Posts
SECTION - I
Micro,
Small & Medium Enterprises Development (MSMED) Act, 2006
The
Government of India has enacted the MSME Development (MSMED) Act, 2006 on June
16, 2006 which was notified on October 2, 2006.
Definition
of MSME
(a)
Manufacturing Enterprises i.e. Enterprises engaged in the manufacture
or production, processing or preservation of goods as specified below:
(i) A micro
enterprise is where investment in plant and machinery does not exceed Rs. 25
lakh;
(ii) A small
enterprise is where the investment in plant and machinery is more than Rs. 25
lakh upto Rs. 5 crore;
(iii) A
medium enterprise is where the investment in plant and machinery is more than
Rs.5 crore upto Rs.10 crore.
In case
of the above enterprises, investment in plant and machinery is the original
cost excluding land and building and the items specified by the Ministry of
Small Scale Industries.
(b)
Service Enterprises i.e. Enterprises engaged in providing or
rendering of services and whose investment in equipment is as specified
below:
(i) A micro
enterprise is where the investment in equipment does not exceed Rs. 10 lakh;
(ii) A small
enterprise is where the investment in equipment is more than Rs.10 lakh upto
Rs. 2 crore; and
(iii) A
medium enterprise is where the investment in equipment is more than Rs. 2 crore
upto Rs. 5 crore.
Section – II
Priority
Sector Guidelines for MSME sector
Loans
to MSME, for both Manufacturing and Service sectors are eligible to be
classified under the Priority Sector as per the following norms:
Manufacturing Enterprises
The MSME
engaged in the manufacture or production of goods specified in the first
schedule to the Industries (Development and Regulation) Act, 1951 and as
notified by the Government. The Manufacturing Enterprises are defined in terms
of investment in plant and machinery.
Service Enterprises
Bank
loans up to Rs.5 crore per borrower / unit to Micro and Small Enterprises and
Rs.10 crore to Medium Enterprises engaged in providing or rendering of
services.
Khadi and Village Industries Sector
(KVI)
All
loans to units in the KVI sector will be eligible for classification under the
sub-target prescribed for Micro Enterprises under priority sector.
Bank loans to food and agro processing units will
form part of agriculture.
Other Finance to MSMEs
(i) Loans for
assisting the decentralized sector in the supply of inputs to and marketing of
outputs of artisans, village and cottage industries.
(ii) Loans
to co-operatives of producers in the decentralized sector viz. artisans,
village and cottage industries.
(iii) Loans to
MFIs for on-lending to MSME sector.
(iv) Credit
outstanding under General Credit Cards (including Artisan Credit Card, Laghu
Udyami Card, Swarojgar Credit Card, and Weaver’s Card etc. for catering to the
non-farm credit needs of individuals).
(v) Outstanding
deposits with SIDBI on account of priority sector shortfall.
MSME
units will continue to enjoy the priority sector lending status up to three
years after they grow out of the MSME category concerned.
SECTION - III
Targets
/ sub-targets for lending to MSME sector by Domestic Commercial Banks and
Foreign Banks operating in India
Advances
to MSME sector shall be considered under the overall Priority Sector target of
40%.
Domestic
Commercial Banks are required to achieve a sub-target of 7.5 percent for
lending to Micro Enterprises. The sub-target for foreign banks operating in India
with 20 branches or more would be made applicable post 2018 after a review in
2017.
Bank
loans above Rs.5 crore per borrower to Micro and Small Enterprises and Rs.10
crore to Medium Enterprises engaged in providing services, shall not
be considered under the overall Priority Sector targets. However, such loans
would be taken into account for targets prescribed by the Prime Minister’s Task
Force on MSMEs for lending to MSE sector.
In
terms of the recommendations of the Prime Minister’s Task Force on MSMEs, banks
are advised to achieve:
(i)
20 per cent year-on-year growth in
credit to micro and small enterprises,
(ii)
10 per cent annual growth in the number
of micro enterprise accounts and
(iii)
60% of total lending to MSE sector as on
preceding March 31st to Micro enterprises
SECTION - IV
Common
guidelines / instructions for lending to MSME sector
Issue
of Acknowledgement of Loan Applications to MSME borrowers
Banks
have been advised to acknowledge all loan applications from MSME borrowers and
ensure that a running serial number is recorded on the application form as well
as on the acknowledgement receipt. Technology may be used for online submission
of loan applications as also for online tracking of loan applications.
Collateral
No collateral
security is to be taken for loans up to Rs.10 lakh for units under MSE sector. This
also covers units financed under the PMEGP. On the basis of good track record
and financial position of the unit, this limit can be raised to Rs.25 lakh.
