Subordinate Debt Structure
Loan is extended to the promoter but earmarked to be infused into the MSME as equity, quasi‑equity or sub‑debt, strengthening its capital base.
Subordinate Debt for Stressed
MSMEs CGSSD
Credit Guarantee Scheme for Subordinate Debt
Special scheme that provides guarantee-backed subordinate debt to promoters of stressed and NPA
MSMEs
so they can infuse it as equity or quasi-equity into the business for restructuring
and revival.
Who Can Apply?
✓
Stressed / NPA MSMEs
Operational MSME units whose accounts are classified as SMA‑2 or NPA and are otherwise commercially viable for restructuring.
✓
Eligible Promoters
Promoters of such MSMEs who are willing to bring additional funds as equity / quasi‑equity through subordinate debt.
✓
Restructuring Viability
Unit should be found eligible for restructuring as per RBI and bank guidelines and have a workable revival plan.
✓
Member Lending Institutions
Subordinate debt must be sanctioned by scheduled commercial banks or other institutions notified as Member Lending Institutions.
✓
Promoter Contribution
Promoters are typically required to bring a small percentage (for example 10%) of the sub‑debt amount from their own sources.
✓
No Wilful Default / Fraud
Units and promoters should not be classified as wilful defaulters or involved in fraud as per lender records.
Key Features
🧱
🛡️
Credit Guarantee Cover
A large share (often around 90%) of the sub‑debt exposure is covered by a government-backed guarantee to the bank.
🔁
Supports Restructuring Package
Designed to complement restructuring of stressed MSME accounts by improving debt‑equity ratio and liquidity.
📉
Reduced Lender Risk
Guarantee coverage and promoter skin‑in‑the‑game encourage banks to support borderline but potentially viable MSMEs.
👷
Job & Business Protection
Helps preserve existing operations, employment and supply chains that would otherwise be at risk due to NPA stress.
📊
Separate Loan Account
Sub‑debt is operated as a separate loan in the name of promoter, distinct from the main working capital/term loan account.
Scheme Benefits
Gives stressed MSMEs a chance at revival instead of straight closure or recovery proceedings.
Provides banks an additional tool to restructure accounts that are on the verge of becoming, or already are, NPAs.
Supports continuity of operations, protecting jobs and local business ecosystems linked to the MSME.
Improves MSME net worth and debt‑equity ratio by converting guaranteed sub‑debt into equity / quasi‑equity.
Allows promoters to bring in significant funds even when personal liquidity is constrained, thanks to the guarantee-backed facility.
Application Process
01
Identify Stressed MSME & Discuss with Bank
Promoter approaches the existing lender, shares current stress position (SMA‑2 / NPA) and explores restructuring under CGSSD framework.
02
Viability & Restructuring Assessment
Bank evaluates whether the MSME is commercially viable post‑restructuring and determines required promoter contribution as sub‑debt.
03
Sanction of Subordinate Debt
Bank sanctions a separate personal loan / subordinate debt facility to the promoter within scheme limits and conditions.
04
Infusion & Guarantee Cover
Promoter infuses the sanctioned sub‑debt into the MSME as equity / quasi‑equity; bank applies for guarantee cover and completes the restructuring package.
FAQs
Frequently Asked
Questions
Questions
The scheme aims to support stressed and NPA MSMEs by providing guarantee‑backed
subordinate debt to promoters, which is then infused as equity or quasi‑equity
to help restructure and revive the unit.
The loan is sanctioned in the name of the promoter as subordinate debt /
personal loan, but it must be brought into the MSME as promoter contribution.
Scheme norms generally allow sub‑debt up to a percentage of promoter’s existing
stake in the MSME, subject to a monetary cap as per latest guidelines and bank
policy.
Operational MSMEs whose accounts are classified as stressed (SMA‑2) or NPA and
are found commercially viable for restructuring by their lenders.
Promoters need to approach their existing lending bank, request restructuring
under the scheme and work with the bank to prepare viability reports and
sub‑debt proposals.
Contact
Let’s Build
Intelligent Things
Intelligent Things
E-mail address
Info@naavbharat.com
Phone number
+91 90812 22372