Rule 279 - Guarantee Fees | KartavyaDesk
Original Rule Text
Rule 279 (1) Levy of Guarantee Fees. The rates of fee on guarantees would be as notified by the Budget Division, Department of Economic Affairs, Ministry of Finance from time to time. The rates of guarantee fee are given in Appendix - 12. Ministries or Departments shall levy the prescribed fee in respect of all cases. The fees are also to be levied in respect of non-fund based borrowings or credits (viz. letters of credit, Bank guarantees etc.). In case of any doubt with regard to the categorisation of any particular undertaking or organization or the nature of borrowing for the purpose of levy of fee, the matter may be referred to the Budget Division for clarification. The Ministries or Departments should also take adequate steps to ensure prompt recovery of the prescribed fees. Rule 279 (2) The guarantee fee should be levied before the guarantee is given and thereafter on first April every year. The rate of guarantee fee is to be applied on the amount outstanding at the beginning of the guarantee year. Rule 279 (3) Where the guarantee fee is not paid on the due date, fee should be charged at double the normal rates for the period of default. Rule 279 (4) The Government may guarantee no more than 80% of the project loan, depending on the conditions imposed by the lender. This would incentivize the lenders to make proper analysis of the project, credit worthiness of the borrower(s), and build strategies for risk management. In such cases, bankers/ lenders may be asked to share the risk by bearing a minimum of 20% of the net loss associated with any default. The arrangement would ensure that the lenders undertake a more rigorous assessment of the risk exposure. Provided further that in certain exceptional circumstances, the Government of India may guarantee 100% of the financing where the organisation concerned is discharging some function on behalf of the
What This Means
Rule 279 of the General Financial Rules (GFR), 2017, deals with guarantee fees charged by the government when it provides a guarantee for loans or borrowings taken by organizations. Think of it like this: if the government promises to pay back a loan if an organization can't, the government charges a fee for taking on that risk. This fee applies to all kinds of guarantees, including those for loans and other forms of credit like letters of credit or bank guarantees. The specific fee rates are set by the Department of Economic Affairs and are updated periodically. If there's any confusion about how to categorize an organization or borrowing, you should ask the Budget Division for clarification. It's crucial to collect these fees promptly.
The rule also specifies when the guarantee fee is due. It's levied upfront, before the guarantee is given, and then annually on April 1st. The fee is calculated based on the outstanding amount at the start of each guarantee year. If the fee isn't paid on time, a penalty of double the normal rate is charged for the period of delay. Finally, the rule allows the government to guarantee up to 80% of a project loan, encouraging lenders to carefully assess the project's viability and the borrower's creditworthiness. In exceptional cases, the government can guarantee 100% of the financing, especially when the organization is performing a function on behalf of the government.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Key Points
- •Guarantee fees are levied by the government for providing guarantees on loans and borrowings.
- •The fee rates are determined by the Department of Economic Affairs and are listed in Appendix 12 of the GFR.
- •Fees are levied upfront and annually on April 1st, based on the outstanding amount.
- •Late payment of guarantee fees attracts a penalty of double the normal rate.
- •The government may guarantee up to 80% of a project loan, promoting risk sharing with lenders.
Practical Example
The Ministry of Textiles guarantees a loan of ₹50 crore taken by the National Handloom Development Corporation (NHDC) from a commercial bank. The applicable guarantee fee, as per the rates notified by the Department of Economic Affairs, is 1% per annum. The Ministry levies a fee of ₹50 lakhs (1% of ₹50 crore) before issuing the guarantee. On April 1st of the following year, if the outstanding loan amount is still ₹50 crore, another fee of ₹50 lakhs is levied. However, if NHDC fails to pay the fee by April 1st, the Ministry will charge a penalty of ₹1 crore (double the normal rate) for the period of default. The bank bears 20% of the risk in case of default.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Frequently Asked Questions
Where can I find the current rates for guarantee fees?▼
What happens if we are unsure about the categorization of an organization for guarantee fee purposes?▼
When is the guarantee fee due?▼
What is the penalty for late payment of the guarantee fee?▼
Can the government guarantee the entire loan amount?▼
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Test Your Knowledge
Question 1 of 3
According to Rule 279 of the General Financial Rules, 2017, which division/department is responsible for notifying the rates of fee on guarantees?
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