Banks should
encourage their staff to avail of the Credit Guarantee Scheme cover, and make their
performance in this regard a criterion of their evaluation.
Composite
loan
A
composite loan limit of Rs.1 crore can be sanctioned by banks to enable the MSE
entrepreneurs to avail of their working capital and term loan requirement
through Single Window.
Specialised
MSME branches
Public
sector banks are to open at least one specialised branch in each district. Branches
with 60% or more of their advances in MSME sector may be categorized as specialized
MSME branches. PSBs will ensure specialized MSME branches in identified clusters.
The existing SSI branches may also be redesignated as MSME branches. Though
their core competence will be utilized for extending finance and other services
to MSME sector, they will have operational flexibility to render other services
to other sectors as well.
Delayed
Payment
(i)
The buyer has to pay the supplier on or
before the date agreed upon in writing or before the appointed day. The period
agreed upon shall not exceed 45 days from the date of acceptance or the day of
deemed acceptance.
(ii)
In case the buyer fails to pay, he shall
be liable to pay the amount together with compound interest with monthly rests
at three times the bank rate from the appointed day or, from the date agreed upon.
(iii)
This will be applicable to any types of goods
supplied or services rendered by the supplier.
(iv)
Matters of dispute regarding amount
shall be referred to the Micro and Small Enterprises Facilitation Council,
constituted by the respective State Government.
Banks are
advised to fix sub-limits within the overall working capital limits to the
large borrowers for meeting the payment obligation to MSMEs.
Revised
Guidelines for Rehabilitation of Sick Micro and Small Enterprises
The
objective of the revised guidelines is to hasten the process of identification
of a unit as sick, early detection of incipient sickness, and to lay down a
procedure to be adopted before declaring a unit as unviable.
A Micro
or Small Enterprise becomes Sick, if (a) any of the borrowal account remains
NPA for three months or more OR (b) there is erosion in the net worth due to
accumulated losses upto 50% of its net worth during the previous accounting
year.
Banks should
take the decision on viability within 3 months of the unit becoming sick and
the rehabilitation package should be fully implemented within 6 months from the
date the unit is declared as 'potentially viable'.
Micro
and Small Enterprises Sector – The imperative of Financial Literacy and
consultancy support
Scheduled
commercial banks have been advised that the
banks could either separately set up special
cells at their branches, or vertically integrate the function of financial
literacy and operational skills, including accounting and finance, business
planning etc. in the Financial Literacy Centres (FLCs). The
bank staff should also be trained through customised training programs to meet
the specific needs of the sector.
Structured
Mechanism for monitoring the credit growth to the MSE sector
Based
on the recommendations of the an IBA-led Sub-Committee (Chairman: Shri K.R.
Kamath), banks have been advised to:
·
strengthen their existing systems of
monitoring credit growth to the sector and put in place a system-driven performance
MIS at every supervisory level which should be critically evaluated on a
regular basis;
·
put in place a system of e-tracking of
MSE loan applications and monitor their disposal in banks, giving branch,
region-, zone and State-wise positions. This information is to be displayed by
banks on their websites; and
·
monitor timely rehabilitation of sick
MSE units. The progress is to be made available on the website of banks.
Revised
General Credit Card (GCC) Scheme
In
order to enhance the coverage of GCC Scheme to ensure greater credit linkage,
the GCC guidelines have been revised on Dec 2, 2013.
State
Level Inter Institutional Committee (SLIIC)
SLIIC were
set up in the States to deal with the problems of co-ordination for
rehabilitation of sick micro and small units. However, the matter of
continuation of the SLIIC Forum has been left to the individual States. The
meetings of these Committees are convened by Regional Offices of RBI and
presided over by the Secretary, Industry of the concerned State Government. It
provides a forum for interfacing between the State Government Officials and
State Level Institutions on the one side and the term lending institutions and
banks on the other. It closely monitors timely sanction of working capital to
units which have been provided term loans by SFCs, implementation of special
schemes such as Margin Money Scheme of State Government and reviews general
problems faced by industries and sickness in MSE sector. The representatives of
the local state level MSE associations are invited to the
meetings of SLIIC which are held quarterly. A sub-committee of SLIIC looks into
the problems of individual sick MSE unit and submits its recommendations to the
forum of SLIIC for consideration.
Empowered
Committee on MSMEs
Empowered
Committees on MSMEs have been constituted under the Chairmanship of the
Regional Directors with the representatives of SLBC Convenor, senior level
officers from two banks having predominant share in MSME financing in the
state, representative of SIDBI Regional Office, the Director of Industries of
the State Government, one or two senior level representatives from the MSME
Associations in the state, and a senior level officer from SFC/SIDC as members.
