RBI/FIDD/2016-17/37
Master Direction FIDD.MSME & NFS.3/06.02.31/2016-17
July
21, 2016
The Chairman/Managing
Director/Chief Executive Officer
All Scheduled Commercial Banks
(excluding Regional Rural Banks)
Dear Sir / Madam
Master Direction - Lending to
Micro, Small & Medium Enterprises (MSME) Sector
As you are aware, the Reserve
Bank of India has, from time to time, issued a number of guidelines /
instructions / circulars / directives to banks in the matters relating to
lending to Micro, Small & Medium Enterprises Sector. The Master Direction enclosed incorporates the
updated guidelines / instructions / circulars on the subject. The list of
circulars consolidated in this Master Direction is indicated in the Appendix. The Direction will be updated from time
to time as and when fresh instructions are issued. This Master Direction
has been placed on the RBI website at rbi.org.in.
2. Please acknowledge receipt.
Yours faithfully
(Jose J. Kattoor)
Chief General Manager
Master
Direction – Reserve Bank of India [Lending to Micro, Small & Medium
Enterprises (MSME) Sector] - Directions, 2016
In exercise of the powers
conferred by Sections 21 and 35 A of the Banking Regulation Act, 1949, the
Reserve Bank of India, being satisfied that it is necessary and expedient
in the public interest to do so, hereby, issues the Directions hereinafter
specified.
CHAPTER
– I
PRELIMINARY
1.1 Short Title and Commencement
(a) These Directions shall be
called the Reserve Bank of India [Lending to Micro, Small & Medium
Enterprises (MSME) Sector] Directions, 2016.
(b) These Directions shall come
into effect on the day they are placed on the official website of the Reserve
Bank of India.
1.2 Applicability
The provisions of these
Directions shall apply to every Scheduled Commercial Bank {excluding
Regional Rural Banks (RRBs)} licensed to operate in India by the Reserve
Bank of India.
1.3 Definitions/ Clarifications
In these Directions, unless the
context otherwise requires, the terms herein shall bear the meanings
assigned to them as below:
(a) The MSMED Act, 2006 means
‘Micro, Small and Medium Enterprises Development (MSMED) Act, 2006’ as
notified by the Government of India on June 16, 2006 and the amendments, if
any, carried out therein by the Government of India from time to time.
(b) ‘Micro, Small and Medium
Enterprises’ mean the enterprises as defined in the MSMED Act, 2006 and the
amendments, if any, carried out therein by the Government of India from
time to time.
(c) ‘Manufacturing’ and
‘Service’ Enterprises mean the enterprises as defined in the MSMED Act,
2006 or as notified by the Government of India, Ministry of MSME under the
MSMED Act, 2006 from time to time.
(d) ‘Priority Sector’ means the
sectors as defined in Master Direction - Reserve Bank of India (Priority
Sector Lending –Targets and Classification) Directions, 2016 dated July 7,
2016 or as modified from time to time.
(e) ‘Adjusted Net Bank Credit (ANBC)’
would mean Adjusted Net Bank Credit (ANBC) as defined in Master Direction -
Reserve Bank of India (Priority Sector Lending –Targets and Classification)
Directions, 2016 dated July 7, 2016 or as modified from time to time.
CHAPTER
– II
2 Micro, Small & Medium
Enterprises Development (MSMED) Act, 2006
The Government of India has
enacted the Micro, Small and Medium Enterprises Development (MSMED) Act,
2006 and notified the same vide Gazette Notification dated June 16, 2006.
With the enactment of MSMED Act 2006, the paradigm shift that has taken
place is the inclusion of the services sector in the definition of Micro,
Small & Medium enterprises, apart from extending the scope to medium
enterprises. The MSMED Act, 2006 has modified the definition of micro, small
and medium enterprises engaged in manufacturing or production and providing
or rendering of services. The Reserve Bank has notified the changes to all
scheduled commercial banks. Further, the definition, as per the Act, has
been adopted for purposes of bank credit vide RBI circular ref. RPCD.PLNFS. BC.No.63/ 06.02.31/ 2006-07
dated April 4, 2007.
