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      MSE Policy of the bank

      BANK'S REVISED 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:

      RBI had come out with revised Priority Sector guidelines w.e.f. 23.04.2015. According to revised guidelines the National Parameters to be achieved under Micro Enterprises are as under:

      Micro Enterprises: A target of 7.5 percent of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher, has been prescribed for Micro Enterprises, to be achieved in a phased manner i.e. 7 percent by March 2016 and 7.5 percent by March 2017.

      Considering that the MSMED Act, 2006 does not provide for any sub-categorization within the definition of micro enterprises and that the sub-target for lending to micro enterprises has been fixed, the current sub-categorization within the definition of micro enterprises in the existing guidelines is dispensed with.

      However, in terms of the recommendations of the Prime Minister's Task Force on MSMEs, banks are advised to achieve:

      1. 20 per cent year-on-year growth in credit to micro and small enterprises,
      2. 10 per cent annual growth in the number of micro enterprise accounts and
      3. 60 per cent of total lending to MSE sector as on preceding March 31st to micro enterprises.

      6. COMMON GUIDELINES/INSTRUCTIONS FOR LENDING TO MSE SECTOR

      6.1 Processing of Applications:

      i. 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.

      ii. 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.

      iii. Disposal of Applications (Timelines for Credit Decisions):

      Bank is pursuing BCSBI's guidelines regarding timelines for credit decisions. The timelines prescribed by BCSBI are as follows:

      All applications for a credit limit or enhancement in existing credit limit up to Rs 5 lakh within two weeks; and for credit limit above Rs. 5 lakh and up to Rs. 25 lakh within 3 weeks; and for credit limit above Rs. 25 lakh within 6 weeks from the date of receipt, provided the application is complete in all respects and is accompanied by all documents as per check list.

      iv. Register of Receipt/Sanction/Rejection of Applications:

      • 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 Bank's officials including Zonal Manager during visit to the branch.
      • 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.
      • The reason for rejection will be communicated to the borrower in line with stipulation mentioned in the Fair Practice Lenders Code.
      • For walk-in Loan applicants a new Menu- “CPTS” has been developed in Finacle for entering all type of loan applications, including MSE loan applications, submitted by existing/prospective customers at branch level.
      • Under CPTS Menu in Finacle minimum information of the walk-in Loan applicant is captured and a Unique Application ID is generated, which will be provided to the applicant. The loan application status will be downloaded from Finacle and uploaded to our website on the next day. This will enable the loan applicants, who have submitted their loan applications at branches, to track their loan applications status on our website.

      6.2. Types of Loans

      MSE Units may be granted a variety of Credit facilities for their different needs which will include the following:

      1. 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.
      2. Working Capital by way of Cash Credit, Overdraft etc for:
        • Purchase of raw material, components, stores and maintenance of stock of these items at minimum level and stock in process and finished goods.
        • Finance against receivables including receipted challans/invoices.
        • Meeting marketing expenses where the units have to incur large-scale expenditure towards marketing of their products.
      3. Bills Purchase/Discounting under L/C or outside L/C.
      4. Export Credit facilities like Packing Credit, FBP/UFBP.
      5. Letter of Credit on sight / usance basis for purchase of raw material/capital goods.
      6. 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 For Working Capital
      In case of factory land & building, overall margin of 20% 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 Promoter's/Director's 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 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
      Micro Enterprises 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.
      Women Entrepreneurs / Units located in North Eastern Region (including Sikkim) 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 up to Rs. 1.00 Crore shall not be subject to internal credit rating.

      1. 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.
      2. 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.

      1. Would not be linked to credit rating up to certain limit, presently upto Rs. 1.00 Crore.
      2. 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 Term Loan & DPG Processing Charges* for Term Loan & DPG
      Fresh Sanctions  
      Up to Rs. 25000/- Nil Nil
      Above Rs. 25000/- Rs.363/- per lac 
      Min Rs. 363/-
      1.1664% of the sanctioned limit.
      Min. Rs. 623/-
      Renewal / Review of limit  
      Up to Rs. 25000/- Nil Nil
      Above Rs. 25000/- Rs.363/- per lac 
      Min Rs. 363/-
      Rs.125/- per lac 
      Min. Rs. 260/-; Max. Rs. 57094/-

      * The above charges are inclusive of 14.5% Service Tax.

      However, under Pradhan Mantri Mudra Yojna (PMMY), launched on April 08, 2015 to ‘fund the unfunded', Bank extend credit to non-farm enterprises in manufacturing, trading and services whose credit needs are up to Rs.10.00 lakh and provide following concessions in processing charges to the PMMY loanee:

      Processing charges for MUDRA Loan under PMMY:

      Amount of Advance Processing Charges
      Shishu - Up to Rs. 50,000/- Nil
      Kishore - Above Rs. 50,000/- upto Rs.5 lac. 0.40% of the sanctioned limit.
      Tarun - Above Rs.5 lac up to Rs.10  lac Rs. 363 per lac.

      9. Methodology for calculation of Bank Finance:

      9.1 Working Capital Loan

      Computation of Working capital limits to:

      Manufacturing Sector

      Micro and small enterprises - Up to Rs.5 Cr

      Service Sector

      Micro & Small Enterprises - Up to 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 borrowers falling in this band intends to shift to cash budget system, the same may be accepted.

