Handbook on Financing MSME

Compiled by
S N Misra
General Manager (Retired)
Indian Overseas Bank

Year of Publication: 2013

This book is meant for Internal Circulation within Indian Overseas Bank.

Published by
MSME Department,
Indian Overseas Bank,
Central Office,
763 Anna Salai,
Chennai 600 002

Printed by
Pranav Prints
99400 36120

CONTENTS
Page No.

1.
2.
3.
4.
5.
6.
7.
8.
9.

Foreword.
Preface
PART A: The SME Framework
MSME: Concept and Meaning
1
RBI Norms and Guidelines
5
Institutional Framework for MSME
9
Some Facts about SMEs in India.
16
Financing MSME
19
Credit Guarantee Scheme of CGTMSE
26
RBIs Common Guidelines on SME.
38
Receipt and E-tracking of MSME Credit Applications
40
Credit Rating and Due Diligence for MSME
41

PART B: Schemes
10. PMEGP.
46
11. Sanjeevini
52
12. IOB Insta Fund
55
13. IOB Micro One
57
14. IOB CA
58
15. IOB Engineer.
63
16. Sagar Lakshmi.
65
17. GEMS
68
18. IOB SME Mahila Plus 71
19. Rice Mill Plus
72
20. Weavers Credit Card
74
21. IOB SME Equi-P
77
22. Pushpaka
79
23. Advance Term Loan Sanction Scheme 81
24. Micro Finance Institutions 82
25. Joint Liability Groups (Non Farm Sector) 91
26. REMOT
93
27. General Credit Card (GCC) 98
28. Loan Facilitation Service: MOU with SIDBI 99
29. Credit Facilitation Support Services: MOU with NSIC 101
30. Subsidy Linked Credit Scheme for Solar Energy Application 103
31. SIDBI Credit Facilitation: Groom India Salon and Spa (naturals)
106
PART C: Policies and Code of Commitment
32. Loan Policy for Micro and Small Enterprises. 110
33. Policy for Nursing and Rehabilitation of Sick MSEs
122
34. One Time Settlement Policy for MSE
144
35. Code of Banks Commitment to Micro and Small Enterprises 147
Part D: Reference Material
36. Frequently Asked Questions (FAQ) on MSME
150
37. Glossary of Terms relating to MSME 155

FOREWORD
I am happy that a handbook on Financing MSME is now made available to
officials who are actually involved in MSME lending in the bank. Coming close on the
heels of the Handbook on Agriculture, this book is one more step forward in our
attempt to bridge the knowledge gap in functional credit areas, especially under
Priority Sector.
MSME is a vital lending area which is important not only from the regulatory
angle but also for maintaining a healthy and responsible credit portfolio, balancing
growth with social relevance. MSME is uniquely poised between the corporate and
social lending activities of the bank, combining characteristics of both segments. The
canvass is so wide that it stretches from the humble rickshaw-puller to factories churning
out

sophisticated

machine

parts,

within

stipulated

investment

ceilings.

The

manufacturing and services sections of MSME make an interesting combination which

widens variety while enhancing volume. We are in the national limelight in financing
MSE, with two consecutive national awards conferred on our Bank by the President of
India for excellence in financing Micro Enterprises during 2010-11 and 2011-12. We have
performed equally well during 2012-13 and hope to continue the winning streak,
moving towards a hat trick.
Awards are recognitions which come involuntarily, but real satisfaction lies in a
job well done. These recognitions have given us additional responsibility to continue
quantitative growth deftly balanced by qualitative lending practices. This is possible
only by developing lending skills which will largely depend on dissemination of
knowledge on the subject.
The subject is vast but not complicated. The rules and guidelines keep on
changing making it rather difficult for the practising bankers to keep track. This book
intends to address this need by bringing all relevant material in a comprehensive
volume. I trust that our staff members in branches and controlling offices will find this
volume useful.
M.NARENDRA
Chairman and Managing Director

PREFACE
MSME has evolved as a crucial credit segment not only because of the
budgetary compulsions but also because of its immense potentials for horizontal as well
as vertical growth. The portfolio has grown at a very fast pace in our Bank during last
few years. We have bagged quite a few awards for our performance in this sector,
both at national and state levels. Our position in CGTMSE coverage is also quite
remarkable. Our contribution to MSME has attracted awards from Dun & Bradstreet,
SME Chamber and few other reputed organisations in the recent past. But in spite of
these adulatory recognitions, there is a great deal of ignorance about the concept
and technicalities of MSME. Although this phenomenon is not unique to our bank; this
certainly affects our functioning and also causes under-reporting of our achievements.
The number of segment-specific MSME schemes developed by our Bank is quite
impressive, as can be seen in the second part of this volume. Many branches are not
able to keep track of all these schemes. Some of these are pure credit schemes
whereas some other products are meant to address specific financial issues of MSME
units. Our Bank also has executed a number of MOUs under MSME; which include tieups with SIDBI, NSIC, Coir Board, Ministry of MSME, Credit Rating Agencies, and
Automobile Manufacturers, vendors of various machineries and a national chain of
beauty salons. But these schemes and tie-ups are not being adequately used, mainly
because of field-level ignorance. Client -awareness cannot be created unless the
workforce is sensitised.
The institutional framework for MSME is very wide. With so many agencies playing
active roles for the segment, bank receives instructions and guidelines from different
authorities. Circulars are issued by the department at Central Office as and when
required, but it becomes difficult for branches to recollect or trace all guidelines in
every work-situation.
The classifications within MSE keep on changing within the accepted definition. In
the recent past we had significant changes announced by RBI on 20th July 2012, 17th
October 2012 and recently on 3rd May 2013, each one of which would impact the
portfolio. Keeping track of such changes is quite important not only for Banks top and
senior management, but also for the frontline staff who populate the fields in the loan
master. Such inclusive sensitisation of manpower is difficult. Existing mechanism of
circulars and emails does not fully address the issue. Banks training system is waging a
continuous war against job-related ignorance, but it has its own limitations. Appetite for
knowledge is not as big as the need for knowledge.

One solution is to create a source which can be accessed as and when required.
The compiler hopes that this volume can be used as a reference point of this kind.
Utility of such a book is bound to diminish with the passage of time when the
guidelines, policies and procedures undergo change. To retain the long-term utility of
this publication, users will have to keep the information updated by appropriate noting
in the blank space provided at the end of this book. Contents of the book are up-todate at the time of going to press.

S N MISRA
Compiler

1. MSME: CONCEPT AND MEANING

BACKGROUND INFORMATION ON MSME
Concept of SME
As a concept, Small and Medium Enterprises is not unique to India. The abbreviation
"SME" is used in the European Union and by international organizations such as the
World Bank, the United Nations and the World Trade Organization. Segregating small
enterprises from their larger counterparts and giving them a separate identity makes
economic sense by defining their unique needs and creating specific support
mechanism from them. The entire concept is based on the fact that smaller enterprises
generate more employment and contribute significantly to GDP while being more
vulnerable to failure. Hence they need regulatory and administrative assistance on a
continuous basis; which is not possible without a clear demarcation in terms of size. The
smaller enterprises are given several concessions and privileges like lower tax, lower
power tariff, and lower interest rates, liberalised licensing, faster statutory clearances
and easier credit etc.
The definition of MSE in terms of size has seen many variations across the globe. In India
the size is defined at present in terms of original investment in plant and machinery or
equipments. Annual turnover was also an accepted criterion to segregate small from
the large. At least for one sub-segment of MSME (Retail Trade) the criterion now is not
only investment ceiling but also credit limit. define In United States , the segregation is
done on the basis of ownership structure, revenue and number of employees
.Standard Bank of South Africa has defined SME as firms having turnover between
150000 to 5 million R per annum. ; whereas the National Small business Act of the same
country defines SME in terms of three parameters , namely Total Gross assets ,
Manpower and Turnover. Member states of the European Union had individual
definitions of what constitutes an SME. For example, the definition in Germany had a
limit of 255 employees, while in Belgium it could have been 100. The European
Commission has come out with a revised norm which limits SMEs to enterprises which
employ fewer than 250 persons and which have an annual turnover not exceeding 50
million euro, and/or an annual balance sheet total not exceeding 43 million euro.
Taking number of employees as the sole or major parameter is a common practice
across nations. The investment-based formula adopted in India is not unique but rare.
This is ideal for Indian conditions at present.
...1

Meaning of MSME
Micro, Small and Medium Enterprises cover the entire gamut of activities generally
abbreviated as MSME. Of this, only Micro and Small (MSE) constitute Priority Sector
whereas Medium Enterprises is outside Priority Sector till now.
The segments earlier known as Small Scale Industries, Tiny and Cottage Industries,
Professional and Self Employed, Retail Traders, Business Enterprises and Transport
Operators etc were clubbed under MSME which has two broad divisions: Manufacturing
and Services. As indicated by these terms, the first segment covers all units which are
engaged in manufacturing something (i: e industries) whereas the other division covers
all units which do not manufacture anything, but sell their skills or services.
MSMED Act : The basic framework of MSME derives from the Micro, Small and Medium
Enterprises development (MSMED) Act 2006. This act defines the two classes under
MSME as below:
a) Manufacturing Enterprises- The enterprises engaged in the manufacture or
production of goods pertaining to any industry specified in the first schedule to
the Industries (Development and regulation) Act, 1951. The Manufacturing
Enterprise is defined in terms of investment in Plant & Machinery.
(b) Service Enterprises: The enterprises engaged in providing or rendering of
services and are defined in terms of investment in equipment.
The Act also specified the ceiling levels for investment in Plant and Machinery as well
as Equipments for manufacturing and services enterprises respectively in respect of
micro, small and medium enterprises. These ceiling levels are also adopted by RBI for
defining Priority sector.
Manufacturing Sector
Enterprises
Investment in plant & machinery
Micro Enterprises
Does not exceed twenty five lakh rupees
Small Enterprises
More than twenty five lakh rupees but does not exceed
five crore rupees
Medium Enterprises
More than five crore rupees but does not exceed ten crore
rupees
Service Sector
Enterprises
Investment in equipments
Micro Enterprises
Does not exceed ten lakh rupees:
Small Enterprises
More than ten lakh rupees but does not exceed two crore
rupees
Medium Enterprises
More than two crore rupees but does not exceed five core
rupees
..2

The MSMED Act, which was gazetted on 16th June 2006, is the basic legislative
document for creation and administration of MSME in India.
Concessions Available to MSMEs
Following are some of the major concessions available to MSMEs in India. The list is not
exhaustive and not uniform across the states.
A. Fiscal Incentives, Exemptions & Subsidies
1. Priority Sector Status
2. Interest Subsidy
3. Margin Money
4. Central Transport Subsidy (Hilly States only)
5. Tax Concessions
6. Tax Holidays
7. Concessions in margin , security and interest
8. Guarantee cover by CGTMSE
9. Liberalized credit sanctions
10. Separate Policy for Rehabilitation of sick MSME Units
11. Separate Restructuring Policies
B.

Non-Fiscal Concessions

12. Preferential Allotment of land / sheds in Industrial estates

13. Products reserved for manufacture exclusively by MSEs
14. Procurement of specified products only from MSME
15. Mechanism for quick realization of receivables from government departments,
PSUs and corporate
16. Power connections
17. Quick and hassle-free registration and licensing
18. Single window clearances
19. Institutional support for training and entrepreneurial development
20. Preferential Supply of Raw Material (from government sources)
Regulatory Targets under MSME
Reserve Bank of India has fixed annual targets of 40% (of ANBC) and 18% (of ANBC) for
Total priority Sector and Total Agriculture respectively. But no such ANBC-linked target is
prescribed for MSE. MSE figures form part of Total priority Sector.
But there are other targets prescribed by RBI for Micro Enterprise components of MSE.
..3

(i) Advances to micro and small

enterprises sector will be reckoned in
computing achievement under the
overall priority sector target of 40
percent of ANBC or credit equivalent
amount of Off-Balance Sheet Exposure,
whichever is higher.

No specific target. Forms part of total

priority sector

(ii) 40 percent of total advances to micro and small enterprises sector should go to
Micro (manufacturing) enterprises having investment in plant and machinery up to
Rs.10 lakh and micro (service) enterprises having investment in equipment up to Rs. 4
lakh;

(iii) 20 percent of total advances to micro and small enterprises sector should go to
Micro (manufacturing) enterprises with investment in plant and machinery above Rs.
10lakh and up to Rs. 25 lakh, and micro (service) enterprises with investment in
equipment above Rs.4 lakh and up to Rs.10 lakh

In addition to these targets given by RBI under Priority Sector the following targets ,
given through the report of the Prime Ministers Task Force on MSME and accepted by
RBI , are also binding on the banks:

20% year-on-year credit growth;

60% of MSME credit to micro enterprises by March 2013
10% Year-on-year growth in the number of micro enterprises accounts
Over and above these targets; many state governments have also given MSME
loan targets to Banks operating in their respective states.

..4

2. RBI Norms and Guidelines

On Priority Sector (MSE)
I. With effect from 20th July 2012; Following categories of Advances come under Priority
Sector
I)

Agriculture

ii)

Micro and Small Enterprises

iii)

Education

iv)

Housing

v)

Export Credit

v)

Others

Activities eligible under Micro and Small Enterprises (MSE) category are given in
subsequent paragraphs of this chapter.
II. Targets / Sub Targets for Priority Sector
The targets and sub-targets relating to MSE for domestic banks are furnished below:
Categories
Total priority
sector
MSE

Domestic commercial banks/Foreign banks with 20 and above branches

40 percent of Adjusted Net Bank Credit or credit equivalent amount of
Off-Balance Sheet Exposure, whichever is higher
No specific target for aggregate MSE. Forms part of total Priority
Sector target.
40 percent of total advances to micro and small enterprises sector
should go to Micro (manufacturing) enterprises having investment
in plant and machinery up to Rs.10 lakhs and micro (service)
enterprises having investment in equipment up to Rs.4 lakhs;
20 percent of total advances to micro and small enterprises sector
should go to Micro (manufacturing) enterprises with investment in
plant and machinery above Rs.10 lakhs and up to Rs.25 lakhs, and
micro (service) enterprises with investment in equipment above
Rs.4 lakhs and up Rs. 10 lakhs
..5

In addition to the above, MSE has also to contribute to the target under Weaker
Sections (10% of ANBC of the previous year) which includes several loans coming
under MSE, apart from Agriculture etc.
2. Description of MSE Category under priority sector
The limits for investment in plant and machinery/equipment for manufacturing / service
enterprise, as notified by Ministry of Micro Small and Medium Enterprises, vide,
S.O.1642(E) dated September 29, 2006 are as under:Manufacturing sector
Enterprises
Micro Enterprises
Small Enterprises

Investment in Plant and Machinery

Do not exceed twenty five lakh rupees
More than twenty five lakh rupees but
does
not exceed five crore rupee
Service Sector

Enterprises
Micro Enterprises
Small Enterprises

Investment in Equipments
Does not exceed ten lakh rupees
More than ten lakh rupees but does not
exceed two crore rupees

Bank loans to micro and small enterprises both manufacturing and service are eligible
to be classified under priority sector as per the following:
2.1. Direct Finance
2.1.1 Manufacturing Enterprises
The Micro and Small 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. The manufacturing enterprises are defined in terms of investment
in plant and machinery.
2.1.1.1 Loans for food and agro processing
Loans for food and agro processing will be classified under Micro and Small Enterprises,
provided the units satisfy investments criteria prescribed for Micro and Small Enterprises,
as provided in MSMED Act, 2006.

..6

2.1.2. Service Enterprises

Bank loans up to 5 crores per borrower/unit to Micro and Small Enterprises engaged in
providing or rendering of services and defined in terms of investment in equipment
under MSMED Act, 2006.
2.1.3. Export
Credit to MSE units (both manufacturing and services) for exporting of goods/services
produced by them.
2.1.4. Khadi and Village Industries Sector (KVI)
All loans sanctioned to units in the KVI sector, irrespective of their size of operations,
location and amount of original investment in plant and machinery. Such loans will be
eligible for classification under the sub-target of 60 percent prescribed for micro
enterprises within the micro and small enterprises segment under priority sector.
2.2. Indirect Finance
(i) Loans to persons involved in assisting the decentralised sector in the supply of inputs
to and marketing of outputs of artisans, village and cottage industries.
(ii) Loans to cooperatives of producers in the decentralised sector viz. artisans village
and cottage industries.
(iii) Loans sanctioned by banks to MFIs for on-lending to MSE sector as per conditions
stipulated by RBI from time to time.
Other Types of Funds deployment under Priority Sector (MSE)
In addition to the credit channels described above, RBI also allows following manners of
funds deployment as eligible finance under Priority Sector (MSE).Branches and Regional
Offices may please note that they should not take recourse to these measures even
under their discretion without referring to Central Office.
A. Investments in securitised assets
(i) Investments in securitised assets can be classified under MSE provided (a) the
securitised assets are originated by banks and financial institutions and are eligible to
be classified as priority sector advances under MSE prior to securitisation and fulfil the
Reserve Bank of India guidelines on securitisation (b) the all inclusive interest charged to
the ultimate borrower by the originating entity should not exceed the Base Rate of the
investing bank plus 8 percent per annum
..7

The investments in securitised assets originated by MFIs, which comply with the RBI
guidelines, are exempted from this interest cap as there are separate caps on margin
and interest rate.
B. Transfer of Assets through Direct Assignment /Outright purchases
(i) Assignments/Outright purchases of pool of assets by bank representing loans under
MSE will be eligible for classification under MSE (direct or indirect) provided:
(a) the assets are originated by banks and financial institutions and are eligible to be
classified as MSE prior to the purchase and fulfill the Reserve Bank of India guidelines on
outright purchase/assignment.
(b) the eligible loan assets so purchased should not be disposed of other than by way
of repayment.
(c) The all inclusive interest charged to the ultimate borrower by the originating entity
should not exceed the Base Rate of the purchasing bank plus 8 percent per annum.
The assignments/Outright purchases of eligible loans from MFIs, which comply with RBI
guidelines, are exempted from this interest rate cap as there are separate caps on
margin and interest rate.
C. Purchase of Inter Bank Participation Certificates
Inter Bank Participation Certificates (IBPCs) bought on a risk sharing basis shall be
eligible for classification under MSE, provided the underlying assets are eligible to be
categorized under MSE category of priority sector and the bank fulfills Reserve Bank
guidelines on IBPCs.

..8

3. Institutional Framework for MSME

This chapter gives a list of various agencies and institutions which are involved in MSME
finance. They issue instructions on MSME or collaborate with banks on MSME finance. List
is not exhaustive.
Various Ministries under Government of India
Following are the major departments and ministries of the Central Government which
have been issuing directions regarding
finance to MSME or whose functions are
related to MSME:
a.
Ministry of MSME
b.
Ministry of Rural Development (MORD)
c.
Ministry of Textiles
d.
Department of Food Processing Industries
e.
Department of Women and Child Welfare
f.
Department of Urban Poverty Alleviation
g.
Development Commissioner, M, S & M Industries
h.
Development Commissioner for Handicrafts
i.
Development Commissioner for Handlooms
National Board for MSME
This is an apex level organization for promotion of MSME set up under the MSMED Act
2006. It has its head office at Delhi. The Board comprises of (a) A minister and Deputy
Minister at the centre (b) Six Ministers of State Governments (c)Five members of
Parliament (d)One Administrator of Union Territory (e)Secretaries of the Union
Government (f)Representatives of the industry, Finance , Food Processing , Labour and
Planning (g) Chairman of NABARD (h) Chairman and MD of SIDBI (i)Chairman of IBA
(j)20 persons representing MSME (k)3 eminent persons from economics , industry and
science/technology (l)2 representatives from central trade unions (m)One Member
Secretary (ex-officio) having administrative control of SME in Central Government.
Powers and functions of this Board are laid down in MSMED Act.
Reserve Bank of India
As regulator, Reserve Bank of India formulates the policy for bank finance to MSME. RBI
defines which sections of MSME will come under Priority Sector and the targets for the
same. The definitions and investment ceilings specified in MSMED Act form the basis for
RBIs policy, but within the framework of the Act, RBI determines the extent up to which
..9

a segment should be brought under priority sector and conditions for the same. RBI also
directs banks about broad procedure and policy to be followed for lending to MSE.
RBI also ensures that banks assist MSMEs through appropriate policy interventions from
time to time. The gap between demand and supply of credit in the MSME sector urged
RBI to set up several committees to scale up the quantum and quality of lending to
MSME and erstwhile SSI. The last committee which had submitted a widely quoted and
firmly implemented report is the Working Group on SMEs: Sickness and Rehabilitation
(2008) chaired by Dr.K.C.Chakrabarty. Key Provisions of this report which are already
implemented are mentioned elsewhere in this book.
RBI also convenes two committees at their regional Office levels. They are (i)
Empowered Committee on MSME and (ii) State Level Inter Institutional Committee on
SME. Brief details of these committees are given in subsequent paragraphs of this
chapter.
Empowered Committee on SME: Empowered Committees on SMEs are constituted by
Reserve Bank of India at every Regional Office of RBI under Chairmanship of respective
Regional Directors of RBI. The committee comprises of , apart from the Chairman ,
SLBC Convenor, senior level officers from few banks having predominant share in SME
financing in the state, representative of SIDBI Regional Office, Director of Industries , one
or two senior level representatives from the SME/SSI Associations in the state, and a
senior level officer from SFC/SIDC .
The Committee meets every quarter to review the progress in SME financing. It also
coordinates with banks/financial institutions and state government for removing
bottlenecks, if any, to ensure smooth flow of credit to the sector.
State Level Inter Institutional Committee (SLIIC)
In order to deal with the problems of co-ordination for rehabilitation of sick small scale
units, State Level Inter-Institutional Committees (SLIICs) have been set up in all the
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 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, National Equity Fund Scheme of
SIDBI, and reviews general problems faced by industries and sickness in SSI sector based
on the data furnished by banks. Among others, the representatives of the local state
level SSI associations are invited to the meetings of SLIIC which are held quarterly. A
subcommittee of SLIIC looks into the problems of individual sick SSI unit and submits its
recommendations to the forum of SLIIC for consideration.
..10

Small Industries Development Bank of India (SIDBI)

SIDBI is an independent financial institution aimed to aid the growth and development
of micro, small and medium-scale enterprises (MSME) in India. Set up on April 2, 1990
through an act of parliament, it was incorporated initially as a wholly owned subsidiary
of Industrial Development Bank of India. Current shareholding is widely spread among
various state-owned banks, insurance companies and financial institutions. Beginning as
a refinancing agency to banks and state level financial institutions for their credit to
small industries, it has expanded its activities, including direct credit to the SME through
100 branches in all major industrial clusters in India.[citation needed] Besides, it has been
playing the development role in several ways such as support to micro-finance
institutions for capacity building and on lending. It also has few branches called Micro
Finance branches aimed especially at dispensing loans up to 5 lakhs.
It is the Principal Financial Institution for the Promotion, Financing and Development of
the Micro, Small and Medium Enterprise (MSME) sector and for co-ordination of the
functions of the institutions engaged in similar activities.
SIDBI has also floated several other entities for related activities. Credit Guarantee Fund
Trust for Micro and Small Enterprises provides guarantees to banks for collateral-free
loans extended to SME. SIDBI Venture Capital Ltd. is a venture capital company
focused at SME. SME Rating Agency of India Ltd. (SMERA) provides composite ratings to
SME. India SME Asset Reconstruction Company (ISARC) is a specialized entity for NPA
resolution for SME.
Khadi and Village Industries Commission (KVIC): KVIC is a statutory body formed by the
Government of India, under the Act of Parliament in 1956. It is an apex organization
under the Ministry of Micro, Small and Medium Enterprises, with regard to khadi and
village industries within India, which seeks to - "plan, promote, facilitate, organize and
assist in the establishment and development of khadi and village industries in the rural
areas in coordination with other agencies engaged in rural development wherever
necessary."
Khadi and Village Industries Boards (KVIB) are statutory bodies formed by the state
governments within India, set up for the purpose of promoting Khadi and Village
Industries in their respective states. They are funded by KVIC and they, in turn, fund
Khadi and Village Institutions/Co-operatives/Entrepreneurs.
KVIC is a very important and vital link for MSE finance under Priority Sector. All loans
sanctioned to units in the KVI sector, irrespective of their size of operations, location and
amount of original investment in plant and machinery are eligible for classification
under the sub-target of 60 percent prescribed for micro enterprises within the micro and
small enterprises segment under priority sector.
..11

KVIC administers the national level scheme PMEGP (Prime Ministers Employment
Generation Programme) with assistance of KVIB and District Industries Centres. KVIC
also administers another credit scheme, The Interest Subsidy Eligibility Certificate (ISEC)
Scheme, which is the major source of funding for the Khadi programme in India.
Banking Codes and Standard Board of India (BCSBI)
The Banking Codes and Standard Board of India (BCSBI) have 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 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.
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. 22
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.
Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)
Ministry of Micro, Small & Medium Enterprises (MSME), Government of India launched
Credit Guarantee Scheme (CGS) in order to strengthen credit delivery system and
..12

facilitate flow of credit to the MSE sector. To operationalize the scheme, Government of
India and SIDBI set up the Credit Guarantee Fund Trust for Micro and Small Enterprises
(CGTMSE).
Main objective of the Credit Guarantee Scheme was to make available bank credit to
entrepreneurs without the hassles of collaterals / third party guarantees. This is possible
when the lender secures the credit granted to viable projects only on the prime security
of the assets financed. The other objective is to urge the lender to give composite
credit to the borrowers so that the borrowers obtain both term loan and working capital
facilities from a single agency. The scheme assure the lender that, in the event of a
MSE unit, which availed collateral free credit facilities, fails to discharge its liabilities to
the lender, the Guarantee Trust would make good the loss incurred by the lender up to
75 / 80/ 85 per cent of the credit facility.
Udyami Helpline
In order to provide easy and ready access to information regarding the various
programmes of the Government for MSMEs and to provide direct interaction with
banks, the Ministry of MSME, Government of India, New Delhi is setting up an UDYAMI
HELPLINE. This will have a single toll-free number across the country i.e.1800-180-MSME
or 1800-180-6763. The helpline will answer queries relating to the schemes of the Ministry
of MSME, Office of Development Commissioner (MSME), SIDBI, NSIC, Coir Board, KVIC
etc., provide basic advice on how to set up enterprises, provisions of the MSMED Act,
procedures for filing Entrepreneurs
Memoranda etc
National Small Industries Corporation (NSIC)
National Small Industries Corporation Ltd. (NSIC) is an ISO 9001-2008 certified
Government of India Enterprise under Ministry of Micro, Small and Medium Enterprises
(MSME). NSIC has been working to fulfil its mission of promoting, aiding and fostering the
growth of small industries and industry related micro, small and medium enterprises in
the country. Established in 1955, NSIC has proved its strength within the country and
abroad by promoting modernization, up gradation of technology, quality
consciousness, strengthening linkages with large medium enterprises and enhancing
exports - projects and products from small enterprises.
NSIC operates through a countrywide network of offices and Technical Centers in the
Country. It has also set up Training cum Incubation Centre.
..13

With professional manpower, NSIC provides a package of services as per the needs
of MSME sector. It has a set of specially tailored schemes designed to put small
enterprises in a competitive and advantageous position. The schemes comprise of
facilitating marketing support, credit support, technology support and other support
services.
In January 2013, Our Bank has signed a MOU with NSIC for extending their credit
facilitation support services to MSME borrowers through our bank branches all over
India. Details are given in a separate chapter of this book.
SME / SSI Associations
Several, government, quasi-government and non-government organizations have
come into existence for helping the MSME sector in various ways. Many associations of
SME entrepreneurs have been very active in recent years. Many of them have been
given due recognition in framing policies and executing measures adopted for MSME
units. Location-based associations, as well as product-based associations have been
representing the interests of their respective constituencies. Such organizations function
at various levels but more prominently at state levels. They are also invited to by RBI to
attend certain review meetings. Some prominent industry associations at national level
are listed below.
Confederation of Indian Industry (CII)
CII is a non-government, not-for-profit, industry-led and industry-managed organisation,
seeking to play a proactive role in Indias development process. The organisation works
to create and sustain an environment conducive to the growth of industry in India,
partnering industry and government alike through advisory and consultative processes.
The confederation is headquartered in New Delhi.
Federation of Indian Chamber of Commerce & Industry (FICCI)
FICCI is an association of business organizations in India. Established in 1927, it is the
largest, oldest and the apex business organisation in India. It is a non-government, notfor-profit organisation. FICCI draws its membership from the corporate sector, both
private and public, including SMEs and MNCs. The chamber has an indirect
membership of over 2, 50,000 companies from various regional chambers of
commerce. It is involved in sector specific business policy, business promotion and
networking etc. It is headquartered in the national capital New Delhi with presence in
many states in India as well as few countries outside India.
..14