2.1 Definition of Micro, Small
and Medium Enterprises
(a) Manufacturing Enterprises
i.e. Subject to the definition
in MSMED Act, 2006, manufacturing enterprises would mean enterprises
engaged in the manufacture or production of goods as specified below:
(i) A micro enterprise is an
enterprise where investment in plant and machinery does not exceed Rs. 25
lakh;
(ii) A small enterprise is an
enterprise where the investment in plant and machinery is more than Rs. 25
lakh but does not exceed Rs. 5 crore; and
(iii) A medium enterprise is an
enterprise where the investment in plant and machinery is more than Rs.5
crore but does not exceed 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 vide its notification
No.S.O. 1722(E) dated October 5, 2006 (Annex
I).
(b) Service Enterprises i.e. Enterprises engaged in providing or rendering of
services and whose investment in equipment (original cost excluding land
and building and furniture, fittings and other items not directly related
to the service rendered or as may be notified under the MSMED Act, 2006) as
specified below:
(i) A micro enterprise is an
enterprise where the investment in equipment does not exceed Rs. 10 lakh;
(ii) A small enterprise is an
enterprise where the investment in equipment is more than Rs.10 lakh but
does not exceed Rs. 2 crore; and
(iii) A medium enterprise is an
enterprise where the investment in equipment is more than Rs. 2 crore but
does not exceed Rs. 5 crore.
2.2 Priority Sector Guidelines
for MSME sector
In terms of Master Direction FIDD.CO.Plan.1/04.09.01/2016-17 dated
July 7, 2016 on ‘Priority Sector Lending - Targets and
Classification’, bank loans to Micro, Small and Medium Enterprises, for
both Manufacturing and Service sectors are eligible to be classified under
the Priority Sector as per the following norms:
2.2.1 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.
2.2.2 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 under MSMED Act, 2006.
2.3 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.
2.4 Bank loans to food and agro processing units shall
form part of agriculture.
2.5 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 as per the conditions specified in
the extant Master Direction on ‘Priority Sector Lending - Targets and
Classification’.
(iv) Credit outstanding under
General Credit Cards (including Artisan Credit Card, Laghu Udyami Card,
Swarojgar Credit Card, and Weaver’s Card etc. in existence and catering to
the non-farm entrepreneurial credit needs of individuals).
(v) Overdrafts extended by banks
after April 8, 2015 up to Rs.5,000/- under Pradhan Mantri Jan Dhan Yojana
(PMJDY) accounts provided the borrower’s household annual income does not
exceed Rs.100,000/- for rural areas and Rs.1,60,000/- for non-rural areas.
These overdrafts will qualify as achievement of the target for lending to
Micro Enterprises.
(vi) Outstanding deposits with
SIDBI and MUDRA Ltd. on account of priority sector shortfall.
2.6 To ensure that MSMEs do not remain small and
medium units merely to remain eligible for priority sector status, the MSME
units shall continue to enjoy the priority sector lending status up to
three years after they grow out of the MSME category concerned.
2.7 Since the MSMED Act, 2006 does not provide for
clubbing of investments of different enterprises set up by same person /
company for the purpose of classification as Micro, Small and Medium
enterprises, the Gazette Notification No. S.O.2 (E) dated January 1, 1993
on clubbing of investments of two or more enterprises under the same
ownership for the purpose of classification of industrial undertakings as
SSI has been rescinded vide GOI Notification No. S.O. 563 (E) dated
February 27, 2009.
CHAPTER
- III
3 Targets / sub-targets for
lending to Micro, Small and Medium Enterprises (MSME) sector by Domestic
Commercial Banks and Foreign Banks operating in India
3.1 Advances to Micro, Small and Medium Enterprises
(MSME) sector shall be reckoned in computing achievement under the overall
Priority Sector target of 40 percent of Adjusted Net Bank Credit (ANBC) or
credit equivalent amount of Off-Balance Sheet Exposure, whichever is
higher, as per the extant guidelines on priority sector lending.
3.2 Domestic Commercial Banks are required to achieve
a sub-target of 7.5 percent of ANBC or Credit Equivalent Amount of
Off-Balance Sheet Exposure, whichever is higher, for lending to Micro
Enterprises by March 2017. The sub-target for Micro Enterprises for foreign banks
with 20 branches and above operating in India would be made applicable post
2018 after a review in 2017. However, this sub-target for lending to Micro
Enterprises is not applicable to foreign banks with less than 20 branches
operating in India.
