responsibilities of Member Institution under the Scheme.

The responsibilities of Member Institution (MI) under the scheme are as follows:

(i)       The MI shall evaluate credit applications by using prudent banking judgment and shall use their business discretion/due diligence in selecting commercially viable proposals and conduct the account(s) of the borrowers with normal banking prudence.

(ii)      The MI shall closely monitor the borrower account.

(iii)     The MI shall safeguard the primary securities taken from the borrower in respect of the credit facility in good and enforceable condition.

(iv)    The MI shall ensure that the guarantee claim in respect of the credit facility and borrower is lodged with the Trust in the form and in the manner and within such time as may be specified by the Trust in this behalf and that there shall not be any delay on its part to notify the default in the borrowers account which shall result in the Trust facing higher guarantee claims.

(v)      The payment of guarantee claim by the Trust to the MI does not in any way take away the responsibility of the lending/investing institution to recover the entire outstanding amount of the credit from the borrower. The MI shall exercise all the necessary precautions and maintain its recourse to the borrower for entire amount of credit facility owed by it and initiate such necessary actions for recovery of the outstanding amount, including such action as may be advised by the Trust/Trustee.

(vi)    The MI shall comply with such directions as may be issued by the Trust/Trustee, from time to time, for facilitating recoveries in the guaranteed account, or safeguarding its interest as a guarantor, as the Trust/Trustee may deem fit and the MI shall be bound to comply with such directions.

(vii)   The MI shall, in respect of any guaranteed account, exercise the same diligence in recovering the dues, and safeguarding the interest of the Trust in all the ways open to it as it might have exercised in the normal course if no guarantee had been furnished by the Trust. The MI shall, in particular, refrain from any act of omission or commission, either before or subsequent to invocation of guarantee, which may adversely affect the interest of the Trust as the guarantor. In particular, the MI should intimate the Trust/Trustee while entering into any compromise or arrangement, which may have effect of discharge or waiver of personal guarantee(s) or security. The MI shall also ensure either through a stipulation in an agreement with the borrower or otherwise, that it shall not create any charge on the security held in the account covered by the guarantee for the benefit of any account not covered by the guarantee, with itself or in favour of any other creditor(s) without intimating the Trust. Further the MI shall secure for the Trust/Trustee or its appointed agency, through a stipulation in an agreement with the borrower or otherwise, the right to list the defaulted borrowers' names and particulars on the Website of the Trust/Trustee.

CHAPTER III FEE STRUCTURE

Scheme - 8. Guarantee Fee.

For transaction-based guarantee cover:

(i)       For availing the guarantee cover, the Member Institution shall pay Annual Guarantee Fee (AGF) of 2% p.a. of the disbursement/outstanding amount (on sanction amount, in case of working capital facility and non-fund based facility) as on the date of application of guarantee cover, upfront to the Trust within 30 days from the date of Credit Guarantee Demand Advice Note (CGDAN) of guarantee fee.

(ii)      For units from the North East region as well as those of women entrepreneurs, the Member Institution shall pay a standard rate of 1.5% p.a. of the disbursement/outstanding amount (on sanction amount, in case of working capital facility and non-fund based facility) as on the date of application of guarantee cover, upfront to the Trust within 30 days from the date of Credit Guarantee Demand Advice Note (CGDAN) of guarantee fee.

(iii)     All subsequent AGFs would be calculated on the basis of the outstanding (on sanction amount, in case of working capital facility and non-fund based facility) loan/venture debt amount as at the beginning of the Financial Year and on additional disbursements made during the first and subsequent years out of the total sanctioned amount on pro-rata basis.

(iv)    However, the Management Committee (MC) of CGSS reserves the right to revise the guarantee fees of specific MIs depending on the basis of their Rating, NPA level, payout ratios etc. The revision, if any, shall be applicable in respect of proposals for which fresh guarantee cover has been sought by the MIs.