Associated Chamber of Commerce & Industries in India (ASSOCHAM)

This is one of the apex trade associations of India. The organization represents the
interests of trade and commerce in India, and acts as an interface between industry,
government and other stakeholders on policy issues and initiatives. The goal of this
organization is to promote both domestic and international trade, and reduce trade
barriers while fostering conducive environment for the growth of trade and industry of
India.
ASSOCHAM was established in 1920 by promoter chambers, representing all regions of
India. The Association's head office is located in New Delhi and regional offices are
located in Ahmadabad, Bangalore, and Kolkata. ASSOCHAM operates through 59
Expert Committees that provide an interactive platform to members for interaction and
aid formulating policy recommendations to facilitate economic, industrial and social
growth. The sectors which ASSOCHAM members represent are : (a)Trade (national and
international) (b)Industry (domestic and international) (c) Professionals (e.g. CAs,
lawyers, consultants)and (d)Trade and Industry Associations and other Chambers of
Commerce
Federation of Association of Small Scale Industries (FASSI)
Established in 1959, it has a nationwide constituent membership with the objectives
promoting, developing SSI. FASSI is furthering the cause of the SSI has established Trade
Centres and test centres. It offers services like organizing seminars/conferences;
analysis and interpretation of policies and taking up the grievances of the members
with the Government.
World Association of Small & Medium Enterprises (WASME)
This is an organization governed by the representatives from financial institutions, banks,
Department of Small Industries of various governments. The Association is located at
Delhi and some of its functions are:
1. Disseminating policies, strategies, and support system for promotion of SMEs in
member centers;
2. Providing Marketing opportunities;
3. Training facilities for SME Enterprises.
Consortium of Women Entrepreneurs in India (CWEI)
This is a consortium of NGOs, Voluntary Organizations, and Self Help Groups helping
women entrepreneurs in finding techniques of production, marketing and finance.
..15

4. Some Facts about SMEs in India

1. ON THE GROWTH TRAJECTORY
SME sector has been registering steady growth year after year
No. of SMEs (in millions)
2008
2009
2010
2011
2012
2013*

39.1
40.9
42.7
44.7
46.7
48.8
*Estimated

2. INDIAS BIGGEST EMPLOYER

SMEs are the backbone of the job market, employing 40% of the countrys
workforce.
Informal Sector *
96%
Formal Sector
4%
* Informal jobs include casual workers working in both formal and informal sectors
Job growth in India in the last 5 years has largely been created in the informal
category
No. of Employees (in millions)
2006-07
59.5
2007-08
62.6
2008-09
65.9
2009-10
69.5
2010-11(E)
73.2
2011-12(E)
77.1
2012-13(E)
81.2
3. SMALLER SMEs DOMINATE
SMEs with staff strength of under 10 comprise 94.94% of all SMEs in the country
Micro (under 10)
94.9%
Small (10-100)
4.9%
Medium (100-1000)
0.2%
4. THE URBAN-RURAL MIX
There are more SMEs in Urban areas
URBAN
55%

RURAL

45%
..16

5. VIEW FROM THE STATES

Tamil Nadu and Gujarat account for over a fourth of the countrys SMEs. After the
first 10 states, all other states collectively account for only 18%.
Tamil Nadu
Gujarat
UP
Kerala
Karnataka
Madhya Pradesh
Maharashtra
Rajasthan
Bihar
Punjab
Others

14.9%
14.7%
12.0%
9.6%
8.7%
6.8%
5.5%
3.5%
3.2%
3.1%
18%

6. SECTORS THAT ATTRACT SMEs

Food Products and beverages top the charts with garments a close second. Some
well known sectors do not figure within the top ten.
Food Products & Beverages
Apparel
Fabricated metal products
Repair & maintenance (Household goods)
Textiles
Furniture
Machinery & equipment
Other non-metallic mineral products
Repair maintenance (motor vehicles)
Wood and wood products

14.3%
13.7%
9%
8.5%
6.8%
6.4%
4.7%
3.8%
3.7%
3.5%

7. STATES AND THEIR TOP SECTORS

Specific states have become magnets for SMEs from particular sectors
Tamil Nadu
Maharashtra
Haryana
UP
Gujarat
Karnataka
Andhra Pradesh
Kerala

Auto & Auto ancillaries

Auto Ancillaries
Auto
Cement
Textiles
Textiles
Pharma
Traditional Industries
..17

8. STATES WITH TOP MANUFACTURING CLUSTERS

Over the past five years, number of clusters in Gujarat has grown the fastest
from 115 in 2006-07 to 368 in 2013. Few other states are also quite close.
Gujarat
UP
Tamil Nadu
Kerala
MP
Karnataka
Punjab
Bihar
Rajasthan
Maharashtra

369
359
350
255
228
227
82
81
77
69

THE SME STORY IN INDIA

At 48 million, India has the second Largest Number of SMEs in the World.
China leads with 50 million.
SMEs contribute 17% to Indias GDP and account for 45% of manufacturing
output
SMEs play a critical role in employment, especially at the low-skill level.
Only 1.3 million SMEs of India account for 40% of total exports from India.
Due to low scale and poor adoption of technology, Indian SMEs have poor
productivity. Although they employ 40% of Indias workforce, they contribute
only 17%. to GDP.
Too many firms continue to remain small, unregistered and unincorporated;
perhaps to stay away from taxes and regulations.
Source: Zinnov and Economic Survey [Economic Times: 09.06.2013]

..18

5. Financing MSME
A. Why MSME?
Need and importance for financing MSME cannot be overemphasized Not only has
MSME emerged as the most potent commercial segment offering enormous growth
opportunities, but this is also the only sector which can be financed at every centre at
every level.
The emphasis now placed on this sector by the Government as well as Reserve Bank of
India has made its expansion a regulatory compulsion.
A very large component of MSME comes under Priority Sector (Micro and Small
Enterprises) and thus helps the Bank in reaching the regulatory budgets.
Even that component of MSME which does not come under Priority Sector (Medium
Enterprises) also helps the Bank in achieving some other regulatory target.
Appraisal of MSME is simple and financing MSME is easier. Coverage of MSME is so wide
that a very large gamut of activities comes under MSME.
Occurrence of NPA is minimum in MSMEs because of the generous Nursing and
Rehabilitation mechanism as well as the OTS policy available for MSEs.
Monitoring these advances is also simpler than many other types of credit. Chances of
failure in MSME are less because of the heavy support extended by Government as well
as various other agencies.
The stimulus package announced and implemented during 2008-09 has uplifted the
MSMEs to a comfortable position where they have become more bankable than other
segments.
B. What is MSME?
Meaning and Definition of MSME is given in another chapter of the book. It should be
noted that dividing line between MSME and large enterprises is neither the size of credit
nor the activity of the borrower but the cost of original investment either in Plant and
Machinery (For Manufacturing) or in Equipments (For Service). All MSME is not Priority
Sector and even all MSE is not Priority Sector now,
..19

C. Banks Internal Policies on MSME

As of now our Bank has following policies on various aspects of MSME:
1. Code of Banks Commitment to MSEs
2. Policy on Lending to MSEs
3. OTS Policy for MSEs
4. Policy on Nursing and Rehabilitation of Sick MSMEs
First three of these policies do not cover Medium Enterprises, but only Micro and Small
Enterprises. As per RBI directives all these policies are also made available to the public
through Banks website.
D. Various Modes and Schemes for Financing MSMEs
Direct Finance to MSMEs
MSMEs can be financed in the same way any other bankable activity is financed. There
is no basic difference in the mode of financing except that for MSEs the appraisal norms
are simpler, as stated in the Lending Policy for MSEs. Credit is extended by means of
term loans or for Working Capital or as composite term loans combining both
components. It is immaterial under which head of General Ledger an account is
included. MSMEs can be financed in any one or more of the following channels. The list
is not exhaustive.
1. Composite term Loans
2. Term Loans including Foreign currency term Loans
3. Cash Credit
4. Non-Fund Based Exposure including Foreign LCs *
5. Purchase of Bills, Inland or Foreign including cheques purchased
6. Packing Credit and other export finance
7. Demand Loans (Any Demand Loan granted against any security for
MSMEactivities will also be classified as MSME. For example a Demand Loan against
deposit availed by a petty trader for his shop will come under MSE: Services:
Retail Trade)
..20

8. Loans under DRI (Differential Interest Scheme)

9. Loans under Govt. sponsored schemes with subsidy like TUFS (for textile
Industry), CLCSS (for SSI), REMOT and PMEGP etc.
E .Indirect Finance to MSMEs
1. Bulk Loans granted to MFIs and MFI-NBFCs for on lending to MSMEs.
2. Advances to Co operatives of Producers in decentralized sector viz, Artisans,
Village and Cottage Industries
3. Persons involved in assisting the decentralized sector in the supply of inputs and
marketing of output of artisans, village and cottage industries.
F. Credit Guarantee Scheme for MSME
Any collateral / third party guarantee free credit facility (both fund as well as non fund
based) to new as well as existing Micro and Small Enterprise, including Service
Enterprises, with a maximum credit cap of Rs.100 lakh (Rupees Hundred lakh only) are
eligible to be covered under the above scheme administered by CGTMSE.
The available guarantee cover is to the extent of 75% / 80% of the sanctioned credit
facility, with a maximum guarantee cap of Rs.62.50 lakh / Rs. 65 lakh. The extent of
guarantee cover is 85% for micro enterprises for credit up to Rs.5 lakh. The extent of
guarantee cover is 80% for (i) Micro and Small Enterprises operated and/or owned by
women; and (ii) all credits/loans in the North East Region. Application in respect of
eligible facilities sanctioned during a particular quarter must be submitted latest by end
of subsequent calendar quarter. Guarantee will commence from the date of payment
of guarantee fee.
A separate chapter is included in this book giving complete details of this scheme.
Waiver of Guarantee Fee
In order to attract many new MSE entrepreneurs in our fold, now CGTMSE guarantee
fee and annual administration fee will be absorbed by our bank only for all new
borrowal accounts under MSE sector up to a credit limit of Rs 1 crore.
G. Cluster finance in MSME: A cluster is a sector targeted geographical concentration
of MSMEs, service providers and institutions sharing common opportunities and threats.
It is a concentration of economic enterprises, producing a typical product/service or a
complementary range of products/services within a geographical area. The location of
such enterprises can span over a few villages, a town or a city and its surrounding
areas. A cluster of MSMEs is identified by the product/service that the enterprises
produce and the place where the enterprises are located.
..21

Features of Cluster:

Collective benefits through spontaneous inflow of suppliers of raw materials,

components and machinery or the availability of workers with sector specific
skills.
Concentration of providers of specialised technical, administrative and financial
services. Conducive environment for the development of inter-firm co-operation
as well as of co-operation among public and private institutions to promote local
production, innovation and collective learning.

Cluster based approach to lending provides a full-service approach to meet the

diverse needs of the MSE sector by extending banking services to recognized MSE
clusters. Cluster based approach is more beneficial (a) in dealing with well-defined and
recognized groups (b) availability of appropriate information for risk assessment (c)
monitoring by the lending institutions and (d) reduction in costs.
Banks have been advised to treat Cluster Financing as a thrust area and increasingly
adopt the same for SME financing. United Nations Industrial Development Organisation
(UNIDO) has identified 388 clusters spread over 21 states in various parts of the country.
The Ministry of Micro, Small and Medium Enterprises has also 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, RBI has advised banks to improve credit
flow to the identified clusters of micro and small entrepreneurs from the Minorities
Communities residing in the minority concentrated districts of the country.
RBI has also advised banks to open more MSE focussed branches at different MSE
clusters which can also act as counselling centres for MSEs
H. Loans under Tie up Arrangements:
Our Bank has entered into MOUs with following entities to facilitate lending to MSMEs.
Although these finances can be extended even without MOUs, execution of MOUs
enables the branch to receive applications without themselves hunting for potential
borrowers. Moreover there are some relaxations allowed in such loans. The MOUs with
three-wheelers and commercial transport vehicle manufacturers have become very
popular and offer tremendous scope for future lending to transport operators without
collateral security.

..22

Tie up with
BAJAJ AUTO LTD
ASHOK LEYLAND
TVS MOTORS CO., LTD
AUTO PRINT MACHINERY
MANUFACTURERS LTD
INTERNATIONAL TRACTORS LTD.,
PIAGGIO VEHICLES PVT.LTD
ATUL AUTO LTD.,
MAHINDRA & MAHINDRA LTD
ASIA MOTOR WORKS
BULL MACHINES PRIVATE LIMITED
ASHOK LEYLAND JOHN DEERE
CONSTRUCTION EQUIPMENT CO.
LTD
TATA MOTORS
GROOM INDIA SALON AND SPA
PVT LTD (through SIDBI)

For financing
Commercial three wheelers
Commercial transport Vehicles
Commercial three wheelers
Offset Printing Machines
Authorised dealers of company
Auto rickshaws/LCVs
Auto rickshaws/LCVs
Light Commercial Vehicles(LCVs)
Commercial Heavy Vehicles
Bucket Attachments for loaders/tractors
Leyland Deere backhoe loaders , field loaders and
other construction equipments
Commercial transport Vehicles
NATURALS Spa and Salon

Bank is constantly expanding qualitative tie-ups with a view to enhance quality lending
through such collaborations. Branches are also free to finance similar products of other
brands without any tie-up. Branches should note that tie-ups are generally renewed on
yearly basis.
I.

MSME CARE CENTRES

In conformity with guidelines of RBI and IBA, our Bank has set up MSME Care Centres
(Also known as facilitation centres) at all regional offices. Major functions of MSMEFC
are listed below:
To address the grievances of specific MSME units.
To assist the MSME units in getting relief under the relief package approved by our
Bank for MSME sector.
To guide/counsel the MSME entrepreneurs wherever required.
To monitor the flow of credit to MSME sector on regular basis and take measures to
improve the same so as to reach the targets set for MSME sector.
To work out restructuring of credit facilities granted to MSME units based on merits of
each case, wherever warranted.
To conduct viability study of sick MSME units and formulate nursing packages for units
found viable.
To address grievances of PMEGP beneficiaries.
..23

Broadly, it can be said that these Facilitation centres are meant to function as one stop
solutions for all MSME problems, apart from constantly working for expansion of MSME.
Nodal Officers of MSME Care Centres should be used exclusively for MSME activities.
Their names and phone numbers are already displayed in the website and made
available to clients as well as regulating bodies; so any change should be immediately
intimated to C.O, SME Department.
J. SCHEMES UNDER MSME
Several Credit Schemes are available for lending to MSME sector most of which are
included in this book in separate chapters. Some schemes are sponsored by the
government (eg: PMEGP, SJSRY etc.) whereas some are developed by the bank either
to tackle specific needs of general MSME borrowers (eg: Advance Term Loan Scheme,
SME plus etc.) or to cater to needs of specific segments (eg: IOB CA, Sanjeevani etc.).
The schemes are meant to assist the branches in extending finance to the targeted
groups, but not meant to create air-tight financing formulas. Branches can finance
even beyond the schemes. For instance, our Sagar Laxmi scheme envisages credit up
to Rs.10 lacs for fish processing. If a borrower requiring more than Rs. 10 lacs for this
activity, then he should not be denied credit ion the ground that our scheme does not
enable higher credit amounts. The finance can be granted outside Sagar Lakshmi
scheme. Schemes should not be treated as impediments for finance to eligible
borrowers who do not conform to salient features of the scheme.
The following schemes are developed by our Bank under MSME
1. IOB MSE Plus
2. Advance Term Loan Scheme
3. IOB CA
4. IOB Micro One
5. IOB Engineer
6. Sagar Lakshmi
7. Sanjeevani
8. GEMS
9. SME Mahila Plus
10. Insta Fund
11. IOB SME Equi
12. Pushpaka
13. SME Rice Mill Plus
..24

Some of the above schemes like Sagar Lakshmi and Pushpaka etc. are not entirely
covered by MSME as some loans under those schemes may come under Agriculture
(priority) or Non-Priority depending on activity. For example, Pushpaka is a scheme for
financing purchase of vehicles some of which can come under MSE only if the
borrowers belong to professional /self-employed category.
Major government schemes and schemes of other agencies implemented under tie-up:

1
2
3
4
5
6
7
8
9
10
11

Scheme
Prime Ministers Employment Generation Programme (PMEGP)
Rejuvenation, Modernization and Technology up gradation Scheme
for Coir Industry (REMOTE)
Technology up gradation Scheme for Textile and Jute Industry (TUF)
( Scheme expired : Renewal by Ministry awaited)
Trade Related Entrepreneurship Assistance and Development
(TREAD)
Credit Linked Capital Subsidy Scheme (CLCSS) for Small
Manufacturing Units
Growth and Equity Assistance Scheme for MSME (GEMS)
Loan Facilitation Service
Interest Subsidy Eligibility Certificate (ISEC) Scheme
Swarna Jayanti Sahari Rozgar Yojana (SJSRY)
Credit Facilitation Support Service
Subsidy Linked Credit Scheme on Solar Energy Application
Under Jawaharlal Nehru National Solar Mission

Agency
Ministry
of
MSME/KVIC
Coir Board
Ministry
Textiles
Ministry
MSME
SIDBI

of
of

SIDBI
SIDBI
KVIC
MHUPA*
NSIC
MNRE*

Details of these schemes are given in separate chapters of this book.

*MHUPA: Ministry of Housing and Urban Poverty Alleviation
*MNRE: Ministry of New and Renewable Energy

..25

6. CREDIT GUARANTEE FUND SCHEME FOR MICRO AND SMALL ENTERPRISES

Note : Our Bank has decided to absorb CGTMSE guarantee fee and Annual
Administration Fee by the bank for all new borrowal accounts under MSE sector up to a
credit limit of Rs 1 crore with effect from 25.02.2013
Advantages of Credit Guarantee scheme of CGTMSE
No need to obtain collateral security for credit facilities up to Rs.1 Crore. This
eliminates mortgage related complications and makes loan documentation simple.
Cover will be available up to 75% for loans up to Rs.50 Lacs and 50% for the amount
exceeding Rs.50 Lacs.
The guaranteed portion of credit need not be taken in to account while computing
capital requirements on credit.
Availability of CGTMSE cover will reduce the provision requirements on certain
category of Non Performing Assets.
Entrepreneurs with good and viable projects, but not in a position to offer collateral
security can avail credit facilities from bank
Limitations of CGTMSE scheme
CGTMSE does not cover retail trade loans and loans granted to Educational
Institutions, though both comes under MSME
Legal action for recovery to be initiated before preferring claim
Our Banks policy is to bring all eligible loans to MSE under this guarantee cover.
Branches should take maximum advantage of this scheme for MSE lending.
The Scheme
1. Definitions
For the purposes of this Scheme - : (i) "Amount in Default" means the principal and
interest amount outstanding in the account(s) of the borrower in respect of term loan
and amount of outstanding working capital facilities (including interest), as on the date
of account becoming NPA or the date of lodgement of claim application whichever is
lower or such of the date as may be specified by CGTMSE for preferring any claim
against the guarantee cover subject to a maximum of amount Guaranteed.
..26

(ii) "Collateral security" means the security provided in addition to the primary security,
in connection with the credit facility extended by a lending institution to a borrower.
(iii) "Credit facility" means any financial assistance by way of term loan and / or fund
based and non-fund based working capital (e.g. Bank Guarantee, Letter of credit etc)
facilities extended by the lending institution to the eligible borrower. For the purpose of
calculation of guarantee fee, the "credit facility extended" shall mean the amount of
financial assistance committed by the bank to the borrower, whether disbursed or not.
For the purpose of the calculation of service fee, the credit facility extended shall mean
the credit facilities (both fund and non-fund based) covered under CGS and for which
guarantee fee has been paid, as at March 31, of the relevant year.
(iv) "Eligible borrower" means new or existing Micro and Small Enterprises to which credit
facility has been provided by the lending institution without any collateral security
and/or third party guarantees.
(v) 'Guarantee Cover' means maximum cover available per eligible borrower of the
amount in default in respect of the credit facility extended by the lending institution.
(vi) "Lending institution(s)" means a commercial bank included in the second Schedule
to the Reserve Bank of India Act, 1934 and Regional Rural Banks as may be specified by
the Trust from time to time, or any other institution as may be directed by the Govt. of
India from time to time. The Trust may, on review of performance, remove any of the
lending institution from the list of eligible institution.
(vii) "Material date" means the date on which the guarantee fee on the amount
covered in respect of eligible borrower becomes payable by the lending institution to
the Trust.
(viii) "Non Performing Assets" means an asset classified as a nonperforming based on
the instructions and guidelines issued by RBI from time to time.
(ix) "Primary security" shall mean the assets created out of the credit facility and/or
existing unencumbered assets which are directly associated with the project or business
for which the credit facility has been extended.
(x) "Prime Lending Rate" is the rate so declared by that lending institution for the
relevant time period /duration for which the credit facility has been extended. (xi) "Scheme" means the Credit Guarantee Fund Scheme for Micro and Small
Enterprises
(xii) "SIDBI" means the Small Industries Development Bank of India,
..27

(xiii) 'Micro and Small Enterprises' is as defined in MSMED Act, 2006

(xiv) "Tenure of guarantee cover" means the maximum period of guarantee cover from
Guarantee start date which shall run through the agreed tenure of the term credit and
for a period of 5 years or block of a 5 years where working capital facilities alone are
extended or loan termination date, whichever is earlier or such period as may be
specified by the Trust.
(xv) "Trust" means the Credit Guarantee Fund Trust for Micro and Small Enterprises
(xvi) Third Party Guarantee" means any guarantee obtained by a Member Lending
Institution in connection with the credit facility extended by it to a borrower except
from Sole Proprietor in case of Sole Proprietary concern, Partners in case of partnership /
limited liability partnership, Trustees in case of Trust, Karta & Coparceners in case of HUF
and promoter directors in case of private/ public limited companies.
2. SCOPE AND EXTENT OF THE SCHEME
3. Guarantees by the Trust
(i.) Subject to the other provisions of the Scheme, the Trust undertakes, in relation to
credit facilities extended to an eligible borrower from time to time by an eligible
institution which has entered into the necessary agreement for this purpose with the
Trust, to provide a guarantee on account of the said credit facilities. (ii.) The Trust
reserves the discretion to accept or reject any proposal referred by the lending
institution which otherwise satisfies the norms of the Scheme.
4. Credit facilities eligible under the Scheme: The Trust shall cover credit facilities (Fund
based and/or Non fund based) extended by Member Lending Institution(s) to a single
eligible borrower in the Micro and Small Enterprises sector for credit facility (i) not
exceeding Rs. 50 lakh (Regional Rural Banks/Financial Institutions) and (ii) not exceeding
Rs.100 lakh (Scheduled Commercial Banks and select Financial Institutions) by way of
term loan and/or working capital facilities on or after entering into an agreement with
the Trust, without any collateral security and\or third party guarantees or such amount
as may be decided by the Trust from time to time.
Provided that the bank applies for guarantee cover in respect of credit proposals
sanctioned in the quarter April-June, July-September, October-December and JanuaryMarch prior to expiry of the following quarter viz. July-September, October-December,
January-March and April-June respectively
..28

Provided further that, as on the material date (i) Banks dues have not become bad or
doubtful of recovery; and / or
(ii) The business or activity of the borrower for which the credit facility was granted has
not ceased; and / or
(iii) The credit facility has not wholly or partly been utilized for adjustment of any debts
deemed bad or doubtful of recovery, without obtaining a prior consent in this regard
from the Trust.
Credit facilities extended by more than one bank and/or financial institution jointly
and/or separately to eligible borrower up to a maximum up to Rs.100 lakh per borrower
subject to ceiling amount of individual MLI or such amount as may be specified by the
Trust.
5. Credit facilities not eligible under the Scheme
The following credit facilities shall not be eligible for being guaranteed under the
Scheme: (i) Any credit facility in respect of which risks are additionally covered under a scheme
operated / administered by Deposit Insurance and Credit Guarantee Corporation or
the Reserve Bank of India, to the extent they are so covered.
(ii) Any credit facility in respect of which risks are additionally covered by Government
or by any general insurer or any other person or association of persons carrying on the
business of insurance, guarantee or indemnity, to the extent they are so covered.
(iii) Any credit facility, which does not conform to, or is in any way inconsistent with, the
provisions of any law, or with any directives or instructions issued by the Central
Government or the Reserve Bank of India, which may, for the time being, be in force.
(iv) Any credit facility granted to any borrower, who has availed himself of any other
credit facility covered under this scheme or under the schemes mentioned in clause (i),
(ii) and (iii) above, and where the lending institution has invoked the guarantee
provided by the Trust or under the schemes mentioned in clause (i), (ii) and (iii) above,
but has not repaid any portion of the amount due to the Trust or under the schemes
mentioned in clause (i), (ii) and (iii) above, as the case may be, by reason of any
default on the part of the borrower in respect of that credit facility.
(v) Any credit facility which has been sanctioned by the lending institution against
collateral security and / or third party guarantee.
(vi) Any credit facility which has been sanctioned with interest rate more than 3% over
the Prime Lending Rate (PLR) of the bank.
..29

6. Agreement to be executed by the lending institution

Bank shall not be entitled to a guarantee in respect of any eligible credit facility
granted by it unless it has entered into an agreement with the Trust in such form as may
be required by the Trust for covering by way of guarantee, under the Scheme all the
eligible credit facilities granted by the bank, for which provision has been made in the
Scheme.
(Note: IOB has entered into agreement)
7. Responsibilities of lending institution under the scheme:
(i) The lending institution shall evaluate credit applications by using prudent banking
judgment and shall use their business discretion / due diligence in selecting
commercially viable proposals and conduct the account(s) of the borrowers with
normal banking prudence.
(ii) Bank shall closely monitor the borrower account.
(iii) Bank shall safeguard the primary securities taken from the borrower in respect of the
credit facility in good and enforceable condition.
(iv) Bank has to ensure that the guarantee claim in respect of the credit facility and
borrower is lodged with the Trust in the form and in the manner and within such time as
may be specified by the Trust in this behalf and that there shall not be any delay on its
part to notify the default in the borrowers account which shall result in the Trust facing
higher guarantee claims.
(v) The payment of guarantee claim by the Trust to bank does not in any way take
away banks responsibility to recover the entire outstanding amount of the credit from
the borrower. Bank should exercise all necessary precautions and maintain its recourse
to the borrower for entire amount of credit facility owed by it and initiate such
necessary actions for recovery of the outstanding amount, including such action as
may be advised by the Trust.
(vi) Bank should comply with such directions as may be issued by the Trust, from time to
time, for facilitating recoveries in the guaranteed account, or safeguarding its interest
as a guarantor, as the Trust may deem fit and the bank shall be bound to comply with
such directions.

