E. Guarantee fee / Service fee
1. Whether the incidence of guarantee fee and annual service fee be passed on by the lender to the borrower?
The discretion is left to the MLI. However in terms of the "Policy Package for stepping up credit to Small and Medium Enterprises" as announced by the Hon'ble Finance Minister, Government of India, in the Parliament on August 10, 2005, Public Sector Banks are encouraged to absorb the Annual Service Fee in excess of 0.25% p.a. for all the borrowers mentioned in category (a), (b) and (c) below.
(a) All loans upto Rs. 2.00 lakh;
(b) All eligible women Entrepreneurs;
(c) All eligible borrowers located in the North Eastern Region (including State of Sikkim) and Jammu & Kashmir.
2. Whether the rates of guarantee fee and annual service fee can be varied after the commencement of guarantee cover?
Guarantee fee will not be changed with retrospective effect. Since the guarantee fee is payable only once at the time of seeking guarantee cover, so any change in rate will have only prospective effect on the future proposals to be covered under the Scheme. As regards Annual Service Fee, it is payable on the guaranteed credit facilities as on March 31, the prevailing rate at that time will apply.
3. Is service fee payable even after lodgment of claim?
Yes, Annual Service Fee is required to paid after lodgment of claim till settlement of first installment of 75% of the guaranteed amount. However, no claim can be lodged before the expiry of the initial lock-in period (ie.18 months from the date of the guarantee cover or the date of last disbursement, whichever is later) and after expiry of tenure of guarantee cover.
4. What would be the guarantee / service fee that would be payable by the member-lending institution on credit facility sanctioned in excess of Rs. 100 lakh?
The guarantee fee payable would be on the loan amount sanctioned, subject to a maximum of Rs. 100 Lakh. In this case, Rs.100 lakh would be extended guarantee cover even though the sanctioned amount exceeds Rs. 100 lakh. Similarly, the annual service fee would be payable on the sanctioned amount subject to a ceiling of Rs. 100 Lakh.
5. How is the service fee payable for the first year?
In the first year of coverage of each guaranteed unit, the Annual Service Fee is worked out on pro-rata basis i.e. at the applicable rate of fee charged for the period (no. of days) of outstanding, starting from the date of commencement of the guarantee cover till March 31. For calculation of Annual Service Fee, number of days in a year is taken as 365. For subsequent years, service fee is charged for the whole year, on the credit facility guaranteed except for terminal year or closed cases where it is on pro rata basis.
6. In a hypothetical case, if a lender gives working capital limit of Rs.10 lakh in the first year, seeks guarantee cover, and enhances the limit in the second year to Rs.15 lakh, what would be the treatment for payment of guarantee fee and guarantee cover?
One time guarantee fee is payable on the limit sanctioned / and on the subsequent incremental enhancements. Therefore, in the first year the guarantee fee shall be paid by the lender as per applicable rate on the limit of Rs.10 lakh sanctioned. On any further enhancement, guarantee fee is payable on the incremental enhancement i.e. in the hypothetical case, on Rs.5 lakh for the balance period of 5 years. As regards guarantee cover is concerned, guarantee will be available for a block of 5 years where working capital alone is given.