MICRO AND SMALL ENTERPRISES POLICY

REVISED BANKS POLICY IN RESPECT OF LENDING TO MICRO AND SMALL ENTERPRISES SECTOR
(MSE Policy)

1. PREAMBLE :
Worldwide, the Micro and Small Enterprises (MSEs) have been accepted as the engine of economic growth and
for promoting equitable development. In India too, the MSEs play a pivotal role in the overall industrial economy
of the country. Further, in recent years the MSE sector has consistently registered higher growth rate compared
to the overall industrial sector. The major advantage of the sector is its employment potential at low capital
cost.
The Government of India has been making concerted efforts for the promotion and development of MSE sector
which enabled the MSE sector to grow at a higher pace than the overall industrial sector. To facilitate the
development of this sector as also enhance their competitiveness, the Government has enacted the Micro,
Small and Medium Enterprises Development (MSMED) Act, 2006, which is in force from 2nd October, 2006
which is a turning point for the development of Indian Industry, as it addresses and streamlines entire frame
work along with key governance & operational issues being faced by the SMEs.
One of the major policy initiatives of the Government has been inclusion of the MSE sector under priority sector
lending. It has been done so because credit is one of the critical inputs for the sustained growth of the MSE
sector. The MSE sector has been receiving direct assistance from the commercial banks mostly for meeting
working capital requirements.
In terms of MSMED Act, 2006 the MSE segment is broadly classified as under:

Particulars

Original Investment in
Plant & Machineries of
Manufacturing Enterprises

Original investment in equipment of

Service Sector Enterprises

Micro
Enterprises

Upto Rs. 25.00 lakh

Upto Rs. 10.00 lakh

Small
Enterprises

Above Rs. 25.00 lakh and upto Rs.

500.00 lakh

Above Rs. 10.00 lakh and upto Rs. 200.00 lakh

2. Definitions:
2.1 Micro (Manufacturing) Enterprises:
Enterprise engaged in the manufacture/production or preservation of goods and whose investment in plant and
machinery (original cost excluding land and building and such items as in 1.1.1) does not exceed Rs. 25.00
lakh, irrespective of the location of the unit.
2.2 Micro (Service) Enterprises:
Enterprise engaged in the providing/rendering of services and whose investment in equipment (original cost
excluding land and building and furniture, fittings and such items as in 1.1.2) does not exceed Rs. 10.00 lakh.
2.3 Small (Manufacturing) Enterprises:
Enterprise engaged in the manufacture/production or preservation of goods and whose investment in plant and
machinery (original cost excluding land and building and the items specified by the Ministry of Small Scale
Industries vide its notification No. S.O. 1722(E) dated October 5, 2006 as furnished in Annex I) does not exceed
Rs.5.00 crore.
2.4 Small (Service) Enterprises:
Enterprise engaged in the providing/rendering of services and whose investment in equipment (original cost

excluding land and building and furniture, fittings and other not directly related to the service rendered or as
may be under the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006) does not exceed Rs
2.00 crore.

3. OBJECTIVES: The MSE Loan Policy is framed with the following objectives:

To ensure availability of adequate and timely credit to MSE sector.

To devise an organizational structure at all levels for handling MSE credit portfolio in a more focused
manner.

To improve flow of credit to MSE Sector so as to double the credit to the Sector in 5 years.

To provide guidelines to the branches to dispense credit to MSE Sector on liberalized terms.

4. SCOPE OF POLICY:

Broad guidelines on lending to MSE Sector

Identifying Thrust Industries

Composition of MSE Sector

Pricing Policy

5. TARGETS FOR MSE SECTOR:

Banks are advised to fix their own target in order to achieve a minimum 20% YOY growth over the
MSE advances.

Sub-targets for lending to Micro Enterprises within the Small Enterprises, which are included under
Priority Sector lending, are as under :
a.) 40% of total advances to Small Enterprises Sector should go to Micro (Manufacturing Enterprises having
investment in Plant and Machinery upto Rs 10.00 lakh and Micro (Service) Enterprises having investment in
equipment upto Rs 4.00 lakh;
b.) 20% of total advances to Small Enterprises Sector should go to Micro(Manufacturing) Enterprises with
investment in Plant and Machinery above Rs 10.00 lakh and upto Rs 25.00 lakh, and Micro (Service) Enterprises
with investment in equipment above Rs 4.00 lakh and upto Rs 10.00 lakh.
(Thus, 60% of Small Enterprises advances should go to Micro Enterprises).
Yearly Disbursement Target:

20% year-on-year growth in credit to Micro and Small Enterprises should be achieved.