..30

(vii) Bank shall, in respect of any guaranteed account, exercise the same diligence in
recovering the dues, and safeguarding the interest of the Trust in all the ways open to it
as it might have exercised in the normal course if no guarantee had been furnished by
the Trust. The bank shall, in particular, refrain from any act of omission or commission,
either before or subsequent to invocation of guarantee, which may adversely affect
the interest of the Trust as the guarantor. In particular, bank should intimate the Trust
while entering into any compromise or arrangement, which may have effect of
discharge or waiver of personal guarantee(s) or security. Bank shall also ensure either
through a stipulation in an agreement with the borrower or otherwise, that it shall not
create any charge on the security held in the account covered by the guarantee for
the benefit of any account not covered by the guarantee, with itself or in favour of any
other creditor(s) without intimating the Trust. Further the bank shall secure for the Trust or
its appointed agency, through a stipulation in an agreement with the borrower or
otherwise, the right to display the defaulted borrowers' names and particulars on the
Website of the Trust.
GUARANTEE FEE
8. Guarantee Fee and Annual Service Fee
(i) Composite all-in Guarantee Fee for loans granted after 1st January 2013 is as under:Annual Guarantee Fee (AGF) [% p.a.]
Credit Facility
Up to Rs.5 lakh
Above Rs.5 lakh
and upto Rs.100 lakh

Women, Micro Enterprises and units in

North East Region (incl. Sikkim)
0.75
0.85

Others
1.00
1.00

Above % of sanctioned credit facility shall be paid upfront to the Trust by the institution
availing of the guarantee cover within such period as may be specified by the Trust.
In the event of non-payment within such period or any other specified date, the
guarantee under the scheme shall not be available to the bank unless the Trust agrees
for continuance of guarantee and the bank pays penal interest on the fee due and
unpaid, with effect from the due date, at four per cent over Bank Rate, per annum, or
at such rates specified by the Trust from time to time for the period of delay.
( ii) In the event of any error or discrepancy or shortfall being found in computation of
the amounts or in the calculation of the guarantee fee / annual service fee, such
deficiency / shortfall has to be paid to the Trust together with interest at a rate of four
..31

per cent over and above the Bank Rate, or as may be prescribed by the Trust from time
to time. Any amount found to have been paid in excess would be refunded by the
Trust. In the event of any representation made by bank in this regard, the Trust shall take
a decision based on the available information with it and the clarifications received
from the bank. Decision of Trust shall be final and binding on bank.
(iii) The amount equivalent to the guarantee fee and / or the service fee payable by
the Bank can be recovered from borrower at banks discretion.
The guarantee fee and / or annual service fee once paid is not refundable; except
under certain circumstances like
(i) Excess remittance,
(ii) Remittance made more than once against the same credit application,
(iii) Guarantee fee & / or annual service fee not due,
(iv) Guarantee fee paid in advance but application not approved for guarantee cover
under the scheme,
GUARANTEES
9. Extent of the guarantee
Category

Maximum extent of Guarantee where credit facility is

Up to Rs.5 lakh Above
Rs.5 Above Rs.50 lakh up to
lakh
up
to Rs.100 lakh
Rs.50 lakh
Micro Enterprises
85% of the 75% /
Rs.37.50 lakh plus 50%
amount
in Rs.37.50 lakh
of amount in default
default subject
above
Rs.50
lakh
to a maximum
subject
to
overall
of Rs.4.25 lakh
ceiling of Rs.62.50 lakh
Women
Rs.40 lakh plus 50% of
entrepreneurs/ Units
amount
in
default
located in North East
80% of the amount in default
above
Rs.50
lakh
Region
subject to a maximum of Rs.40 subject
to
overall
(incl. Sikkim)other than
lakh
ceiling of Rs.65 lakh
credit facility up to
Rs.5 lakh to micro
enterprises
All other category of
75% /
Rs.37.50 lakh plus 50%
borrowers
Rs.37.50 lakh
of amount in default
above
Rs.50
lakh
subject
to
overall
ceiling of Rs.62.50 lakh
..32

All proposals for sanction of guarantee approvals for credit facilities above Rs. 50 lakh
and up to Rs.100 lakh will have to be rated internally by the MLI and should be of
investment grade. Proposals approved by the MLIs on or after December 8, 2008 will be
eligible for the coverage up to Rs.100 lakh.
The guarantee cover will commence from the date of payment of guarantee fee and
shall run through the agreed tenure of the term credit in respect of term credit /
composite credit. Where working capital alone is extended to the eligible borrower, the
guarantee cover shall be for a period of 5 years or a block of 5 years, or for such period
as may be specified by the trust in this behalf.
CLAIMS
10. Invocation of guarantee
(i) The lending institution may invoke the guarantee in respect of credit facility within a
maximum period of two years from date of NPA, if NPA is after lock-in period or within
two years of expiry of lock-in period, if NPA is within lock-in period, if the following
conditions are satisfied: a. The guarantee in respect of that credit facility was in force at the time of account
turning NPA.
b. The lock-in period of 18 months from either the date of last disbursement of the loan
or the date of payment of the guarantee fee, whichever is later, has elapsed;
c. The amount due and payable to the lending institution in respect of the credit facility
has not been paid and the dues have been classified by the lending institution as Non
Performing Assets. provided that bank shall not make or be entitled to make any claim
if the loss had occurred owing to actions / decisions taken in contravention of the
guidelines issued by the Trust
d. The credit facility has been recalled and the recovery proceedings have been
initiated under due process of law. Mere issuance of recall notice under SARFAESI Act
2002 cannot be construed as initiation of legal proceedings for preferring claim under
CGS. Bank is advised to take further action as contained in Section 13 (4) of the above
Act wherein a secured creditor can take recourse to any one or more of the recovery
measures out of the four measures indicated therein before submitting claims for first
instalment of guaranteed amount. If Bank is not in a position to take any of the action
indicated in the said section, then bank should initiate recovery proceeding under any
other applicable law and seek the claim for first instalment from the Trust.

..33

e. However, initiation of legal proceedings as a pre-condition for invoking of

guarantees shall be waived for credit facilities up to Rs.50 000/-, subject to the condition
that for all such cases, where the filing of legal proceedings is waived, an Executive
Committee of the Bank headed by an Officer not below the rank of General Manager
should examine all such accounts and take a decision for not initiating legal action and
filing claim under the scheme.
(ii) The claim should be preferred by the lending institution in such manner and within
such time as may be specified by the Trust in this behalf.
(iii) The Trust shall pay 75 per cent of the guaranteed amount on preferring of eligible
claim by the Bank, within 30 days, subject to the claim being otherwise found in order
and complete in all respects. The Trust shall pay to Bank interest on the eligible claim
amount at the prevailing Bank Rate for the period of delay beyond 30 days. The
balance 25 per cent of the guaranteed amount will be paid on conclusion of recovery
proceedings by the Bank or after three years of obtention of decree of recovery,
whichever is earlier. On a claim being paid, the Trust shall be deemed to have been
discharged from all its liabilities on account of the guarantee in force in respect of the
borrower concerned. However bank should undertake to refund any amount received
from the unit after payment of full guaranteed amount by CGTMSE.
(iv) In the event of default, bank shall exercise its rights, if any, to take over the assets of
the borrowers and the amount realised, if any, from the sale of such assets or otherwise
shall first be credited in full to the Trust before it claims the remaining 25 per cent of the
guaranteed amount.
(v) Bank is liable to refund the claim released by the Trust together with penal interest
at the rate of 4% above the prevailing Bank Rate, if such a recall is made by the Trust in
the event of serious deficiencies having existed in the matter of appraisal / renewal
/follow-up / conduct of the credit facility or where lodgement of the claim was more
than once or where there existed suppression of any material information on part of the
lending institutions for the settlement of claims.
Bank will pay such penal interest, when demanded by the Trust, from the date of the
initial release of the claim to the date of refund of the claim.
The trust will not entertain Claim received directly from the branches or offices other
than respective operating offices.

..34

11. Subrogation of rights and recoveries on account of claims paid

(i) Bank shall furnish to the Trust, the details of its efforts for recovery, realisations and
such other information as may be demanded or required from time to time. Bank will
hold lien on assets created out of the credit facility, on its own behalf and on behalf of
the Trust. The Trust shall not exercise any subrogation rights and the responsibility of the
recovery of dues including takeover of assets, sale of assets, etc., shall rest only with the
bank.
(ii) In the event of a borrower owing several distinct and separate debts to the lending
institution and making payments towards any one or more of the same, whether the
account towards which the payment is made is covered by the guarantee of the Trust
or not, such payments shall, for the purpose of this clause, be deemed to have been
appropriated by the lending institution to the debt covered by the guarantee and in
respect of which a claim has been preferred and paid, irrespective of the manner of
appropriation indicated by such borrower or the manner in which such payments are
actually appropriated.
(iii) Every amount recovered and due to be paid to the Trust shall be paid without
delay, and if any amount due to the Trust remains unpaid beyond a period of 30 days
from the date on which it was first recovered, interest shall be payable to the Trust by
the bank at the rate which is 4% above Bank Rate for the period for which payment
remains outstanding after the expiry of the said period of 30 days.
MISCELLANEOUS
12. Appropriation of amount received by Trust from the Bank
The trust will appropriate the amount received from the bank in the order in which the
service fee, penal interest and other charges have fallen due. If the service fee and the
penal interest have fallen due on the same date, then the appropriation shall be made
first towards service fee and then towards the penal interest and finally towards any
other charges payable in respect of the eligible credit facility.
13. Appropriation of amount realised by the bank after invoking the guarantee:
Where subsequent to the Trust having released a sum towards the amount in default in
accordance with the provisions contained in the Section 10 of this scheme, the bank
recovers money subsequent to the recovery proceedings initiated by it, the same shall
be deposited with the Trust, after adjusting towards the cost incurred for recovery of the
amount. The Trust shall appropriate the same first towards the pending service fee,
penal interest, and other charges due to the Trust, if any, and the balance, if any, shall
..35

be appropriated in such a manner so that losses on account of deficit in recovery of

the credit facility between the Trust and the bank are in the proportion of 75% / 80% /
85% and 25% / 20% / 15%, respectively.
14. Trust's liability to be terminated in certain cases
(I)If a borrowers liability to the bank on account of any eligible credit facility
guaranteed under this Scheme are transferred or assigned to any other borrower and if
the conditions as to the eligibility of the borrower and the amount of the facility and
any other terms and conditions, if any, subject to which the credit facility can be
guaranteed under the Scheme are not satisfied after the said transfer or assignment,
the guarantee in respect of the credit facility shall be deemed to be terminated as
from the date of the said transfer or assignment.
(ii)If a borrower becomes ineligible for credit facilities under the Scheme, by reason of
cessation of his activity or his activity or his unit ceasing to come within the definition of
a MSE unit, the liability of the Trust in respect of any credit facilities granted to him shall
be limited to the liability of the borrower as on the date on which he becomes
ineligible, subject, however, to the limits on the liability of the Trust fixed under this
Scheme. However, notwithstanding the death or retirement of a partner where the
borrower is a partnership firm or the death of one of the joint borrowers, if the lending
institution is entitled to continue the credit facilities to the surviving partner or partners or
the surviving borrower or borrowers, as the case may be and if the credit facilities have
not already become non performing asset, the guarantee in respect of such credit
facilities shall not be deemed to be terminated.
15. Returns and Inspections
(i) Bank has to submit statements and furnish information as required by the Trust in
connection with any credit facility under this Scheme.
(ii) Bank shall also furnish to the Trust all such documents, receipts, certificates and other
writings as the latter may require and shall be deemed to have affirmed that the
contents of such documents, receipts, certificates and other writings are true, provided
that no claim shall be rejected and no liability shall attach to the bank or any officer
thereof for anything done in good faith.
(iii)The Trust shall have the right to inspect or call for copies of the books of account
and other records (including any book of instructions or manual or circulars regarding
conduct of advances) of the bank and of any borrower. Such inspection may be
..36

carried out either through the officers of the Trust or of SIDBI (except in case of
Institutions other than SIDBI) or any other person appointed by the Trust for the purpose
of inspection. Every officer or other employee of the bank or the borrower, who is in a
position to do so, shall make available the books of account and other records and
information which are in his possession.
16. Conditions under the Scheme binding on the lending institution
(i)Any guarantee given by the Trust shall be governed by the provisions of the Scheme
as if the same had been written in the documents evidencing such guarantee.
(ii)As far as possible bank will ensure that the conditions of any contract relating to an
account guaranteed under the Scheme are not in conflict with the provisions of the
Scheme but notwithstanding any provision in any other document or contract, the
bank shall in relation to the Trust be bound by the conditions imposed under the
Scheme.
17. Modifications and exemptions
(i)The Trust has the right to modify, cancel or replace the scheme, but the rights or
obligations relating to a guarantee issued under the Scheme, up to the date of such
modification, cancellation or replacement, shall not be affected.
(ii) The Trust has a right to alter the terms and conditions of the Scheme in regard to an
account in respect of which guarantee has not been invoked as on the date of such
alteration.
(iii)In the event of the Scheme being cancelled, no claim shall lie against the Trust in
respect of facilities covered by the Scheme, unless the provisions contained in Clause (i)
and (ii) of Section 10 of the Scheme are complied with prior to the date on which the
cancellation comes into force.

..37

7. RBIs Common Guidelines for Lending to MSME Sector

Disposal of Applications: All loan applications for MSE units up to a credit limit of Rs.
25,000/- should be disposed of within 2 weeks and those up to Rs. 5 lakh within 4 weeks
provided, the loan applications are complete in all respects and accompanied by a
check list".
Issue of Acknowledgement of Loan Applications to MSME borrowers: Branches have 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. RBI has also encouraged Banks to
start Central Registration of loan applications. RBI has advised that the same
technology used for online submission of loan applications should also be used for
online tracking of loan applications.
Collateral: Branches should not accept collateral security for 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 of KVIC.
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.
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.
Specialized MSME branches: Public sector banks have been advised to open at least
one specialized branch in each district. Further, banks have been permitted to
categorize their MSME general banking branches having 60% or more of their advances
to MSME sector in order to encourage them to open more specialized 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 will ensure specialized MSME branches in identified clusters/centers
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 specialized SSI branches may also be re designated 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.
..38

Delayed Payment: Under the Amendment Act, 1998 of Interest on Delayed Payment to
Small Scale and Ancillary Industrial Undertakings, penal provisions have been
incorporated to take care of delayed payments to MSME units. After the enactment of
the Micro, Small and Medium Enterprises Development (MSMED), Act 2006, the existing
provisions of the Interest on Delayed Payment Act, 1998 to Small Scale and Ancillary
Industrial Undertakings, have been strengthened as under:
(i) In case the buyer to make payment on or before the date agreed on between him
and the supplier in writing or, in case of no agreement before the appointed day. The
agreement between seller and buyer shall not exceed more than 45 days.
(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 have been 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 MSEs.
Structured Mechanism for Monitoring Credit Growth to MSE: On 9th May 2013, RBI issued
comprehensive instructions to put in place a structured mechanism for monitoring
credit growth to MSE. Banks have been directed to put in place a comprehensive
system based multi-layered performance management information system. This will
operate at all supervisory levels viz. Branch, Regional Office and Central Office.
Secondly, RBI has repeated their earlier direction for central registration of all MSE loan
applications received, backed by an online submission as well as online tracking
system. RBI has also desired that the application disposal process should be monitored
on line at all levels and the updated disposal position be displayed in banks website
compulsorily. A specific format is designed by RBI for this purpose where number and
amount of applications received, disposed off and pending have to be furnished
segregated into manufacturing and services sectors.
Other directions given in the above circular relate to rehabilitation of sick MSEs and
sensitizing branch level functionaries on the above issues. Our SME department and MIS
department are now working on these directions of RBI and will shortly issue detail
instructions by means of a circular.
..39

8. Receipt and e-tracking of MSME Applications Online: Operational Instructions

Our Bank has put in place a system for receipt and e-tracking of MSME credit
applications online. As per this system, The Credit Officer, on receipt of the MSME loan
application, should first enter it in the proposals received register. After making this
entry, he should log on to our new website and click Products link in the browser. The
fields with the name Online MSME Application view are available under Branch
Products where he should key in details of the application .
Once this process is over, Details OK button should be clicked .A unique number
would be generated. This number should be provided to the applicant to enable him to
e-track the status of his application through our website.
If there is more than one credit officer attached to the department, the Branch Head
should identify a credit officer who will be responsible for registering loan applications
online. He will be also accountable for noncompliance in this regard.
General Instructions to Branches /RO/CO
Once the loan application is put through online, the credit officers at respective layers
should feed the progress of the credit proposal as follows:

Declined on

Queries Raised on

Reply received on

Sanctioned on

Any other comments,

including rejection of proposals post-processing

In order to quicken the Turn Around Time (TAT), it would suffice if the above processes
are entered promptly to enable the MSME applicant to know the status.
The above procedure should be adhered strictly. Central Office will not take up any
application received without the system generated unique number. If received, such
proposals will be returned to the branch for entry in the system.
At branch level, no application without the unique number should be taken up for
sanction by the Branch Head.
As registering a loan application is a part of Central Vigilance Commission (CVC)
guidelines to improve transparency in disposal of loan applications. RBI has also come
up with firm directions to enable online tracking. Hence all layers of authority must
comply with these guidelines.
..40

9. CREDIT RATING AND DUE DILIGENCE FOR MSME

Internal Rating
Like other credit facilities, internal rating of SME accounts in RAM module is enabled
through Online Credit Processing System (Online CPS). This is an integrated Rating
and Appraisal software where branches prepare credit appraisal notes and also
process assessment of borrower rating simultaneously online.
The following models of Online CPS relate to SME:
(1) SME Manufacturing Model, and
(2) SME Services Model
All borrowal accounts with a total limit of Rs. 1 crore and above (including Fund Based
and Non Fund Based limits) shall be rated and their credit requirements shall be
processed through Online CPS-Corporate. All fresh / enhancements / renewals /
adhoc limits, subject to above, should be processed through Online CPS Corporate.
The applicable model will be selected on the following basis:
SME Model: A borrower unit, which is an SME unit as per MSME Act 2006, engaged in
manufacturing activities shall be rated under SME Model. Here the selection of the SME
Model is based on the investment criteria as stipulated in MSME Act 2006 and that the
line of activity should be manufacturing.
SME (Services) Model: A borrower unit, which is an SME unit as per MSME Act
2006 and engaged in services as permitted by MSME Act and subsequent
amendments shall be rated under SME Services Model.
The different assessment types under each model (whether manufacturing or services)
are: (a) Company without Project (b) Company with Project and (c) Greenfield Project
For SME, the model specific rating grades are from SME1 to SME 10, which are mapped
against IOBs common scale in the following manner
SME
Model

Common
Scale

Definition

SME 1

IOB 3

SME 2
SME 3

IOB 4
IOB 5

SME 4

IOB 6

SME 5
SME 6 &
7
SME 8 &
9
SME 10

IOB 7
IOB 8

Changes in circumstances are more likely to affect debt-servicing capacity than for
higher grades
Debt-Servicing Capacity could weaken when circumstances change
Less susceptible to default but uncertainties faced by them could adversely affect Debt
Servicing Capacity
Uncertainties faced by issuer could lead to inadequate capacity to make timely debt
repayment
Debt Servicing Capacity is highly vulnerable to adverse changes in circumstances
Adverse business or economic conditions are likely to lead to inability or unwillingness to
service debt
Timely payment of debt would continue only if favorable circumstances continue

IOB 9
IOB 10

Debt servicing capacity is in default and returns from this may be realized only on
reorganization liquidation

..41

Our Banks Loan Policy document stipulates that accounts should come within the
rating equivalent of IOB 1 to IOB 5 which translates to SME 1 to SME 3. Accounts with
lower ratings (i: e SME 4 and lower) should be considered only in exceptional cases
with following precautions:
(a) Rigid due diligence
(b) Only at entry level
(c) By the next higher authority.
A. Credit Rating: External
During 2005-06, a scheme for Performance and Credit Rating Mechanism for Small Scale
Industries was formulated by Government of India in consultation with Indian Banks
Association and various rating agencies. The National Small Industries Corporation was
appointed as the nodal agency for implementation of the scheme. Under the scheme,
NSIC provides subsidy in the rating fees from rating agencies empanelled by them, which
includes SMERA.
Hence in order to bring MSME borrowers under the ambit of rating, our Bank had signed
a MOU with SMERA (SME Rating Agency of India) in 2006, which has been kept renewed
and validated till date. Under the MOU, both our existing and prospective SME
customers are able to obtain credit rating from SMERA at concessional fees.
SSI customers are eligible for National Small Industries Corporation (NSIC) subsidy which
is 75% of the rating fees. This subsidy is reimbursed through the rating agency to the
MSME.
Our bank offers interest concession of 0.25 % to any SME borrower which gets good
rating from SMERA is eligible for concessional interest. This is allowed in order to
encourage the borrowers to opt for such credit rating.
SMERA rates SME units under two different streams. The rating grids for these two scales
are shown below.
(1) NSIC- D & B - SMERA Rating Scale (For MSE under NSIC Scheme)

Performance
Capability

Financial Capability
High
Medium
Highest
SE 1A
SE 1B
High
SE 2A
SE 2B
Moderate
SE 3A
SE 3B
Weak
SE 4A
SE 4B
Poor
SE 5A
SE 5B

Low
SE 1C
SE 2C
SE 3C
SE 4C
SE 5C
..42

(2) Under SMERA rating scale (For units with our SSI certificates and Medium Enterprises)
Highest
High
Above Average
Average
Below Average
Inadequate
Low
Poor

SME 1
SME 2
SME 3
SME 4
SME 5
SME 6
SME 7
SME8

Out of the above, only those units who secure ratings stated in bold letters in above
tables ( SE1A, SE1B, SE2A, SE2B, SE3A ,SME1, SME2 ,and SME3 ) are eligible for interest
concession of 0.25%.
The rating provided by SMERA is an independent third party assessment of the
overall condition of the SME which takes into account financial position and several
qualitative factors that have a bearing on its creditworthiness.
The rating fees applicable at present for various categories of SME borrowers is
given below :
FOR SSIs (UNDER NSIC SUBSIDY) Fresh and Renewal Cases (Amt in Rs.)
Turnover Category

Fees

Service Tax

Total

<50 lacs

7500

773

8273

50 lacs to 200 lacs

9000

927

9927

>200 lacs

12000

1236

13236

FOR SME UNITS (NON SSI-NON NSIC) Fresh Cases (Amt in Rs.)
Turnover Category

Fees

Service Tax

Total

<50 lacs

30000

3090

33090

50 lacs to 200 lacs

>200 lacs

36000
48000

3708
4944

39708
52944

FOR SME UNITS (NON SSI-NON NSIC) Renewal cases (Amt in Rs.)
Turnover Category

Fees

Service Tax

Total

<50 lacs

18000

1854

19854

50 lacs to 200 lacs

>200 lacs

21600
28800

2225
2966

23825
31766
..43

Rating by Other Agencies

Our banks first MOU for SME rating was with SMERA. Subsequently, our Bank signed
more MOUs for external rating of MSMEs and at present in addition to SMERA, we also
have MOUs with following agencies:
1. CARE
2. CRISIL
3. FITCH
4. ICRA
5. BRICKWORK
Each of these agencies has their own model of rating. Fees structure also is different.
Details relating to each agency are separately circulated by SME Department. It may
be noted that the interest concession of 0.25% is now made available for ratings by all
these agencies; only to the units qualifying under their best three rating scores. (for
example aaa, aa and a of Brickwork and SE1A, SE2A,SE1B and SE2B of CARE etc.) . NSIC
support (75% of fees) is also available for ratings made by all reputed agencies.
External ratings has several advantages for the bank as well as borrower, it will enable SMEs to
deal domestic and overseas buyers with greater strength and credibility. A sound credit rating
enhances the reputation and endorses creditworthiness of the unit, thereby giving more
comfort to Bank. Hence branches should encourage SME customers to secure external credit
ratings.
C. Due Diligence
Our Bank has signed MOUs with two reputed credit rating agencies CRISIL and
Dun & Bradstreet for conducting due diligence exercise for MSME borrowers.
The above exercise will supplement the branch efforts in quick and qualitative
appraisal of the credit limits. The advantage of such due diligence to the bank is
facilitating decision on the proposal through an independent assessment of the
applicant by a reputed agency. The advantage to the borrower is that a good due
diligence report enhances his reputation and enables him to approach any bank. Due
Diligence is not compulsory either for the bank or for the borrower.
The DDE (Due Diligence Enquiry) Report of Dun and Bradstreet broadly contains the
following:
a) KYC documents
b) Site visit details
c) Borrowers feedback
d) Market enquiries on the unit (Borrower), its promoters as well as guarantors
e) Status report from existing Bankers and market enquiries
f) Corporate Brochure / Company / Borrower Overview
g) ROC search and verification of RBI / CIBIL / ECGC defaulter list
h) Inspection and verification of proposed principal and collateral securities
..44

i) Status of litigation
j) Such other information relevant on the subject
DDE of CRISIL broadly contains the following:
1. Ownership pattern and Management Profile of Proprietor/partners/Directors.
2. Organizational structure, controls and systems
3. Key management personnel
4. Details of properties owned (as confirmed by management)
5. Business profile
6. Demand and supply side analysis
7. Current and past financial performance (analysis of financial parameters)
8. Current banking facilities
9. Group companies and Firms
10. Site visit details
11. Third party checks, customers feedback, suppliers feedback, other bankers
feedback
All relevant documents have to be submitted along with request for DDE report.
Other basic features of these arrangements are stated below :
Eligibility

Delivery
Time
Service
Charges

Documents
Required/
Process

D&B
All MSME borrowers (existing or new)
with credit limits of Rs.10 lacs and above

CRISIL
All new or existing MSME borrowers with
limits between Rs. 1 cr. to Rs.25 cr.

7 working days from date of submission

of all documents by borrower
Rs 8500 plus service tax per borrower per
centre (subject to a maximum of four
locations per centre) plus Rs 3500 plus
service tax for every additional location
Refer to Circular ADV/54 of 17.08 2011
issued by SME Department

7 working days from date of submission

of all documents by borrower
Rs.18700/- plus service tax

Refer Circular ADV/56/ of 29.08.2011

issued by SME dept.

Our Bank has decided to make due diligence for MSME accounts mandatory with
effect from 17th June 2013 in view of sluggish economy and tendency of rising
NPAs in the sector . as explained in the following extract from SME departments
circular of that date.
bank has considered it desirable to obtain compulsorily, Due Diligence reports
for MSME applicants applying for credit limits of Rs.1 crore and above. Such Due
Diligence reports will serve as risk mitigation factor and also help branch heads to
take credit decision. Branches can obtain Due Diligence Reports from a) Dun &
Bradstreet b) CRISIL or c) SMERA. However, it should be ensured that branches do
their own due diligence before seeking the same from external agencies as
above.
..45

10. PRIME MINISTER'S EMPLOYMENT GENERATION PROGRAMME (PMEGP)

PMEGP is a credit linked subsidy programme launched on 15th August 2008 by merging
the two erstwhile schemes called Prime Ministers Rojgar Yojana (PMRY) and Rural
Employment Generation Programme (REGP). The basic objective was generation of
employment opportunities through establishment of micro enterprises in rural as well as
urban areas. It is a central sector scheme administered by the Ministry of Micro, Small
and Medium Enterprises and implemented by Khadi and Village Industries Commission
(KVIC) as the single nodal agency at the National level. At the State level, the Scheme
is be implemented through State KVIC Directorates, State Khadi and Village Industries
Boards (KVIBs) District Industries Centres (DICs) and banks.
Objective:
To generate employment opportunities in rural as well as urban areas through setting
up of self employment ventures.
To bring together widely dispersed traditional artisans/ rural and urban unemployed
youth and give them self-employment opportunities to the extent possible, at their
place and also to increase their income
To provide continuous and sustainable employment to a large segment of traditional
and prospective artisans and unemployed youth, so as to help arrest migration of
rural youth to urban areas.
Scope:
The scheme is applicable to all viable (technically as well as economically) projects
in rural as well as urban areas, under Micro enterprises sector.
The maximum cost of the project admissible under manufacturing sector is Rs.25
lakhs and business/services sector is RS.10 lakhs.
Only one person from family is eligible for obtaining financial assistance under the
scheme.
Assistance under the Scheme is available only for new projects
The scheme is aimed at encouraging manufacturing sector.
The assistance under the scheme will not be available to activities indicated in the
negative list including business activities like grocery shop, stationery shops etc; farm
related activities like goatery, piggery, poultry etc; and urban/rural transport
activities(except auto rickshaw, tourist boat & house boat in A & N Islands; Shikara &
tourist boat in J & K, & cycle rickshaw)
..46

 Retail outlets backed by manufacturing (Including Processing)/ Service facilities may

be permitted. Retail outlets backed by bonafide manufacturing /service facilities
may be certified to be so by the district level task force committee which
recommends the case and specifically checked and certified to be so by the bank
which sanctions the loan.
Such retail outlets backed by manufacturing / service facility can be sanctioned only
to new units/ projects under PMEGP.
Eligible Entrepreneurs / Borrowers:
i. Any individual, above 18 years of age without any income ceiling.
ii. For setting up of project costing above Rs.10 lakh in the manufacturing sector and
above Rs. 5 lakh in the business /service sector, the beneficiaries must have passed
at least VIII standard
iii. Self Help Groups (including those belonging to BPL provided that they have not
availed benefits under any other Scheme) are also eligible for assistance under
PMEGP.
iv. Institutions registered under Societies Registration Act,1860
v. Production Co-operative Societies
vi. Charitable Trusts.
vii. Existing units (Under PMRY, REGP or any other scheme of Government of India or
State Government) and the units that have already availed Government Subsidy
under any other scheme of Government of India or State Government are not
eligible.

Selection of beneficiaries:
The beneficiaries will identified and selected at the district level by a Task Force
consisting of representatives from KVIC/State KVIB/State DICs and Banks. The
committee will be headed by the District Magistrate, Deputy Commissioner or Collector
of the district.
Project Cost:
Cost of the project should not exceed Rs. 25 lakhs in respect of manufacturing activity
and Rs. 10 lakhs in respect of Service / business activity for all categories of borrowers.
..47

Project cost will include Capital Expenditure and one cycle of Working Capital. Projects
without Capital Expenditure are not eligible for financing under the Scheme.
Retail outlet with manufacturing or service will be a single integrated project. For
manufacturing with retail outlet the project cost should not exceed Rs.25.00 Lacs. For
service projects with sales out lets the maximum project cost should not exceed Rs.10
lakhs.
Cost of the land should not be included in the Project cost. Cost of ready built as well as
long lease or rental work shed can be included in the project cost up to a maximum
period of 3 years only.
Quantum and Sources of Finance
Subsidy from KVIC
Bank
finance
Urban area Rural
area

Promoter's
contribution

90%

15%

25%

10%

(SC/ST,OBC, Minorities, Women, ExServicemen

,
Physically
Handicapped,
North
Eastern 95%
region and Hill & Boarder Areas

25%

35%

5%

General Category beneficiary

Special category beneficiary

Rate of Interest: As applicable to the type of activity (industry/service).

