New Delhi, Oct 7 (IANS): The Commerce Ministry has notified setting up of the Credit Guarantee Scheme for Startups (CGSS), aimed at providing credit guarantees to loans extended by scheduled commercial banks, non-banking financial companies (NBFCs) and Securities and Exchange Board of India (SEBI) registered Alternative Investment Funds (AIFs).

CGSS will provide credit guarantee up to a specified limit against loans extended by Member Institutions (MIs) to finance eligible borrowers, i.e startups.

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.

Under transaction-based guarantee cover, the guarantee cover is obtained by the MIs on single eligible borrower basis.

Transaction based guarantees will promote lending by banks and 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 crore, 75 per cent of the amount in default if the original loan sanction amount is above Rs 3 crore, and up to Rs 5 crore, and 65 per cent 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 (a growing segment of funding in Indian startup ecosystem), in view of the nature of funds raised by them and debt funding provided by them.

Along with institutional mechanisms for operationalising the scheme, Department for Promotion of Industry and Internal Trade (DPIIT) will be constituting a management committee 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, official sources said.