Annual growth in the number of MICRO Enterprises Accounts should be at least 10%.

6. COMMON GUIDELINES/INSTRUCTIONS FOR LENDING TO MSE SECTOR

6.1 Processing of Applications:

Loan Application :
The existing Common loan Application-cum-Appraisal Format applicable to all loans irrespective of limit will be
applicable for financing to MSE sector.

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.

Disposal of Applications :

All applications for a credit limit or enhancement in existing credit limit up to Rs 2 lakh within two weeks;
For credit limit up to Rs 5 lakh within 4 weeks from the date of receipt, Provided the application is complete in
all respects and is accompanied by all documents as per check list.
Loan applications for amounts exceeding Rs 5 lakh, within reasonable time frame.

Register of Receipt/Sanction/Rejection of Applications :

a.) A register should be maintained at branch wherein the date of receipt, sanction/disbursement, rejection with
reasons, should be recorded. The register should be made available to facilitate verification by the Banks
officials including Zonal Manager during visit to the branch.
b.) Branch Manager may reject application (except in respect 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 the borrower in line with stipulation mentioned in the Fair
Practice Lenders Code.
6.2. Types of Loans
MSE Units may be granted a variety of Credit facilities for their different needs which will include the following:

Term Loan/ Demand Loan/ Deferred Payment guarantee

For acquisition of capital goods (excluding second hand), fixed assets, vehicles, Plant & machinery, purchase of
land, construction of buildings etc. There is no provision in the Policy for allowing term loan against purchase of
second hand machinery.

Working Capital by way of Cash Credit, Overdraft etc for:

1. Purchase of raw material, components, stores and maintenance of stock of these items at minimum level and
stock in process and finished goods.
2. Finance against receivables including receipted challans/invoices.
3. Meeting marketing expenses where the units have to incur large-scale expenditure towards marketing of
their products.
(c) Bills Purchase/Discounting under L/C or outside L/C.
(d) Export Credit facilities like Packing Credit, FBP/UFBP.
(e) Letter of Credit on sight / usance basis for purchase of raw material / capital goods.
(f) Bank Guarantee for performance, advance payment, Tender Money, Security Deposit,
Guarantees for getting orders, for procurement of raw materials etc.
6.3 Margin.

For Term Loan

In case of factory land & building, overall margin of 20%

For Working Capital

25% uniform margin on stocks and
receivables.
For export credit margin may be stipulated

@ 10%.
In case of Plant & Machineries and Equipment margin is
proposed at 20%.

Rules Relating to Take over of Accounts:

1. Consistent growth in sales for last 3 years.
2. Continuous profit for last 3 years.
3. Credit rating of A: or equivalent and above and no slippage in credit rating during last 3 years.
4. The unit's assets (fixed as also current) are charged to the Bank and Promoters/Directors personal
guarantee are available..
5. Asset coverage ratio of more than 1:5.
6. Other take-over norms are complied with.
The category-wise maximum extent of cover under CGTMSE is as under:

Category

Micro Enterprises

Women Entrepreneurs/Units
located in North Eastern
Region (including Sikkim)

Maximum extent of Guarantee whose credit facility is

Upto Rs. 5 lakh

Above Rs. 5 lakh

upto Rs. 50 lakh

Above Rs. 50 lakh upto Rs.

100 lakh

85% of the amount

in default subject to
a maximum of Rs.
4.25 lakh

75% of the amount

in default subject to
maximum of Rs.
37.50 lakh

Rs. 37.50 lakh plus 50% of

amount in default above
Rs. 50 lakh subject of
overall ceiling of Rs. 62.50
lakh.

80% of the amount in default subject to a

maximum of Rs. 40 lakh

Rs. 40 lakh plus 50% of

the amount in default
above Rs. 50 lakh subject
to overall ceiling of Rs. 65
lakh.

Composite Loans:

As per RBI guidelines, credit assistance to artisans, village and cottage Industries and other MSE
units up to Rs. 100.00 Lakh for equipment finance or working capital or both should be considered as
composite term loan.

This will enable majority of Micro & Small Enterprises to avail loans from a single window eliminating
the need for borrowing term loan from SFCs and working capital from Banks.

This will also facilitate to sign one set of documents only instead of signing facility-wise separate
documents.
6.4 Credit Rating
Considering the feedback received from Field Level functionaries, it has been decided that financing loan upto
Rs. 1.00 Crore shall not be subject to internal credit rating.

For aggregate exposure above Rs. 1 crore, the rate of Interest is decided as per credit Rating.
The credit rating module of our Bank for MSEs will be as per Loan Policy document of our Bank.