Repayment: 3 to 7 years with an initial moratorium not exceeding 6 (six) months.
Security:
a.
b.
c.
d.

Assets created out of the bank's finance.

Personal guarantee of the proprietor / promoter.
No collateral security up to Rs. 10 lakhs.
Eligible units to be covered under Credit Guarantee Fund scheme for Micro & small
Enterprises CGMSE. (excluding Margin Money / subsidy component)
Margin Money (Subsidy)

Margin Money (subsidy) will be claimed on the basis of projections of Capital

Expenditure in the approved project report but will be retained only on the basis of
actual availment of Capital Expenditure. Excess, if any, will be refunded to KVIC, when
..48

the project is ready for commencement of production. Branches are advised not to
retain excess subsidy under PMEGP, in case the working capital requirements are lower
than the sanctioned amount. Further, the first instalment of loan should be larger than
the subsidy provided by KVIC.
Others:
The selected beneficiary has to undergo EDP/Skill Development training for 2-3 weeks
at KVIC/KVIB accredited training centres. First instalment will be released only after
the beneficiary undergoes such a training of at least 2 weeks duration
Applications with project report and all relevant documents may be submitted to
KVIC/KVIB/ Banks
Application formats may be obtained from the website of KVIC at www.kvic.org.in
The credit decision rests with the Bank, on the basis of viability of each project.
As per recent directions given by KVIC, obtention of an undertaking letter from every
applicant in their prescribed format is now mandatory. The format was circulated by
SME department on 29.01.2013 and some modifications advised by KVIC were also
circulated on 05.03.2013. As the application is received by the bank from KVIC or
DIC, it is expected that the application will come along with the undertaking.
Branches should verify and ensure its availability. This undertaking protects KVIC and
Bank from certain litigations/complaints by the applicants.
All PMEGP financing banks have to join the e-tracking mechanism started by KVIC.
Further the account information shall be made available to KVIC /
Ministry on a read only basis. In this connection branches may refer to circular no.
ADV/MSME/146/2011-12 dt.16.2.2012 which explains the procedure for handling
online applications and acknowledging to applicants with unique reference
number. This will facilitate e-tracking of the loan applications.
Computation of admissible margin money subsidy on working capital / sanctioned
cash credit limit
(Operational Guidelines issued by Ministry of MSMED on 12, 06, 2012)
(I.i) If the working capital availment touches 100% of the sanctioned cash credit limit at
least once, and the average working capital availment is at least 75%, and then the
margin money subsidy would be calculated on 100% of the sanctioned cash credit
limit. The obvious rationale is that the average availment should fall within a band
between 75% and 100% for the subsidy to be calculated on 100% of the cash credit
limit.

..49

(I.ii) For all other cases, the provision would be as follows:

(a) If the working capital availment does not touch 100% of the sanctioned cash credit
limit at least once, or if the average working capital availment is below 75%,
proportionate amount of margin money subsidy should be recovered by the Bank and
refunded to KVIC at the end of three years from the date of disbursement of the loan
(that is, term loan) or date of ending of lock-in period, whatever is earlier.
(b) Thus in all other cases the special provision of giving subsidy on an amount higher
than the average daily working capital availment is not provided. In all such cases the
margin money subsidy has to be computed as the admissible percentage of the
average daily working capital availment.
(II) Computation of average working capital availment:
The average working capital availment should be calculated on the basis of daily
average of the actually availed cash credit limit.
(III) Period for calculating average working capital availment
The average working capital availment should be calculated over a period beginning
with the first drawal of cash credit and ending on the completion of the three year
period from the date of the first disbursement of the loan (that is, term loan) or date of
ending of lock-in period, whichever is earlier.
(IV) Adjustment of margin money subsidy on working capital:
Adjustment of margin money subsidy on working capital, that is, refund of the margin
money subsidy on the difference between subsidies on the sanctioned cash credit limit
and the subsidy on the admissible limit, should be undertaken at the end of the three
year period from the date of first disbursal of the loan or date of ending of lock-in
period, whichever is earlier.
(V) Adjustment of margin money subsidy on term loan
(V) i. Adjustment of margin money subsidy on term loan, that is, refund of the Margin
money subsidy on the difference between the sanctioned term loans and the actually
availed term loan (where the latter is less than the former) should be undertaken
immediately after the disbursement of the last installment of the loan.
(V) ii. It should preferably be adjusted after physical verification. However, absence
of/delay in physical verification should not impede/delay the adjustment/recovery of
the excess margin money subsidy.
..50

(VI) Issue of interest on margin money subsidy:

As per the Banks guidelines from time to time
(VI) i. Bankers have to take into consideration the total margin money subsidy (in lieu of
both term loan and working capital) and reduce this figure from the term loan for the
purpose of charging interest to the borrower-entrepreneur on the term loan. (That is, the
benefit of the total subsidy lying with the bank has to be with the borrower.)
(VI) ii. Banks can charge interest only on that part of loan which exceeds the margin
money subsidy/TDR amount. The first instalment released by bankers should be at least
equal to or more than the margin money subsidy/ TDR amount.
(VI) iii. If the first instalment is less than the margin money subsidy/TDR amount, Banks
have to pay interest to KVIC (the nodal agency, which have provided funds) on the
difference (till such time the loan amount becomes equal to or exceeds the margin
money subsidy/TDR amount).
(VI) iv. The rate at which (a) interest is paid to KVIC on the funds lying with the nodal
branches and (b) interest is paid to KVIC on the difference between the margin money
subsidy and TDR amount and first instalment of the loan (in cases where the latter is less
than the former) should be firmed-up and settled by KVIC with the Banks.

(VI) v. Interest on the excess margin money subsidy over and above the actual
entitlement should be given by the Banks to KVIC by recovering from the beneficiary.
The rate of interest should be the same at which the loans have been sanctioned to the
beneficiaries.
2. The subsidy will continue to be released in one instalment,

..51

11. SANJEEVINI
(LOAN FOR MEDICAL PRACTITIONERS)
[Note: This scheme was launched on 1st April 2002, which is now awaiting revision by
SME department. Details given here relate to the original scheme which holds good till
revision]
Eligibility

Qualified / Registered individual Medical Practitioners from reputed Universities

approved / recognized by Indian Council of Medical Research

or a group of such medical practitioners

or corporate promoted / managed by medical practitioners

Practicing in India for a minimum period of 3 years

Must be income tax assesses

Purpose:
To set up new hospitals/nursing home or for acquiring equipments for an existing
hospital or for repair and renovation of existing hospitals / nursing homes, construction
of new hospital / nursing home/poly-clinic etc., purchase of equipments, ambulances,
vans and cars for such medical practitioners and also to meet working capital
requirements.
Loan Amount:
Maximum Rs. 1 crore as under:
Rs. 100 lacs in metro or urban areas
Rs. 50 lacs in Semi urban areas
Rs. 10 lacs in rural areas
Within this amount, working capital portion should not exceed 20% of project cost.
Margin:
For purchase of medical equipments
For construction of Nursing Homes

15% to 25%
25% to 30% on project cost
..52

[Discretionary powers for reducing margin to 5 to 10 % is vested with authorities as per

guidelines issued from time to time]
Repayment:

5 to 7 years depending on projected cash flow

Can be extended up to 10 years under special circumstances if the project

warrants such extension.

Security:

Prime: Hypothecation of equipments to be purchased out of the loan

Collateral : Up to Rs. 2 lacs : NIL / Beyond Rs. 2 lacs : Immovable

properties/NSC/LIC policies to the extent of 100% of exposure

Where the value of the collateral security is above 50% of the amount of loan but
does not cover 100%, reference should be made to the next higher authority for
consideration.

Processing Charges:
0.5% of the loan amount with a minimum of Rs. 500/- and maximum of Rs. 5000/Mode of Lending:
Term Loans repayable over 5 to 7 years ;( GL code No. 4106)
Classification:
All loans will come under MSME as per details given below;

If investment in equipments is Rs.10 lacs or less : Micro Enterprises (Services) under

Priority Sector

If investment in equipments is above Rs.10 lacs but does not exceed Rs. 2 crores:
Small Enterprises (Services) under Priority Sector

If investment in equipments is above Rs.2 crores: Medium Enterprises (Services)

under Non-Priority

Reporting:

Sanctioning authorities should report details of the limit sanctioned under this
Scheme to the next higher layer of Authority in CAF 1/CAF1A as applicable.
..53

A progress report indicating the number of loans sanctioned, amount disbursed

during the quarter, total number and amount outstanding, irregularity, NPA etc.,
in respect of loans sanctioned under the Scheme should be reported by the
Branches to their Regional Offices on quarterly basis. Regional Offices in turn
should send a quarterly consolidated report to the Marketing and Development
Department, Central Office.
Documentation:

a) Demand Promissory Note

b) Hypothecation Agreement as applicable
c) F.111 whenever third party guarantee is forthcoming
d) F.378 to repay the loan in monthly instalments
e) PL8 - Letter of authority to make payment direct to the seller of the
equipments/machinery.
f) Documents relating to charging of NSCs/LIC Policy/IVP/KVP/Fixed Deposits etc.,
if they are taken as collateral security
g) Power of Attorney to collect the bills settled directly by the Companies / Business
Houses wherever there is a tie up.
h) In case of mortgage of immovable property, legal opinion, valuation report,
F.379 and all other papers / documents required to create a valid equitable
mortgage.

..54

12. IOB SME INSTA FUND

IOB SME INSTAFUND is designed to meet additional credit needs of MSME units
enabling them to execute bulk orders over and above regular orders.
Full details of the scheme are furnished below:
Eligibility; Insta Fund limit should be given in exceptional cases to existing SME customers
to enable them to handle bulk orders. Where this limit is given, ad hoc or excess should
not be given. In other words an insta-fund borrower should not be given either adhoc
enhancement or excess. All accounts of the borrower should be standard and
performing.
Purpose: To meet working capital requirement of a Micro/Small Enterprises unit enjoying
credit facilities with the Bank to execute additional /bulk orders over and above the
regular orders (for both manufacturing & Service units)
Assessment: Following factors should be taken into account for assessment:

Details of additional /bulk orders received,

capacity of the unit to execute the order
availability of required margin
working capital cycle and repayment capacity

Mode of Finance: The loan may be extended in the form of Cash Credit /MCC /Bills as
well as Non fund based.
Margin: As applicable to respective limits.
Quantum of Additional Limit : Quantum of limit should be need based. Credit rating and
length of satisfactory banking relationship should also be taken into account as
detailed below
Credit rating & Period of Satisfactory Quantum
Banking Relationship
SME 1 & 2 with Banking relationship of 50%of the existing working capital with
one year and above
the cap of Rs 5.00 crores
SME 3 with Banking relationship of 3 30%of the existing working capital with
years and above
the cap of Rs 5.00 crores
Duration of the facility: Maximum Six months with the option to extend for another six
months on merits OR till the current credit facilities are due for review/renewal.
Interest / Service Charges: The rate of interest /appraisal charges shall be as per
current sanction.
..55

Security: Current assets created out of the loan should be charged to the Bank.
Existing collateral should be charged as security for the insta fund too.
Discretionary Powers: Branch heads are empowered to sanction the above facility for
the borrowers enjoying credit facilities under the power of Branch /Regional Office with
the cap of Rs 5.00 crores. They are vested with powers to sanction the least of the
following:
(a)Actual requirement or (b) 50 % / 30% of existing working capital limits based on credit
rating and length of satisfactory relationship as detailed in column 2.5 or (c) per
borrower limit vested with the Manager (d) Cap of Rs 5.00 cr.
Regional heads are vested with power to sanction the above Facility up to 50% of the
per borrower limit vested within the cap of Rs 5.00 cr in following cases:

Requirements over and above the Branch discretion

Limits sanctioned by Central Office including MCB

However extension of time for additional limit should be by the respective sanctioning
authority
All Branch sanction should be reported to Regional office and RO sanction should be
reported to MSME Central Office (for statistical Purpose)/CSSD in CAF 1/CAF 1A for
scrutiny.
MIS Data: Regional Office shall consolidate and submit a monthly progress report with
cumulative data furnishing the number and amount of accounts referred, sanctioned,
declined and disbursed by 10th of the following month to SME Dept, Central Office.

..56

13. IOB Micro One

It is essential to bring in many new clients from the Micro sector into our fold .With this
objective in focus; our bank had evolved a credit product IOB MICRO ONE
exclusively for new borrowers in the Micro sector at concessional terms. This was
originally launched as a close-ended scheme valid up to 31.3.2012 but subsequently
made an open ended scheme with certain modifications under which loans can be
continued to be granted. Details of the scheme are given below.
Eligibility: MICRO ENTERPRISES falling under the norms as below: ((only new connections
under Micro Sector are eligible and the scheme is not applicable to existing borrower
clients) Manufacturing Enterprises: Original investment in Plant and machinery up to
Rs.25.00 lacs Service Enterprises: Original investment in Equipments upto Rs.10.00 lacs
Coverage: ONLY NEW UNITS seeking credit facilities with above investment norms
Loan amount: Maximum Rs.50.00 lacs (Cash Credit + Term Loan with a ceiling of Rs.22.50
lacs for Term Loan) can be granted separately or as a combined credit facility.
Margin: 15 % for Working Capital and 25% for Book Debts & Term Loan
Repayment: 84 EMIs for Term Loan (for combined facility as well) Cash Credit to be
renewed annually
Interest Rate: Both for Working Capital and Term Loan Base Rate + 1.75%
Security: Only prime security created out of this loan (No collateral or third party
guarantee to be obtained)
Credit Guarantee: To be covered under CGTMSE Scheme
Processing Fee: Up to Rs. 10.00 lacs: Rs. 1000/- ; Above Rs.10.00 lacs and up to Rs.50.00
lacs: Rs. 5000/- (applicable for both CC and Term Loan)
General: Branches should use simplified Application-cum-Appraisal Form (enclosed)
and note disposal in this application form itself if sanctioned by branch. (Should be
forwarded to Regional Office if exceeds branch limit)
a) Rating of the account as per CRR model for SME borrowers (new connections)
for loan amount of Rs 5 lacs and above and internal ratings for loans between Rs
2 lacs to Rs 5 lacs.
b) All other norms as per extant guidelines as per banks existing credit policy.
c) While opening the Master for borrowal accounts under the above scheme, branches
have to select MICRO ONE under IOB Scheme code. This is very important to assess
the number of accounts done by the branch/region under the scheme.
..57

14. IOB: CA
(Scheme for Chartered Accountants)
IOB C A is a Retail product under MSME classification, as professionals come under
services segment of MSME sector. This can be marketed along with other similar
Schemes in the retail segment. The scheme was introduced on 11.02.2011
1. Eligibility :
Chartered Accountants, individually / jointly or Proprietorship concern or a Partnership
Firm/Partnership with Limited Liability registered with ICAI, engaged in the profession of
Accounting/Audit etc.,
In case of Individual/proprietorship, the age of the individual/proprietor shall not
exceed 65 years (where age of the applicant/proprietor is above 65 years, such case
shall be considered on case to case basis based on the merits of the case).
The applicants/Firm should have been registered with Institute of Chartered Accounts
of India, and holding valid certificate/license for carrying out the practice.
In case of Firm, all partners shall join as co- obligants .
Members/firms should not have been subjected to disciplinary action by the Institute.
The borrowers name shall appear in the list of members of the Institute.
2. PURPOSE :
Part finance of (a) acquisition of new office premises, partly or fully constructed for
the purpose OR (b) acquisition of ready built office premises
Part finance of cost of construction of office premises
To finance a part of the cost of land and construction of office premises
(Any one of the above options)
To finance a part of the cost of purchase of furniture & fixture, fittings, office
equipments / computers / Books/ other accessories which are required for the purpose
of professional activities etc. and /or
To finance purchase of a Car for professional use
To finance a part of working capital for running the profession and/or financing
receivable and other current assets.
..58

3. NATURE OF FACILITY:
Term Loan for the purpose of acquisition of fixed assets/ Car / Books for the purpose of
profession, and/or
Cash Credit for working capital requirements.
4. QUANTUM OF LOAN:
A. Applicable for Freshers (Experience below 3 years)
Metro Urban other centres
Maximum eligibility

Rs.20 lacs

Rs.15 lacs

Rs.10 lacs

Out of which:
For office premises

Rs.15 lacs

Rs.12 lacs

Rs.8 lacs

For Furniture and

Other asset

Rs.5 lacs

Rs. 3 lacs

Rs. 2 lacs

For Working capital

Requirement

Rs. 2 lacs

Rs. 1 lac

Rs. 1 lac

B. Applicable for existing firms (in practice for 3 years and above)
a. Where latest gross annual income is up to Rs.5 lacs (as per I.T Return or Audited
financial statements.)(Income includes professional fees/consultancy fees etc.)
I Maximum eligibility
Term Loan
a Out of which:
For office premises
b For Furniture and Other
assets
II For Working capital

Metro

Urban

Other places

Rs.30 lacs

Rs.20 lacs

Rs. 15 lacs

Rs.20 lacs

Rs.15 lacs

Rs.12 lacs

Rs.10 lacs
Rs.2 lacs

Rs.5 lacs
Rs.1 lac

Rs.3 lacs
Rs.1 lac

b. Where latest gross annual income is above Rs.5 lacs & upto Rs.10 lacs
(as per latest I. T Return or audited financial statements.)
Maximum Eligibility
Metro
Urban
Other centres
Term Loan
Rs.50 lacs
Rs.25 lacs
Rs 20 lacs
..59

a Out of which:
For office premises
b For Furniture and
Other assets

Rs.40 lacs

Rs.20 lacs

Rs.15 lacs

Rs.10 lacs

Rs.5 lacs

Rs.5 lacs

II For Working capital

Rs.5 lacs

Rs.2 lacs

Rs.2 lacs

c. Where latest gross annual income is above Rs.10 lacs

(as per latest I T Return or Audited financial statement.)
Metro Urban other centres
I Maximum eligibility:
Term Loan
Rs.125 lacs
Rs.65 lacs
Rs 30 lacs
a Out of which:
For office premises
Rs.100 lacs
Rs.50 lacs
Rs.25 lacs
b For Furniture and
Other assets
Rs.25 lacs
Rs.15 lacs
Rs.5 lacs
II For Working capital: Based on assessed need
*Note: Working capital need will be assessed on the basis based of acceptable
projected cash flow statement with margin of 25%.
5. MARGIN
A. For Term Loan:
Uniform margin of 20% on cost of construction/purchase consideration (the
agreement value inclusive of stamp duty/registration, etc.)
20% for furniture and fixtures/furnishing/other assets /Car etc.,
Where loan is for purchase of site and construction of office premises, value of the
land shall not exceed 50% of the project cost. It shall be ensured that the construction
activity commences, after obtaining necessary approvals and within a reasonable
period from the date of registration.
B. For working capital:
25% against Book Debts/ Receivables not older than 120 days for cash credit.
6. SECURITY:
Term Loan Working Capital
Primary Security

Primary security shall be the assets acquired out of

the loan
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Prime security shall be assignment of Book Debts /

Receivable not older than 120 days.
Collateral Security

No collateral security but CGTMSE cover should

be taken if loan amount does not exceed Rs. 1Cr.
However for amounts exceeding Rs. 10 lacs but
within Rs. 1 crore, collateral security can be taken in
lieu of CGTMSE cover if the borrower so desires. Third
Party guarantee and/or Collateral Security may be
taken if amount exceeds Rs. 1 crore

7. REPAYMENT:
Term Loan shall be repayable in EMI, in maximum period of 10 years, including initial
moratorium up to 24 months.
Repayment period shall commence from the date of professional l operations or after
completion of initial repayment holiday or as per the terms of sanction.
Interest shall be serviced as and when debited.
No moratorium is permitted for cash credit facility.
The Repayment should be fixed taking into account the acceptable future cash flow,
based on past income as revealed in the tax returns. Suggested format for
computation of Future Cash Flow is given in Annexure II.
8. RATE OF INTEREST: As applicable to SME sector.
9. PROCESSING CHARGES: 0.25% with a minimum of Rs.5000/10. PREPAYMENT CHARGES: NIL
GENERAL CONDITIONS:
The branch shall verify the existence of firm , its members and their activity by verifying
the documents produced by them, such as Registration Number, certificate of practice
etc.,
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Where a CA/CA Firm is following cash accounting system, there is no need for
reflection of receivables in the balance sheet, for fixing the limit as well as for drawings.
Working capital may be allowed to be drawn against unpaid bills/invoices not older
than 120 days, subject to margin requirements. The branch should obtain a statement
of such bills from the borrower. Such statement has to be self certified by the borrower,
indicating the institute membership number. Branch officials should verify the register of
Bills/Invoices raised, during periodical inspections.

Working Capital assessment is to be made based on accepted cash flow and

gross annual receipts.

Practicing Cost and Works Accountants/ Firms of Cost and Works Accountants
(who are members of the Institute of Cost and Works Accountants of India) and
practicing Company Secretaries / Firms of Company Secretaries (who are members of
Institute of Company Secretaries of India) are also covered under the scheme on the
same terms and conditions as applicable to Chartered Accountants.
In case of any doubt, the branch shall seek clarification from the institute.
In case of default in loan repayment, the branch shall furnish the information to the
Institute to use their good offices for recovery assistance, besides initiating our own
recovery proceedings.
The borrower shall inform the branch about any change in constitution such as
admission / retirement / resignation of the partners, conversion of proprietorship
concern to partnership firm &vice versa etc.,
The applicant shall not have any outstanding statutory dues such as Tax, EPF & other
dues as per the last audited financial statement at the time of submission of loan
application.
.
10. DISCRETIONARY POWER: Applicable per borrower limits
11. CLASSIFICATION AND MIS: The loans under the scheme shall be classified as MSE
(Services) under Priority Sector. They should be brought under Micro or Small
category depending on investment in equipments.
12. This scheme is not the only way of extending finance to Chartered Accountants.
Our Bank has been lending to C.As even before the scheme was introduced.
Credit application from Chartered Accountants not confirming to this scheme
can also be financed on merits outside the scheme.
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15. IOB ENGINEER

Professionals such as Doctors, Chartered Accountants and lawyers are potential
customers under MSME. Civil Engineers play a major role in countrys growth in the
Industrial and real estate sector. This present scheme is developed with attractive terms
exclusively for Civil Engineers under MSE category.
Eligibility:
Civil Engineers (Individuals up to 65 yrs of age)
Proprietorship Concern.
Partnership Firm.
Partnership with Limited Liability.
Conditions:

Member of Civil Engineers Association Affiliated to the Federations or Civil

Engineers Associations of the respective States

Should not be RBI Defaulters List.

CIBIL report should be satisfactory.

Purpose:
To construct office premises
To purchase furniture, fixture, fittings and office equipments such as computers,
printers, plotters, books plus other accessories
To Purchase Centering sheets, Spans, props, Column box etc.
To purchase Constructional Machineries like J.C.P Rollers, Vibrators, Mixer Machines,
drillers, earth Rammers, and other equipments.
Mode of Assistance:
By way of Term Loan for fixed Assets.
Cash Credit for Working Capital
Processing Charges:
0.25 % of loan amount subject to a minimum of Rs.5, 000/..63

Security:
PRIME:
1. Term loan: Assets acquired from the loan amount.
2. Working Capital: Assignment of Book Debts/ Receivable up to 120 days.
COLLATERAL:
1. No collateral security up to Rs.10 Lacs. All loans up to Rs.10 Lacs should be covered
under CGTMSE Guarantee scheme.
2. Collateral security may be obtained for loans above Rs.10 Lacs, if not covered under
CGTMSE guarantee scheme. However in deserving cases, branches may consider the
loans up to Rs.100 lacs with CGTMSE cover.
3. Third Party Guarantee: Optional above Rs 10 lacs
Quantum of Loan:
Maximum eligible amount depending on the category and requirement on case to
case basis.
Interest Rate:
As applicable from time to time.
A reduction of 0.50 % on the applicable rate can be allowed if collateral coverage is
100% or above.
Repayment:
Cash Credit: To be renewed annually and Interest to be serviced monthly
Term Loan: Repayment period should not extend beyond the age limit of 72 years of
the borrower. Maximum 7 years for purchase of machineries/Equipment/ Furniture etc
with a moratorium of 3 months.
For purchase /construction of Office premises, repayment period can be extended up
to 10 years, depending on the cash flow projections as acceptable to the bank. Initial
Moratorium up to 12 to 18 months in case of financing construction activity only.
In all the above cases, repayment will be in Equal Monthly instalments with monthly
interest to be serviced on debit promptly
Repayment should commence from the date of commencement of Commercial
Operation.

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16. IOB SAGARLAKSHMI

(For Fisherwomen)
[This is a hybrid scheme some part of which is classifiable under Agriculture]
Fisheries sector contributes significantly to the national economy and out of the 5.4
million active fishers in the country, 1.6 million are fisherwomen. They operate in every
aspect of post harvest handling, preservation, processing, and marketing of dry fish /
seafood products, and provide an integral link between producers and consumers. But,
owing to lack of financial support, fisherwomen are still remaining marginalized
because of lack of empowerment. There is a considerable difference between income
earned by males and females with the former receiving the higher benefits. Exorbitant
interest has long been collected by non-institutional credit agencies. They are also
exploited by middlemen, moneylenders etc. Considering these issues and to empower
fisherwomen through capacity building, IOB SAGARLAKSHMI scheme was introduced in
2011 exclusively for financing fisherwomen.
OBJECTIVES
To liberate the fisherwomen from the clutches of usurious money lenders.
To empower them from sustainable income generation.
To support banks efforts to enhance the credit flow to women beneficiaries and
thereby fulfil the statutory requirement of increasing credit to women.
To improve Banks lending under Agri & Priority credit.
ELIGIBILITY
Women who are engaged in procuring and processing of fish into dry fish, fish feed
and other fish based products. As the scheme is meant for women only, loans granted
to men engaged in similar activities cannot be classified under his scheme.
PURPOSE
Catching, Sorting, grading, drying, processing and selling / dry fish / dried and
packed fish.
Fish and fishery product processing: smoked and dried fish breaded and
battered fishery products, fish silage preparation and shell craft
production
Fish fast food counters, processed fish vending stalls with requisite
equipments,
Breeding and selling of decorative fish for aquarium.
Contract cleaning of fish markets.
Project cost can also include Insulated fish boxes, deep freezer for storage, electronic
weighing balance, equipment for fish dressing and packaging, utensils, stove and
cooking gas, Civil works inside the outlets and any other equipment required for
..65

processing of fish. The list is not exhaustive and depending upon the local conditions,
any other related activity undertaken by the fisherwomen may be financed under the
scheme.
Loan can also be availed by proprietary and partnership firms if the proprietor and
partners are women.
MODE OF ASSISTANCE
By way of working Capital / Term Loan for equipments.
MARGIN
Up to Rs.50 000: Nil
Above Rs. 50 000: minimum 15%
If the loan comes under Agriculture, margin exemption is up to Rs. 1 lac.
QUANTUM OF LOAN
Maximum Rs.1000000 (Rupees Ten Lakhs only)
[Loans for agri purposes up to Rs 1 lac may be covered under Agri Loans
GL code No.4114]
Loans above 1 lacs and up to Rs 10 lacs may be considered as Micro enterprise/Retail
Trade under GL code no. 4112 where the advance can be
covered under CGTMSE. Otherwise the loan should be brought under code no.r
applicable for Small Loans Not Guaranteed by CGTMSE.
SECURITY
Prime: Assets created by using the loan and margin amount.
Collateral: Nil
Eligible cases should be brought under CGTMSE Guarantee Scheme.
REPAYMENT
Within 5 years in monthly instalments including initial holiday period not exceeding 3
months.

