Monday, October 5, 2015

Streamlining flow of credit to Micro and Small Enterprises

i) Standby Credit Facility- Banks may consider providing a ‘standby credit facility’, while funding capital expenditure, to fund unforeseen increases in capital expenditure. Further, such facility may also be sanctioned to fund periodic capital expenditure.
ii) Working Capital Limits –Banks may incorporate a policy for fixing a separate additional limit, at the time of sanction / renewal for meeting temporary rise in working capital requirements. Such limits may be released, where there is evidence of an increase in the demand for products. Banks may also sanction adhoc limits, to be regularised within three months of sanction.
iii) Review of Regular Working Capital Limits –Where banks are convinced that changes in the demand pattern require a midterm review, they may do so. Such reviews may be based on an assessment of sales performance since the last review without waiting for auditing financial statements. However, such midterm reviews shall be revalidated during the subsequent regular review based on audited financial statements.
iv) Timelines for Credit Decisions –Reserve Bank has issued several guidelines.
·         Banks were advised to put in place a structured monitoring mechanism.
·         Banks were advised to have a Credit Proposal Tracking System (CPTS).
·         Banks were advised that the time frame within which loan applications up to Rs.2 lakh will be disposed of should be indicated at the time of acceptance of loan applications.
·         Banks were advised, that they should clearly delineate the procedure for disposal of loan proposals, with appropriate timelines, and institute a suitable monitoring mechanism for reviewing applications pending beyond the specified period, without any compromise on due diligence. Banks are also required to make suitable disclosures on the timelines for conveying credit decisions through their websites, notice-boards, product literature, etc.
Banks are advised that above systems should be put in place with immediate effect, with regard to credit facilities for MSE borrowers.

Based on RBI Circular dt 27/08/15. Please visit www.rbi.org.in for any further clarification if required…..          Poppy