Lack of oversight on credit guarantees raises concerns
Just a year back, Pradeep Malgaonkar, the chief executive (CEO) of Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) scheme was extolling the great strides it made in the geographical space of such guarantees. The Trust has issued cumulative guarantees to 23.23 lakh MSE loans involving an aggregate credit of Rs1.08 lakh crore over the past 16 years. Its corpus grew to Rs4,328 crore as of 31 March 2016. About 133 member lending institutions are participating in the scheme.
But the Reserve Bank of India (RBI) in its Annual Report for 2016 expressed concerns about overleveraging of corpus and the way the guarantee scheme is functioning. Information asymmetry and adverse selection on the part of member lending institutions seem to worry the regulator. More worrisome issue is the absence of regulatory oversight on this institution.