3.3 Bank loans above 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 under MSMED Act, 2006, shall not be
reckoned in computing achievement under the overall Priority Sector targets
as above. However, bank loans above Rs.5 crore per borrower / unit to Micro
and Small Enterprises would be taken into account while assessing the
performance of the banks with regard to their achievement of targets
prescribed by the Prime Minister’s Task Force on MSMEs for lending to MSE
sector.
3.4 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
CHAPTER
- IV
4 Common guidelines /
instructions for lending to MSME sector
4.1 Issue of Acknowledgement of
Loan Applications to MSME borrowers
Banks are advised to mandatorily
acknowledge all loan applications, submitted manually or online, by their
MSME borrowers and ensure that a running serial number is recorded on the
application form as well as on the acknowledgement receipt. Banks are
further advised to put in place a system of Central Registration of loan
applications, online submission of loan applications and a system of
e-tracking of MSE loan applications.
4.2 Collateral
Banks are mandated not to accept
collateral security in the case of loans up to Rs.10 lakh extended to units
in the MSE sector. Banks are also advised to extend collateral-free loans
up to Rs. 10 lakh to all units financed under the Prime Minister Employment
Generation Programme (PMEGP) administered by KVIC.
Banks may, on the basis of good
track record and financial position of the MSE units, increase the limit to
dispense with the collateral requirement for loans up to Rs.25 lakh (with
the approval of the appropriate authority).
Banks are advised to strongly
encourage their branch level functionaries to avail of the Credit Guarantee
Scheme cover, including making performance in this regard a criterion in
the evaluation of their field staff.
4.3 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.
4.4 Revised General Credit Card
(GCC) Scheme
In order to enhance the coverage
of GCC Scheme to ensure greater credit linkage for all productive
activities within the overall Priority Sector guidelines and to capture all
credit extended by banks to individuals for non-farm entrepreneurial
activity, the GCC guidelines were revised on December 2, 2013.
4.5 Credit Linked Capital
Subsidy Scheme (CLSS)
Government of India, Ministry of
Micro, Small and Medium Enterprises had launched Credit Linked Capital
Subsidy Scheme (CLSS) 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 micro and small enterprises up to loan ceiling at Sr. No.
(i) above.
(iii) Calculation of admissible
subsidy will be done with reference to the purchase price of plant and
machinery instead of term loan disbursed to the beneficiary unit.
(iv) SIDBI and NABARD will
continue to be implementing agencies of the scheme.
4.6 Streamlining flow of credit
to Micro and Small Enterprises (MSEs) for facilitating timely and adequate
credit flow during their ‘Life Cycle’:
In order to provide timely
financial support to Micro and Small enterprises facing financial
difficulties during their ‘Life Cycle’, guidelines were issued to banks
vide our circular FIDD.MSME &
NFS.BC.No.60/06.02.31/2015-16 dated August 27, 2015 on the
captioned subject. Banks are advised to review and tune their existing
lending policies to the MSE sector by incorporating therein the following
provisions so as to facilitate timely and adequate availability of credit
to viable MSE borrowers especially during the need of funds in unforeseen
circumstances:
i) To extend standby credit
facility in case of term loans
ii) Additional working capital
to meet with emergent needs of MSE units
iii) Mid-term review of the
regular working capital limits, where banks are convinced that changes in
the demand pattern of MSE borrowers require increasing the existing credit
limits of the MSMEs, every year based on the actual sales of the previous
year.
iv) Timelines for Credit
Decisions
4.7 Debt Restructuring Mechanism
for MSMEs
(i) All scheduled commercial
banks are advised to follow the guidelines / instructions pertaining to SME
Debt Restructuring, as contained in circular
DBR.No.BP.BC.2/21.04.048/2015-16 dated July 1, 2015 on ‘Master
Circular - Prudential norms on Income Recognition, Asset Classification and
Provisioning pertaining to Advances’ and as updated from time to time.
(ii) In the light of the
recommendations of the Working Group on Rehabilitation of Sick MSEs
(Chairman: Dr. K.C. Chakrabarty), all commercial banks are advised vide our circular RPCD. SME &NFS.BC.No.102/06.04.01/2008-09
dated May 4, 2009 to:
(a) put in place loan policies
governing extension of credit facilities, Restructuring/Rehabilitation
policy for revival of potentially viable sick units / enterprises (now read
with guidelines on Framework for Revival and Rehabilitation of Micro, Small
and Medium Enterprises issued on March 17, 2016) and non- discretionary One
Time Settlement scheme for recovery of non-performing loans for the MSE
sector, with the approval of the Board of Directors and
(b) implement recommendations
with regard to timely and adequate flow of credit to the MSE sector.
