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    Question

    Which of the following are considered primary securit y

    in the context of CGTMSE?    i. Assets created out of the credit facility   ii. Unencumbered fixed assets like l an d, building , factory , associated with the project of the borrowing unit    iii. Proprietors’ personal guarantee   iv. Personal guarantee of spouse of proprietor   
    A Only (i) & (ii) Correct Answer Incorrect Answer
    B Only (i) & (iii) Correct Answer Incorrect Answer
    C Only (iii) & (iv) Correct Answer Incorrect Answer
    D (i), (ii) & (iii) Correct Answer Incorrect Answer
    E All of the above Correct Answer Incorrect Answer

    Solution

    Primary security is the asset created out of the credit facility extended to the borrower and / or which are directly associated with the business / project of the borrower for which the credit facility has been extended. Example:  Land, Plant & Machinery or any other business property in the name of a proprietor or unit, if unencumbered, can be taken as primary security. The personal guarantee is also a primary security in following cases:  

    • I n case the constitution of the borrower is proprietary or partnership, the personal guarantee of proprietor/ partner is treated as primary security .   
    • Personal guarantee of directors, where borrower constitution is a company is treated as primary security .   
    Obtaining Primary Security is mandatory for Guarantee Coverage under Credit guarantee schemes by CGTMSE.   Collateral security is not required which includes other security offered for the said credit facility. For example, hypothecation of jewellery , mortgage of house, etc. or any third-party guarantee. Note that p ersonal guarantee of spouse, friend etc. will be treated as third party guarantee.  

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