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(a)
Manufacturing Enterprises would mean enterprises engaged in the manufacture or
production of goods as specified below:
(i)
A micro enterprise- Investment in plant and
machinery does not exceed Rs. 25 lakh;
(ii)A small
enterprise-
Investment in plant and machinery is more than Rs. 25 lakh but does not exceed
Rs. 5 crore; and
(iii)
A medium enterprise- Investment in
plant and machinery is more than Rs.5 crore but does not exceed Rs.10 crore.
Investment in
plant and machinery is the original cost excluding land and building and the
items specified by the Ministry of Small Scale Industries (Annex I of Master
Direction).
(b) Service
Enterprises :Enterprises
engaged in providing or rendering of services and whose investment
in equipment as specified below:
(i)A micro
enterprise-
Investment in equipment does not exceed Rs. 10 lakh;
(ii)A small
enterprise-
Investment in equipment is more than Rs.10 lakh but does not exceed Rs. 2
crore; and
(iii)
A medium enterprise- Investment in
equipment is more than Rs. 2 crore but does not exceed Rs. 5 crore.
Priority Sector
Guidelines for MSME sector
Manufacturing Enterprises
The Micro, Small and Medium Enterprises
engaged in the manufacture or production of goods to any industry specified in
the first schedule to the Industries (Development and Regulation) Act, 1951 and
as notified by the Government from time to time. 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 and defined
in terms of investment in equipment.
Khadi and Village
Industries Sector (KVI)
All loans to
units in the KVI sector will be eligible for classification under the
sub-target of 7.5 percent prescribed for Micro Enterprises under priority
sector.
Bank loans to
food and agro processing units shall form part of agriculture.
Other Finance to
MSMEs
(i) Loans to
entities involved in 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
sanctioned by banks to MFIs for on-lending to MSME sector.
(iv)
Credit
outstanding under GCC.
(v)
Overdrafts
up to Rs.5,000/- under PMJDY provided the borrower’s annual household income
does not exceed Rs.100,000/- for rural areas and Rs.1,60,000/- for non-rural
areas. These overdrafts will qualify under Micro Enterprises.
(vi)
Outstanding
deposits with SIDBI and MUDRA Ltd. on account of priority sector shortfall.
MSME units shall
continue to enjoy the priority sector lending status up to three years after
they grow out of the MSME category concerned.
MSMED Act, does
not allow clubbing of investments of different enterprises set up by same entity.
Targets /
sub-targets for lending to MSME sector
Advances to MSME
sector shall be reckoned in computing achievement under the overall Priority
Sector target of 40 %.
Domestic
Commercial Banks are required to achieve a sub-target of 7.5 % for lending to
Micro Enterprises by March 2017. The sub-target for foreign banks with 20 branches and above would be made applicable post 2018.
Bank loans above
Rs.5 crore to Micro and Small Enterprises and Rs.10 crore to Medium Enterprises
engaged in services shall not be reckoned in computing
achievement under Priority Sector targets. However, such loans would be taken
into account while assessing achievement of 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 % year-on-year growth in credit to micro and
small enterprises,
(ii)
10 % annual growth in the number of micro enterprise
accounts and
(ii)
60% of total lending to MSE sector as on preceding
March 31st to Micro enterprises
Common
guidelines / instructions for lending to MSME sector
Issue of
Acknowledgement of Loan Applications to MSME borrowers
Banks are to acknowledge
all loan applications and ensure that a running serial number is recorded on
the application form as well as on the acknowledgement receipt. Banks are also
to put in place a system of Central Registration, online submission and e-tracking
of applications.
Collateral
Banks are not to
accept collateral security for loans up to Rs.10 lakh extended to units in the
MSE sector and units financed under PMEGP.
On the basis of
good track record and financial position of the MSE units, Banks may increase
the limit to Rs.25 lakh (with the approval of the appropriate authority).
Composite loan
A composite loan
limit of Rs.1 crore can be sanctioned to enable the MSE entrepreneurs to avail
of their working capital and term loan requirement through Single Window.
Revised General
Credit Card (GCC) Scheme
GCC guidelines
were revised to ensure greater credit linkage within the overall Priority
Sector guidelines and to capture all credit extended by banks to individuals
for non-farm entrepreneurial activity.
Credit Linked
Capital Subsidy Scheme (CLSS)
Government launched
the CLS scheme for Technology Upgradation of Micro and Small Enterprises
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% for all units of MSEs up to Rs. 1 cr.
(iii)
Calculation
of admissible subsidy will be done with reference to the purchase price of
plant and machinery.
(iv)
SIDBI
and NABARD will continue to be implementing agencies.
Streamlining
flow of credit to MSEs for facilitating timely and adequate credit flow during
their ‘Life Cycle’:
Banks are advised
to review their existing policies by incorporating the following provisions:
i)
To
extend standby credit facility in case of term loans
iii)
Mid-term
review of working capital limit, where banks are convinced that changes in the
demand pattern require increasing the existing credit limits, every year based
on the actual sales of the previous year.
iv)
Timelines
for Credit Decisions
Debt
Restructuring Mechanism for MSMEs
(i)
All
scheduled commercial banks are advised to follow the guidelines on Prudential
norms on IRAC and Provisioning.
(ii)
All
commercial banks are advised to:
(a)
put
in place loan policies governing extension of credit facilities,
Restructuring/Rehabilitation and non- discretionary OTS scheme for recovery of
non-performing loans for the MSE sector and
(b)
implement
recommendations reagarding timely and adequate flow of credit to the MSE
sector.
