Lok Sabha Question No. 3504 (UNSTARRED), answered on 2023-03-22
Subject: Loans to Startups
Ministry: COMMERCE AND INDUSTRY
Asked by: Dibyendu Adhikari, Kalyan Banerjee

## GOVERNMENT OF INDIA MINISTRY OF COMMERCE & INDUSTRY DEPARTMENT FOR PROMOTION OF INDUSTRY AND INTERNAL TRADE

## LOK SABHA

## UNSTARRED QUESTION NO. 3504. TO BE ANSWERED ON WEDNESDAY, THE 22 ND  MARCH, 2023.

## LOANS TO STARTUPS

## 3504.  SHRI DIBYENDU ADHIKARI: SHRI KALYAN BANERJEE:

Will the Minister of COMMERCE AND INDUSTRY be pleased to state: वाणिज्य एवं उद्योग मंत्री

- (a) whether it is a fact that in terms of sanction of loans to startups and new MSME enterprises, banks are not prompt to release collateral free funds;
- (b) whether it is a fact that in 2022 as many as eight Indian startups folded their operations after they failed to raise capital;
- (c) if so, whether it is compulsory to have recognition from incubator/accelator for startups to get loan under CGSS therefor and if so, the details thereof; and
- (d) the details of conditions of collateral free debt funding to new enterprises and time frame for approval and sanction process instructions given to banks for promotion of industry and internal trade in the country?

## ANSWER वाणिज्य एवं उद्योग मंत्रालय में राज्य मंत्री ( श्री सोम प्रकाश ) THE MINISTER OF STATE IN THE MINISTRY OF COMMERCE & INDUSTRY (SHRI SOM PARKASH)

- (a) : C ommercial banks and financial institutions extend loans to businesses  or an individuals based on  risks identification and estimation, and other factors which  help  in  assessing  the  probability  of  the  credit  risk  occurrence  or possible  losses,  in  compliance  with  regulations  set  forth  by  the  Reserve Bank  of  India  in  this  regard.  To  cover  such  instances  or  probability  of defaults of repayment of loan by the borrowers, the banks as per their risk assessment insist on collateral security against the loan extended by them.

To provide for an appropriate risk cover and comfort to financial institutions including   banks  for  enabling  collateral  free  lending  to  the  MSMEs  and startups, the  Government  is  implementing  Schemes  such  as  Credit Guarantee  Scheme  (CGS)  for  Micro  and  Small  Enterprises,  Emergency Credit Line Guarantee Scheme (ECLGS), and Credit Guarantee Scheme for Startups (CGSS). Under these  Schemes, the Government  provides guarantee to Member Lending Institutions in respect of the credit facility by them  to  the  eligible  borrowers  encouraging  banks  and  other  financial institutions to provide collateral free funding to MSMEs and startups.

- (b) to (d): The information pertaining to folding up of operations of startups is not centrally maintained.

The Government has notified the establishment of the Credit Guarantee Scheme for  Startups  (CGSS)  for  providing  credit  guarantees  to  loans extended  by  Scheduled  Commercial  Banks,  Non-Banking  Financial Companies  and  Securities and Exchange  Board  of India (SEBI) registered  Alternative  Investment  Funds  (AIFs).  CGSS  is  aimed  at providing credit guarantee up to a specified limit against loans extended by  Member Institutions  (MIs)  to  finance  eligible  borrowers  viz.  entities recognised as 'startups' by the Department for Promotion of Industry and Internal Trade (DPIIT). With the objective of mobilising capital for Indian startups,  CGSS  will  complement  the  existing  Schemes  under  Startup India  initiative  viz.  Fund  of  Funds  for  Startups  and  Startup  India  Seed Fund Scheme.

The  credit  guarantee  cover  under  CGSS  is  transaction  based  and umbrella  based.  In  respect  of  transaction-based  guarantee  cover,  the guarantee cover is obtained by the MIs on single eligible borrower basis. Transaction based guarantees promotes lending by Banks/ Non-Banking Financial Companies (NBFCs) to eligible startups. The umbrella-based guarantee  cover  provides  guarantee  to  Venture  Debt  Funds  (VDFs) registered under AIF regulations of SEBI, in view of the nature of funds raised by them and debt funding provided by them.

The operational guidelines, eligibility criteria(s), details of guarantee cover and other aspects are detailed out in the notification of CGSS uploaded on the website of the Department which may be seen at the link https://dpiit.gov.in/sites/default/files/notification\_CGSS\_20March2023.pdf .

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