Rating from outside rating Agencies :-

Our Bank has entered into MOU with SMERA, Fitch Ratings India (P) Ltd., Dun & Brad Street and ICRA Ltd. for
getting the SME borrowers rated by them. The National Small Industries Corporation (NSIC) has been appointed
as nodal agency which provides subsidy to the units obtaining credit rating from any of the empanelled
agencies to the Micro and Small Enterprises (manufacturing sector, i.e. earlier SSI units). The Credit rating
awarded by Rating Agencies under NSIC Subsidy Scheme is conclusive for borrower as well as lender.
However, in case of take over a/cs EXTANT guidelines shall continue.
6.5 Pricing
Risk of default in the MSME sector is spread amongst a wide base of borrowers and therefore the pricing.

Would not be linked to credit rating upto certain limit, presently upto Rs. 1.00 Crore.

Would be linked to credit rating of the constituent for credit limit above Rs. 1 Cr.
Also keeping in view the RBI directives from time to time.

7. Penal Interest:
Penal interest @ 1% to be charged for the period of default in repayment, non-submission of financial
statements, non-compliance of terms and conditions etc. as per extant guidelines of the Bank.

8. Processing Charges for Micro & Small Enterprises

Amount of
Advance

Processing Charges for advances other

than from Loan & DPG

Processing Charges for Term

Loan & DPG

Fresh
Sanctions
Upto Rs. 25000/-

Nil

Nil

Above Rs. 25000/-

Rs.350/- per lac

Min Rs. 350/-

1.1236% of the sanctioned limit.

Min. Rs. 600/-

Upto Rs. 25000/-

Nil

Nil

Above Rs. 25000/-

Rs.350/- per lac

Min Rs. 350/-

Rs.120/- per lac

Min. Rs. 250/Max. Rs. 55000/-

Renewal
/ Review of
limit

9. Methodology for calculation of Bank Finance

9.1 Working Capital Loan
Computation of Working capital limits to
Manufacturing Sector
Micro and small enterprises - Upto Rs.5 Cr
Service Sector

Micro & Small Enterprises Upto Rs.1 Cr

Turnover method would be applicable for financing working capital needs @ 20% of projected turnover based
on the assumptions of a three month operating cycle.
Additionally, the assessment of working capital requirement of such unit should be done as per traditional
method and if the requirement so computed is higher than the one computed on projected turnover method
basis the same should be considered.
Computation of Working capital limits to
Manufacturing Sector
Micro and small enterprises - Above Rs. 5 Crore
Service Sector
Micro and Small Enterprises - Above Rs. 1 Crore upto Rs 2 Crore
Traditional method of computing MPBF as per second method of lending will continue.
If any of the borrower falling in this band intends to shift to cash budget system, the same may be
accepted.
9.2 Term Loan

Sl
.

Particulars

In case of term loan, Debt Equity Ratio (DER) should not normally be above 3:1.

II

However, in case of capital intensive industries, the same may be considered 5:1

III

In case of Term Loan, minimum Average DSCR of 1.50 : 1 will be considered as reasonable
requirement for any new connection.

IV

Relaxation may however be considered on merit of the case by the sanctioning authority not below
the rank of Zonal Head.

Moratorium period depending on requirement of the project/proposal will be considered.

9.3 The technical feasibility, the economic, financial, commercial viability, Managerial competence,
environment viability and bank-ability of the proposal with reference to risk will be assessed.
9.4 Other benchmark financial ratios like Current Ratios, Tenure etc. will be in line with the Banks Loan Policy.

10. Financing under cluster based approach:

i. The cluster based approach should be given a thrust area.
ii. The cluster financing approach reduces the cost of transition to the entrepreneurs.
iii. The Zonal Office/ branches will give due importance for financing of MSME sector in the identified Special
Credit Delivery branches and Branches situated near to clusters.

11. Discretionary authority

As per Loan Policy Document of the Bank.

12. Repayment Schedule

Repayment schedule should be fixed taking into account the sustenance requirements, surplus generating
capacity, the break-even point, the life of the asset, etc., and not in an "ad hoc" manner. The maximum door to
door tenor should not exceed 60 months excluding the moratorium period.
In respect of composite loan the repayment schedule may be fixed for term loan component only.
Moratorium period of 6 months to 1 year may be allowed taking into consideration the nature of the project and
also commencement of commercial production.

13. Mode of Disbursement of Loan

The disbursement of the loan amount for Plant & Machinery, Equipment and other fixed assets will be made in
favour of the supplier through Demand Draft/ Pay Order. Branches will continue to ensure the end use
verification on monthly/quarterly basis.