(iii) Banks are advised to give
wide publicity to the One Time settlement scheme implemented by them, by
placing it on the bank’s website and through other possible modes of
dissemination. They may allow reasonable time to the borrowers to submit
the application and also make payment of the dues in order to extend the
benefits of the scheme to eligible borrowers.
4.8 Framework for Revival and
Rehabilitation of MSMEs
The Ministry of Micro, Small and
Medium Enterprises, Government of India, vide their Gazette Notification
dated May 29,
2015 had notified a ‘Framework for Revival and Rehabilitation
of Micro, Small and Medium Enterprises’ to provide a simpler and faster
mechanism to address the stress in the accounts of MSMEs and to facilitate
the promotion and development of MSMEs. The Reserve Bank was advised to
issue necessary instructions to banks for effective implementation and
monitoring of the said Framework. After carrying out certain changes in the
captioned Framework in consultation with the Government of India, Ministry
of MSME so as to make it compatible with the existing regulatory guidelines
on ‘Income Recognition, Asset Classification and provisioning pertaining to
Advances’ issued to banks by RBI, the guidelines on the captioned Framework
along with operating instructions were issued to banks on March 17, 2016.
The revival and rehabilitation of MSME units having loan limits up to Rs.25
crore would be undertaken under this Framework. Banks were required to put
in place their own Board approved policy to operationalize the Framework
not later than June
30, 2016. The revised Framework supersedes our earlier
Guidelines on Rehabilitation of Sick Micro and Small Enterprises issued
vide our circular RPCD. CO. MSME &
NFS.BC.40/06.02.31/2012-2013 dated November 1, 2012, except those
relating to Reliefs and Concessions for Rehabilitation of Potentially
Viable Units and One Time Settlement, mentioned in the said circular.
The salient features of the
Framework are as under:
i) Before a loan account of an
MSME turns into a Non-Performing Asset (NPA), banks or creditors should
identify incipient stress in the account by creating three sub-categories
under the Special Mention Account (SMA) category as given in the Framework
ii) Any MSME borrower may also
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
4.9 Structured Mechanism for
monitoring the credit growth to the MSE sector
In view of the concerns emerging
from the deceleration in credit growth to the MSE sector, an Indian Banking
Association (IBA)-led Sub-Committee (Chairman: Shri K.R. Kamath) was set up
to suggest a structured mechanism to be put in place by banks to monitor
the entire gamut of credit related issues pertaining to the sector. Based
on the recommendations of the Committee, banks are advised to:
·
strengthen
their existing systems of monitoring credit growth to the sector and put in
place a system-driven comprehensive performance management information
system (MIS) at every supervisory level (branch, region, zone, head office)
which should be critically evaluated on a regular basis;
·
put in
place a system of e-tracking of MSE loan applications and monitor the loan
application disposal process in banks, giving branch-wise, region-wise,
zone-wise and State-wise positions. The position in this regard is to be
displayed by banks on their websites; and
·
monitor
timely rehabilitation of sick MSE units. The progress in rehabilitation of
sick MSE units is to be made available on the website of banks.
Detailed guidelines were issued
to the scheduled commercial banks vide our circular
RPCD. MSME&NFS.BC.No.74/06.02.31/2012-13 dated May 9, 2013.
Chapter
- V
5 Institutional arrangements
5.1 Specialised MSME branches
Public sector banks are advised
to open at least one specialised branch in each district. Further, banks
have been permitted to categorise their general banking branches having 60%
or more of their advances to MSME sector as specialized MSME branches in
order to encourage them to open more specialised MSME branches for providing
better service to this sector as a whole. As per the policy package
announced by the Government of India for stepping up credit to MSME sector,
the public sector banks would ensure specialized MSME branches in
identified clusters/centres with preponderance of small enterprises to
enable the entrepreneurs to have easy access to the bank credit and to
equip bank personnel to develop requisite expertise. The existing
specialised SSI branches, if any, 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 extend finance/render other services to other
sectors/borrowers. Banks may take care to train the officials posted in such
branches appropriately.