The Committee will meet periodically and review the progress in MSME financing
as also rehabilitation of sick Micro, Small and Medium units. It will also
coordinate with other banks/FIs and the state government in removing
bottlenecks. The committees may decide the need to have similar committees at
cluster/district levels.
Debt
Restructuring Mechanism for MSMEs
(i)
Prudential Guidelines on SME Debt
Restructuring by banks have been advised by Department of Banking Operations
& Development vide their guidelines on Restructuring of Advances by banks.
(ii)
All commercial banks were advised to:
(a)
put in place loan policies,
Restructuring/Rehabilitation policy for revival of potentially viable sick
units and OTS scheme for recovery for the MSE sector, and
(b)
implement recommendations on timely and
adequate flow of credit to the MSE sector.
(iii)
Banks should give wide publicity to their
OTS scheme, by placing it on the bank’s website and through other possible
modes of dissemination.
All
SLBC Convenor banks are to incorporate the credit requirement in the clusters
identified by the Ministry of MSME, in their Annual Credit Plans,.
(i) Banks
have been advised that a full-service approach may be achieved through
extending banking services to recognized MSE clusters by adopting a 4-C
approach namely, Customer focus, Cost control, Cross sell and Contain risk. A
cluster based approach to lending may be more beneficial:
(a) in
dealing with well-defined and recognized groups;
(b) availability
of appropriate information for risk assessment and
(c) monitoring
by the lending institutions.
Clusters
may be identified based on factors such as trade record, competitiveness and
growth prospects and other data.
(ii)
All SLBC Convenor banks have been
advised to review their institutional arrangements for delivering credit to the
MSME sector, especially in 388 clusters identified by United Nations Industrial
Development Organisation (UNIDO).
(iii)
The Ministry of MSME has approved a list
of clusters under SFURTI and MSE-CDP located in 121 Minority Concentration
Districts. Appropriate measures have been taken to improve the credit flow to
the identified clusters of micro and small entrepreneurs from the Minority
Communities residing in the minority concentrated districts.
(iv)
Banks should open more MSE focused
branches at different MSE clusters which can also act as Counseling Centers for
MSEs. Each lead bank of a district may adopt at least one MSE cluster.
Scheme of Small Enterprises
Financial Centres (SEFCs):
A
scheme for strategic alliance between banks and SIDBI located in clusters,
named as “Small Enterprises Financial Centres” has been formulated in
consultation with the then Ministry of SSI and Banking Division, Ministry of
Finance, SIDBI, IBA and select banks. SIDBI has so far executed MoU with 15 banks.
Credit
Linked Capital Subsidy Scheme (CLSS)
Ministry
of MSME has conveyed their approval for continuation of the Credit Linked
Capital Subsidy Scheme (CLSS) for Technology Upgradation of Micro and Small
Enterprises from X Plan to XI Plan (2007-12) subject to the following terms and
conditions:
(i) Ceiling
on the loan under the scheme is Rs.1 crore.
(ii) The
rate of subsidy is 15% up to loan ceiling of Rs. 1 crore.
(iii) Subsidy
will be calculated based on the purchase price of plant and machinery instead
of term loan disbursed.
(iv) SIDBI
and NABARD will continue to be implementing agencies of the scheme.
Banking
Codes and Standard Board of India (BCSBI)
BCSBI
has formulated a Code of Bank's Commitment to Micro and Small Enterprises. This
is a voluntary Code, which sets minimum standards of banking practices for
banks to follow when they are dealing MSEs. The Code does not replace or
supersede regulatory or supervisory instructions issued by the RBI and banks
will comply with such instructions issued by the RBI from time to time.
Objectives
of the BCSBI Code
The Code has been developed to:
(a) Give a
positive thrust to the MSE sector by providing easy access to efficient banking
services.
(b) Promote
good and fair banking practices by setting minimum standards in dealing with
MSE.
(c) Increase
transparency so that a better understanding of what can reasonably expected of
the services.
(d) Improve
understanding of business through effective communication.
(e) Encourage
market forces, through competition, to achieve higher operating standards.
(f) Promote
a fair and cordial relations between MSE and banks and also ensure timely and
quick response to banking needs.
(g) Foster
confidence in the banking system.