(v)      The demand on MIs for the AGF in respect of fresh guarantees would be raised upon approval of guarantee cover. The guarantee start date would be the date on which proceeds of the AGF are credited to Trust's Bank account. The AGF shall be calculated on pro-rata basis for the first (from date of first/subsequent disbursement) and last year (till closure of the account) and in full for the intervening years on the outstanding loan amount (on the sanction amount, in case of working capital limits and non-fund based facility) at the beginning of the financial year. For renewal of guarantee cover at the beginning of the year, the AGF shall be paid by the MI within 30 days i.e. on or before April 30, of every year.

(vi)    Provided further that in the event of non-payment of AGF within the stipulated time or such extended time that may be agreed to by Trustee on such terms, liability of the Trust to guarantee such credit facility would lapse in respect of those credit facility against which the AGF are due and not paid.

For umbrella-based guarantee cover:

(i)       For availing the guarantee cover, the Member Institution shall pay Guarantee Fee in the form of Annual Commitment Charge (ACC) of 0.15% p.a. of the proposed Pooled Investment in Startups upfront to the Trust within 30 days from the date of Credit Guarantee Demand Advice Note (CGDAN) of Commitment Charge. The MI shall pay the balance Guarantee Fee (commitment charges) from time to time in case the Pooled Investment amount in Startups is higher than what was proposed initially.

(ii)      All subsequent ACCs would be calculated on the same basis i.e. 0.15% of the Pooled Investment in Startups of VDF and for renewal of guarantee cover, MIs shall pay the ACC within 30 days i.e. on or before April 30, of every year till the end of life cycle of VDF. ACCs remitted by the VDF are non-refundable.

(iii)     MI shall pay 1% of the Pooled Investment in Startups as one-time guarantee fees, at the time of invocation of Guarantee claim/admission of claim file. In case no claim is preferred by the MI, it shall pay 0.25% of the Pooled Investment in Startups as guarantee closure charges within 30 days of the date of closure of VDF.

(iv)    In case of delay of payment beyond the periods stipulated above, the MI shall have to pay the same with penal charges of 4% above prevailing Repo Rate till the date of final payment.

(v)      The ACC shall be calculated for the full year during the life of the VDF including for the first and last years of operations irrespective of the date of commencement of operations and date of closure of the VDF. No pro rata payment is envisaged for the first and last years of VDF.

(vi)    In the event of non-payment of ACC within the stipulated time or such extended time that may be agreed to by Trust on such terms, liability of the Trust to guarantee such credit facility would lapse in respect of the credit facility against which the ACC is due and not paid.

(vii)   In the event of any shortfall in the payment of commitment charges, guarantee cover shall not start until the balance commitment fee amount is paid by the MI. Any amount found to have been paid in excess would be refunded by the Trust. In the event of any representation made by the MI in this regard, the Trust shall take a decision based on the available information with it and the clarifications received from the MI. Notwithstanding the same, the decision of Fund/Trustee shall be final and binding on the MI.

(viii)  The guarantee fee/commitment charges once paid by the MI to Fund is non-refundable, except under certain circumstances like-

a.        Excess remittance

b.        Remittance made more than once against the same portfolio/Venture Debt

c.        Annual guarantee fee/commitment charges not fallen due.

(ix)    The MI shall furnish a Statutory Auditor Certificate/Management Certificate as prescribed by the Trust with every new application or continuity/updation file during the renewal of guarantee cover certifying the following:

a.        The accounts for which guarantee is being taken conform to eligible loans sanctioned after the CGSS notification date.

b.        Debt facilities have been sanctioned after proper due diligence and sanction by the Investment Committee of the VDF.

c.        The activity of the borrower for which the credit/debt facility was granted, has not ceased.

CHAPTER IV GUARANTEES

Scheme - 9. Guarantee Format.

(i)       Credit guarantee cover under this model would be either transaction based or umbrella based.

(ii)      AIFs shall not be eligible to avail transaction based guarantee cover under the scheme.

(iii)     In respect of transaction-based guarantee cover, the guarantee cover will commence from the date of payment of guarantee fee and shall run through the agreed tenure of the Loan/debt facility.

