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7/29/2019 S_K_Manglik

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Micro Small & Medium

EnterprisesThe Government of India passed in June2006 an act regarding the Micro , Small ,

and Medium Enterprises . The Micro , Smalland Medium Enterprise Development Act,2006 (MSMEDA )

The Act accomplishes many long -standinggoals of the government and stakeholdersin the MSME sector .


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Definition of MSME

The Act decisively defines the MSMEs

by the level of by Plant and Machinery

(P&M ) investment.

The categorization also makes

allowances for the inherently smaller

investments of Service enterprises.


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The new definition has expanded the P&M limits ; noweach enterprise level encompasses larger investmentsthan before . The new categorization is as follows :-

Micro Manufacturing : P&M* Less than Rs 25 lacsMicro Service : Equipments* Less than Rs10 lacs

Small Manufacturing : Less than Rs 5 crore

Small Service : Less than Rs 2 crore

Medium Manufacturing : Less than Rs 10 croreMedium Service : Less than Rs 5 crore

*Original cost excluding Land and building and furniture,fittings and such items, specifically excluded

Loans not exceeding Rs. 20.00 Lacs granted to RetailTrade would henceforth be part of Small ServiceEnterprise under MSME.


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CLASSIFICATION OF MSME

WITHIN THE PRIORITY SECTOR The Micro and Small Enterprises (manufacturing and

service) will be Classified under Priority Sector.

The Micro and Small (Service) enterprises shallinclude Small Road and Water Transport Operator,Small Business, Professional and Self-employedPersons and all other service enterprises. RetailTrade will not be classified under Micro and Smallenterprises (service sector).

Small Road and Water Transport Operator (SRWTO),Small Business, Professional and Self Employed

Persons (PSEP) will be classified as per the originalcost of equipments either under Micro or SmallEnterprises (service) sector instead of earlierclassification/ definition of 10 vehicles incase ofSRWTO and working capital and /or Term loan limits

incase of Small Business/Professional and Selfemployed persons.


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CLASSIFICATION OF MSME

WITHIN THE PRIORITY SECTOR

If the following Storage Units, registered as SSIUnit/Micro or Small Enterprises, the loansgranted to such units may be classified as SmallEnterprises Sector : Loans for construction

and running of storagefacilities(warehouse,market yards, godowns andsilos), including Cold Storage Units designed tostore agriculture produce/ products, irrespectiveof location.

Lending to Medium Enterprises will not beincluded under Priority Sector.


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Manufacturing Activities **

Medical Equipment and Ayurvedic Product

Composite unit of Bacon Processing andPiggery Farm*

Tobacco Processing

Beedi/Cigarette manufacturing and other

tobacco Products Extraction of Agave Spirit from Agave juice ;

(imported medicinal plant ) extraction of Agave

Manufacture of Bio-Fertilizer

* Piggery Farm without bacon processing asthis is a farming activity.

** The activity ofBee-Keeping being farmingallied activity.


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1. DIRECT FINANACE:

i. All loans granted to Small Enterprises includingMicro Enterprises (both Manufacturing andServices) will be classified under Direct Finance

to Micro and Small Enterprises Sector.

ii. Khadi and Village Industries Sector (KVI):

All advances granted to units in the KVI sector, irrespective

of Sector their size of operation, location and amount of

original investment in Plant and Machinery, will be eligiblefor consideration under the Sub Target (60 percent) of the

Small Enterprises segment within the Priority Sector.


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INDIRECT FINANCE

1. Indirect Finance to the Small (manufacturing as well as service)

Enterprises sector will include credit to:-i. Persons involved in assisting the decentralized sector in thesupply of inputs to and marketing of outputs of artisans, villageand cottage industries.

ii. Advances to cooperatives of producers in the decentralized sector

viz., artisans, village and cottage industries.

iii. Existing investments as on 31st March, 2007, made by banks inspecial bonds issued by NABARD with the objective of financingexclusively non-farm sector may be classified as Indirect fianc toSmall Enterprise sector till the date of maturity of such bonds of

March 31, 2010, whichever is earlier. Investment in such specialbonds made subsequent to March 31, 2007 will, however, not beeligible for such classification .

iv. Loans granted by banks to NBFCs for on lending to Small andMicro enterprises (manufacturing as well as service).