      9.2 Term Loan

      Sl. Particulars
      I 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.
      V 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 Bank's Loan Policy.

      10. Financing under cluster based approach:

      1. The cluster based approach should be given a thrust area.
      2. The cluster financing approach reduces the cost of transition to the entrepreneurs.
      3. 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 2015-16 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. Problems of MSE units:

      Micro and small units are more prone to facing financial difficulties during their Life Cycle than large enterprises / corporates when the business conditions turn adverse. Absence of timely support at such a juncture could lead to the unit turning sick and many a time irreversibly. As such, role of banks in providing continuous support to viable MSEs during such phases of transient financial difficulties assumes significance.

      In view of the above RBI vide their letter No. RBI/2015-16/160 FIDD.MSME & NFS.BC.No.60/06.02.31/2015-16 dated August 27, 2015 has advised the Banks adopting an appropriate system of timely and adequate credit delivery to borrowers in the MSE segment within the broad prudential regulations of Reserve Bank of India by extending financial help to the viable / stressed MSE borrowers by way of adequate ad-hoc and standby limits which support the MSE units during adverse business conditions as also when their credit requirements go up.

      In order to empower the officials concerned to take quick decisions on credit delivery to MSEs and in order to provide timely and adequate credit to viable MSE borrowers especially during the need of funds in unforeseen circumstances the following measures have been adopted by the Bank as proposed by RBI:

      15.1 Scheme for standby credit for capital expenditure of MSEs:

      --A hassle free Instant Term Credit facility to existing MSE entrepreneurs to acquire fixed assets

      Nature of limit Term loan
      Purpose For meeting unforeseen/contingent requirement for acquisition of fixed assets like generator set, balancing equipments, replacement of existing machinery items, tools, moulds, jigs etc to maintain production and/or to acquire necessary equipments/machinery for modernization of the unit.
      Eligibility Existing MSE borrowers of the Bank having satisfactory dealings.
      Maximum
      limit
      Quantum of loan is 25% of the original value of the existing plant and Machinery subject to a maximum of Rs. 25 lakhs, at the time of each renewal of working capital limits.
      Security Prime security - Assets created out of loan. No collateral security for loans upto Rs.10 lakhs.
      Collateral security & Personal/Third party Guarantee obtained for the existing credit facility shall continue.
      Repayment Over 36 months and up to 60 months in monthly/quarterly instalments. Interest to be repaid as and when due.
      Guarantee cover CGTMSE cover available for collateral free loan.
      Rate of interest Rate of interest as per prevailing guidelines of the Bank linked to Base Rate of the Bank, subject to changes from time to time.
      Margin 25% of the cost of the fixed asset proposed to be acquired from the loan.
      Others Loan is sanctioned at the time of renewal of the existing working capital limits of the unit -Sanction is valid for 6 months and revalidation of the same is permissible -Disbursement in stages.

      15.2 Standby Line of Credit for Working Capital

      For existing units including export units, an additional Working Capital(Fund based & non Fund based) limit by way of cash credit, packing credit and bills discounting against stock, receivables to meet contingencies like bunching of orders, delay in shipment, sudden increase in raw material prices, mismatch in cash flows.

      Under this 15% of aggregate Working Capital or max Rs. 5 crore can be availed. Margin as applicable to original limit. The facility is repayable in 2 months and can be availed any number of times in a calendar year.

      15.3 Review of Regular Working Capital Limits

      At present, review/renewal of working capital limits is done at least once in a year based on audited financial statements. However, audited financial statements of MSE units would ordinarily be available with a time lag, post-closing of the financial year. In such cases and where bank is convinced that changes in the demand pattern of MSE borrowers require a mid-term review, Bank may undertake such mid-term reviews based on an assessment of sales performance of the MSEs since last review without waiting for audited financial statements. However, such mid-term reviews shall be revalidated during the subsequent regular review based on audited financial statements.

      16. Review of the Scheme

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

      17. Some of our SME Products are follows:

      Sl. No. Particulars
      1 Laghu Udyami Credit Card
      2 Artisan Credit Card
      3 Prime Minister Employment Generation Programme (PMEGP)
      4 Collateral Free Loans under Credit Guarantee Trust Fund for Micro & Small Enterprises (CGTMSE)
      5 Loans under Technology Upgradation Fund Scheme for Textile Units (TUFS Scheme)
      6 Swarozgar Credit Card Scheme
      7 UCO Udyog Bandhu
      8 UCO Weavers Card
      9 Composite Loans to MSE units
      10 Scheme for financing Handloom Weavers Group (HWGs)
      11 Loans under Credit Linked Capital Subsidy Scheme for technology Upgradation.
      12 Scheme for Food Processing industries
      13 UCO Commercial Vehicle Finance Scheme
      14 UCO Doctor

      Above all, in future the MSE Policy of the Bank will be guided by any changes that may take place as per instructions of RBI/GOI/BCSBI or any other Government Agencies and extant guideline of the Bank prevailing at that time.

       

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