(iv)    In respect of umbrella-based guarantee, the cover is based on the Pooled Investment in Startups. The guarantee cover will commence from the date of payment of commitment charges and shall run through the life of the VDF provided the borrowers being covered are eligible for coverage under the scheme and commitment charges are paid from the first year of operations of VDF annually till its closure.

Scheme - 10. Instruments of assistance.

(i)       The instruments of assistance would be in the form of Venture debt, working capital, subordinated debt/mezzanine debt, debentures, Optionally Convertible debt and other fund based as well as non-fund-based facility which has crystallized as a debt obligation.

(ii)      In the event of converting optionally convertible debt, partially or fully, to equity, the debt obligation of the borrower and the guarantee will stand reduced to the extent of equity conversion. [However, the MI need to take prior permission from Fund/Trustee which could be given conditionally or at a pre-closure premium or it will be treated as cash inflow while final settlement of claims.]

Scheme - 11. Ceiling on guarantee cover.

(i)       Maximum guarantee cover per borrower shall not exceed Rs. 10 crore.

(ii)      The credit facility being covered here should not have been covered under any other guarantee scheme.

(iii)     In respect of credit facilities where a portion of the same has been secured by way of partial collateral security, the remaining part comprising of the unsecured facility will be covered under the guarantee scheme. The guarantee will be limited to the outstanding limit less the value of collateral security accepted by the MI at the time of sanction of facilities in terms of its valuation policy guidelines, subject to compliance of other conditions of the scheme.

Scheme - 12. Extent of the guarantee.

For transaction-based guarantee cover-

The Trust shall provide guarantee cover, subject to a maximum of Rs. 10 crore per borrower, as per details given below:

(i)       to the extent of 80% of the amount in default if the original loan sanction amount is upto Rs. 3 crore

(ii)      to the extent of 75% of the amount in default if the original loan sanction amount is above Rs. 3 crore and upto Rs. 5 crore

(iii)     to the extent of 65% of the amount in default if the original loan sanction amount is above Rs. 5 crore.

For umbrella-based guarantee cover.

(i)       The Trust shall provide guarantee cover of actual losses or upto a maximum of 5% of Pooled Investment on which cover is being taken from the fund in Startups, whichever is lower, subject to a maximum of Rs. 10 crore per borrower. Losses are defined as aggregate of principal investments of written off assets along with three months accrued interest from the date of default. In case of partially written off assets, only the principal portion written off along with three months accrued interest thereon from the date of default will be accounted for the loss assets. The umbrella-based guarantee cover will run through the life of the venture debt fund. 

CHAPTER V CLAIMS

Scheme - 13. Invocation of guarantee/claim settlement.

For transaction-based guarantee cover

(i)       The guarantee in respect of that credit facility was in force at the time of account turning NPA.

(ii)      The lock-in period of 18 months from the date of commencement of guarantee cover in respect of credit facility covered, has elapsed;

(iii)     The amount due and payable to the MI in respect of the loan/venture debt credit facility has not been paid and the dues have been classified by the MI as Non-Performing Asset. Provided that the MI shall not make or be entitled to make any claim on the Trust in respect of the said loan/venture debt credit facility, if the loss in respect of the said credit facility had occurred owing to actions/decisions taken contrary to or in contravention of the guidelines issued by the Trust.

(iv)    A lock-in-period of 18 months has been stipulated from the date of commencement of guarantee cover.

(v)      Maximum guarantee amount payable to an MI to accounts guaranteed under the Scheme during a year shall be capped at 20% of the total sanctions during a year (where at least 90% amount has been disbursed).