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CALCULATION OF INVESTMENT

FOR PLANT & MACHINERY In case of MSME advances, if the branches are unable

to assess original investment criteria, a certificate withregard to investment in plant and machinery / equipmentshould be obtained from a Chartered Accountant.

In calculating the value of plant and machinery forthe purpose of calculating investment limit, theoriginal price thereof, irrespective of whether the plantand machinery are new or second hand shall be takeninto account. In case the Branch is unable to assess theoriginal investment criteria, a certificate with regard to

investment in plant/machinery/equipment etc. would beobtained from a Chartered Accountant.

The investment in establishing of wind mill/s togenerate electricity for captive consumption or partlyfor captive consumption and remaining power to sell

to Electricity Boards/others are to be included in theinvestment in plant and machinery.


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Processing of Loan Application

Application Format:

Revised Simplified Loan Application Form prescribedby IBA alongwih check list and undertaking of theapplicant, will be applicable for Micro and Small

Enterprises (MSEs) For loan beyond Rs.25Lacs, branches may obtain

additional information from the borrower, as deemednecessary, as incorporated in the checklist enclosedto the loan application form.

Loan Application Form (ADV-Comm) and Checklistenclosed will be applicable for Medium Enterprisesonly.


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Fair Practice Code for Lenders Liabilities

Before handing over the Application Forms to applicant,the modification / addition as applicable under guidelineson Fair Practice Code for Lenders Liabilities will be

complied as under:(a) Information regarding Processing Fee, ServiceCharges, and Refund etc. will be annexed as a part ofapplication form.

(b) An undertaking to be obtained from the prospectiveborrower while accepting application that he has beenbriefed about and convinced about the charges, bankwill levy on pre/post sanction of the loan.


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Issue of Acknowledgement of Loan

Applications :

Each branch will issue an

acknowledgement for loan applications

received from the borrowers towards

financing under this sector and maintain

the record of the same.


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Disposal of Applications:

In case of Loans up to Rs.25000/- :Within 2 weeks

In case of Loans above Rs.25000/- :Within 4 Weeks

(Provided the loan applications are

complete in all respects andaccompanied by a 'check list' enclosedto the application form)


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Register of Receipt/Sanction/Rejection of Applications:

a. A register should be maintained at branch wherein thedate of receipt, sanction / disbursement ,rejection withreasons , should be recorded. The register should bemade available to facilitate verification by the Banks

officials including Zonal Manager during visit to thebranch.

b.Branch Manager may reject application (except inrespect of SC/ST). In the case of proposals from SC/ST,rejection should be done at a level higher than Branch

Manager.c.The reason for rejection will be communicated to theborrower in line with stipulation mentioned in the FairPractice Lenders Code.


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Photographs of Borrowers

While there is no objection to take photographs

of the borrowers, for the purpose of

identification, branches themselves should makearrangements for the photographs and also bear

the cost of photographs of borrowers falling in

the category of Weaker Sections. It should also

be ensured that the procedure does not involveany delay in loan disbursement.


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TYPES OF CREDIT FACILITIES

The Bank may provide all types of funded and

non funded facilities to the borrower under this

sector viz, Term Loan, Cash Credit, Letter of

Credit, Bank guarantee, etc. A Composite Loan with maximum limit upto

Rs.1.00 crore may be considered by bank to

enable the Micro and Small Enterprises {both for

manufacturing and service sector} to avail oftheir working capital and Term loan requirement

through Single Window.


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MARGIN

(A) FUNDED Minimum MarginUpto Rs.25000

Above Rs.25000

NIL

25%

20% (Under Turnover

Method)

3. Margin on Book Debts 20-25%Exports Bills backed by L/C

confirmed by First Class BankNIL

(B) NON-FUNDED

Letter of Credit (DP) 5%Letter of Credit (DA) 10%

Bank Guarantee 20%

Margin in case of Non Funded facility can be reduced upto 5% by the

GM(PSC) at HO and

below 5% by the Chairman and Managing Director or ExecutiveDirector in absence of C&MD .