Section – V
Committees
on flow of Credit to MSE sector
Report
of the High Level Committee on Credit to SSI (now MSE) (Kapur Committee)
The
recommendations of the committee were examined by the RBI and it was decided to
accept 88 recommendations which include the following important ones:
(i)
Delegation of more powers to branch
managers to grant ad-hoc limits;
(ii)
Simplification of application forms;
(iii)
Freedom to banks to decide their own
norms for assessment of credit requirements;
(iv)
Opening of more specialised SSI
branches;
(v)
Enhancement in the limit for composite
loans to Rs. 5 lakh. (since enhanced to Rs.1 crore);
(vi)
Strengthening the recovery mechanism;
(vii)
Banks to pay more attention to the
backward states;
(viii)
Special programmes for training branch
managers for appraising small projects;
(ix)
Banks to make customers grievance
machinery more transparent and simplify the procedures for handling complaints
and monitoring thereof.
Report
of the Committee to Examine the Adequacy of Institutional Credit to SSI Sector
(now MSE) and Related Aspects (Nayak Committee)
All
the major recommendations of the Committee have been accepted and the banks
have been inter-alia advised to:
(i)
give preference to village industries,
tiny industries and other small scale units in that order, while meeting the
credit requirements of the small scale sector;
(ii)
grant working capital limits to SSI (now
MSE) units on the basis of minimum 20% of their estimated annual turnover whose
credit limit in individual cases is upto Rs.2 crore [ since raised to Rs.5
crore ];
(iii)
prepare annual credit budget on the
‘bottom-up’ basis to ensure that the legitimate requirements of SSI (now MSE) sector
are met in full;
(iv)
extend ‘Single Window Scheme’ of SIDBI
to all districts to meet the financial requirements of SSIs(now MSE);
(v)
ensure that there is no delay in
sanctioning and disbursal of credit. In case of rejection/curtailment of the
loan proposal, a reference to higher authorities should be made;
(vi)
not to insist on compulsory deposit as a
`quid pro-quo’ for sanctioning the credit;
(vii)
open specialised SSI (now MSE) bank
branches or convert those branches which have a fairly large number of SSI (now
MSE) borrowal accounts, into specialised SSI (now MSE) branches;
(viii)
identify sick SSI (now MSE) units and
take urgent action to put them on nursing programmes;
(ix)
standardise loan application forms for
SSI (now MSE) borrowers; and
(x)
impart training to staff working at
specialised branches to bring about attitudinal change in them.
5.3
Report of the Working Group on Flow of Credit to SSI (now MSE) Sector (Ganguly
Committee)
The
Committee made 31 recommendations. The recommendations have been examined and
RBI has accepted 8 recommendations so far, which are as under:
(i)
adoption of cluster based approach for
financing MSME sector;
(ii)
sponsoring specific projects as well as
widely publicising successful working models of NGOs by Lead Banks which
service small and tiny industries and individual entrepreneurs;
(iii)
sanctioning of higher working capital
limits by banks operating in the North East region to SSIs (now MSE) , based on
their commercial judgment;
(iv)
exploring new instruments by banks for
promoting rural industry and to improve the flow of credit to rural artisans,
rural industries and rural entrepreneurs, and
(v)
revision of tenure and interest rate
structure of deposits kept by foreign banks with SIDBI for their shortfall in
priority sector lending.
Working
Group on Rehabilitation of Sick SMEs (Chairman: Dr. K.C. Chakrabarty)
In the
light of the recommendations, all commercial banks were advised to:
a) put in
place loan policies, Restructuring/Rehabilitation policy for revival of
potentially viable sick units and non- discretionary OTS scheme for recovery with
respect to MSE sector and
b) implement
the recommendations with regard to timely and adequate flow of credit to this
sector.
Lending
in case of all advances upto Rs 2 crores may be done on the basis of scoring
model. Banks have been advised to review their
loan policy on credit facilities to the MSE
sector, with a view to using credit scoring models in their evaluation of the
loan proposals.
The
Task Force recommended several measures on the functioning of MSMEs, viz.,
credit, marketing, labour, exit policy, infrastructure/technology/skill
development and taxation. The comprehensive recommendations cover measures that
need immediate action as well as medium term institutional measures along with
legal and regulatory structures and recommendations for North-Eastern States
and Jammu & Kashmir.
Banks
are urged to keep in view the recommendations made by the Task Force and take
effective steps to increase the flow of credit to the MSE sector, particularly
to the micro enterprises.
Working
Group to Review the Credit Guarantee Scheme for Micro and Small Enterprises- V.K.
Sharma
The
recommendations included, mandatory doubling of the limit for collateral free
loans to MSE sector from Rs.5 lakh to Rs.10 lakh. CEOs of banks were asked to encourage
the staff to avail of the CGS cover and make performance in this regard a criterion
of their evaluation.
Based on the
Master Circular of 1/7/15.
No comments:
Post a Comment