(vi)    The MI may invoke the guarantee in respect of credit facilities within a maximum period of 18 months from the date of NPA, if NPA is after lock-in period or within two years of lock-in period, if NPA is within lock-in period, after the following conditions are satisfied:

a.        Provided that claims of the respective MIs shall be settled to the extent of 2.5 times the guarantee fees along with recovery remitted during the previous Financial Year. Any claim lodged/received exceeding 2.5 times of the total guarantee fees along with recovery remitted by an MI shall be suspended till such time the position is remedied i.e. payout is brought well within the payout cap limit. However, if the MI is not able to avail guarantee cover due to its ineligibility or otherwise, it shall be able to claim maximum up to the amount of claim paid during previous year

b.        Prior to lodging of claim, MIs shall ensure that the loan/debt facility has been recalled and the recovery proceedings have been initiated under due process of law via IBC, SARFAESI, DRT or through any other proceedings in the Courts or outside as may be considered suitable by the Trustee. In case of proceedings under IBC, admission of notice and appointment of Insolvency Resolution Professional (IRP) is required. In case of SARFAESI, action as contained in Section 13(4) of the Act, wherein a secured creditor can take recourse to any one or more of the recovery measures out of the four measures indicated therein, should have been undertaken. In case of DRT, application should have been lodged therein. Similar action should have been undertaken under other modes of recovery, as may be decided by the Fund/Trustee from time to time.

c.        The claim should be preferred by the MI in such manner and within such time as may be specified by the Trustee.

d.        For transaction-based guarantee cover, the Trust shall pay 75 per cent of the guaranteed amount on preferring of eligible claim by the MI, within 60 days, subject to the claim being otherwise found in order and complete in all respects. The Trust shall pay to the MI interest on the eligible claim amount at the prevailing Repo Rate for the period of delay beyond 30 days. The balance 25 per cent of the guaranteed amount will be paid on conclusion of recovery proceedings by the MI or write off of the unpaid dues of the borrower by the MI. On a claim being paid, the Trust shall be deemed to have been discharged from all its liabilities on account of the guarantee in force in respect of the borrower concerned.

For umbrella-based guarantee cover

(i)       The guarantee cover in respect of VDF was in force at the time of closure of VDF and that there are no pending Annual Commitment Charge.

(ii)      Guarantee fee of 1% on the covered Pooled Investment in Startups has been paid by the MI.

(iii)     The amount due and payable to the VDF in respect of the venture debt facility has not been paid and the dues are observed to be non-recoverable. Provided that the VDF shall not make or be entitled to make any claim on the Trust in respect of the said venture debt facility, if the loss in respect of the said facility had occurred owing to actions/decisions taken contrary to or in contravention of the guidelines issued by the Trust.

(iv)    VDF shall submit a certificate from its Statutory Auditor containing particulars of loss assets [name of the investee company, date of investment, particulars of principal written off (amount and date of write off), recoveries made if any, terms of the venture debt facility like coupon rate, repayment schedule, and date of default] at the time of lodgment of claim. Recoveries made, if any, will be deducted from the loss assets for arriving the claim amount at the time of settlement.

(v)      The MI may invoke the guarantee in respect of venture debt facilities after the completion of the life cycle of VDF prior to distribution of final proceeds, and subject to the following conditions:

(i)       Prior to lodging of claim, MIs shall ensure that the venture debt facilities have been recalled and the recovery proceedings have been initiated under due process of law via Arbitration, IBC, SARFAESI, DRT or through any other proceedings in the Courts or outside as maybe considered suitable by the trustee. In case of proceedings under IBC, admission of notice and appointment of Insolvency Resolution Professional (IRP) is required. In case of SARFAESI, action as contained in Section 13(4) of the Act, wherein a secured creditor can take recourse to any one or more of the recovery measures out of the four measures indicated therein, should have been undertaken. In case of DRT, application should have been lodged therein. Similar action should have been undertaken under other modes of recovery, as may be decided by the Fund/Trustee from time to time.

(ii)      The claim should be preferred by the MI in such manner and within such time as may be specified by the Trustee.

(iii)     The payment of guarantee claim to the MI does not in any way take away the responsibility of the MI to recover the entire outstanding amount of the credit from the borrower with applicable interest. The MI shall exercise all the necessary precautions and maintain its recourse to the borrower for entire amount of Startup credit facility owed to it and initiate such necessary actions for recovery of the outstanding amount, including such action as may be advised by Trust/Trustee.

