Prior to lender (also referred to as MLI) preferring any claim on the Trust, there shall be a lock-in-period of 18 months from either the date of last disbursement of loan to the borrower or the date of the guarantee cover coming into force in respect of the particular credit facility, whichever is later. The lender shall, however, prefer a claim on the defaulted account, which has become NPA, immediately after recall of loan and initiation of recovery proceedings by way of legal action as specified by the Trust from time to time. The Trust shall honour 75 per cent of the guaranteed portion in default subject to maximum of 75 per cent of the guaranteed cap amount (85% for select category of borrowers), immediately on preferring of claim by the lender. The balance 25 per cent of the defaults or guaranteed cap amount, as the case may be, will be paid on conclusion of recovery proceedings by the lender.
The lender shall evaluate the loan applications and conduct the account of the borrowers with normal banking prudence and shall use their business discretion in selecting commercially viable proposals. This includes closely monitoring the account as also safeguarding the primary securities taken in good and enforceable condition. In order to ensure continuance of guarantee cover, MLI concerned should pay the annual service fee to CGTMSE latest by 31st May of every year. The lender should ensure that the claim is filed within the prescribed time limit and there is no delay on the part of lender to notify the defaults, which result in Trust facing a higher claim.
The payment of claim by the Trust under question does not in any way take away the responsibility of the borrower to repay the entire amount of outstanding to the lender. The lender shall exercise all caution and maintain its recourse to the borrower for full amount owed by him and effective action for recovering the amount including such action as may be suggested by the Trust.
Appropriation of Residual Recovery
In case of default, the lenders would exercise the right to takeover the assets. However, the Trust would have the priority in appropriation of sale of assets by the lenders before making the final settlement of the claim. Therefore, the amount realised from the sale of assets (residual recovery) must first be credited in full by the lenders to the Trust before they can finally claim the remaining 25 per cent of the default / guaranteed cap amount.