INTEREST RATE
Loans up to Rs. 1 lac and under Agri Credit: BR + 1.25% for Term Loan and BR +
1.75% Working Capital
Term Loan under MSE covered under CGTMSE: Up to Rs.2 lacs: BR + 0.75%
Above 2 lac up to Rs.10 lacs : BR + 1.75 %
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Working Capital: Up to Rs. 2 lacs: BR + 0.75%

Above 2 lac up to Rs. 10 lacs : BR + 1.75 %
PROCESSING CHARGES
Please be guided by BOD Circular from time to time
CLASSIFICATION
Loans for agriculture purpose up to Rs 1 lac should be classified under Direct
Agricultural loans GL code no. 4114
Loans above Rs 1 lac should be classified under Micro enterprise of MSME wherever
eligible
C GTMSE: As loans are meant for Fish and Fisheries Products Processing, the same could
be covered under CGTMSE.
OTHER POINTS
Loan amount should be released in stages and the loan portion for creation of fixed
assets should be released directly to the supplier and receipts to be obtained.
Fixed assets created out of loan should be insured with Banks clause.
State Govt. Corporation / Department can also shall associated for implementation of
the scheme.

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17. Growth Capital and Equity Assistance Scheme

for MSMEs (GEMs)
Background:
SIDBI is a principal financial institution set up for the promotion, financing and
development of industries in the micro, small and medium enterprises. Post-budget
announcement by Finance Minister in for the year 2008-09, SIDBI has set up a MSME Risk
Capital Fund of Rs 2000 crore to provide equity support to SMEs and also formed the
SIDBI Foundation for Risk Capital Fund (SFRC).The role of SFRC is to develop more
standardized and appropriate risk capital products for quick and effective utilization of
the fund to benefit a large spectrum of MSMEs. One such product is the "Growth
Capital and Equity Assistance Scheme" (GEMs) under the `Risk Capital Fund`.
MOU with SIDBI
Our Bank has signed a MOU with SIDBI to avail refinance for credit to be extended in
the form of growth capital to MSMEs for the following purposes.
a) Bridging the gap in the means of finance for expansion/modernization/ scaling
up. New businesses/ diversification by entrepreneurs with established track
record can be considered, selectively.
b) Intangibles or non-asset creating investments viz product development,
marketing related expenditure, R&D, investments in quality control, energy
efficiency equipment, etc.
c) Margin money for working capital. Normal working capital requirements should
generally be met under normal WC arrangement. However, need based gap in
WC requirements (where the borrower has arrangements for major part of its WC
requirements tied up) could be considered, based on merits of the case and
with justification.
d) Any other bonafide expenditure required for growth of the business
[SIDBI provides a Line of Credit of Rs. 100 Crores to our Bank as refinance to
extend Risk Capital Assistance on the above lines]
Objective of the Scheme:
Growth funds to deserving MSMEs
Eligibility
MSMEs of all constitution eligible (as per GoI definition).
At least 3 years of profitable track record.
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Satisfactory banking credit track record of preceding atleast 2 years

A good internal rating in Bank/ Good external rating as per the Banks internal
guidelines.
Purpose of assistance
Being growth capital, it should result in positive impact on sales/ profits of unit.
Any bonafide business purpose like bridging the gap in project funding (i.e. gap
between bank term loan and available promoters contribution), WC margin, intangible
expenses (marketing/ brand building, R&D, quality control expenditure, etc.)
Mode of assistance
Term Loan with repayment up to 7 years
Quantum of Assistance
Need-based subject to comfortable DER and DSCR etc as per banking norms.
The capital assistance would however be restricted to a maximum of 1/3rd of the
tangible net worth of the enterprise as on date of sanction by the bank
Upfront fee

0.50 % of the loan amount

Rate of Interest:
Upto Rs.2.00 Crs : slab rate
Above Rs.2.00 Crs to 10.00 Crs : As per RAM Rating (Currently ranging from Base Rate
+2.25% to Base Rate + 3.00% )
Penal Interest and prepayment
As per the Banks policy guidelines
Moratorium
Moratorium on principal installments upto a maximum of 2 years. Interest to be
serviced monthly.
Total tenure of assistance including moratorium period could be upto 7 years
Security
The assistance shall be generally Collateral-free.
However, Residual charge on the assets financed + existing business assets should be
obtained
Any other security as decided by the Bank
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CGTMSE cover (as per CGTMSE guidelines)

Personal guarantees of the promoters subject to CGTMSE guidelines

Operating Instructions:
Branches and Regional Offices shall identify those borrowers who qualify for risk capital
complying with the following criteria:
The unit should be well performing with good growth over the last 3 years
Rating of the unit can be up to SME 4.
DSCR should not be less than 1.25
DER within acceptable norms as per bank guidelines
The units identified should fall under the above criteria and which are in the process of
expansion and in need of growth capital for the above said purposes. Such units which
are already under expansion and facing liquidity strain for these reasons can be
brought under this scheme.
CONCLUSION:
Growth capital assistance to deserving MSMEs should normally result in positive impact
on sales / profit of the unit as the financial assistance is tagged to their ratings and
performance levels. Repayment by borrowers under this assistance could be spread
over up to 7 years. Considering the benefits to deserving MSMEs who need short term
liquidity but have long term viability, this arrangement and scheme is a boon to them.

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18. IOB SME MAHILA PLUS

In order to encourage more and more qualified women to become self employed and
build up entrepreneurship traits , our bank introduced the IOB SME Mahila Plus Scheme
on 23.11.2012.This scheme is meant for women who are already self employed through
their own business as also for women who desire to start their own units. Loans granted
under this scheme can be brought under MSE category under either manufacturing or
service sector.
Purpose

To set up factory/business premises either for manufacturing or service activity

under Micro or Small enterprises.
To upgrade the existing unit and purchase of equipments Machineries,
Computers etc.
Fresh or additional working capital limits

Eligibility

Qualified women (minimum graduates) in the age group of 21 to 50.Women

with technical qualification will be given preference. Women Professionals in
any field can also avail credit under the scheme.
Proprietary concern or a partnership firm with women in the lead
Private Limited companies with a woman as the Managing director/or a
Director in a key position
Existing units fully managed by a woman entrepreneur are also eligible

Other Conditions
KYC compliance
Should not be in RBI Defaulters List
Satisfactory CIBIL report
Mode of Assistance
Term Loan for fixed Assets and Cash Credit for Working Capital
Quantum of Finance
Up to Rs 2 crores for manufacturing enterprise and upto Rs 1 crore for service
enterprise
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19. IOB RICE MILL PLUS

Rice is a vital food material for more than half of the world's population. With the
growing population the importance of this food item is also increasing very fast. As our
nation is predominantly an agricultural one, activities related to this sector always draw
more importance from all angles. There are rice mills clusters at various places all over
the country.
Modern Rice Mills are scientifically up-to-date units, with most modern plant and
machinery. Rice produced in a Modern Mill would be of superior quality and thereby
finding greater customer acceptance. Further, the by-product of such Mills, Rice bran,
could find great demand as raw material among Solvent Extraction Plants. The
demand for rice from modern mills is always more than the supply since the Modern
Rice Mills are not many.
IOB Rice Mills Plus is tailor-made to finance existing and new rice mills coming up in
various rice mill clusters all over the country.
Salient features of the scheme are given below.
Purpose :
To meet financial requirements of rice mills. To set up new rice mills and to acquire
existing rice mills. Poha Mills and Dal Mills shall also be covered.
Eligibility
Proprietary, Partnership, Company, Individual (running rice mills on own or lease basis )
Quantum of loan
The quantum of loan shall be upto Rs.5 Crores. CGTMSE cover shall be considered for
loans upto Rs.1 Crore only.
Term loan
To construct Rice Mills Factory/Office Building, Godown etc., To purchase new/second
hand indigenous machineries. To import new machineries including installation,
electrical fittings, fixtures and other equipments, etc.
(To import machinery one time FLC limit can be sanctioned along with suitable back up
finance)
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Working capital
Working Capital requirements met in the form of Cash Credit Limit, Overdraft, Bank
Guarantee, Letter of Credit, etc., only for Rice Millers.
Rice Millers doing milling activity on JOB WORK basis are not eligible for Working Capital
Limit.
Rate of Interest
Both for Cash Credit and Term Loans: Base Rate + 1.50 %
Rating applicable as per guidelines in force. But interest rate not linked to rating.
Repayment :
Holiday period under Term Loan repayment shall be considered up to 12 months as
warranted under the Scheme. Repayment of term loan can be considered up to 84
months excluding the holiday period.
NEFT / RTGS
RTGS facilities free of charges up to Rs. 5 lacs.
Margin
Stocks and Book Debts Margin for Stocks may be retained at 25% and for Book Debts
the margin shall be taken at 35%.
For Term Loans margin is at 25 %.
Collateral Security
Collateral Security to cover 50% of the Bank`s exposure and wherever the loans are not
covered under CGTMSE.
Processing Charges
Rs.100 per lac with a maximum of Rs.25000/-

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20. WEAVERS CREDIT CARD

In order To institutionalize the credit delivery mechanism to handloom weavers
and to promote the industry, Ministry of Textiles, Government of India formulated
WEAVER CREDIT CARD (WCC) Scheme which was subsequently approved by
Dept of Financial Services and IBA. It was introduced in our Bank on 10.01.2012.
The WCC scheme with an interest subsidy of 3 % for loans and margin money
subsidy of Rs 4200 for the borrowers besides absorption of CGTMSE guarantee
fee as also the administration fee by the Government is very attractive and will
go a long way in uplifting the weavers society in the economy. This will also
enable the bank to expand credit to micro enterprises, which is always a highpriority area.
1. Eligibility
All weavers and ancillary workers involved in weaving activities are eligible
Preference should be given to weavers identified under the Third Census of
Handloom weavers conducted by Development Commissioner (Handlooms),
Ministry of Textiles and to weavers identified by state governments who have
been provided with photo identity cards .Thrust in financing would be on clusters
of weavers and ancillary workers who have joined to form Primary Weavers Cooperative Societies/Self help Groups (SHGs) ,consortia , producer companies ,
Joint Liability Groups (JLGs) besides Individuals.
Govt. has issued photo identity cards to handloom weavers which will serve as
identity document. Such cards will also be issued to the existing, satisfactory
borrowers engaged in weaving activities as per simplified procedure stipulated
by the Government.
2. Mode of Issuance and Operation
A Photo Weaver Credit Card (WCC) indicating sanctioned limit and validity
period of credit facility will be issued apart from a passbook incorporating name,
address, borrowing limit, validity period, etc. While the Weaver Credit Card will
be used for identification, the pass book would facilitate recording of transaction
on an ongoing basis. They should also be given issue Smart Cards for operation
of loan accounts at banks cost.
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3. Credit Limit
Credit limit will be fixed based on assessment of working capital requirements as
well as cost of tools and equipments required for carrying out weaving activity.
The maximum limit to individual weavers will be Rs.2 lacs. The limit is expected to
be used as a revolving cash credit. Option to fix a repayment schedule for the
portion of loan availed for the purchase of tools and equipments are also
available. The limit sanctioned would normally have validity for 3 years, so that
additional working capital needs can be accommodated.
4. Margin
Nil up to limit of Rs.25000/- and 20% for limits above Rs. 25000/.
5. Validity and Renewal
The credit card would be valid for 3 years subject to an annual review by the
bank. Borrower need not submit any financial statement for the purpose of
annual review. No fees will be charged for review/renewal.
6. Security
The limit will be secured only by primary charge over the financed assets, which
should be duly insured. Limits may be covered under CGTMSE, but coverage
under CGTMSE should not be made a pre-condition.
7. Rate of Interest
Linked to Base Rate as per RBI norms/our Bank`s Policy.
8. Claiming Subvention and Margin Money Subsidy
As per the guidelines given by the Bank in accordance with Governmental
agencies from time to time
9. CGTMSE Guarantee Fee (GF) and Annual Service Fee (ASF)
Development Commissioner (Handlooms), Government of India (Ministry of
Textiles) is reimbursing the GF and MSF on Weavers Credit Cards directly to
CGTMSE under the following two schemes:
..75

i) Comprehensive Handloom Cluster Development Scheme (Mega

Cluster) - CHCDS(MC); and
ii) Comprehensive Package / Integrated Handlooms Development
Scheme - CP (IHDS)
The first of the above schemes is meant for only the handloom mega clusters in
Varanasi and Murshidabad whereas the second scheme is applicable all over
India.
Bank has to apply for guarantee cover as usual without recovering the GF/MSF
from borrowers. Necessary modifications have been made in the application
module of the software of CGTMSE for this purpose. While lodging applications,
branches are required to clearly indicate in the application module the
following:
(i) that industry sector/activity of the borrower is "handloom weaving";
(ii) that the credit facility is to be guaranteed under one of the above two
schemes;
(iii) that the GF/ASF in respect of the accounts proposed to be
guaranteed qualifies for reimbursement by Office of DC(HL) under the
arrangement;
(iv) Certify that all other applicable terms and conditions prescribed by
Office of DC (HL) for sanction of credit under the respective scheme have been
adhered to.

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21. IOB SME Equi-P

(Scheme for Margin Money Assistance or Equity Promotion)
One of the major hurdles to growth of SME sector is that many first generation
entrepreneurs as well as many existing units are not able to bring in the requisite margins
for starting a new venture or for expansion. Units not able to progress/expand their
operations for dearth of owned funds either stagnate or lose out in competition. Bank
funding for new as well as existing units has to be backed by 20 to 25 % contribution
from promoters, which is difficult for them.
To provide equity support to such deserving units, our Bank has launched IOB SME
Equi-P (Margin Money Assistance or equity promotion scheme). Under the scheme
bank provides a long term loan at concessional interest rate to meet a part of their
margin. The repayment can stretch up to 10 years.
The scheme will also encourage new entrepreneurs to come forward to start new units.
Scheme details are given below.
Purpose

Eligibility

To meet the shortfall in promoters contribution for starting a new

unit or for expansion of the existing unit
All MSME units, new and existing facing shortfall in promoters
contribution
(margin
money)
for
capital
investments.
(Proprietorship, Partnership and Limited Companies)Existing units
with a good track record will be eligible under the scheme. If
warranted, Due Diligence report from CRISIL or Dun & Bradstreet
shall be insisted upon but not compulsory. For new units, Due
Diligence report from CRISIL or Dun & Bradstreet (approved by
Bank) is compulsory.

Interest
Rates

Interest for the Soft Loan shall be charged at BR+1.25 % i.e. 11.50 %
at present.

Processing
Charges

1 % of the loan amount or Rs 10000 whichever is lower

Margin

Being a soft loan, the eligible amount will be funded 100 % by the
bank.

Loan
Amount

The quantum of loan will be restricted to 10 % of the

project/capital cost or Rs 50 lacs whichever is lower.

Mode of
Assistance

By way of long term loan to fund a portion of margin money not

exceeding 10 % of the project cost or Machineries/Fixed assets for
an existing unit subject to a ceiling of Rs. 50 lacs
Promoters contribution will be restricted to 10 to 15 % of the total
project cost (where margin stipulated is 20 to 25 %) and the
remaining 10 % will be by way of long term assistance from the
bank under SME Equi-P scheme by way of a term loan (soft loan)
with repayment spread over 10 years for new units and 9 years for
existing units including the holiday period.
Soft loan granted under the scheme will have a holiday period of
2 years for new units and not more than 12 months for existing
units. Interest during the holiday period has to be serviced as and
when debited.
Including the proposed repayment under soft loan, overall DSCR
should be at acceptable levels
PRIME: The SME Equi-P term loan will be secured by extending our
charge on the fixed assets acquired out of regular term loan.

Security

Personal
Guarantee

1. SME Equi-P loan can be covered under CGTMSE scheme if

the unit falls under classification of Micro and Small
enterprises within the overall ceiling prescribed under
CGTMSE cover(currently Rs 2 crores)
2. Collateral security may be taken if not covered under
CGTMSE guarantee scheme. The SME Equi-P term loan will
be covered by extending the collateral offered for the
regular term loan for the project or for expansion in the
form of machineries/fixed assets etc.
The term loan under SME Equi-P scheme will be backed the
personal guarantee of partners or Directors as the case may be.

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22. PUSHPAKA
(Loan for Purchase of Vehicles)
[Note: Only those Pushpaka loans which are granted to professionals and self
employed persons like doctors, engineers, auditors and insurance agents etc. can be
classified under MSME. Pushpaka Loans granted to salaried persons will not qualify for
MSME, hence not discussed here]
Purpose of Loan:
a) Purchase of new cars and used cars which are not more than 5 years old.
b) Purchase of new two-wheelers
Eligibility:
a) Business and self employed professionals
b) Firms & Companies, who are already having account relationship with us. While
considering such loans in the names of firms & companies this borrowing should
not be linked up with their other borrowings.
Amount of Loan
For new Cars and Two Wheelers 90% of cost without ceiling
For used cars: 75% of market value without ceiling
Although no upper Ceiling is fixed, repayment capacity will be the basis for fixing
the loan quantum.
Margin
For new cars: 10%
For used cars: 25%
For new two-wheelers: 10%
Rate of interest:
Base rate + 0.50% at present (As applicable from time to time as circulated by
BOD)
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Repayment Period:
For new cars

84 months

For used cars

Flexible Repayment period shall be

fixed with a maximum of 84 months,
less age of the vehicle. However, the
age of vehicle should not go beyond 8
years at the time of closure (last
instalment) of the loan

For new Two Wheelers

72 months

Security:
Hypothecation of vehicle purchased (hypothecation clause to be marked and
included in both RC and insurance policy)
Processing Charges:
As per the circular issued by BOD, C.O. from time to time.
Discretionary Powers:
As per CSSD circulars issued from time to time
Other Conditions:
Following documents should be obtained:

For new vehicles : Proforma invoice from authorised dealer

For used cars : Valuation and road-worthiness certificates either from two
reputed automobile dealers or from qualified automobile engineers or surveyors
authorised by General Insurance Companies

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23. ADVANCE TERM LOAN SANCTION SCHEME

FOR SME

Name of the Scheme IOB SME Advance Term Loan Sanction Scheme
Launched on : 05.12.2008
Purpose: This is a standby credit facility exclusively for our SME borrowers,
designed to overcome adverse effects of any delay in sanction when the
borrower has to urgently buy some machinery or equipment.
Under this scheme, the borrower is required to make an advance estimate of
the term loan requirement for purchase of machinery during next one year and
apply for the same at the time of submission of renewal proposal. This should
also be appraised and sanctioned along with renewal of limits.
Borrower can avail this as soon as the requirement arises, by submitting the
invoice of the machinery/equipment to be purchased.
Eligibility: Existing SME borrowers with good track record.
Basis of Computation: As per requirement, cash generation and repayment
capacity.
Quantum:
(i)10% of original cost of existing plant and machinery or
(ii)cost of machinery to be purchased less stipulated margin or
(iii) Rs.25 lacs
whichever is less out of (i) ,(ii) and (iii)
Disbursement: Should be directly paid to the seller. However if the
machinery/equipment has already been incurred, the amount can be
granted by way of reimbursement also
Appraisal: DSCR needs to be worked out assuming that sales and profitability
are maintained at previous year's level. This should justify repayment capacity.
Rate of Interest, security and margin should confirm to our usual norms.
CGTMSE Cover: Eligible accounts should be brought under CGTMSE cover.
Discretionary Powers: Aggregate limits sanctioned including advance term loan
should be within the discretionary powers of the sanctioning authority.

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24. Financing Micro Finance Institutions

Note: Classification of a loan granted to a MFI will depend on the activity for which MFI
on lends to ultimate beneficiaries. Accordingly it may come under Agriculture or MSE or
both (segregated amounts). If the on lending is made for consumption purposes, then
the classification should be under Others in Priority Sector
Microfinance: Microfinance essentially means small finance to poor people. At present
the loan size is pegged at Rs. 50000/- per borrower provided the borrowers annual
household income does not exceed Rs.60000/- in rural areas and Rs.120000/- in nonrural areas. The loan can be granted either directly to an individual or through SHG or
JLG. The loan can be for any purpose I: e for an income-generating activity or for
consumption. If the loan is used for agricultural or allied activities, then it will be
classified under Agriculture: Direct. It can also come under MSE if the activity supports
such classification. Where the loan is not granted for any income-generating activity,
then it will be classified under Others under Priority Sector.
Micro Finance Institution (MFI)
An MFI is an organization or association of individuals engaged in extending
microfinance services. It can be any of the following;
i) A society registered under the Societies Registration Act, 1860,
ii) A trust created under the Indian Trust Act, 1880 or public trust registered under any
State enactment governing trust for public, religious or charitable purposes,
iii) A cooperative society / mutual benefit society / mutually aided society registered
under any State enactment or any multi-state cooperative society registered under the
Multi State Cooperative Societies Act, 2002
iv) A company incorporated under section 25 of Indian Companies Act
v) A Non Banking Finance Company (NBFC) which does not accept deposits
Following entities are NOT MFIs:
(i)A cooperative bank as defined in clause (cci) of section 5 of the Banking
Regulation Act, 1949
(ii) A cooperative society engaged in agricultural operations or industrial activity or
purchase or sale of any goods and services.
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Bank Loans to MFIs for on lending

Banks can finance MFIs in order to enable them to on lend to individuals and also to
SHGs and JLGs. RBI defines On lending as Loans sanctioned by banks to eligible
intermediaries for onward lending only for creation of priority sector assets. The
average maturity of priority sector assets thus created should be co-terminus with
maturity of the bank loan.
MFIs come under such eligible intermediaries.
RBI Norms
Bank Credit to MFIs extended for on-lending to individuals and also to members
of SHGs/JLGs will be eligible for categorization as priority sector advance under
respective categories viz. Agriculture, MSE , and others as indirect finance
subject to following conditions :
a) At least 85% of total assets of MFI (other than cash, balances with banks and
financial institutions, government securities and money market instruments)
should be in the nature of qualifying assets.
b) Aggregate amount of loan extended by the MFI for income generating activities
should not less than 70% of the total loans. (Reduced from 75% on 27.06.2013 to
help the MFIs)
A qualifying asset shall mean a loan disbursed by MFI, which satisfies the following
criteria:
(i) Loans are extended to borrowers whose household annual income does not exceed
Rs. 60,000/- in rural areas and Rs. 1, 20,000/- in non rural areas
(ii) Loan does not exceed Rs. 35,000/- in the first cycle and Rs. 50,000/- in the subsequent
cycles
(iii) Total indebtedness of the borrower does not exceed Rs. 50,000/(iv) Tenure of loan is not less than 24 months when loan amount exceeds Rs. 15,000/with right to borrower of prepayment without penalty.
(v) Term Loan is without collateral.
(vi) Loan is repayable by weekly, fortnightly or monthly instalments at the choice of the
borrower.
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Margin, Security and Pricing

Loans to MFIs should comply with the following caps on margin and interest rate as also
other pricing guidelines, to be eligible to classify these loans as priority sector loans.
(i)

Margin cap (Difference between interest income and interest cap) at 12% for
all MFIs.
(The interest cost is to be calculated on average fortnightly balances of
outstanding borrowings and interest income is to be calculated on average
fortnightly balances of outstanding loan portfolio of qualifying assets)

(ii) Interest cap on individual loans at 26% per annum to be calculated on a reducing
balance basis.
(iii) Only three components are to be included in pricing of loans viz. (a processing fee
not exceeding 1% of the gross loan amount, (b) the interest charge and (c) the
insurance premium.
(iv) The processing fee is not to be included in the margin cap or the interest cap of
26%.
(v) Only the actual cost of insurance i.e. actual cost of group insurance for life, health
and livestock for borrower and spouse can be recovered; administrative charges may
be recovered as per IRDA guidelines.
(vi) There should not be any penalty for delayed payment.
(vii) No Security Deposit/Margin to be taken
At the end of each quarter, braches should obtain a Chartered Accountants
Certificate stating, inter-alia, that (i) 85% of total assets of the MFI are in the nature of
qualifying assets, (ii) the aggregate amount of loan, extended for income generation
activity, is not less than 75% of the total loans given by the MFIs, and (iii) pricing
guidelines are followed.
Thus credit extended to MFs will come under Indirect Agricultural Credit only if the
credit is utilized for on lending to individuals/SHGs & JLGs for agricultural and allied
activities. If a part of the amount is extended for agricultural activities, only that part of
the total loan amount will come under agriculture (indirect).
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While the above guidelines of RBI have to be followed in letter and spirit; branches and
Regional Offices should observe following precautions in lending to MFIs:
1. Credentials of the MFI and the promoters should be carefully examined
2. Personal Guarantee of the promoters should be taken
3. If the MFI is borrowing from many banks, attempt should be made for forming a
consortium.
4. For NBFC-MFIs , additional conditions stipulated by RBI from time to time should
be followed
5. In our Bank, discretionary power for financing NBFCs is available only with
Executive director and above. For other MFIs (i: e non-NBFC) respective
authorities can use their discretionary power.
6. Credit assessment for a MFI has to be different from other loans as the usual
working-capital cycle from Raw Material to Finished Goods is not applicable
here. As our loan is used for on lending, the present and projected asset size,
promoters equity, private equity and other alternate sources of funding,
recovery performance and geographical spread of portfolio etc. have to be
seen side by side with regulatory norms listed above.
7. Reliance on prime security has to be guarded and limited as the only available
prime security in such cases is book debts.
8. MFIs have acquired negative reputation for having exploited poor people .This
was responsible for the Andhra Pradesh ordinance of 2010 which eventually led
to the Malegaon Committee Report and regulation by RBI. Bank cannot ignore
the social dimension of microfinance and encourage MFIs known for unethical
lending and recovery practices; however bankable their proposals may be.
9. Geographical spread of portfolio is an important indicator as the microfinance is
subject to local problems in different geographies.
NBFC-MFI
Creation of a separate category of NBFC called NBFC-MFI was notified by RBI on 2nd
December 2011. Relevant details from this notification incorporating subsequent
modifications notified on August 03, 2012 are given below.

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A. Definition
An NBFC-MFI is defined as a non-deposit taking NBFC (other than a company licensed
under Section 25 of the Indian Companies Act, 1956) that fulfils the following conditions.
i. Minimum Net Owned Funds (NOF) should be Rs. 1 Cr. For NBFC-MFIs registered in the
North Eastern Region and Rs. 3 Cr for all other MFIs by 31.03.2013; which should rise to
Rs.2 Cr and Rs. 5 Cr respectively by 31.03.2014.
ii. Not less than 85% of its net assets are in the nature of qualifying assets
For the purpose of ii. Above, Net Assets are defined as total assets other than cash
and bank balances and money market instruments. Qualifying asset shall mean a
loan which satisfies the following criteria:
(a) loan disbursed by an NBFC-MFI to a borrower with a rural household annual income
not exceeding Rs. 60,000 or urban and semi-urban household income not exceeding
Rs. 1,20,000. (b) loan amount does not exceed Rs. 35,000 in the first cycle and Rs. 50,000
in subsequent cycles (c) total indebtedness of the borrower does not exceed Rs. 50,000
(d) tenure of the loan not to be less than 24 months for loan amount in excess of Rs.
15,000 with prepayment without penalty. (e) Loan to be extended without collateral (f)
aggregate amount of loans, given for income generation, is not less than
70 % of the
total loans given by the MFIs. (g) Loan is repayable on weekly, fortnightly or monthly
instalments at the choice of the borrower.
iii. Further the income an NBFC-MFI derives from the remaining 15 percent of assets shall
be in accordance with the regulations specified in that behalf.
iv. An NBFC which does not qualify as an NBFC-MFI shall not extend loans to micro
finance sector, which in aggregate exceed 10% of its total assets.
B. Regulatory Framework for NBFC-MFIs
Entry Point Norms
Existing NBFCs:
All registered NBFCs converting to NBFC-MFIs should maintain NOF of Rs.3 crore by
31.03.2013 and Rs. 5 crore by 31.03.2014 whereas the corresponding figures for NBFCs
operating in North Eastern Region would be Rs.1 crore and Rs. 2 crores respectively.