5.2 State Level Inter
Institutional Committee (SLIIC)
In order to deal with the
problems of co-ordination for rehabilitation of sick micro and small units,
State Level Inter-Institutional Committees were set up in the States. However,
the matter of continuation or otherwise, of the SLIIC Forum has been left
to the individual States / Union Territory. The meetings of these
Committees are convened by Regional Offices of RBI and presided over by the
Secretary, MSME or Industry of the concerned State Government. It provides
a useful forum for adequate 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 based on the data furnished by banks. Among others, the
representatives of the local state level MSE associations are invited to
the meetings of SLIIC which are held quarterly.
5.3 Empowered Committee on MSMEs
As part of the announcement made
by the Union Finance Minister, at the Regional Offices of Reserve Bank of
India, Empowered Committees on MSMEs are 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 MSME or
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 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, if any, to
ensure smooth flow of credit to the sector. The committees may decide the
need to have similar committees at cluster/district levels.
5.4 Banking Codes and Standards
Board of India (BCSBI)
The Banking Codes and Standards
Board of India (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) as defined in the Micro Small and
Medium Enterprises Development (MSMED) Act, 2006. It provides protection to
MSE and explains how banks are expected to deal with MSE for their day
to-day operations and in times of financial difficulty.
The Code also mentions, inter
alia, that the banks are expected to dispose of MSE loan application for a
credit limit or enhancement in the 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 documents as per ‘check list’ provided.
While banks may voluntarily
adhere to such time limits in the Code, every effort should be taken to
reduce further the time taken to process and dispose of MSE loan
applications.
The Code does not replace or
supersede regulatory or supervisory instructions issued by the Reserve Bank
of India (RBI) and banks will comply with such instructions /directions
issued by the RBI from time to time.
5.4.1 Objectives of the BCSBI
Code
The Code is 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 be 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
relationship between MSE and banks and also ensure timely and quick
response to banking needs.
(g) Foster confidence in the
banking system.
The complete text of the Code is
available at the BCSBI's website (bcsbi.org.in)
5.5 Micro and Small Enterprises
Sector – The imperative of Financial Literacy and consultancy support
Keeping in view the high extent
of financial exclusion in the MSME sector, it is imperative for banks that
the excluded units are brought within the fold of the formal banking
sector. The lack of financial literacy, operational skills, including accounting
and finance, business planning etc. represent formidable challenge for MSE
borrowers underscoring the need for facilitation by banks in these critical
financial areas. Moreover, MSE enterprises are further handicapped in this
regard by absence of scale and size. To effectively and decisively address
these handicaps, Scheduled commercial banks were advised vide our circular RPCD.MSME & NFS.BC.No.20/06.02.31/2012-13
dated August 1, 2012 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, as per their
comparative advantage. The bank staff should also be trained through
customised training programs to meet the specific needs of the sector.
5.6 Cluster Approach
All SLBC Convenor banks are
advised to incorporate in their Annual Credit Plans, the credit requirement
in the clusters identified by the Ministry of Micro, Small and Medium
Enterprises, Government of India. They are also encouraged to extend
banking services in such clusters / agglomerations which have come up and
identified subsequently by SLBC / DCC members.
(i) As per Ganguly Committee recommendations
(September 4, 2004), banks are advised that a full-service approach to
cater to the diverse needs of the SSI sector (now MSE sector) 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/or other cluster specific data.
(ii) All SLBC Convenor banks
were advised vide letter RPCD.PLNFS.No.10416/06.02.31/ 2006-07 dated May 8,
2007 to review their institutional arrangements for delivering credit to
the MSME sector, especially in 388 clusters identified by United Nations
Industrial Development Organisation (UNIDO) spread over 21 states in
various parts of the country. A list of SME clusters as identified by UNIDO
has been furnished in Annex II.
(iii) 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. Accordingly, 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 of the country.
(iv) 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.
5.7 Delayed Payment
In the Micro, Small and Medium Enterprises
Development (MSMED), Act 2006, the provisions of the Interest on Delayed
Payment Act, 1998 to Small Scale and Ancillary Industrial Undertakings,
have been strengthened as under:
(i) The buyer has to make
payment to the supplier on or before the date agreed upon between him and
the supplier in writing or, in case of no agreement, before the appointed
day. The period agreed upon between the supplier and the buyer shall not
exceed forty five days from the date of acceptance or the day of deemed acceptance.
(ii) In case the buyer fails to
make payment of the amount to the supplier, he shall be liable to pay
compound interest with monthly rests to the supplier on the amount from the
appointed day or, on the date agreed on, at three times of the Bank Rate
notified by Reserve Bank.