(iv)    The MI shall comply with such directions as may be issued by Trust/Trustee, from time to time, for facilitating recoveries in the guaranteed account, or safeguarding its interest as a credit guarantor, as Trust may deem fit and the MI shall be bound to comply with such directions.

(v)      The MI shall, in respect of any guaranteed account, exercise the same diligence in recovering the dues, and safeguarding the interest of the Trust in all the ways open to it as it might have exercised in the normal course if no guarantee had been furnished by the Trust. The MI shall, in particular, refrain from any act of omission or commission, either before or subsequent to invocation of guarantee, which may adversely affect the interest of the Trust as the guarantor. In particular, the MI should intimate Trust/Trustee while entering into any compromise or arrangement, which may have effect of discharge or waiver of personal guarantee(s) or primary security. Further, the MI shall secure for the Trust/Trustee or its appointed agency, through a stipulation in an agreement with the borrower or otherwise, the right to publish the defaulted borrowers' names and particulars.

(vi)    For umbrella based guarantee cover, the Trust shall pay 100% of the guaranteed amount, as eligible under this Scheme, as full and final claim, within 60 days, subject to the claim being otherwise found in order and complete in all respects.

(vii)   Any upside earnings, arising out of return on equity linked instruments shall be netted out of settlement amount or refunded to Trust as and when such returns are booked by the MI.

(viii)  The MI shall be liable to refund the claim released by the Trust together with penal interest at 4% p.a. over and above the prevailing Repo Rate, if such a recall is made by the Trust in the event of deficiencies having existed in the matter of appraisal/renewal/follow-up/conduct of the loan or where lodgment of the claim was more than once or where there existed suppression of any material information on part of the MI for the settlement of claims. The MI shall pay such penal interest, when demanded by the Trust, from the date of the initial release of the claim by the Trust to the date of refund of the claim.

Scheme - 14. Subrogation of rights and recoveries on account of claims paid.

(i)       The MI shall furnish to the Trust/Trustee, the details of its efforts for recovery, realizations and such other information as may be demanded or required from time to time. The MI will hold lien on assets created out of the credit facility extended to the borrower, on its own behalf and on behalf of the Trust. The Trust shall not exercise any subrogation rights and that the responsibility of the recovery of dues including takeover of assets, sale of assets, etc., shall rest with the MI.

(ii)      Every amount recovered in any financial quarter and due to be paid to the Trust shall be paid within 30 days of the end of the quarter without delay, and if any amount due to the Trust remains unpaid beyond a period of 30 days from the stipulated date, interest shall be payable to the Trust by the MI at the rate which is 4% above prevailing Repo Rate for the period for which payment remains outstanding after the expiry of the said period of 30 days.

(iii)     Remittance of post claim recoveries by the MI to the guarantor is restricted to a maximum period of 3 years post settlement of final claim, pursuant to which the account will be closed in the books of the Trust.

(iv)    In the event of a borrower owing several distinct and separate debts to the MI and making payments towards any one or more of the same, whether the account towards which the payment is made is covered by the guarantee of the Trust or not, such payments shall, for the purpose of this clause, be deemed to have been appropriated by the Member institution to the debt covered by the guarantee and in respect of which a claim has been preferred and paid, irrespective of the manner of appropriation indicated by such borrower or the manner in which such payments are actually appropriated.

CHAPTER VI MANAGEMENT

Scheme - 15. Management Committee.

(i)       There shall be a Management Committee (MC) constituted by the DPIIT to oversee the affairs of the Trust.

(ii)      The MC shall be responsible for reviewing, supervising and monitoring the' functioning of Trust and shall provide necessary guidance to the Trust on broad policy matters related to the Credit Guarantee Scheme.