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New Companies:
All new NBFC-MFIs except those in the North Eastern Region of the country should have
a minimum Net Owned Funds (NoF) of Rs. 5 crore. Those located in the North eastern
region should have a minimum NoF of Rs. 2 crore. Prudential Norms
Prudential Norms
a. Capital requirement
All new NBFC-MFIs shall maintain a capital adequacy ratio consisting of Tier I and Tier II
Capital which shall not be less than 15 percent of its aggregate risk weighted assets.
The total of Tier II Capital at any point of time shall not exceed 100 percent of Tier I
Capital. The risk weights for on-balance sheet assets and the credit conversion factor
for off-balance sheet items will be as provided in para 16 of the Non-Banking Financial
(Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank)
Directions 2007.
b. Asset Classification and Provisioning Norms.
Asset Classification Norms;
i. Standard assets means the asset in respect of which, no default in repayment of
principal or payment of interest is perceived and which does not disclose any problem
nor carry more than normal risk attached to the business:
ii. Nonperforming asset means an asset for which, interest/principal payment has
remained overdue for a period of 90 days or more.
Provisioning Norms:
The aggregate loan provision to be maintained by NBFC-MFIs at any point of time shall
not be less than the higher of a) 1% of the outstanding loan portfolio or b) 50% of the
aggregate loan instalments which are overdue for more than 90 days and less than 180
days and 100% of the aggregate loan instalments which are overdue for 180 days or
more.
For calculation of CRAR, the provisioning made towards AP portfolio shall be notionally
reckoned as part of NOF and there shall be progressive reduction in such recognition of
the provisions for AP portfolio equally over a period of 5 years. Accordingly 100 per
cent of the provision made for the AP portfolio as on March 31, 2013 would be added
back notionally to NOF for CRAR purposes as on that date. This add-back would be
progressively reduced by 20 per cent each year i.e. up to March 2017. No write-back
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or phased provisioning is permissible. Capital adequacy on non-AP portfolio and the

notional AP portfolio (outstanding as on the balance sheet date less the provision on
this portfolio not notionally added back) will have to be maintained at 15 per cent of
the risk weighted assets.
c. All other provisions of the Non-Banking Financial (Non-Deposit accepting or holding)
Companies Prudential Norms (Reserve Bank) Directions 2007 will be applicable NBFCMFIs except as indicated therein.
C. Other Regulations
a. Pricing of Credit
NBFC-MFIs will ensure that the average interest rate on loans during a financial year
does not exceed the average borrowing cost during that financial year plus the
margin, within 26%.
While the rate of interest on individual loans may exceed 26%, the maximum variance
permitted for individual loans between the minimum and maximum interest rate cannot
exceed 4 per cent.
The average interest paid on borrowings and charged by the MFI are to be calculated
on average monthly balances of outstanding borrowings and loan portfolio
respectively.
The cap on margins may not exceed 10 per cent for large MFIs (loans portfolios
exceeding Rs.100 crore) and 12 per cent for the others.(This measure will ensure that in
a low cost environment, the ultimate borrower will benefit, while in a rising interest rate
environment the lending NBFC-MFIs will have sufficient leeway to operate on viable
lines)
The figures may be certified annually by Statutory Auditors and also disclosed in the
Balance Sheet.
b. Fair Practices in lending
I. Transparency in Interest Rates
a. There shall be only three components in the pricing of the loan viz. the interest
charge, the processing charge and the insurance premium (which includes the
administrative charges in respect thereof)
b. There will be no penalty charged on delayed payment
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c. NBFC-MFIs shall not collect any Security Deposit/Margin from the borrower
d. There should be a standard form of loan agreement
e. Every NBFC-MFI should provide to the borrower a loan card reflecting
(i) The effective rate of interest charged
(ii) All other terms and conditions attached to the loan
(iii) Information which adequately identifies the borrower and
(iv) Acknowledgements by the NBFC-MFI of all repayments including instalments
received and the final discharge
(v) All entries in the Loan Card should be in the vernacular language
f. The effective rate of interest charged by the NBFC-MFI should be prominently
displayed in all its offices and in the literature issued by it and on its website.
Multiple-lending, Over-borrowing and Ghost-borrowers
a. NBFC-MFIs can lend to individual borrowers who are not member of Joint Liability
Group (JLG) / Self Help Group (SHG) or to borrowers that are members of JLG/SHG.
b. a borrower cannot be a member of more than one SHG/JLG
c. not more than two NBFC-MFIs should lend to the same borrower
(Clarification: A borrower can be the member of only one SHG or one JLG or borrow as
an individual. He can thus borrow from NBFC-MFIs as a member of a SHG or a member
of a JLG or borrow in his individual capacity. However, a SHG or JLG or individual
cannot borrow from more than 2 MFIs. Lending NBFC-MFIs will have to ensure that the
above conditions are strictly complied with)
d. there must be a minimum period of moratorium between the grant of the loan and
the due date of the repayment of the first instalment. The moratorium shall not be less
than the frequency of repayment. For e.g. in the case of weekly repayment, the
moratorium shall not be less than one week.
e. recovery of loan given in violation of the regulations should be deferred till all prior
existing loans are fully repaid.
f. All sanctioning and disbursement of loans should be done only at a central location
and more than one individual should be involved in this function. In addition, there
should be close supervision of the disbursement function
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Non-Coercive Methods of Recovery

NBFC-MFIs shall ensure that a Code of Conduct and systems are in place for
recruitment, training and supervision of field staff. The Code of Conduct should
also incorporate the Guidelines on Fair Practices Code issued for NBFCs vide
circular CC No. 80 dated September 28, 2006 as amended from time to time.
Recovery should normally be made only at a central designated place. Field
staff shall be allowed to make recovery at the place of residence or work of the
borrower only if borrower fails to appear at central designated place on 2 or
more successive occasions.
Customer Protection Initiatives
MFI has to be a member of at least one Credit Information Company (CIC)
established under the CIC Regulation Act 2005.
All elements of following Fair Practices Codes should be adhered to:
(a) Issued for NBFCs vide CC No. 80 dated September 28,2006 as amended from
time to time and
(b) Issued for MFIs vide DNBS.PD.CC.No.286/03.10.042/2012-13 dated July 2 , 2012

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25. NON -FARM SECTOR JOINT LIABILITY GROUPS (JLGs)

All loans granted for income-generating activities under non-farm sector will come
under MSE.
Definition of JLG: A Joint Liability Group is an informal group comprising 4 to 10
individuals coming together for the purpose of availing bank loan either singly or
through the group mechanism against mutual guarantee. The JLG members are
expected to engage in similar type of economic activities like weaving,
handicrafts making etc. The management of the JLG should be simple with little
or no financial administration within the group.
Selection Criteria for JLG

Members should be of similar socio economic status and background carrying

out similar activities, willing to function as a Joint Liability Group. Groups must be
organized by likeminded persons and not imposed by external agencies.
The members should be residing in the same village /area.
The members should be engaged in their field of activity for a continuous period
of at least one year.
Past repayment conduct of the group as well as its members should be clean.
Selection of a competent leader for the JLG is essential. However, care should
be taken to ensure that group leader does not exploit others in financial matters.
Promotion of JLGs: Branches may on their own form JLGs or encourage reputed
Voluntary agencies (VAs), Non Governmental Organizations (NGOs) etc., to
assist them in promoting the JLG concept and formation of JLGs. The promoting
Organizations are required to provide training, skill development, marketing and
other support services to the groups. Relevant state government departments
may also be involved.
Savings by JLGs: JLGs are primarily intended to be credit groups. Therefore
savings by JLG members is voluntary and not a pre-requisite for credit,
Credit Linkage: Branches can finance JLGs by adopting any of the following
models:-

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Model A; Financing individuals in the group:

The JLG would normally consist of 4 to 10 individuals, each eligible for accessing
separate loan from bank. Group will ascertain and approve individual loan
requirements and inform the aggregate amount to the branch. Every member will have
a separate loan account
Model B - Financing the Group
The JLG would consist of preferably 4 to 10 individuals & function as one
borrowing unit. The group would be eligible for accessing one loan, which
could be combined credit requirement of all its members. Credit assessment of the
group can be based on activity to be undertaken by the group. All members would
jointly execute the document and own the debt liability jointly and severally.
Purpose of Credit: JLG/ JLG members may be financed for weaving, pottery,
handicrafts etc coming under micro enterprises category and suitable to be group
activities.
Types of Loans: Branches may consider cash credit, short term loan or term loan
depending upon the activity and purpose of loan.
Quantum: Maximum amount of loan is restricted to Rs 50,000/-per individual under both
models A & B.
Rate of Interest: As applicable to Micro & Small Enterprise
Security: Prime security of assets created. No collateral should be taken.
Mutual guarantee of JLG members must be obtained. For financing the group,
documentation should be as applicable to SHGs. CGTMSE coverage is
not available for JLGs.
Note: Some government sponsored schemes are exclusively meant for JLGs and SHGs.

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26. REJUVENATION, MODERNISATION AND TECHNOLOGY UPGRADATION OF

THE COIR INDUSTRY (REMOT)MOU WITH COIR BOARD
(Note: The scheme was originally valid up to March 2012, but subsequently decided to
extend till the end of 12th Plan period. Formal notification regarding extension is awaited
from Coir Board)
Coir Industry has taken roots in all the coconut growing States of India and provides
employment to more than 5 lac coir workers. Most of the Coir Entrepreneurs/workers
come from below the poverty line strata of the society and further majority of them
constitute women. The products of this industry viz. coir fibre, coir yarn, coir mats, coir
pith etc., are marketed both in domestic and international markets.
To improve working conditions and enhance earning capacity of the
entrepreneurs/workers belonging to Coir Industry, Government of India formulated a
credit linked development scheme named as REJUVENATION, MODERNISATION AND
TECHNOLOGY UPGRADATION OF THE COIR INDUSTRY (REMOT) in 2008.
The objectives of this scheme is to encourage traditional coir workers to migrate to
modern methods with induction of modern, efficient and high speed machineries,
equipments and looms and thereby improve the production quantity, quality and
profitability. The scheme will be operational during the 11th plan period ending 2012.
Coir Board is the nodal agency for implementation of the REMOT scheme. 40% of the
project cost is given as Government grant under this scheme. Our Bank has signed a
MOU with the Coir Board to participate in this scheme by way of providing credit to the
beneficiaries. Coir Board has formulated two types of schemes under this modernization
project viz. Spinning Sector and Tiny/Household Sector. The salient features of both the
schemes are given below, while the full details are furnished on the annexure.
2 .SALIENT FEATURES OF THE REMOT SCHEME:
a. SPINNING SECTOR
Project cost-- Rs.2 lacs.
Beneficiary's contribution is Rs.10000/- (5% of Project cost)
Bank's loan Rs.190000/- (95%% of Project cost)
Subsidy - Rs.80000/- (40% of Project cost) (Mid ended)
Modern mechanised ratts are to be purchased out of loan for production of good
quality coir yarn.
b. TINY/HOUSEHOLD SECTORS:
Project cost-- Rs.5 lacs
Beneficiary's contribution Rs.25000/-(5% of Project cost)
Bank's loan Rs.475000/- (95% of Project cost)
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Subsidy Rs.200000/- (40% of Project cost) (Mid-ended)

Modern and mechanized looms are to be purchased out of loan for production of
mats/semi finished products.
ASPECTS WHICH ARE COMMON TO BOTH THE PROJECTS:
1. REPAYMENT: Loans are Repayable over a period of 5 years after a holiday period of 6
months.
2. SECURITY: No collateral security to be insisted. But assets created out of loan to be
taken as prime security.
3. CGTMSE COVERAGE: All loans under scheme are to be covered under the guarantee
scheme of CGTMSE.
4. RATE OF INTEREST: Interest rate as per the rate structure fixed by the bank for SME
advances. At present, the rates of interest are as under:
Up to Rs.2.00 lacs BPLR-2% p.a
Above Rs.2.00 lacs BPLR-1% p.a
5. SUBSIDY: Coir Board will release the subsidy on receiving sanction intimation from the
Bank. This should be kept as a non-interest bearing deposit and to be adjusted to loan
account after a lock in period of 2 years.
6. SELECTION OF BENEFICIARIES: Beneficiaries will be selected by committees set up by
the Coir Board at their Regional/Sub Regional offices. Branches will receive the list of
beneficiaries through their respective Nodal branches. On receipt of the list branches
can make their own assessment and sanction or decline the applications.
III. OPERATIONAL INSTRUCTIONS:
We have designated 8 branches of our bank at various centres as Nodal branches
under the REMOT scheme. List of nodal branches with the names of regions attached to
each nodal branch is furnished in the annexure. All operational aspects of the REMOT
scheme such as procedure for sanction/decline of applications, claiming and
accounting of subsidy, functions of Nodal Branches etc., are detailed in the annexure.
Due to availability of 40% subsidy up front, our net exposure will be Rs.110000/- under
Spinning Sector Projects and Rs.2,75,000/- under Tiny/Household Sector projects.
Lending under REMOT scheme comes under Micro Sub Sector of MSME sector and
further falls under priority sector advances.
NODAL BRANCHES:
Following branches have been designated as nodal branches under REMOT scheme.
Regions attached to each nodal branch are mentioned there against.
NAME OF THE NODALBRANCH REGIONS TAGGED
ERNAKULAM: ERNAKULAM, TRIVANDRUM, KOZHIKODE.
THANJAVUR: THANJAVUR, NAGAPATTINAM, NAGERCOIL, TUTICORIN, TIRUCHI,
TIRUNELVELI, KARAIKUDI,
PUDUCHERRY:
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BANGALORE: BANGALORE, GOA, MUMBAI I, MUMBAI II, AHMEDABAD, BARODA

RAJAMUNDRY: VIJAYAWADA, VISHAKAPATNAM, HYDERABAD
AGARTALA: AGARTALA AND RAMACHANDRA NAGAR BRANCHES ONLY
BALLYGUNGE: KOLKOTA I, KOLKOTA II, BHUBANESHWAR, BERHAMPUR
GUWAHATI: GUWAHATI (EXCEPT AGARTALA AND RAMACHANDRA NAGAR
BRANCHES)
POLLACHI: COIMBATORE, SALEM, ERODE, MADURAI, KANCHIPURAM, VELLORE,
CHENNAI I, CHENNAI II
ROLE FUNCTIONS OF NODAL BRANCHES:
1. To receive the list of beneficiaries from the respective Regional/Sub Regional offices
of Coir Board.
2. To forward the applications to respective branches for appraisal/sanction.
3. To obtain the details of sanctions given by branches and furnish the same to
respective Regional/Sub Regional Office of Coir Board for release of subsidy.
4. To receive back the declined applications from the branches and send it back to
Regional/Sub Regional office of Coir Board with reasons for declining.
5. Coir Board will maintain an account (where the subsidy amount will be parked) in all
Nodal Branches. On receipt of sanction details, Coir Board will authorise release of
subsidy to respective branches from the above account. Nodal branches should
transfer the subsidy amount to respective branches on receipt of authorisation from
Coir Board.
6. Nodal branches should maintain proper records of applications received from the
Regional/Sub Regional office of Coir Board, sanctions given by branches, applications
declined by branches, authorisations received for release of subsidy, details of subsidy
released to branches etc.,
ROLE OF THE BRANCHES
1. Branches will receive the applications in respect of beneficiaries selected by the
Regional/Sub Regional Level Committee, through their respective nodal branches.
2. On receipt of applications, branches may call for more details if necessary and
process the applications without delay and take quick decisions as to sanction or
decline the application.
3. Details of sanctions given should be communicated to Nodal branch expeditiously.
Declined applications to be returned to Nodal branch within 15 days with reasons for
declining.
4. CGTMSE cover to be obtained for all loans granted under REMOT scheme.
5. Loans are to be released only after receipt of subsidy from Nodal Branches and the
beneficiary deposits his/her contribution (i.e.5% of project cost) in SB account, in stages
after verifying progress of the project.
6. Subsidy amount (i.e.40% of project cost) to be kept as non interest bearing deposit for
a period of 2 years in the joint names of the bank and beneficiary.
7. Interest should not be charged on the portion of loan equal to subsidy amount i.e.
interest to be charged only on the net loan amount.
8. After a lock in period of 2 years, subsidy deposit should be closed and proceeds to
be credited to loan account.
9. Branches may seek the assistance of Coir Board for post sanction monitoring,
recovery of loan etc., if felt necessary.
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a. DETAILS OF THE REMOT SCHEME

SPINNING SECTOR
Project cost-- Rs.2 lacs. Beneficiary's contribution is Rs.10000/- (5%) and the Bank's loan
will be Rs.190000/- (95%) and Subsidy - Rs.80000/- (40%) (Mid ended)
BREAK UP OF PROJECT COST:
Machinery and Tools Rs.1.05 lacs
Accessories Rs.0.20 lacs
Work Shed Rs.0.75 lacs
TOTAL Rs.2.00 lacs
Modern mechanised ratts are to be purchased out of loan for production of good
quality coir yarn.
ELIGIBILITY:
b) Any person/SHG/Entrepreneur engaged in production and processing of coir as well
as new entrepreneurs.
c) Applicant must have minimum two cents of owned land or land leased for a
minimum period of ten years.
TINY/HOUSEHOLD SECTORS:
Project cost-- Rs.5 lacs. Beneficiary's contribution is Rs.25000/- (5%) and the Bank's loan
will be Rs.475000/- (95%) and the subsidy is Rs.200000/- (40%) (Mid-ended)
BREAK UP OF PROJECT COST:
Modern Loom Rs.3.00 lacs
Accessories Rs.0.40 lacs
Dyeing & Equipments Rs.0.20 lacs
Work Shed Rs.1.40 lacs
TOTAL Rs.5.00 LACS
Modern and mechanized looms are to be purchased out of loan for production of semi
finished products.
ELIGIBILITY:
a. Units/Individuals/Entrepreneurs engaged in the production of traditional coir
products viz. coir mats, matting, carpets, coir pitch and also new entrepreneurs.
b. Applicant must have minimum 3 cents of owned land or land leased for minimum of
10 years with minimum infrastructure and experience in the field of coir products.
OTHER ASPECTS COMMON TO BOTH THE PROJECTS:
1. REPAYMENT: Repayable over a period of 5 years after a holiday period of 6 months.
2. SECURITY: No collateral security to be insisted. But assets created out of loan to be
taken as prime security.
3. CGTMSE COVERAGE: Loans granted under REMOT scheme to be covered under the
guarantee scheme of CGTMSE. The Bank may reimburse one time CGTMSE guarantee
fee for the accounts with good repayment record, after a period of five years or at the
close of loan whichever is earlier.
4. RATE OF INTEREST: Interest rate as per the rate structure fixed by the bank for SME
advances. At present, the rates of interest are as under:
Up to Rs.2.00 lacs BPLR-2% p.a
Above Rs.2.00 lacs BPLR-1% p.a
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5. RELEASE OF SUBSIDY: On receipt of approved list of beneficiaries from the nodal

branch, the Coir Board will transfer the subsidy amount equivalent to 40% of the Project
outlay to the branch concerned through the Nodal branch. The subsidy so transferred
should be kept by the branch in a exclusive subsidy fund account and should be put in
the name of the beneficiary as stipulated in the point no.7
6. RELEASE OF LOAN: Branches may release the loan to the beneficiary on receipt of
subsidy from the coir board. Branch shall release the loan in stages after verifying the
progress of the project. Bank shall take all precautions and observe the due diligence
as applicable for such loans.
7. ADJUSTMENT OF SUBSIDY: The subsidy released by the Coir Board shall be kept by the
Branches in Fixed Deposit Receipts jointly in the names of beneficiary and the bank.
Lock in period is two years. No interest is payable on these deposits. The amount of
subsidy kept as deposit shall be credited to loan account of the beneficiary after two
years from the date of sanction of loan. The loan account may be foreclosed after
appropriating the subsidy after the said lock in period of two years and no prior
permission from the Coir Board is required in this regard. Interest should not be charged
on the loan portion equal to the subsidy amount.
8. WORKING CAPITAL: Working capital is not included in the project cost. Hence as per
the scheme, the beneficiary has to bring in the amount required for initial purchase of
raw material. However branches may consider working capital facility in deserving
cases outside the subsidy scheme.
SELECTION OF BENEFICIARIES:
Beneficiaries will be selected by a committee set up by the Coir Board at their
Regional/Sub-Regional Offices as under:
i. Regional Officer Coir Board - Chairman
ii. Lead District Managers or SLBC Nominee- Member
iii. State Industries Department Nominee - Member
iv. Representative of Special Cell at Coir Board Head Office -Convener
The selected list of beneficiaries would be sent by the Coir Board to various bank
branches based on the choice/location of the beneficiary. On receipt of the list,
branches can make their own assessment and accept or decline the applications. If
declined, reasons should be communicated to the coir board through the Nodal
Branch. Coir Board will release the subsidy on receipt of acceptance of list of
beneficiaries by the branches.
AVAILABILITY OF RAW MATERIALS AND MARKETING OF END PRODUCTS:
Coir Board would make arrangements for availability of raw materials. Similarly, the Coir
Board would give all assistance for marketing of products. Some NGOs working in the
Coir clusters would also render support in procurement of raw materials and marketing
of products by arranging tie up with domestic manufacturer/exporters. Coir Board is of
the opinion that there could not be any difficulties in this regard due to large gap
between the supply and demand
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27. General Credit Card (GCC) Scheme

In 2005 Reserve Bank of India introduced the General Credit Card (GCC) Scheme for
banks constituents in rural and semi-urban areas. This was introduced to provide
financial assistance to small borrowers in the non-farm sector without subjecting them
to the hassles of regular appraisal, end-use verification etc. GCC should be issued
based on the assessment of income and cash flow of the household as in case of
normal credit cards. Under the scheme, there would not be any insistence on security,
purpose or end-use of the credit.
Earlier GCC was allowed to be classified under agriculture (direct) irrespective of
purpose, but the RBI circular of 20th July 2012 has not included this under agriculture.
Hence General Credit Cards will now constitute part of MSE under Micro segment.
The Scheme: The Scheme covers general credit needs of constituents in rural and semiurban areas.
Objectives: The objective of the scheme is to provide hassle-free credit to customers
based on the assessment of cash flow without insistence on security, purpose or enduse of the credit. This is in the nature of overdraft or cash-credit with no end-use
stipulations.
Nature of financial accommodation: Cash withdrawal: The credit facility extended
under the Scheme will be in the nature of revolving credit. The GCC-holder will be
entitled to draw cash from the specified branch of bank up to the limit sanctioned and
in fact, this may be the only feasible mechanism in many cases.
Quantum : Branches have flexibility in fixing the limit based on the assessment of
income and cash flow of the entire household. However, the total credit facility under
GCC for an individual should not exceed Rs.25, 000/Flexibility in use of credit: The borrowers would be eligible to avail credit as per their
requirement, without any insistence on security / purpose or end-use of the credit.
Priority sector lending status: Micro Enterprises under MSE (Priority Sector).
Form of GCC: It is not necessary that GCC should be linked to any purchase. GCC may
not necessarily be in the form of a card. GCC can be issued in the form of a Pass Book,
if the holder of GCC desires to operate cash withdrawals from bank-branch.
Review: The limit should be periodically reviewed and revised/cancelled depending on
track record of the account holder. Women may be given preferential treatment under
GCC Scheme.
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28. Loan Facilitation Service (LFS)

through SIDBI
SIDBI is the principal financial institution set up for the promotion, financing and
development of industries in the Micro, Small and Medium Enterprises. In tune with
changed times they are taking up a new role in MSME financing by adopting a new
business model focusing on niche areas viz., equity/quasi equity support, mezzanine
financing, funding of energy efficient projects under line of credit facility, financing of
service sector projects and receivables finance etc., staying away from traditional
bank lending. In order to promote vanilla-type financing of MSMEs, SIDBI has launched
a new facility recently christened as Loan Facilitation Service(LFS). Our Bank joined
hands with SIDBI in this LFS scheme of financing MSMEs and signed a MOU on 11.1.2013.
Salient features of this scheme are given below.
Salient Features of Loan Facilitation Service (LFS)
The key objectives of SIDBI are (a) to set up a suitable ecosystem for generating rated
and validated MSE proposals, complete in all respects, to be offered to Banks for
considering sanction (b) Make available timely and adequate credit to MSME sector
This facilitation process is being would be done with support of network of partners
including Accredited Consultants, Rating Agencies, Banks etc.
The role / responsibility and proposed timeline of the partners is, as indicated
below:
Particulars

Accredited
Consultants

Rating Agency

MOU with
Banks

Role /
Responsibility

Creation of Basic Information

Memorandum which contains
validated information needed by
rating agency/banks
3 weeks

Independent /
assessment /
rating / limited
due diligence
2 weeks

Considering
assistance

Time Expected

3 weeks

Operational arrangement under LFS

SIDBI would work through a network of trained and Accredited Consultants (ACs) for
preparation of a Basic Information Memorandum (BIM) which will contain all the
information required by rating agencies for rating the proposal and banks for
considering credit. BIM along with other documents will flow through SIDBI to a
designated RBI approved rating agency for due diligence and rating. Subsequently it
will be submitted to us for considering assistance. The system aims to address the
current problems such as incomplete application/data from applicants, delays in credit
delivery by banks, etc.
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 In terms of its current business model, SIDBI will not normally consider assistance to
projects requiring vanilla type term loan / working capital assistance.
SIDBI shall refer investment grade term loan / working capital proposals to us for
consideration of sanction. We may discuss with the borrower to decide the quantum of
financial assistance, margin requirement, rate of interest security and other aspects as
per their extant policies of our Bank and shall also determine the share, if any, of each
of the party in the financial assistance being extended.
SIDBI would consider assistance in respect of its niche areas (energy efficiency, risk
capital, service sector, etc.). In respect of normal term loans and working capital, the
proposal would be forwarded to us.
Loan proposals, subject to a minimum of Rs 25 lacs (decided mutually) both for
working capital and term loan may be accepted.
The complete proposal containing Basic Information Memorandum (BIM) along with
rating would be forwarded to us by SIDBI for our consideration of sanction.
Fees to be charged from the borrower in connection with the loan syndication service
will be mutually decided by SIDBI and IOB in consultation with the other stake holders.
A separate circular will be issued shortly on the fees to be collected in consultation
with SIDBI. In addition to the fee under LFS, we shall also remit 0.25 % of the sanctioned
amount to SIDBI for facilitation of services.
Our partnering with SIDBI under their Loan Facilitation Service (LFS) will pave way for
receipt of proposals with Due Diligence/Rating done and BIM with all requisite details
which will enable sanction of proposals with quickest turnaround time.
Under this LFS arrangement , SIDBI submitted a proposal to the bank for financing
around 100 beauty Parlours under the reputed Naturals brand , owned by the Groom
India Salon & Spa Pvt. Ltd., (GISSPL) . In June 2013, our Bank entered into a MOU with
GISSPL details of which are given in another chapter. More such loan facilitations can
happen at various levels.

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29. CREDIT FACILITATION SUPPORT SERVICES

MOU WITH NATIONAL SMALL INDUSTRIES CORPORATION LTD.
(NSIC)
NSIC is a Government of India enterprise established in 1955 for promotion of Small
Scale Industries. NSIC is engaged in promotion and growth of Micro and Small
Enterprises by providing integrated support services to them such as marketing support,
credit support, technology support and other support services. They are providing raw
material assistance to MSMEs under raw material assistance scheme. For this purpose,
NSIC has made tie up arrangements with various bulk manufacturers of raw materials
like SAIL, RINL, NALCO, HCL, HZL, etc.; NSIC has branches all over the country.
MOU between IOB and NSIC
NSIC has entered in to a MOU with our Bank on 16.1.2013 for extending their credit
facilitation support services to MSME borrowers through our bank branches all over
India. Under this scheme, loan application forms of our Bank are provided to NSIC to
facilitate submission of loan applications by various MSME units who are connected to
NSIC in their non-financial activities and who are in need of bank finance. NSIC outlets
spread across the country will collect the filled in application forms from various MSME
units and forward the same to our nearest Regional Offices for perusal and distribution
to the branches under their control.
Terms and Conditions:
1. Bank will furnish blank SME credit application forms and Bank will furnish blank SME
credit application forms and the check list for submission of applications to NSIC.
2. NSIC outlets will forward the credit proposals to the nearest regional offices of our
Bank.
3. Regional Offices will scrutinize and forward the applications to the branch which is
nearest to the applicant.
4. Branch shall appraise and sanction of the loan application purely on merit after
complying with KYC norms.
5. When a loan application is rejected, reasons for rejection shall be informed to NSIC
only and not to the customer.
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6. NSIC is operating a Performance and Credit Rating Scheme for MSEs wherein units
are rated in terms of `performance and credit parameters`. Seven rating agencies viz.,
CRISIL, MSMERA-D&B, ICRA, CARE, ONICRA, FITCH, and BRICKWORK have been
empanelled by NSIC under the scheme for rating of the Small Enterprises. Our branches,
under their sole discretion, may refer our customers to any one of the seven rating
agencies as desired by the applicant.
7. In respect of the units rated by any of the above agencies and applying for credit
support under this arrangement, Bank will promote such units and recalibrate the
interest rates and security norms while considering the sanction of their proposals as per
bank guidelines in force.
8. After sanction, all other action in respect of documentation, disbursement,
monitoring, recovery, etc., has to be carried out by our branches.
9. Within 30 days from the date of sanction, branch shall remit to NSIC 50% of the
processing fee collected from applicants referred by NSIC. This is a onetime fee only.
10. This arrangement shall be extended to the projects relating to MSME sector at
different places where our branches are located or other important industrial centres
throughout the country.
11. This MOU is valid up to 20.12.2015.
This arrangement is expected to help our Bank in reaching out to potential borrowers
identified by NSIC and thereby improve the credit flow to MSME sector. As NSIC has links
with large number of MSME units through their various services all over the country,
especially through their raw material assistance scheme, ROs/branches should use this
MOU by processing and sanction of NSIC referred proposals in the quickest possible
time. It may be noted that NSICs role will cease once they forward the loan
applications to us and avail their share of processing fee on sanction of the loan. They
shall be no way linked to any further correspondence or post-sanction follow up of the
loans sanctioned/disbursed.