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Security Aspects

1. No collateral or third party Guarantee for advances up toRs.5.00 Lacs.

2. In case of good track record of the borrower, CollateralSecurity and or third party guarantee may be waived beyondRs. 5.00 Lacs but up to Rs.100.00 Lacs, where guarantee

cover of75% upto Rs.50.00 lacs and 50% thereafter, of theamount of default is available from CGTMSE. The GuaranteeCoverage has increased to 85% of credit facility upto Rs.5Lacs sanctioned to Micro Enterprises w.e.f. 02.01.2009.Women Entrepreneurs/ units located in North East Region,including Sikkim (Other than Micro enterprises) will be eligible

for coverage of 80% upto Rs.50.00 lacs instead of 75% inother cases.

The CGTMSE Commission/ Annual fee will be borne by theBorrower.


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Security Aspects

In case of Loan up to Rs.25000.00, minimum asset coverageratio would be 1:1. However, in case of schematiclending/specified scheme, the guidelines as applicable will becomplied with.

In case of Loan above 25000, a minimum asset coverage ratiomust be 1.1:1 (excluding Margin stipulated).

In case of loan accounts not covered under CGTMSE schemei.e. above Rs.100 lac, it may be explored as far as practicablethat the credit facilities/loans extended, are supported bycollaterals in the form of liquid securities or fixed assets,immovable properties, based on the credit risks perception ofthe borrower. However, availability of collateral security shallnot be the mere criterion for arriving at credit decision.

Collateral security shall not be insisted upon in those caseswhere the RBI directives specifically advised the banks not toinsist on obtaining collateral security /third party guarantee.


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Risk Rating Exposure-wise rating modules for SMEs are

as follows :-Credit Exposure Rating Module

Up to Rs.10.00 Lacs(Existing & New Units )

CRG-1

Above Rs.10.00 Lacs upto Rs.1.00 Cr :-

Existing Unit CRG-2

New Unit CRG-4

Above Rs.1.00 Cr to lessthan Rs.5.00 Cr :-

Existing Unit CRG-7A

New Unit CRG-7B

Rs.5.00 Cr & above(Existing & New Units)

RiskAssessmentModule(RAM CRISIL)

In case RAM module isnot operationalised :-Existing Unit CRG-7A

New Unit CRG-7B


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Methodology for calculation of

Bank FinanceWorking Capital Finance:

Working capital credit limits to Micro, Small and MediumEnterprises in individual cases up to Rs.5.00 Crore(Manufacturing sector) and upto Rs.2.00 Crore (Service sector)will be computed as per existing guidelines on the basis ofminimum 20% of projected annual turnover. However in caseof borrower applying for working capital limit higher or lowerthan the working capital computed on the basis of turnovermethod shall be assessed as per actual requirement.

ii) For assessment of the working capital requirement forborrowers falling within the band of above Rs.5.00 crores andbelow Rs.10.00Crore (Manufacturing Sector) and above Rs.2.00Crore and below Rs.10.00 Crore (Service Sector) the traditionalmethod of computing MPBF as per second method of lendingwill continue. If any of the borrower falling in this band intendsto shift to cash budget system, the same may be accepted.


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Bank Finance

Working Capital Finance:

For borrowers having working capital limit of

Rs.10.00 crores and above, Cash BudgetSystem will be applicable.. However, if aborrower is desirous to continue with the existingMPBF system the Bank may accept the request.

If any of the borrowers falling in this bandintends to shift to cash budget system, the samemay be accepted.


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Bank Finance

Drawing Power :

Book Debts upto Six Months may be treated as

Current Asset, for the purpose of computation of

permissible bank finance and drawing powercalculation. All Book Debts more than 180 days

are to be treated as Non-Current Assets. As

regards age of the book debts, a certificate

preferably from a Chartered Accountant to beobtained.


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Bank Finance

Term Loan Finance:

The technical feasibility and economic, financial,commercial viability, managerial competence,

environment viability and bank-ability of theproposal with reference to risk will be assessed.