14. Monitoring
Policy directives for monitoring of accounts covering documentation, supervision and control over accounts,
special watch/potential NPAs etc., are as per Credit Monitoring Policy 2007-08 of the Bank and any amendment
thereof.
Where ever the lending to MSE sector is eligible to be covered under CGTMSE, it will be the responsibility of the
respective branch head and the concerned officials at Zonal Office to ensure that the respective accounts are
duly covered under CGTMSE and the Guarantee Fee and the Annual Service Fee is paid to CGTMSE in time.
The Agriculture & Rural Business Department of the Bank will ensure proper implementation of this Policy in the
Bank.

15. Review of the Scheme

In case any modification/changes are warranted in this Policy, the Chairman and Managing Director/Executive
Directors of the Bank will approved the same and will be got vetted by the Credit Risk Management Committee
(CRMC) and the Board of Directors of the Bank before its circulation among our Branches/Offices.

16. Some of our SME Products are follows :

Sl. No.

Particulars

Laghu Udyami Credit Card

Artisan Credit Card

Prime Minister Employment Generation Programme (PMEGP)

Collateral Free Loans under Credit Guarantee Trust Fund for Micro & Small Enterprises (CGTMSE)

Loans under Technology Upgradation Fund Scheme for Textile Units (TUFS Scheme)

Swarozgar Credit Card Scheme

UCO Udyog Mitra

UCO Weavers Card

UCO Mahila Pragati Dhara

10

Composite Loans to MSE units

11

Scheme for financing Handloom Weavers Group (HWGs)

12

Loans under Credit Linked Capital Subsidy Scheme for technology Upgradation.

13

UCO Channel Scheme

14

Scheme for Food Processing industries

15

UCO Commercial Vehicle Finance Scheme

16

UCO Doctor

Prime Minister's Employment Generation Programme (PMEGP)

Title of the
Product

Prime Minister's Employment Generation Programme

Applicable:

All Branches

PMEGP

Prime Minister's Employment Generation Programme (PMEGP) is a credit linked

subsidy programme administered by the Ministry of Micro, Small and Medium
Enterprises, Government of India. Khadi & Village Industries Commission (KVIC), is
the nodal agency at national level for implementation of the scheme. At state
level the scheme is implemented through KVIC, KVIB and District Industries
centre.

Objective:

Scope :

To generate employment opportunities in rural as well as urban areas

through setting up of self employment ventures.

To provide continuous and sustainable employment to a large segment of

traditional and prospective artisans and unemployed youth, so as to help
arrest migration of rural youth to urban areas.

The scheme is applicable to all viable (technically as well as economically)

projects in rural as well as urban areas, under Micro enterprises sector.

The maximum cost of the project admissible under manufacturing sector

is Rs.25 lakhs and business/services sector is RS.10 lakhs.

Only one person from family is eligible for obtaining financial assistance
under the scheme.

Eligible
Entrepreneur
s / Borrowers:

Assistance under the Scheme is available only for new projects.

The assistance under the scheme will not be available to activities
indicated in the negative list under the scheme.

Any individual, above 18 years of age

The beneficiaries should have passed at least VIII standard, for setting up
of

Self Help Groups (including those belonging to BPL provided that they
have not

availed benefits under any other Scheme).

Institutions registered under Societies Registration Act,1860

Production Co-operative Societies

Charitable Trusts.

Note :
Existing units (Under PMRY, REGP or any other scheme of Government of India or
State Government) and the units that have already availed Government Subsidy
under any other scheme of Government of India or State Government are not
eligible.

Selection of
beneficiaries:

Loan Amount

Rate of
Interest

The beneficiaries will be identified & selected at the district level by a Task Force
consisting of representatives from KVIC / State KVIB / State DICs and Banks and
headed by the District Magistrate / Deputy Commissioner / Collector concerned.

Max Rs.10 lac for business /service sector and

Max Rs.25 lac for manufacturing sector

Base Rate (BR)+1.00 %

Gener
al

Special categories
i.e.
SC/ST/OBC/Women
PH

Urba
n

15%

25%

Rura
l

25%

35%

Subsidy :

Repayment:

Security:

3 to 7 years with an initial moratorium not exceeding 6 (six) months.

Assets created out of the bank's finance.

Personal guarantee of the proprietor / promoter.

No collateral security.
Eligible units will be covered under Credit Guarantee Fund scheme for
Micro & small Enterprises - CGMSE. (excluding Margin Money / subsidy
component).