(iii)     The MC shall be fully empowered to appraise the performance of the scheme and to revise the following parameters pertaining to the scheme:

a.        Types of Guarantee products

b.        Extent of Guarantee Coverage

c.        Instruments eligible under the Scheme

d.        Coverage amount and calculation of losses

e.        Guarantee Fee

f.         Claims settlement & Invocation of Guarantees

g.        Fix, revise and monitor the limits in respect of leverage ratio

h.        Any other thematic parameter pertaining to CGSS

i.         Eligibility of MIs

(iv)    The DPIIT may entrust the MC with such other responsibilities as it may deem necessary in the interest of the scheme.

(v)      The structure of the MC shall be as under:

a.        Secretary, DPIIT, Chairperson

b.        Additional Secretary & Financial Advisor, DPIIT, Member

c.        Additional Secretary/Joint Secretary (Startups), DPIIT, Member

d.        Joint Secretary, Department of Financial Services, Member

e.        Chief Executive Officer (CEO), NCGTC, Member Secretary

f.         Experts from the ecosystem as may be nominated by the Secretary, DPIIT from time to time.

(vi)    DPIIT may nominate to the MC such experts from the startup ecosystem as it may consider necessary as members subject to no conflict of interest and decide on the terms and conditions of engagement. The MC may invite to its meetings such expert(s) from the industry/relevant field as it may consider necessary as "Special Invitee(s)" for seeking advice and guidance on the matters of the CGSS.

(vii)   The MC shall also take measures as may be necessary to address the issue of adverse selection, compliance by MIs, monitor effective utilization of the fund and achievement of desired outcomes for better debt availability for Startups.

(viii)  The Management Committee (MC) may also prescribe additional criteria like Assets under Management (AUM), track record of the MI or its Management Team, capital adequacy depending on requirements where considered necessary to qualify as MIs within the above category. The MC may, on review of performance, remove/add the MI from the list.

(ix)    The MC shall also consider and issue instructions to the Trust/Trustee as may be considered necessary in order to address measures necessary for sensitization of MIs and their officials so that CGSS obtains the desired support and outcomes achieved.

(x)      Further, the MC shall evaluate the outcomes of CGSS after close of FY 2022-23, especially with reference to financial and economic additionalities that accrued as a consequence of CGSS.

(xi)    While the broad parameters of the CGSS would get notified through the Gazette, there would be a continuous need for innovative modifications in the product design which could be carried out through the MC from time to time with due approval of the Competent Authority. Any modification in the Scheme parameters also require the approval of MC.

(xii)   A member appointed as above in his/her ex-officio capacity shall remain as a member only as long as he/she holds that office and upon his/her vacating that office, his/her successor shall become a member without any further Act or Deed.

(xiii)  DPIIT may, if required, change the constitution of the MC by incorporating a new corporate entity or otherwise and till such time the existing members of the MC shall continue.

(xiv)  The member of the MC shall be resident of India. The office of the member shall be vacated if he shall permanently leave India or if for reasons of illness or infirmity or mental incapacity he, in the opinion of the Government, becomes incompetent or incapable to act, as Member.

(xv)   A member may retire at any time after giving seven days' notice in writing to the Government and unless he/she is the Chairperson of the MC, a copy of the notice shall also be sent to Chairperson.

Scheme - 16. Risk Evaluation Committee.

(i)       A Risk Evaluation Committee (REC) shall be constituted by DPIIT, which would report to the Management committee. The REC will have an arms' length relationship with the Trustee to address conflict of interest issues.

(ii)      The members of the REC shall be drawn from rating agencies, retired bankers, venture debt specialists, credit guarantee experts etc.

(iii)     The Committee would be a risk evaluation body, inter alia, looking into the broad risk aspects of the schematic design, selection criteria of member lenders, criteria for portfolio structuring, leverage norms for the fund and such other macro-prudential aspects of the scheme. The REC shall assess the overall risk parameters of the scheme, including but not limited to:

a.        Moral Hazards.

b.        Conflict of Interest, if any

c.        Any other risk parameters pertaining to the scheme.

Scheme - 17. Other monitoring mechanisms.

(i)   A surveillance mechanism shall be evolved to deal with investments from the countries sharing land border with India in Venture Debt Funds.