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30. SUBSIDY LINKED CREDIT SCHEME on SOLAR ENERGY APPLICATION

under Jawaharlal Nehru National Solar Mission (JNNSM)
Note: All Loans granted under this scheme may not be classifiable under MSME even
though subsidy will be available. Activity and Investment norms should be satisfied for
MSME classification. Investment should include cost of other plant and
machinery/equipments along with solar equipments procured under this scheme.
Ministry of New and Renewable Energy (MNRE), Government of India, has launched the
Jawaharlal Nehru National Solar Mission (JNNSM) as a major initiative to promote
ecologically sustainable growth while addressing India`s energy security challenges.
The immediate focus of the Mission is on setting up an enabling environment for solar
energy penetration in the country through a multi agency approach for centralised
and decentralised applications of solar energy. India being a tropical country, solar
energy has great potential as future energy of source.
Purpose of Subsidy linked Credit Scheme: The use of solar lighting systems and small
capacity PV systems remained underutilized mainly due to high unit costs. The key
challenge is thus to bringing down the cost. Against this background, the MNRE,
Government of India has introduced a scheme for Solar Lighting Systems and Small
Capacity PV Systems to promote commercial marketing of Solar Lighting Systems and
Small Capacity PV Systems by extending financial incentives in the form of capital
subsidy on loans availed from Banks/financial institutions by the target clientele.
Features of the Scheme are given below.
Unit Cost
Only models approved by MNRE will be eligible for coverage under the scheme.
The models approved by MNRE are indicated in Annexure 1. Presently the
benchmark cost for SPV system is Rs.270 per Wp. The banks are eligible to finance
only units conforming to the conditions/stipulations laid down in the model
projects and more specifically under the Special Terms and Conditions
(Annexure II & III).

In case units are financed with cost over and above the approved unit cost
(benchmark cost), capital subsidy will be limited to the maximum capital subsidy
ceiling as indicated in these models (i.e., not more than 40% of the Total
Financial Outlay). However, in cases where the actual cost is less than the
indicative cost of the approved models, the eligible capital subsidy will be 40% of
the actual cost of the project. Systems manufactured by companies/installed by
dealers not approved by MNRE will not be eligible for coverage under the
scheme. (Please refer MNRE website http://mnre.gov.in/list for approved dealers)

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Location of the unit: The unit could be located in urban or rural areas.
Pattern of Assistance: Subsidy at 40% of the approved unit cost (benchmark cost)
will be eligible subject to eligibility as indicated above. This will be uniform for all
categories of borrowers (SC/ST), women, small farmers, physically
handicapped, etc., and also irrespective of the location of the unit.
Margin and Security: As applicable for general loans
Insurance: Branches should ensure that the units are insured. The insurance premia
may also be included in the Total Financial Outlay.
Eligible Borrowers: Individuals, group of individuals, SHGs, JLGs, NGO, Farmers` Clubs,
etc., will be eligible for subsidy. However, Private/Public Limited Companies/ Corporate
will not be eligible.
Release of subsidy: On receipt of application from eligible borrowers, branch will
appraise the project as per the norms and if found eligible, sanction the loan excluding
the margin subject to technical feasibility and financial viability. Based on the field visit
and after satisfactory installation of the unit, the branch will arrange to make payment
directly to the supplier. After sanction of the loan including subsidy, the branch shall
submit the Subsidy claim through Nodal Branch to NABARD for capital subsidy in the
specified format (Annexure IV). NABARD will sanction and release subsidy subject to the
admissibility of the claim and availability of funds from Government of India. As in the
case of other Govt. Sponsored Scheme, the subsidy would be credited to the "Subsidy
Reserve Fund Account" of the borrower. No interest will be charged by the bank on the
subsidy component. Subsidy will be back ended with a minimum lock in period of 3
years. If the loan is repaid before 3 years, the borrower will not be eligible for subsidy.
Interest Rate: As applicable from time to time
Repayment period: Repayment period shall be up to 5 years.
Misutillisation of subsidy: In case the unit is found to be incomplete or the subsidy is
misutilised, bank shall recall the subsidy and refund the same to NABARD. In the event
of loans becoming NPA beneficiary will not be eligible for subsidy and the same will
have to be refunded.
Utilisation Certificate: Nodal branch of the bank has to submit the consolidated
utilisation certificates for capital subsidy in the format indicated in Annexure V. Banks
have to submit the utilisation certificate to NABARD within 3 months from the date of
disbursement. Although the rate of subsidy is uniform for all categories of borrowers,
banks may maintain data relating to loans disbursed to SC/ST/Women/Minority
Community, Physically Handicapped, etc.,
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Monitoring: A State Level monitoring Committee will be constituted by NABARD for

smooth implementation of the scheme. At National level the programme will be
reviewed by a Committee consisting of Secretary, MNRE, Executive Director, NABARD
and Executive Director of a Commercial Bank (by rotation).
Refinance: Loans disbursed under the scheme will be eligible for refinance as per
refinance policy of NABARD. However branches need not claim any refinance at their
level unless advised by Central Office.
Nodal Branch: Our Haddows Road Branch (Code No: 2095) of Chennai I Region is
designated as the nodal branch under this scheme. . All subsidy claims and related
matters shall be routed through respective Regional Offices who in turn will consolidate
the claims once in a month and submit through nodal branch to NABARD.

CONCLUSION:
Providing adequate and quality power to domestic and other consumers remain one
of the major challenges for the government. India`s potential for producing solar power
is far more than its current total energy consumption. As a major initiative to promote
ecologically sustainable growth while addressing India`s energy security challenge and
also as a contribution to the global effort to meet the challenges of climate change,
the scheme with capital subsidy is introduced in our Bank.
We advise all the regional offices and branches to popularise the scheme by displaying
the scheme in the notice board and increase credit under this Subsidy Linked credit
Scheme.

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31. Loan Facilitation by SIDBI:

Financing NATURALS Spa and Salons
Groom India Salon & Spa Pvt. Ltd., (GISSPL) runs a chain of popular beauty parlours
under the name of Naturals Salon and Spa. At present there are around 270 such
parlours all over India under Franchisee model. In June 2013, our Bank has entered into
an MOU with GISSPL for financing their franchisees enabling them to open such outlets.
GISSPL identifies Franchisees based on their credentials and enters into a franchise
agreement with Franchisee for setting up of Naturals brand Salon & Spa at different
locations all over the country. They are also planning to add 100 more outlets under
Naturals brand in 2013-14 by entering into a Franchise agreement with the prospective
owners of these outlets. The number will increase in subsequent years.
On entering into an agreement, GISSPL will recommend to the Bank for financing of
each Franchisee as per agreement entered into with the Bank. Franchisee identification
is done by the Franchisor after thorough scrutiny of his/her background and will set up
the entire salon in coordination with the Franchisee.
GISSPL has undertaken to take all timely remedial steps whenever a Franchisee faces
any financial crunch. However the loan will not be backed by any Corporate
Guarantee of the Franchisor. The financing pattern is described below.
Cost involved in setting up of each salon is around Rs 40 to Rs 45 lacs out of which
Franchisees margin would be minimum of 30%, say around Rs 10 to Rs 12 lacs. Debt to
equity ratio will be maintained at 75:25.
Loan component by way of Term Loan shall not exceed Rs 35 lacs and the balance has
to be brought in as margin by the Franchisee. If the promoter is able to bring in higher
margins, loan component shall be reduced accordingly.
The cost of equipments shall be reckoned excluding cost of interiors and the account
shall be classified as a service enterprise under Micro or Small , as applicable on the
basis of investment in equipments (i.e. Up to Rs 10 lacs under Micro and beyond Rs 10
lacs under Small enterprises))
Processing charges will 1 % upfront with a maximum of Rs 35,000
No collateral or third party guarantee should be obtained and the account must be
covered under CGTMSE .Prime security will hypothecation of all movable assets in the
business premises.
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In most of the cases, business premises will be on rental basis only. Wherever the place is
owned by the Franchisee or even by the Franchisor, the same shall be taken as
collateral. If the forced market value covers the advance value and in such cases the
loan need not be covered under CGTMSE.
If a Franchisee offers collateral of his/her own instead of covering the loan under
CGTMSE, a letter shall be obtained from the borrower stating that he/she is aware that
the loan can be covered under CGTMSE but offers collateral of his/her own volition and
not at insistence of the bank.
While Franchisee agreement is a MUST for taking up the proposal for financing under
merits, branches shall ensure that all applications are backed by a copy of the
agreement entered into by the Franchisee with the Franchisor and a Due Diligence
report from a RBI accredited rating agency. This is an arrangement under our MOU with
SIDBI .Wherever the Franchisee is already in business; a credit rating report by an
accredited rating agency will also be submitted. No charges are recovered from the
borrower by the bank in this regard. However our upfront fee should be recovered from
the borrower at the time of delivering sanction letter itself and shared with SIDBI at on
75:25 basis (i.e. 25 % of the upfront fee to SIDBI)
The Franchisor is rated under SME 2 by CRISIL and the rating certificate is annexed to
the Banks agreement with the Franchisor.
Detail scheme is reproduced below.
SCHEME FOR FINANCING SETTING UP OF NATURALS SALON & SPA

Purpose of the Loan

: To set up a Salon & Spa under Naturals Brand

Franchise Agreement between M/s. Groom
India Salon & Spa Pvt. Ltd. and the Franchisee.

Eligibility

: Any individual, Proprietary or Partnership Firm,

Pvt. Limited Company.

Other Conditions

:

KYC Compliance
Should not be in RBI Defaulters List.
CIBIL report should be satisfactory
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Mode of Assistance

GISSPL as well as franchisee (Borrower)

should maintain a pool account (Current
account) with the branch financing the
Franchisee saloon and ensure cash flows
are periodically remitted to such account.
Franchisor further agrees to transfer from
such pool account the Royalty payable as
per the agreement with the franchisee and
also the loan interest and instalments as
per sanction letter of IOB by way of auto
debit every month.
A Due Diligence report by a RBI
accredited rating agency should
accompany the application.

By way of Term Loan for setting up interiors

And purchase of all related equipments for
Setting up of a Modern Salon & Spa
(Since the entire operations are on cash
basis, no working capital need be sanctioned)

Quantum of Finance

Term Loan not exceeding Rs. 35 lacs

Rate of Interest

As applicable

Margin

30% of the Project Cost

Security

PRIME: Hypothecation of all assets created

Out of the Project and Receivable
COLLATERAL: NIL
If any Franchisee offers collateral at immovable
property of value in lieu of CGTMSE guarantee
and the value of which Is above the cover
available under CGTMSE, the same shall be
accepted after Obtaining a written declaration
from the Franchisee borrower to this effect.

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Third Party Guarantee

NIL
(If the collateral property offered belongs to a
third party, then the personal guarantee of the
owner of the collateral property be obtained)

Other Features

Quick Processing with a turnaround time of

14 days from the date of submission of the
proposal till disbursal.

Repayment

Up to 5 years in Equal Monthly instalments,

Excluding moratorium period of six months.
Interest during the moratorium should be serviced
separately

Processing charges

1% One time upfront fee with a maximum of

Rs. 35000. This shall be shared on 75:25 basis with
SIDBI on collection of the same from the
borrower.

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32. LOAN POLICY FOR MSE SECTOR

[Note: This is revised version of the policy originally adopted in 2009. At the time of
going to press, this revised policy is awaiting approval of CPC following which it will
be placed before the board l]
I. PREAMBLE
Micro and Small Enterprises (MSEs) are considered as the growth engines of the Indian
economy due to their spread and depth.
They create vast employment
opportunities and contribute significantly to our GDP. Their share in the exports is also
significant. The scope of lending to Micro and Small Enterprises is expanding due to
various policy measures of banks, RBI and Government of India. A comprehensive
and liberal lending policy is required to enable the MSE sector to play its pre eminent
role on the Indian economy without any hurdles. Accordingly, this policy is fine
tuned to meet the genuine requirements and aspirations of the MSE sector.
II.

OBJECTIVES OF THE POLICY

The percentage of our Banks MSE credit to total domestic credit stood at 13.03 as on
31.03.2012. The prime objective of the earlier policy was to improve the percentage
of MSE credit to domestic credit 12% by 31.03.2012 from 11.48% as on 31.03.2011. The
objective has since been achieved with our MSE credit touching 13.03 as on
31.03.2012 on the Gross Domestic Credit for MSE credit. Through this policy, we place
our objective at 15% of the gross Domestic Credit by 30.03.2015 thereby facilitating
smooth flow of credit to MSE sector. The other objectives of the policy are as under:
1. To describe the MSE sector and its functional coverage.
2. To lay down guidelines for assessment of credit to MSE units.
3. To make available adequate and hassle-free credit facilities to MSE
enterprises
4. To achieve various growth parameters prescribed for MSE sector
5. To comply with RBI/Government of India guidelines and instructions on MSE
financing.
6. To give more thrust to Micro and Small Enterprises
7. To adopt cluster based financing for Micro and Small Enterprises
8. To improve coverage under Credit Guarantee Scheme of CGTMSE.
9. To implement various Government sponsored schemes applicable to MSE
sector.
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10. To adhere to the BCSBIs Code of Commitment to Micro and Small

Enterprises.
11. To describe the growth plan for this sector by establishing SME Processing
Centres at various regions and improve the turn around time for sanction of MSME
proposals.
III. DEFINITION OF MSE ENTERPRISES.
In order to facilitate the promotion and development of Micro, Small and Medium
Enterprises, the Government of India enacted THE MICRO, SMALL AND MEDIUM
ENTERPRISES DEVELOPMENT ACT 2006.
(MSMED ACT 2006) The Act became
operational from 02.10.2006. The Act introduces the concept of Enterprises as
against the Industries.
The Enterprises are now grouped under two major heads namely manufacturing and
services. The MSMED Act 2006 defines various categories of enterprises in terms of
Investment in Plant, Machinery and Equipments. Various categories of Micro and
Small Enterprises are defined as under
MICRO AND SMALL ENTERPRISES
A. DIRECT FINANCE
The limits for investment in plant and machinery /equipment for manufacturing /
service enterprise, as notified by Ministry of Micro Small and Medium Enterprises, vide
S.O.1642(E) dated 09.09,2006 are as under:
Manufacturing Sector
Micro Enterprises
Sub Classification ..Micro I

Original Investment in Plant and Machinery up to

Rs.10 lacs

SubClassification ..Micro II

Original Investment in Plant and Machinery above Rs.

10 lacs and up to Rs.25 lacs

Small Enterprises

More than twenty five lakh rupees but does not

exceed five crore rupees

Service Sector *
Micro Enterprises
Sub Classification ..Micro I

Original Investment in Equipments up to Rs. 4 lacs

Sub Classification ..Micro II

Original Investments in Equipments above Rs. 4 lacs

and up to Rs. 10 lacs

Small Enterprises

More than ten lakh rupees but does not exceed two
crore rupees

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*Advances to Services Sector restructured up to Rs. 5 Crores to be classified under

priority sector
Bank loans to micro and small enterprises both manufacturing and service are eligible
to be classified under priority sector as per the following:
Manufacturing Enterprises
The Micro and Small 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. The manufacturing enterprises are defined in terms of original
investment in plant and machinery as stated above. Service Enterprises are defined in
terms of original investment in Equipments.
Loans for food and agro processing
Loans for food and agro processing will be classified under Micro and Small
Enterprises, provided the units satisfy investments criteria prescribed for Micro and
Small Enterprises, as provided in MSMED Act, 2006.
Service Enterprises
Bank loans up to Rs. 5 Crores per unit to Micro and Small Enterprises engaged in
providing or rendering of services and defined in terms of investment in equipment
under MSMED Act, 2006.
Export credit to MSE units (both manufacturing and services) for exporting of goods/
services produced by them.
KHADI AND VILLAGE INDUSTRIES SECTOR (KVI)
All loans sanctioned to units in the KVI sector, irrespective of their size of operations,
location and amount of original investment in plant and machinery. Such loans will
be eligible for classification under the sub target of 60 percent prescribed for micro
enterprises within the micro and small enterprises segment under priority sector.
B. INDIRECT FINANCE TO MSE SECTOR
(i)

(ii)
(iii)

Loans to persons involved in assisting the decentralised sector in the supply

of inputs to and marketing of outputs of artisans village and cottage
industries.
Loans to cooperatives of producers in the decentralised sector viz., artisans
village and cottage industries
Loans sanctioned by banks to MFIs for on lending to MSE sector as per the
conditions specified in paragraph VIII of this circular (RBI Circular )
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IV. SCOPE AND COVERAGE

This policy covers credit facilities to micro and small enterprises. (both manufacturing
and services sector) and all related issues such as assessment of credit, margin norms,
security requirements, coverage under Credit Guarantee Scheme etc.,
V. GUIDELINES ON MSE FINANCE
Advances to MSE sector will be assessed like any other advance (except for the
specific relaxations and concessions given in this policy) and credit decisions will be
taken based on viability, merits and commercial judgment in each case as per
general norms of lending. The credit appraisal will be made in a transparent and nondiscriminatory manner. All genuine and just requirements of the MSE units will be
considered and adequate amount of credit will be sanctioned to ensure that the unit
does not suffer for want of funds at a later date.
Necessary credit support will be extended to MSE units for business restructuring,
modernization, expansion, and diversification and technological up gradation as
may be required from time to time.
The following type of credit facilities will be extended to MSE units.
1.
2.
3.
4.
5.
6.
7.
8.

Term Loans
Project Finance
Working Capital Finance
Purchase and discounting of Bills
Negotiation of Bills
Non fund based facilities such as LC and LG
Pre shipment/Post shipment finance
Credit facilities under Banks special credit schemes such as Sanjeevini, Easy
Trade Finance, Commercial Cash Credit against Jewellery etc.,
9. Any other type of credit depending on specific need.
10. Line of credit in specific cases as per requirement.
ASSESSMENT OF CREDIT FOR MSE UNITS
a. Simplified procedures will be adopted for sanction of working capital limits. 20% of
the projected and accepted annual turnover will be extended as working capital
limit to MSE units requiring aggregate fund based working capital limits up to
Rs.7.5 crore. Borrower has to bring in 5% of the accepted turnover as margin.
Current Ratio of 1.25 will be acceptable in such cases.
b. For MSE units requiring working capital limits above Rs.7.5 crore and up to Rs.10
crore, the Maximum Permissible Bank Finance (MPBF) method based on Credit
Monitoring Arrangement (CMA) data will be followed.

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c. For MSE units requiring working capital limits over Rs.10 crore, Cash budget system
or MPBF method, at the option of the borrower, will continue to be followed.
d. A combined working capital limit will be allowed against the stock and
receivables without any sub limit for CC against receivables. However, different
margins may be fixed for stock and receivables.
e. Lending will be based on scoring model for advances up to Rs.2 crores.
Information required for scoring model will be incorporated in the application
form itself. No individual risk rating is required in such cases.
f. If the bank sanction term loan solely or jointly with one or more Banks, working
capital limit will also be sanctioned solely or jointly (in the ratio of term loan) to
avoid delay in commencement of commercial production. It will also be ensured
that there are no cases where term loan has been sanctioned but sanction of
working capital facilities is awaited.
g. The interest payable up to six months after commercial production may be
included as part of the project cost for assessment of credit requirements.
Sufficient moratorium period say, up to six months, after commencement of
commercial production, may be allowed for repayment of principal amount
wherever required, to enable the unit establish itself in the market.
h. When the sanctioning authority decides to reject a MSE credit application, the
same will be conveyed to the applicant only after obtaining approval from the
next higher authority.
1. MARGIN NORMS
I. No margin is required for loans up to Rs.50000/II. Minimum margin requirements for loans/credit facilities above
Rs.50000/- are as under:
A. TERM LOANS
1. For loans above Rs.50000/- and up to Rs.5 Lac -10%
2. For loans above Rs.5 Lac
-15%
3. In case of Term Loans for acquiring second hand
machineries, higher margin may be stipulated on
Case-to- case basis.
B Working Capital Finance
1. Working Capital against hypothecation of raw materials, work in
Process, finished goods etc.,
Above Rs.50000/- and up to Rs.5 Lac -15%
Above Rs.5 Lac
-20%
2. Working Capital against Book Debts/Receivables
Margin to be taken as per our Banks general loan policy document, without any
concession
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C. Minimum cash margin of 10% will be prescribed in respect of non fund based limits
such as LG and LC.
D. For loans under Government sponsored schemes and Banks special credit
schemes; margin will be obtained as stipulated in the scheme even if it is different
from the levels indicated above.
E. In exceptional cases, margins lesser than indicated above can be prescribed with
the approval of the appropriate authority as per powers delegated in banks
concession policy.
SECURITY NORMS
a. No collateral security or third party guarantee is required for loans to micro and
small enterprises up to Rs.10 lacs. Such loans have to be compulsorily covered
under Credit Guarantee Scheme of CGTMSE.
b. Loans above Rs.10 lacs and up to Rs.200 lacs to micro and small enterprises will
also be considered for sanction without collateral security or third party
guarantee subject to following conditions:
i. The unit should be eligible to be covered under Credit Guarantee Scheme
of CGTMSE
ii. The bank is fully satisfied with regard to viability of project and track record
of the promoter/units.
c. In all other cases of credit facilities to micro and small enterprises (other than a and
b) suitable collateral security and or third party guarantee will be obtained based on
risk perception and judgment of sanctioning authority.
d. Even when the loan is eligible to be covered under the Guarantee cover of
CGTMSE, if the borrower prefers to bring acceptable collateral security and third
party guarantee, in lieu of the CGTMSE Guarantee Cover, the same will be
considered, after obtaining a letter from the applicant stating that he is offering
collateral of his own volition and he is aware of the credit guarantee available for his
credit facilities.
2. As per General Loan Policy Document secured advances can be sanctioned
by Branch Managers up to the level of Scale IV only by taking collateral
securities to a minimum extent of 50 % of the credit limits sanctioned for large
institution
and minimum of 60% for advances to trading sector. This shall
be further relaxed in respect of MSME advance and Branch Managers up to
the level of Scale IV will be allowed to sanction secured advances to MSE
sector by taking collateral securities based on risk perception and judgment of
the sanctioning authority. Such sanctions should be supported by sound
reasoning.
3. All branch Managers can sanction collateral free loans to MSE sector with
CGTMSE Guarantee cover up to their per borrower limits subject to overall
ceiling in force under the guarantee scheme.

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CLUSTER BASED APPROACH

Clusters are defined as sectoral and geographical concentration of MSME units
sharing common opportunities and threat. Thrust will be given to cluster based
finance wherever recognized clusters are existing.
Following benefits of cluster based approach to lending will be taken advantage of:
dealing with well defined groups
availability of appropriate information for risk assessment and
easy monitoring of borrowal units.

Diverse needs of the MSE units functioning within the cluster will be considered and
adequate finance will be extended to such units.
Creation of infra structure facilities and establishment of common facility centres in
clusters will also be financed in association with Central and State Government
Agencies.
No MSME proposals, however, should be rejected for want of tangible collateral
security alone, if otherwise the Bank is satisfied with regard to viability of the project
and track record of the promoters.
A list of SIDBI identified cluster in association with UNIDO is provided in the Annexure.
Time limit for disposal of MSME Loan Applications:
For limits up to Rs.2 lacs

Within 2 weeks

For limits above Rs.2 lacs and upto Rs.5 Within 4 weeks
lacs
For limits above Rs.5 lacs

Within a reasonable frame of time

Above time frame shall apply to disposal of applications for credit enhancement
also. The time norms to be observed after submission of all requisite documents and
unit visit undertaken by the sanctioning authority.
PRICING AND CREDIT RATING OF MSE ADVANCES
As per Risk Management Policy of the Bank, all borrowal accounts with credit limits of
Rs.1 crore and above to Large Corporates, Traders, SME and Infrastructure (Road and
Power) must be rated under Risk Assessment Model (RAM) before sanction. Pricing of
all loan facilities of Rs.1 crore and above is to be made based on the rating obtained.

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A relaxation will be made for MSE borrowal accounts in this regard and MSE accounts
for credit facilities up to Rs.2 crores need not be rated under RAM. Pricing of MSE
credit facility up to Rs. 2 crores will be based on internal scoring model.
Bank will continue to prescribe separate and favourable interest rates for MSE credit
in order to encourage the MSE sector.
DELAYED PAYMENTS TO MSME UNITS
As a measure to assist the MSE units to get the payment from large corporates without
delay, suitable sub-limits will be fixed within the overall working capital limits
sanctioned to large borrowers (borrowers enjoying working capital limits of Rs.10
crores and above from the banking system) specifically for meeting the payment
obligations to MSE enterprises (and Medium Enterprises) for goods supplied or services
rendered.
VI. CREDIT GUARANTEE TRUST FOR MICRO AND SMALL ENTERPRISES (CGTMSE)
Bank will encourage financing viable micro and small enterprises for fund based and
non fund based limits up to Rs.200 lacs without collateral security or third party
guarantee by taking advantage of the Credit Guarantee Scheme of CGTMSE.
Separate targets will be given to each branch for lending under Credit Guarantee
Scheme of CGTMSE to improve our banks coverage under the scheme.
One time guarantee fee paid by MSE borrowers covered under the Credit Guarantee
Scheme of CGTMSE up to credit limit of Rs.10 lacs will be reimbursed by the Bank after
a period of 5 years or on the date of closure of a performing loan whichever is earlier.
VII.GROWTH PARAMETRES
The bank will set targets for growth of MSE credit by a minimum year on year growth
of 20% or as mandated by Government of India from time to time. Targets will also be
fixed each year for fresh disbursements of MSE credit. Currently the YoY growth in
number of fresh borrowal accounts under Micro sector should be minimum of 10%.
Within the MSE sector, thrust will be given to improve advances to Micro Enterprises.
Efforts will be made to ensure that all sub sectors under MSE sector receive credit as
under which is mandatory as per extant guidelines of RBI.
Micro Level I

40% of total credit to Micro and Small Enterprises

Micro Level II

20% of total credit to Micro and Small Enterprises

Small Enterprises

40% of total credit to Micro and Small Enterprises

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VIII. STRATEGIES
To improve the flow of credit to MSE sector and to achieve the various targets and
commitment for the MSE sector, the bank will adopt the following strategies:
 Branch Managers and other officials handling MSE credit will be imparted
training to enable them to properly understand the nuances of MSE finance
and opportunities in the sector. Efforts will be made to inculcate positive
mindset amongst the officers towards financing MSE units.
 SME credit processing centres will be set up at key locations to ensure prompt
and efficient processing for all MSE credit applications for credit limits of more
than Rs. 10 lacs. Presently SME processing centres have been established at 9
Centres and 9 more SMEPCs will be set at the earliest.
 Simplified loan application forms in bilingual formats will be made available
for loans to Micro Enterprises.
 Region wise and branch wise targets will be fixed for lending to MSE sector and
monthly review notes on Region wise performance will be placed to Top
Management.
 A separate target will be fixed to branches for sanction of loans under CGTMSE
cover in order to increase the coverage under Credit Guarantee Scheme of
CGTMSE.
 Thrust will be given to cluster based financing.
 SME branches and specialized SME branches will be opened at potential
centres, identified clusters and industrial estates to enhance the flow of credit
to MSE sector.
 At corporate level, bank will enter into MOU/tie up arrangement with the
corporates and other agencies IN ALL SECTORS to formulate specific schemes
for delivery of credit to MSE sector.
 Latest technology will be adopted for on line submission of MSE credit
applications, tracking of applications and for MIS requirements.
 New credit products will be developed for MSE sector to meet the emerging
requirements of the sector from time to time.
 Bank will implement all Government of India/State Government sponsored
schemes for MSE sector and disburse credit under such schemes.
 Bank will avail refinance from SIDBI to augment the resources for lending to
MSE sector, whenever considered necessary.

IX.
MSME CARE CENTRES
MSME Care Centres which are now functioning at all our Regional Offices will be
strengthened further to handle the grievances of Micro and Small Enterprises and also
to guide the MSE Entrepreneurs.

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X.

FOLLOW UP OF MSE CREDIT

MSE loan portfolio will be monitored at branch and controlling office levels on regular
basis. Warning signal with regard to irregularities in the accounts will be picked up
promptly and probed into. Corrective measures will be initiated without loss of time
to avoid the accounts slipping into sub standard category. Borrowal accounts will be
restructured, wherever necessary, under the provisions of debt restructuring
mechanism for SME enterprises.
A separate exit policy for sick non viable units has been framed duly approved by the
Board and placed in our website.
If any account becomes sick, in spite of close monitoring and follow up action, such
accounts will be dealt with sympathetically and shall be rehabilitated under banks
policy on nursing and rehabilitation of sick SME units, if they are potentially viable.