(iii)
Banks
are advised to give wide publicity to the OTS scheme implemented by them. They
may allow reasonable time to submit the application and make payment in order
to extend the benefits of the scheme to eligible borrowers.
Framework for
Revival and Rehabilitation of MSMEs
The Ministry of
Micro, Small and Medium Enterprises, had notified a ‘Framework for Revival and
Rehabilitation of Micro, Small and Medium Enterprises’. The revival and
rehabilitation of MSME units having loan limits up to Rs.25 crore would be
undertaken under this Framework. The revised Framework supersedes Guidelines on
Rehabilitation of Sick Micro and Small, except those relating to Reliefs and Concessions
for Rehabilitation of Potentially Viable Units
and One Time Settlement.
The salient features of the Framework
are as under:
i)
Before
a loan turns NPA, banks should identify incipient stress by creating three
sub-categories under the SMA category
ii)
Any
borrower may voluntarily initiate proceedings under this Framework
iii)
Committee
approach to be adopted for deciding corrective action plan
iv)
Time
lines have been fixed for taking various decisions under the Framework
Structured
Mechanism for monitoring the credit growth to the MSE sector
Banks are
advised to:
•
strengthen
their systems of monitoring credit growth 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 the disposal
process, giving branch-wise, region-wise, zone-wise and State-wise positions.
This 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.
Specialised MSME
branches
Banks are
advised to open at least one specialised branch in each district. They are
permitted to categorise their branches having 60% or more of their advances to
MSME sector as specialized MSME branches. The existing specialised SSI
branches, may also be redesignated as MSME branches. These branches will have
operational flexibility to render other services to other borrowers.
State Level
Inter Institutional Committee (SLIIC)
In order to deal
with the problems of co-ordination for rehabilitation of sick micro and small
units, SLIIC were set up in the States. The meetings of these Committees
are convened by RBI and presided over by the Secretary, MSME or Industry of the
concerned State Government. It closely monitors timely sanction of working
capital to units which have been provided term loans by SFCs, implementation of
special schemes such of State Government and reviews general problems faced by
industries and sickness in MSE sector. Representatives of the local state level
MSE associations are invited to the meetings of SLIIC which are held quarterly.
Empowered
Committee on MSMEs
· Empowered Committees
on MSMEs are constituted under the Chairmanship of the Regional Directors, of
SLBC Convenor, senior officers from two banks, representative of SIDBI, the
Director of MSME or Industries of the State Government, one or two senior level
representatives from the MSME Associations and a senior
level officer from SFC/SIDC as members.
· The Committee
would meet periodically and review the progress in MSME financing as also
rehabilitation of sick Micro, Small and Medium units.
· It would also
coordinate with other banks/financial institutions and the state government in
removing bottlenecks to ensure smooth flow of credit.
· It may decide
the need to have similar committees at cluster/district levels.
Banking Codes
and Standards 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 with Micro and Small Enterprises (MSEs).
The Code does
not replace or supersede regulatory or supervisory instructions issued by the RBI.
Objectives of the BCSBI Code
The Code is developed to:
(a)
Give
a positive thrust to the MSE sector.
(b)
Promote
good and fair banking practices by setting minimum standards.
(c)Increase
transparency.
(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 relationship between MSE and banks and also ensure timely and quick
response to banking needs.
(g)
Foster
confidence in the banking system.
Micro and Small Enterprises Sector – The
imperative of Financial Literacy and consultancy support
The lack of
financial literacy, operational skills, including accounting and finance,
business planning etc. represent formidable challenge for MSE borrowers. To address
these handicaps, Scheduled commercial banks are advised that they could either
separately set up special cells at their
branches, or vertically integrate this function in the Financial Literacy
Centres (FLCs) set up by them. The bank staff should also be trained through
customised training programs to meet the specific needs of the sector.
Cluster Approach
All SLBC
Convenor banks are advised to incorporate in their Annual Credit Plans, the
credit requirement in the clusters. They are also encouraged to extend banking
services in such clusters.
(i) 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.
(ii) All SLBC
Convenor banks were advised to review their institutional arrangements for
delivering credit to the MSME sector. The Ministry of Micro, Small and Medium
Enterprises has approved a list of clusters under the Scheme of Fund for
Regeneration of Traditional Industries (SFURTI) and Micro and Small Enterprises
Cluster Development Programme (MSE-CDP) located in 121 Minority Concentration
Districts.
(iii)
In
terms of recommendations of the Prime Minister’s Task Force on MSMEs banks
should open more MSE focused branch offices at different MSE clusters which can
also act as Counselling Centres for MSEs. Each lead bank of a district may
adopt at least one MSE cluster.
Delayed Payment
(i)
The
buyer has to make payment to the supplier on or before the date agreed upon, in
case of no agreement, before the appointed day. The period shall not exceed
forty five days from the date of acceptance or deemed acceptance.
(ii)
In
case the buyer fails to make payment, he shall be liable to pay interest with
monthly rests at three times the Bank Rate.
(iii)
The
buyer shall be liable to pay interest for any goods supplied or services
rendered.
(iv)
In
case of dispute, a reference shall be made to the MSE 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 in respect of purchases from MSMEs.
Based on RBI Master Direction Dated 21/07/2016. For further
clarifications, please refer www.rbi.org.in ……………… Poppy
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