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The Government of India passed in June 2006 an act regarding the Micro , Small , and Medium Enterprises . The Micro , Small and Medium Enterprise Development Act ,2006 (MSMEDA ) The Act accomplishes many long -standing goals of the government and stakeholders in the MSME sector .
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.
The new definition has expanded the P&M limits ; now each enterprise level encompasses larger investments than before . The new categorization is as follows : Micro Manufacturing : P&M* Less than Rs 25 lacs Micro 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 crore Medium 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 Retail Trade would henceforth be part of Small Service Enterprise under MSME.
Manufacturing Activities **
Medical Equipment and Ayurvedic Product Composite unit of Bacon Processing and Piggery 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 as this is a farming activity. ** The activity of Bee-Keeping being farming allied activity.
1. DIRECT FINANACE:
i. All loans granted to Small Enterprises including Micro Enterprises (both Manufacturing and Services) 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 eligible for consideration under the Sub Target (60 percent) of the Small Enterprises segment within the Priority Sector.
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 the supply of inputs to and marketing of outputs of artisans, village and 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 in special bonds issued by NABARD with the objective of financing exclusively non-farm sector may be classified as Indirect fianc to Small Enterprise sector till the date of maturity of such bonds of March 31, 2010, whichever is earlier. Investment in such special bonds made subsequent to March 31, 2007 will, however, not be eligible for such classification . iv. Loans granted by banks to NBFCs for on lending to Small and Micro enterprises (manufacturing as well as service).
Application Format: Revised Simplified Loan Application Form prescribed by IBA alongwih check list and undertaking of the applicant, will be applicable for Micro and Small Enterprises (MSEs) For loan beyond Rs.25Lacs, branches may obtain additional information from the borrower, as deemed necessary, as incorporated in the checklist enclosed to the loan application form. Loan Application Form (ADV-Comm) and Checklist enclosed will be applicable for Medium Enterprises only.
Before handing over the Application Forms to applicant, the modification / addition as applicable under guidelines on Fair Practice Code for Lenders Liabilities will be complied as under: (a) Information regarding Processing Fee, Service Charges, and Refund etc. will be annexed as a part of application form. (b) An undertaking to be obtained from the prospective borrower while accepting application that he has been briefed about and convinced about the charges, bank will levy on pre/post sanction of the loan.
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.
MARGIN
1. 2. (A) FUNDED Upto Rs.25000 Above Rs.25000 Minimum Margin NIL 25% 20% (Under Turnover Method) 20-25% NIL
Margin on Book Debts Exports Bills backed by L/C confirmed by First Class Bank (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 Executive Director(in absence of C&MD).
3.
Security Aspects
1. No collateral or third party Guarantee for advances up to Rs.5.00 Lacs. 2. In case of good track record of the borrower, Collateral Security and or third party guarantee may be waived beyond Rs. 5.00 Lacs but up to Rs.100.00 Lacs, where guarantee cover of 75% upto Rs.50.00 lacs and 50% thereafter, of the amount of default is available from CGTMSE. The Guarantee Coverage has increased to 85% of credit facility upto Rs.5 Lacs 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% in other cases. The CGTMSE Commission/ Annual fee will be borne by the Borrower.
Security Aspects
In case of Loan up to Rs.25000.00, minimum asset coverage ratio would be 1:1. However, in case of schematic lending/specified scheme, the guidelines as applicable will be complied with. In case of Loan above 25000, a minimum asset coverage ratio must be 1.1:1 (excluding Margin stipulated). In case of loan accounts not covered under CGTMSE scheme i.e. above Rs.100 lac, it may be explored as far as practicable that the credit facilities/loans extended, are supported by collaterals in the form of liquid securities or fixed assets, immovable properties, based on the credit risks perception of the borrower. However, availability of collateral security shall not be the mere criterion for arriving at credit decision. Collateral security shall not be insisted upon in those cases where the RBI directives specifically advised the banks not to insist on obtaining collateral security /third party guarantee.
Risk Rating
Exposure-wise rating modules for SMEs are as follows :Credit Exposure Up to Rs.10.00 Lacs (Existing & New Units ) Above Rs.10.00 Lacs up to Rs.1.00 Cr :Existing Unit New Unit Above Rs.1.00 Cr to less than Rs.5.00 Cr :Existing Unit New Unit Rs.5.00 Cr & above (Existing & New Units) Rating Module CRG-1
CRG-2 CRG-4
CRG-7A CRG-7B
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. Moratorium period depending on requirement of the project will be considered. Moratorium period may be extended by further six months where project implementation has been delayed for reasons whatsoever beyond control of the borrower.
COMPOSITE TERM LOANS 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 of their working capital and Term loan requirement through Single Window. NON-FUNDED LIMIT : The non-fund limit may be sanctioned as per need based requirements of the borrower within the ambit of the banks guidelines in this regard. The proposals for non-fund facilities should be dealt with same diligence as in case of funded limits.
SME financing branches (erstwhile SSIFBs) have be permitted to finance Medium Enterprises also. Further, bank may explore the possibility of opening more branches to cater the specialized requirement to this segment.
The Zonal office will give due importance for financing in the identified special credit delivery branches and branches situated near to clusters. Review of progress on MSME lending will be placed before the Board on quarterly basis.
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 will be applicable , in respect of debt restructuring of SMEs.
EXCESS DRAWING
Besides Adhoc Facility / Adhoc Working Capital Demand Loan, excess drawing may be allowed in terms of provisions contained in the Banks Discretionary Authority (Lending Power)/ Lending Policy, on merits , considering exigencies of the case.
As per extant MSME Policy, Discretionary Authority for Adhoc sanction to MSME Borrowers have been provided from Scale-II onwards, which has to be extended within 20% of 20% of sanctioned limits or the prescribed amount under Discretionary Authority in case of AB-1 and AB-2 rated Accounts and 10% of sanctioned limit or the prescribed amount under each scale, whichever is less in case of accounts with Risk Grading with AB-3 to AB-7 .