(iii) For any goods supplied or
services rendered by the supplier, the buyer shall be liable to pay the
interest as advised at (ii) above.
(iv) In case of dispute with
regard to any amount due, a reference shall be made to the Micro and Small
Enterprises Facilitation Council, constituted by the respective State
Government.
Further, banks are advised to
fix sub-limits within the overall working capital limits to the large
borrowers specifically for meeting the payment obligation in respect of
purchases from MSMEs.
CHAPTER
- VI
6 Committees on flow of Credit
to MSE sector
6.1 Report of the High Level
Committee on Credit to SSI (now MSE) (Kapur Committee)
Reserve Bank of India had
appointed a one-man High Level Committee (June 30, 1998) headed by Shri S L
Kapur, (IAS, Retd.), Former Secretary, Government of India, Ministry of
Industry to suggest measures for improving the delivery system and
simplification of procedures for credit to SSI sector. The Committee made
126 recommendations covering wide range of areas pertaining to financing of
SSI sector. These recommendations were examined by the RBI and it was
decided to accept 88 recommendations which include the following important
recommendations:
(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) Banks to pay more attention to the backward states;
(vii) Special programmes for training branch managers for appraising small
projects;
(viii) Banks to make customers grievance machinery more transparent and
simplify the procedures for handling complaints and monitoring thereof.
All scheduled commercial banks
were advised vide our circular was RPCD.No.PLNFS.BC.22 /06.02.31/98-99
dated August 28, 1998 to implement the Kapur Committee Recommendations.
6.2 Report of the Committee to
Examine the Adequacy of Institutional Credit to SSI Sector (now MSE) and
Related Aspects (Nayak Committee)
The Committee was constituted by
Reserve Bank of India in December 1991 under the Chairmanship of Shri P. R.
Nayak, the then Deputy Governor to examine the issues confronting SSIs (now
MSE) in the matter of obtaining finance. The Committee submitted its report
in 1992. 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
credit limits to SSI (now MSE) units computed 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) ensure that there should
not be any delay in sanctioning and disbursal of credit. In case of
rejection/curtailment of credit limit of the loan proposal, a reference to
higher authorities should be made;
(iv) not to insist on compulsory
deposit as a `quid pro-quo’ for sanctioning the credit;
(v) 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;
(vi) standardise loan
application forms for SSI (now MSE) borrowers; and
(vii) impart training to staff
working at specialised branches to bring about attitudinal change in them.
All scheduled commercial banks
were advised vide our circular was RPCD.PLNFS/BC.No.61/06.0262/2000-01
dated March 2, 2001 to implement the Nayak Committee Recommendations.
6.3 Report of the Working Group
on Flow of Credit to SSI (now MSE) Sector (Ganguly Committee)
As per the announcement made by
the Governor, Reserve Bank of India, in the Mid-Term Review of the Monetary
and Credit Policy 2003-2004, a “Working Group on Flow of Credit to SSI
sector” was constituted under the Chairmanship of Dr. A S Ganguly.
The Committee made 31
recommendations covering wide range of areas pertaining to financing of SSI
sector. The recommendations pertaining to RBI and banks have been examined
and RBI has accepted 8 recommendations so far and communicated to banks for
implementation vide circular
RPCD.PLNFS.BC.28/06.02.31(WG)/2004-05 dated September 4, 2004 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 due to the peculiar
situation of hilly terrain and frequent floods causing hindrance in the
transportation system;
(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
6.4 Working Group on Rehabilitation
of Sick SMEs (Chairman: Dr. K.C. Chakrabarty)
In the light of the
recommendations of the Working Group on Rehabilitation of Sick MSEs
(Chairman: Dr. K.C. Chakrabarty, the then CMD of Punjab National Bank), all
commercial banks were advised vide our circular RPCD. SME & NFS.BC.No.102/06.04.01/2008-09 dated May
4, 2009 to:
a) put in place loan policies
governing extension of credit facilities, Restructuring/Rehabilitation
policy for revival of potentially viable sick units/enterprises and non-
discretionary One Time Settlement scheme for recovery of non-performing
loans for the MSE sector, with the approval of the Board of Directors and
b) implement the recommendations
with regard to timely and adequate flow of credit to the MSE sector as
detailed in the aforesaid circular.