Debt Equity Ratio

In case of term loan, Debt Equity Ratio (DER)

should not normally be above 3:1.However, incase of capital intensive industries, the samemay be considered upto 5.00:1.


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Bank Finance

DSCR/Average DSCR

In case of Term Loan, minimum AverageDSCR of 1.30:1 will be considered as

reasonable requirement for any newproject/expansion project.

Other Benchmarks

Other benchmark financial ratios likeCurrent Ratios, Tenure etc. will be in linewith the Banks domestic lending policy.


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Mode of Disbursement of Loan

The disbursement of the loan amount for

Plant and Machinery, Equipment and other

fixed assets will be made in favour of the

supplier through Demand Draft/BankerCheque. Branches will continue to ensure

the end use verification on

monthly/quarterly basis.


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Repayment Schedule

Repayment schedule should be fixed taking intoaccount the sustenance requirements, surplusgenerating capacity, the break-even point, thelife of the asset, etc., and not in an ad hocmanner.

Moratorium period depending on requirement ofthe project will be considered.

Moratorium period may be extended by further

six months where project implementation hasbeen delayed for reasons whatsoever beyondcontrol of the borrower.


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COMPOSITE TERM LOANS

A composite loan with maximum limit upto

Rs.1.00 crore may be considered by bank toenable the Micro and Small Enterprises (bothfor manufacturing and service sector) to availof their working capital and Term loanrequirement through Single Window.

NON-FUNDED LIMIT :The non-fund limit may be sanctioned as perneed based requirements of the borrower withinthe ambit of the banks guidelines in this regard.

The proposals for non-fund facilities should bedealt with same diligence as in case of fundedlimits.


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REVIEW OF SME PORTFOLIO:

At the Zonal office level, Chief Manager (Credit)/ Senior Manageridentified as nodal officers will act as coordinating officer to monitorthe functioning, review and the progress in SME financing and tocoordinate with other banks/financial institutions and the StateGovernment removing bottlenecks, if any, to ensure smooth flow ofcredit to the sector.

SME financing branches (erstwhile SSIFBs) have be permitted tofinance Medium Enterprises also. Further, bank may explore thepossibility of opening more branches to cater the specializedrequirement to this segment.

The Zonal office will give due importance for financing in theidentified special credit delivery branches and branches situatednear to clusters.

Review of progress on MSME lending will be placed before theBoard on quarterly basis.


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DEBT RESTRUCTURING

The Banks policy of Debt Structuring

Policy will be applicable for SME as per

Instruction Circular No.10285

/CPRMD/2008-09 dated 19.12.2008 willbe applicable , in respect of debt

restructuring of SMEs.


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ADHOC WORKING CAPITAL

DEMAND LOAN :

(a) Under stimulus package, the need based AdhocWorking Capital Demand Loans maximum up to 20% ofthe existing fund based limits in respect of units havingoverall fund based credit facility up to Rs.10.00 Crore

may be given, which will be repayable in one year with aprovision of maximum period of six months during whichinterest will have to be serviced.

(b) In this regard borrower may avail only one of the

under noted facilities at a time: i) Adhoc Facility

ii) Adhoc Working Capital Demand Loan


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EXCESS DRAWING

Besides Adhoc Facility / Adhoc

Working Capital Demand Loan, excess

drawing may be allowed in terms of

provisions contained in the BanksDiscretionary Authority (Lending

Power)/ Lending Policy, on merits ,

considering exigencies of the case.

OPERATIONAL GUIDELINES


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OPERATIONAL GUIDELINESFOR ADHOC FACILITIES FOR

MSME BORROWERS As per extant MSME Policy, DiscretionaryAuthority for Adhoc sanction to MSMEBorrowers have been provided from Scale-IIonwards, which has to be extended within

20% of 20% of sanctioned limits or theprescribed amount under DiscretionaryAuthority in case of AB-1 and AB-2 ratedAccounts and 10% of sanctioned limit or the

prescribed amount under each scale,whichever is less in case of accounts withRisk Grading with AB-3 to AB-7 .

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