(ii)  An early-stage evaluation mechanism shall be embedded to ensure that targets of the scheme are achieved effectively. 

CHAPTER VII MISCELLANEOUS

Scheme - 18. Miscellaneous.

(i)       For transaction-based guarantee, the MIs shall submit a Management Certificate as at March 31 each year indicating the cumulative outstanding and outstanding NPAs under their Startup Assistance Scheme within 3 months of the close of FY failing which the said MI shall not be extended guarantee cover for fresh accounts. Further, in case the outstanding NPAs of that MI as a ratio of outstanding under the scheme as per last Management Certificate exceeds 10%, additional risk premium of 0.25% p.a. shall be charged on future guarantee covers and in case the outstanding NPAs of that MI as a ratio of outstanding under the scheme as per last Management Certificate exceeds 15%, additional risk premium of 0.5% p.a. & 0.75% p.a. for over 20% shall be charged on future guarantee covers. Any change in the Guarantee Fee as proposed above shall be on a prospective basis based on the date of submission of the Management Certificate by the respective MI and, accordingly, appropriate guarantee fee shall be charged.

(ii)      Where subsequent to the Trust having released a sum to the eligible MI towards the amount in accordance with the provisions contained in this scheme, the eligible MI recovers money subsequent to the recovery proceedings initiated by it, the same shall be deposited by the eligible MI with the Trust, after adjusting towards the legal costs incurred by it.

(iii)     For umbrella-based guarantee,

a.        VDFs are in fund raising stage and Final Close of the VDFs has not been declared.

b.        The investment period of the VDFs has not expired and VDFs have not closed their investments.

c.        There are no NPAs (i.e. accounts with over 90 days default) in their existing portfolio. Such accounts to be kept out of the portfolio being guaranteed.

d.        Annual Commitment Charges shall be paid from the first year of operations till the year of commencement of guarantee cover.

e.        Guarantee cover shall be restricted to investments in Startups. Losses of the VDF with respect to non startup investments will not be eligible for claim under the scheme.

f.         In case the corpus of VDF gets enhanced due to exercise of green shoe option, commitment charges and one time guarantee fees shall be calculated based on the enhanced corpus of VDF from the date of exercise of green shoe option.

g.        Existing VDFs, opting to avail the guarantee cover, one time opportunity will be extended subject to the following:

The beneficiary has not any pending liabilities in any scheme of Government of India, in respect of guarantee cover.

In a situation in which a single startup unit has been covered by multiple MIs, the guarantee cover shall be shared amongst the MIs in proportion to their outstanding debt amount. Future venture debt lenders shall be eligible only for the balance guarantee cover as available under the scheme. To ensure the enforcement of this condition, all MIs shall, while seeking guarantee cover, indicate the details of the MIs and the venture debts obtained by the borrower (startup) from these MIs.

Scheme - 19. Returns and Inspections.

(i)       The MI shall submit such statements and furnish such information as the Trust/Trustee may require in connection with guarantee under this Scheme.

(ii)      The MI shall also furnish to the Trust/Trustee all such documents, receipts, certificates and other writings as the latter may require and shall be deemed to have affirmed that the contents of such documents, receipts, certificates and other writings are true, provided that no claim shall be rejected and no liability shall attach to the MI or any officer thereof for anything done in good faith.

(iii)     The Trust/Trustee shall, insofar as it may be necessary for the purposes of the Scheme, have the right to inspect or call for copies of the books of account and other records (including any book of instructions or manual or circulars covering general instructions regarding conduct of advances) of the MI, and of any borrower from the Member institution. Such inspection may be carried out through the officers of the Trust/Trustee or any other person appointed by the Trust/Trustee for the purpose of inspection. Every officer or other employee of the MI or the borrower, who is in a position to do so, shall make available to the officers of the Trust/Trustee or the person appointed for the inspection as the case may be, the books of account and other records and information which are in his possession.

(iv)    Under umbrella-based guarantee, updates on the performance of the portfolio shall be submitted by the VDF on a quarterly basis.