Banks were also advised vide
above circular dated May 4, 2009 to consider implementation of the
recommendations, inter alia, that lending in case of all advances upto Rs 2
crores may be done on the basis of scoring model. Banks have further been
advised vide circular DBOD. Dir.
BC.No.106/13.03.00/2013-14 dated April 15, 2014 to undertake a
review of their loan policy governing extension of credit facilities to the
MSE sector, with a view to using Board approved credit scoring models in
their evaluation of the loan proposals of MSE borrowers.
6.5 Prime Minister’s Task Force
on Micro, Small and Medium Enterprises
A High Level Task Force was
constituted by the Government of India (Chairman: Shri T K A Nair), in
January 2010, to consider various issues raised by Micro, Small and Medium
Enterprises (MSMEs). The Task Force recommended several measures having a
bearing 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.
A circular was issued to all
scheduled commercial banks vide RPCD.SME&NFS
BC.No. 90/06.02.31/2009-10 dated June 29, 2010 advising
implementation of the recommendations of the Prime Minister’s task Force on
MSMEs.
6.6 Working Group to Review the
Credit Guarantee Scheme for Micro and Small Enterprises
A Working Group was constituted
by the Reserve Bank of India under the Chairmanship of Shri V.K. Sharma,
Executive Director, to review the working of the Credit Guarantee Scheme
(CGS)of CGTMSE and suggest measures to enhance its usage and facilitate
increased flow of collateral free loans to MSEs.
The recommendations of the
Working Group included, inter alia, mandatory doubling of the limit for
collateral free loans to micro and small enterprises (MSEs) sector from
Rs.5 lakh to Rs.10 lakh and enjoining upon the Chief Executive Officers of
banks to strongly encourage the branch level functionaries to avail of the
CGS cover and making performance in this regard a criterion in the
evaluation of their field staff, etc. have been advised to all banks.
A circular was issued to all
scheduled commercial banks vide RPCD.SME&NFS.BC.No.79/06.02.31/2009-10
dated May 6, 2010 mandating them not to accept collateral
security in the case of loans upto Rs 10 lakh extended to units in the MSE
sector and advising them to strongly encourage their branch level
functionaries to avail of the CGS cover, including making performance in
this regard a criterion in the evaluation of their field staff.
Annex
I
MINISTRY
OF SMALL SCALE INDUSTRIES
NOTIFICATION
New Delhi, the 5th October, 2006
S.O. 1722(E) – In exercise of
the powers conferred by sub-section (1) of Section 7 of the MSMED Act, 2006
(27 of 2006) herein referred to as the said Act, the Central Government
hereby specifies the following items, the cost of which shall be excluded
while calculating the investment in plant and machinery in the case of the
enterprises mentioned in Section 7(1)(a) of the said Act, namely:
(i) equipment such as tools,
jigs, dyes, moulds and spare parts for maintenance and the cost of
consumables stores;
(ii) installation of plant and
machinery;
(iii) research and development
equipment and pollution controlled equipment
(iv) power generation set and
extra transformer installed by the enterprise as per regulations of the
State Electricity Board;
(v) bank charges and service
charges paid to the National Small Industries Corporation or the State
Small Industries Corporation;
(vi) procurement or installation
of cables, wiring, bus bars, electrical control panels (not mounted on
individual machines), oil circuit breakers or miniature circuit breakers
which are necessarily to be used for providing electrical power to the
plant and machinery or for safety measures;
(vii) gas producer plants;
(viii) transportation charges
(excluding sales-tax or value added tax and excise duty) for indigenous
machinery from the place of their manufacture to the site of the
enterprise;
(ix) charges paid for technical
know-how for erection of plant and machinery;
(x) such storage tanks which
store raw material and finished products and are not linked with the
manufacturing process; and
(xi) firefighting equipment.
2. While calculating the
investment in plant and machinery referred to in paragraph 1, the original
price thereof, irrespective of whether the plant and machinery are new or
second hand, shall be taken into account provided that in the case of
imported machinery, the following shall be included in calculating the
value, namely;
(i) Import duty (excluding
miscellaneous expenses such as transportation from the port to the site of
the factory, demurrage paid at the port);
(ii) Shipping charges;
(iii) Customs clearance charges;
and
(iv) Sales tax or value added
tax.
(F.No.4(1)/2006-MSME- Policy)
JAWHAR SIRCAR, Addl. Secy.
|