XI. CODE OF BANKS COMMITMENT TO MICRO AND SMALL ENTERPRISES

Our bank has already adopted the code of Banks commitment to Micro and Small
Enterprises issued by Banking Codes and Standard Boards of India. Our dealings with
Micro and Small Enterprises will be in line with the code of Commitment.
XI. CONCLUDING REMARKS
The loan policy for MSE sector will operate within the overall loan policy of the Bank
and subject to guidelines/instructions of Regulatory Authorities/RBI/Government of
India. Therefore, the policy will be amended with the approval of the Board
whenever revised guidelines are received from the Regulatory Authorities.
This policy will be in force until a review is made by the Board of Directors for
accommodating the emerging requirements.

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ANNEXURE
LOAN POLICY FOR MICRO AND SMALL ENTERPRISES SECTOR
EXISTING NORMS

PROPOSED NORMS

Internal Scoring Model to be

used for Credit limits up to Rs.
1 Crore and Risk Assessment
Model for limits of Rs. 1 Crore
and above.

Internal Scoring Model to be used for credit limits up to Rs.2

crores and Risk Assessment Model for limits of Rs.2 crores
and above.

Current ratio of 1.33 is

generally acceptable in all
cases.

Current ratio of 1.25 is acceptable while lending under Naik

Committee Norms.

Margin
not
stipulated.

Minimum 15% margin for loans above Rs.50000/- and up to

Rs.5 lacs

specifically

Branch Managers up to the Branch Managers up to the level of scale IV can sanction
level of Scale IV can sanction secured credit facilities to MSE units by taking collateral
secured credit facilities by securities to a minimum extent of 60% of the limits
taking collateral securities to a sanctioned.
minimum extent of 75% of the
limits sanctioned.
Setting up of MSE Loan Processing Centres at key locations
In exceptional cases, margins lesser than indicated in the
policy can be prescribed with the approval of the
appropriate authority as per powers delegated in banks
concession policy.
All Branch Managers can sanction collateral free loans to
MSE sector with CGTMSE cover, up to their per borrower
limits.
If term loan is sanctioned, working capital limit should also
be sanctioned, if the same is not tied up with any other
institution.
The interest payable up to six months after commercial
production will be included as part of the project cost for
assessment of credit requirements. Sufficient moratorium
period say, up to six months, after commencement of
commercial production, will be allowed for repayment of
principal amount wherever required, to enable the unit

establish itself in the market.

When the sanctioning authority decides to reject a MSE
credit application, the same will be conveyed to the
applicant only after obtaining approval from the next
higher authority

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33. POLICY ON NURSING AND REHABILITATION OF SICK MSME UNITS

PREAMBLE:
In spite of diligent appraisal, meticulous planning and careful execution at all levels,
sickness is not an uncommon feature for an enterprise. A host
Of internal and external factors play vital roles in the success of manufacturing as well
as service enterprises. Profitable operation of the enterprise depends on several
situations some of which are not within control of the entrepreneurs.
Sickness of a financed unit can be quite damaging for the Bank. Hence it is essential
that a sickness-prevention plan as well as a nursing plan is put in place to protect
interests of the bank as well as the unit.
It is of utmost importance to take measures to ensure that sickness is arrested at
incipient stage itself. The branch officials will have to identify the early warning signals
and initiate corrective steps promptly. Such steps may include providing timely
financial assistance depending on established need, if it is within the powers of the
Branch, and an early reference to controlling office where the relief required is
beyond the delegated powers of the Branch Manager. Borrowal account may be
restructured at this state itself wherever warranted.
But like in any other sector, some units in MSME sector may become sick in spite of
close monitoring, due to reasons beyond their control. Such units will have to be dealt
with sympathetically and to be rehabilitated if they are potentially viable.
OBJECTIVES OF THE POLICY
The objectives of the rehabilitation policy are to give guidelines in the following areas:
Identifying the sickness at an early state
Initiating remedial measures promptly with a pro active approach
Formulation and implementation of rehabilitation package for potentially
viable sick MSME units
The guidelines under the policy are intended to provide a proactive and flexible
framework for timely nursing and rehabilitation of potentially viable sick MSME units.

SCOPE AND COVERAGE

This policy covers:
Definition of incipient sickness and sickness in MSME units.
Restructuring of MSME Enterprises (including Service Enterprises).
Identification of sick MSME units eligible for consideration under this policy.
Viability benchmarks
Viability studies and determination of viability.
..122

Concession and relief that could be extended under rehabilitation package.

Formulation of Nursing and Rehabilitation package.
Discretionary powers for approval of rehabilitation package for debts of MSME
units.
Prudential norms for restructuring accounts.

DEFINITION OF MSME ENTERPRISES

Micro, Small and Medium Enterprises Development Act 2006 defines Micro, Small and
Medium Enterprises based on (a) investment in Plant and Machinery in respect of
manufacturing enterprises and (b) cost of equipments in respect of Service
Enterprises.
CLASSIFICATIONS

MFG/SERVICE

MICRO LEVEL - I

MANUFACTURING
SERVICE
MANUFACTURING
SERVICE
MANUFACTURING
SERVICE
MANUFACTURING
SERVICE

MICRO LEVEL - Ii
SMALL
ENTERPRISES
MEDIUM
ENTERPRISES

INVESTMENT IN PLANT
MACHINERY/ EQUIPMENTS
Up to Rs. 10 lacs
Up to Rs. 4 lacs
Rs. 10 lacs to Rs. 25 lacs
Rs. 4 lacs to Rs.10 lacs
Rs. 25 lacs to Rs. 500 lacs
Rs. 10 lacs to Rs. 200 lacs
Rs. 500 lacs to Rs. 1000 lacs
Rs. 200 lacs to Rs. 500 lacs

&

For computing the investments, the original cost of plant and machinery/equipments
should be taken into account and cost of land and building and other specified
items should be excluded.
Definition of Sickness:
MICRO AND SMALL ENTERPRISES
Reserve Bank of India had given a definition of Sick Small Scale Industries, but after
the introduction of the SME concept in lieu of the SSI, no separate definition of Sick
SME was available. Now the working group on rehabilitation of sick MSME units
headed by Dr. K.C.Chakraborty has come out with a definition of sick small
enterprises which is as follows:
A Micro or Small Enterprise (as defined in the MSMED Act 2006) may be said to have
become sick, if
Any of the borrowal accounts of the enterprise remains NPA for three months or more
Or
There is erosion in the net worth due to accumulated losses to the extent of 50% of its
net worth.

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RBI has advised the Banks to prepare the policy on Restructuring/Rehabilitation of

potentially viable sick units, in the light of recommendations of the working group.
The present policy accepts the above definition for identifying the sick units in the
micro and small segment.
MEDIUM ENTERPRISES
A non SSI Sick Unit is a Non SSI Industrial Undertaking (regardless of type of
incorporation) whose accumulated loss as at the end of the latest financial year,
equals or exceeds its entire net worth (viz. paid up capital and free reserves).
Dr. K.C. Chakraborty working group has not made any recommendations to modify
the definition of non SSI sick unit. Hence this policy is based on the above definition of
Sick Medium Enterprises.
SYMPTOMS OF SICKNESS
Any unit which is facing problem will throw up many symptoms and signals giving
indications to the bank that all is not well with the unit. Some of the important
symptoms/signals can be:
Lack of healthy movement of stocks and rising level of inventories.
Frequent return of cheques issued by the party/inability of the party to
promptly honour the bills drawn on them.
Non Submission/Delayed Submission of stock statements/financial statements
Frequent return of cheques deposited/bills drawn by the party.
Lack of healthy fluctuations in CC account.
Default in payment of interest charged to borrowal account and default in
payment of term loan instalments.
Frequent request for granting of excess/enhancement of limits/adhoc limits
without corresponding increase in sales.
Low capacity utilization.
Poor current ratio.
The above list is illustrative and not exhaustive. Different units may emit different types
of signals, which may not be uniform. We should be well equipped to pick up these
signals promptly and probe into it. After identifying the reasons for irregularities,
corrective measures have to be initiated at the appropriate time to avoid sickness.

DEFINITION OF INCIPIENT SICKNESS:

This policy accepts the definition of ` incipient sickness` as given by Dr. K.C.
Chakrabarty working group which is as follows:

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MICRO AND SMALL ENTERPRISES

A Micro or Small Unit may be treated to have reached the stage of incipient
sickness/potential sickness, if any of the following events are triggered:

A. There is delay in commencement of commercial production by more than six

months for reasons beyond the control of the promoters and entailing cost
overrun.
B. The company incurs losses for two years or cash loss for one year, beyond the
accepted time frame on account of changes in economic and fiscal policies
affecting the working of MSEs or otherwise.
C. The capacity utilization is less than 50% of the projected level in terms of
quantity or the sales are less than 50% of the projected level in terms of value
during a year.
MEDIUM ENTERPRISES
For a medium incipient sick unit, the committee has accepted the definition of `NonSSI WEAK UNIT` given by RBI, which is as follows:
A non SSI weak unit is a non SSI industrial undertaking (regardless of type of
incorporation) if
a. Any of its borrowal accounts (principal or interest) has remained overdue for a
period exceeding one year or
b. There is erosion in the net worth due to accumulated losses to the extent of 505
of its net worth during the previous financial year.
This policy accepts above definition to identify an incipient Sick Medium Enterprise.
RESTRUCTURING OF MSME ENTERPRISES (INCLUDING SERVICE ENTERPRISES)
All MSME enterprises (in standard, sub-standard, and doubtful categories) which
require restructuring and pass the test of viability may be restructured under the
provisions of Debt Restructuring Mechanism for Small and Medium Enterprises.
Detailed guidelines regarding restructuring are given in the Annexure.
All MSME Enterprises identified as incipient sick should be restructured with proactive
approach if they are viable, so that further deterioration is arrested.
At present neither RBI nor the Working Committee has defined the sick service
enterprise. Service enterprises in need of nursing can be rehabilitated through Debt
Restructuring Mechanism for Small and Medium Enterprises. Accounts of Service
Enterprises requiring concessions shall be restructured and relief measures available
under Debt Restructuring Mechanism will be given.
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IDENTIFICATION OF ELIGIBLE SICK MSME UNITS

Following categories of MSME borrowers are eligible for Nursing and Rehabilitation
under this policy.
a. All non corporate MSME borrowers irrespective of their level of dues to the
bank.
b. All corporate MSMEs which have exposure only to our Bank.
c. All corporate MSMEs which have funded and non funded outstandings up to
Rs.10 crores under multiple/consortium banking arrangements.
Following category of borrowers are not eligible for rehabilitation under this policy.
a. Accounts classified as loss assets by the bank.
b. Borrowers indulging in frauds and malfeasance.
c. Willful Defaulters.
In case of Willful Defaulters, the reasons for classifying the
borrower as Willful
defaulter, especially in old cases where the manner of
classification of the borrower as willful defaulter was not transparent, will be
reviewed as per RBI norms. If it turns out that the borrower will be able to rectify
the default if opportunity is made available under the Debt Restructuring
Mechanism for MSMEs, such cases will be admitted for Nursing and Rehabilitation
with the approval of the Board of Directors of the Bank.
d. The corporate sick Medium Industries are covered under the provisions of Sick
Industrial Companies (Special Provisions) Act, 1985. Rehabilitation of units
which are already referred to BIFR/AAIFR under the said Act will be decided by
BIFR/AAIFR.
VIABILITY CRITERIA AND BENCH MARKS
VIABILITY CRITERIA:
a. MICRO AND SMALL ENTERPRISES
A Micro or Small Enterprise may be regarded as potentially viable if it would be in a
position, after implementing a relief package spread over a period not exceeding
five years from the commencement of the package from banks, financial institutions,
Government (Central /State) and other concerned agencies, as may be necessary
to continue to service its repayment obligations as agreed upon including those
forming part of the package, without the help of the concessions after the aforesaid
period. The repayment period for restructured (past) debts should not exceed seven
years from the date of implementation of the package.

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b. MEDIUM ENTERPRISES
A Medium Enterprise may be regarded as potentially viable if it would
be in a
position, after implementing a relief package spread over a period not exceeding
seven years from the commencement of the package from banks, financial
institutions, Government (Central / State) and other concerned agencies, as may be
necessary to continue to service its repayment obligations as agreed upon including
those forming part of the package, without the help of the concessions after the
aforesaid period. The repayment period for restructured (past) debts should not
exceed ten years from the date of implementation of the package.
VIABILITY BENCHMARK LEVELS:
I.

The unit should satisfy the following benchmark levels to ensure viability on
giving effect to the rehabilitation package.
RATIO
BENCHMARK
a. Debt Service Coverage
Average DSCR of more than 1.15 and more than 1
Ration (DSCR)
in each year is considered adequate.
Above unity & progressively improving.
b.Current Ratio
3.1 (Promoters to bring in additional funds in the
c.Long
Term Debt/TNW form of capital only and not in the form of loans.)
Ratio (i.e., Debt Equity
Ratio)
Depending on the adequacy of cash surplus.
a)Micro and Small Enterprises
d.Holiday
period
for
payment of instalments and Entire restructured dues should be adjusted within a
interest
maximum period of 7 years. (Including holiday
period), but the interest concessions will be
e.Repayment period
available only for a period of 5 years.
b)Medium Enterprises
Entire restructured dues should be adjusted within a
maximum period of 10 years. (Including holiday
period), but the interest concessions will be
available only for a period of 7 years.
Restructured dues with concessionary rates of
interest/inadequate
security
should
get
precedence in repayment.
Repayment period of restructured dues of sick units
will be governed by RBI guidelines in force from time
to time.
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VIABILITY STUDIES AND DETERMINATION OF VIABILITY OF SICK MSME UNITS

Sick MSME units shall be asked to submit the revival plan for continuing the activity.
After examination of the plan, the branch and Regional Office (or CCPC as the case
may be) will jointly hold detailed discussions with the borrower on all aspects of revival
plan. Thereafter, the branch shall forward the rehabilitation proposal to their Regional
Office/CCPC with specific recommendations.
While conducting the viability studies and during the period of working out
the
details of the rehabilitation package (if the unit is found viable).
Holding
operation may be permitted the Regional Head concerned, for a period of six
months. Under the holding operation the unit will be allowed to draw funds from the
cash credit account to the extent of 100% of sale proceeds credited into the
account.
Regional Offices/CCPC shall arrange for conducting the viability study of
the
proposals received from branches, either in-house or by engaging
outside agency
as under:
Outstanding exposure only
Viability study to be done by
to IOB
a. exceeding Rs. 5 By a competent agency engaged in conducting
crores
viability studies at the discretion
of the Bank
and/or by utilizing the in house facilities available
at the Bank. Cost of the
study to be borne
by the borrower.
c. Rs. 2 Crores to Rs. 5 By utilizing the in house facilities available at the
Crores
Bank with or without the assistance of
outside
consultants. Fees payable to the consultant should
be borne by the borrower.
d. Below Rs.2 Crores

By utilizing the in house facilities available at the

Bank.

g. Micro Enterprises
On the basis of available information, Branch
Up to outstanding of Manager may take a decision on viability and
Rs.10 lacs
record the same along with reasons and
justifications.
Consultants empanelled by the Bank (presently being done by our Banking
Operations Department) for Techno Economic Viability Study will be utilized for
consultation / viability studies.

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Regional Offices shall decided the name of the outside agency (from the approved
panel) to be entrusted with the viability study or engaged for consultation, whenever
outside agency is to be involved.
In respect of Corporate MSMEs (other than medium industries covered
under Sick
Industrial Companies [Special Provisions] Act 1985) having dues
of less than Rs.10
crore to more than one Bank (besides IOB) under Multiple / Consortium arrangement,
the decision to conduct the viability study and the agency to be engaged will be
taken in consultation with other financing banks.
The viability study should be conducted (in house or by outside agency) taking into
account the following aspects:
a. Causes for sickness.
b. Future market for products/services.
c. Managerial competence of the borrowers to implement the rehabilitation.
d. Technical Viability any technology up gradation is required.
e. Financial Viability whether the projections are acceptable.
f. Any concessions available from the State Government as per the rehabilitation
policy of the State concerned.
g. Ability of the borrowers to bring in their contribution.
During the viability study causes for sickness should be investigated and diagnosed.
Major causes of sickness are:
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.

Lack of Demand
Non availability of raw materials
Power Shortage
Labour Problems
Equipment Problems
Management Problems
Diversion of Funds
Technological obsolescence
Poor Infrastructure
Change in Government policies
Delayed/Inadequate sanction of credit by banks.
Huge debtors and delayed receipts of dues

The causes of sickness shall be adequately addressed while working out of

the
rehabilitation package.
The unit will be regarded as potentially viable if it satisfies the viability criteria and
viability benchmarks stipulated.
After the viability study, if the unit is declared as potentially viable based on the
stipulated criteria and benchmarks, the detailed nursing and rehabilitation package
will be worked out.
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If the unit is judged to be unviable the same should have the approval of the next
higher authority. It will also be informed to the borrower and other institutions
concerned. The borrowers shall be informed in writing about the reasons for
considering the unit as unviable and an opportunity will be given to promoters of the
unit to present their case once again. The disposal of such appeals will be considered
by the next layer of authority. If the unit is confirmed as unviable, appropriate
recovery measures have to be initiated without loss of time.
TIME FRAME FOR VAIBLITY STUDY:
The viability study will be completed within three months of the unit
sick.

becoming

CONCESSIONS AND RELIEFS THAT COULD BE EXTENDED TO MSME UNITS

Depending on need, some or all of the following concessions will be given to sick
MSME units under Nursing and Rehabilitation.
NATURE OF
CONCESSION

MEDIUM ENTERPRISES

1.

Interest on fresh
and existing
(renewed)
working capital

Prevailing BR or 1% below
the applicable rate
whichever is lower.

2.

Interest on existing
Term Loan

Reduction by a maximum
of 2 % from the applicable
rate

3.

Interest on fresh
Rehabilitation
Term Loan (RTL).
(For Small
manufacturing
units for start up
expenses and
margin for working
capital).

Prevailing BPLR or 1% below

the applicable rate
whichever is lower.

MICRO AND SMALL

ENTERPRISES
Interest shall be reduced by
3% for Micro sector and 2%
for other units subject to
floor Base Rate
Reduction of interest on
Term Loan to be reduced
by 3% in case of Micro and
2 % in the case of other
SMEs subject to Floor Rate
1 % over base rate or 1%
below applicable rate or as
prescribed by SIDBI /
NABARD where refinance is
obtained, whoever is the
least subject to minimum of
base rate

Interest on
Contingency Loan
Assistance to
meet escalations
in capital
expenditure under
the rehabilitation
scheme.
Interest on
Working Capital
Term Loan (WCTL).

Not applicable.

At the concessional rate

allowed for working capital
assistance.

1 % below the prevailing BR

or 1% below the applicable
rates whichever is lower.

1 % over base rate or 1 %

below applicable rate
whichever is lower subject
to a minimum of Base Rate.

6.

Interest on Funded
Interest Term Loan
(FITL).

2 % below the prevailing

BPLR or 1% below the
applicable rates whichever
is lower.

NIL for a period of three

years at the discretion of
the bank.

7.

Repayment
period for Funded
Interest Term Loan.

Normally 3 to 5 years (Can

be prolonged to 6 to 7
years in exceptional cases).
As far as possible should get
precedence over, or is
spread over a shorter
duration than the
repayment of institutional
loans.

To be repaid within 7 years

from the date of
commencement of
implementation of
rehabilitation Programme.

8.

Repayment
period for Funded
Term Loan (FTL).

The repayment period for

restructured debts may
extend up to a maximum
period of 10 years, but the
interest concession will be
available only for a period
of 7 years being the outer
limit for rehabilitation.

Should not normally

exceed 7 years from the
date of restructuring and 15
years from the date of first
disbursement of original
loan. For Micro Enterprises,
the repayment period
should not exceed 10 years
from the date of
restructuring.
Staggered or ballooning
repayment may also be
permitted so that the
instalments are aligned to
the cash flows.

9.

Repayment
period for Working
Capital Term Loan
(WCTL).

- do -

- do -

4.

5.

10

Waiver of Penal
Interest

11

Relaxation in
Margin Norms

Fund Based Limits

12

Waiver of Penal Interest

from the beginning of the
accounting year in which
the unit started incurring
cash losses continuously

Waiver of Penal Interest

from the date of account
becoming NPA or started
incurring cash losses
whichever is earlier.

Margin requirements on
inventory / stock/
receivables may be
reduced up to 10% from
the stipulated level on case
to-case basis wherever
warranted. The reduced
margin should not be less
than 15% for stock and 20%
for receivables.

Non Fund Based

Limits

Reduction in margin by 5%
to 10% from the stipulated
level in respect of Non Fund
Based Limits such as LC /
LG may be considered in
deserving cases.

Increasing the
Working Capital
limits due to
stretched working
capital cycle and
reduced sales

Reduction in margin will not

give relief to units where
stocks/ receivables are
accumulated due to
stretched sales cycle. In
such cases, adhoc limits
may be sanctioned up to
30 % of existing fund based
limits based on merits and
subject to availability of
drawing power.
The adhoc loan will be
repayable in a maximum of
two years with a
moratorium of 6 months
during which only interest
will have to be serviced.

13

Financing for
purchase of
Gensets on soft
terms, specially in
power deficit
states.

Reduced margin of say 15%

may be stipulated for
purchased at Gensets by
MSE units. Longer
repayment periods from 3
to 5 years depending on
their cash flow for purchase
of Gensets by MSE units
may be considered.

14

Rephasement of
existing Term Loan

10 years.
In deserving cases, RO can
extend the repayment
period up to 15 years.

15

Approval from
ECGC/CGTMSE
wherever
applicable

ECGC/CGTMSE should
approve the package for
such units covered under
the Scheme.

FORMULATION OF NURSING AND REHABILITATION PACKAGE:

Once the sick SME unit is declared as potentially viable, nursing and
rehabilitation programme will be worked out quickly taking into account following
aspects:
a. Requirements for additional funds for working capital and for up gradation of
machinery, if required
b. Projected financial statements covering the nursing period.
c. Arrangement for recovery of overdue debts and disposal of unwanted assets.
d. Marketing arrangements
e. Arrangement for Competent Management performance.
Concessions and relief as stipulated in the policy will be extended to the units on case
to case basis while working out the rehabilitation package and will not to be given in
a routine manner.
Interest rate concession given will be subject to annual review.
To make the rehabilitation package more meaningful, necessary support for business
restructuring, modernization, expansion, diversification and technological upgradation as felt necessary may be given.
Staggered or ballooning repayment can also be permitted so that the instalments are
aligned to the cash flows.
..133

i)

INTEREST DUES ON CASH CREDIT AND TERM LOAN

If penal rates of interest or damages have been charged, such charges will be
waived from the accounting year of the unit in which it started incurring cash losses
continuously. After this is done, the unpaid interest on term loans and cash credit
during this period will be segregated from the total liability and funded in the form of
Funded interest Term Loan.
Unadjusted interest dues such as interest charged between the date up to which
rehabilitation package was prepared and the date from which actually
implemented will also be funded on the same way as above.
ii)

EXCESS IN CASH CREDIT AND TERM LOAN ACCOUNTS

After the unadjusted interest portion of the cash credit account is segregated as
indicated at (i). The balance representing principal dues will be treated as irregular
to the extent if exceeds drawing power. This amount will be funded as working
capital term loan.
After the unadjusted interest portion of the term loan account is segregated as
indicated at (i), the balance representing principal dues will be treated as irregular to
the extent it exceeds drawing power. This amount will be funded as funded term
loan.
iii) RESTRUCTURING OF EXISTING TERM LOAN
Existing Term Loans (after segregating the interest dues and irregular portion) will be
restructured in line with projected cash flows. Maximum repayment period shall not
exceed 7 years for Micro and Small Enterprises and 10 years for Medium Enterprises.
iv) CASH LOSSES
Cash losses are likely to be incurred in the initial stages of the rehabilitation
programme till the unit reaches the breakeven level. Such cash losses excluding
interest as may be incurred during the nursing programme may also be financed by
the Bank, if bank is the only financier. If bank and a financial institution are involved in
the rehabilitation package, the financial institution concerned should finance such
cash loss. Interest will be charged on the funded amount at our BPLR rate.
Future cash losses in this context will refer to losses from the time of implementation of
the package up to the point of cash break even as projected. Future cash losses as
above should be worked out before interest (i.e. after excluding interest) on working
capital etc., due to the banks and should be financed by the financial
institution/bank as above. The interest due to the Bank will be funded by the Bank
separately.

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v. CONTINGENCY LOAN ASSISTANCE

For meeting escalations in capital expenditure to be incurred under the rehabilitation
programme, Bank will provide where necessary, appropriate additional financial
assistance up to 15% of the estimated cost of rehabilitation by way of contingency
loan assistance. Interest on this contingency assistance will be charged at the
concessional rate allowed for working capital assistance. This is applicable only for
Micro and Small Enterprises.
vi) FUNDS FOR STAR UP EXPENSES AND MARGIN FOR WORKING CAPITAL
In some cases, there may be need to provide the units under rehabilitation with funds
for start up expenses (including payment of pressing creditors) or margin money for
working capital in the form of long term loans. Where a financial institution is not
involved, Bank will provide loan for start up expenses.
vii. PROMOTERS CONTRIBUTION
Promoter`s contribution towards the rehabilitation package is to be fixed as under:
MICRO AND SMALL ENTERPRISES:
10% (minimum) of additional long-term requirement for Micro Level II Enterprises and
20% for small enterprises. It need not be insisted upon for Micro Level I Enterprises.
For arriving at promoter`s contribution, the monetary value of the sacrifices from
banks, financial institutions and Government may be taken into account, in addition
to the long-term requirement of funds under the rehabilitation package. At least 50%
of the promoter`s contribution has to be brought in immediately and the balance
within six months.
MEDIUM ENTERPRISES
a) From existing promoters, 30% of long-term requirements of funds including
monetary value of sacrifice from banks/financial institutions/ Government, under
rehabilitation package.
b) For units having technocrats/professional managements or packages involving
change of management, 30% of long-term requirements of funds excluding
monetary value of sacrifice.
c) 50% of promoter`s contribution has to be brought in immediately and the
remaining within 6 months as per requirement of rehabilitation package.
IMPLEMENTATION OF NURSING AND REHABILITATION PACKAGE
The nursing package worked out as per the above guidelines shall be implemented
within 60 days of approval. Borrowers consent in writing should be obtained before
implementation. The implementation shall be stringently monitored at all levels to
ensure that the unit is nursed back to good health.
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The Bank will have the Right to Recompense the quantum of which will be limited to
waiver (excluding penal interest and liquidat4ed damages) plus present value of
economic loss on account of reduction in interest rate.
At the discretion of Bank, the Right to Recompense will be available at any time
after 3 years of implementation of the package and up to 2 years after complete
repayment of the restructured term loan/working capital term loan/funded interest
from loan etc., Further the Bank will also invoke Right to Recompense when the (i)
borrower declares divided/withdraws profits more than 10% of the average capital;
or (ii) approaches the Bank for prepayment of the borrowings.
Working capital Term Loan shall be secured by first charge on the fixed assets of the
borrowing units. If the fixed assets are under charge to State Finance
Corporation/Term Lending Institution, the Bank at its discretion may insist first paripassu
charge with these institutions.
In the event of default in servicing of restructured debts for a period exceeding six
months at any given point of time, during the nursing period, the restructuring
package will be withdrawn, at the discretion of the Bank.

DISCRETIONARY POWERS FOR APPROVAL OF REHABILITATION PACKAGE FOR DEBTS OF

SMEs:
Rs. In lacs

Sanctioning Authority
Chairman and Managing Director
Executive Director
General Managers Corporate
Credit
General Managers Heading the
Rights
Deputy General Managers
Assistant General Managers

Discretionary Powers*
Aggregate per
Of which unsecured
borrower
portion
Should not exceed
6000
4500
4500
3000
3000
1500
2250

1125

600
300

300
150

*The amount includes existing dues plus fresh sanctions (both fund based and non
fund based)
*The total unsecured portion of relief package (FITL+WCTL+RTL) should be within the
discretionary powers of the sanctioning authority for sanction of unsecured
advances. If not, the rehabilitation proposal has to be referred to appropriate layer of
authority for sanction.
*Sanctioning authorities will submit the sanctions made by them to next layer of
authority for review.
Any waiver or write off that results from the process of nursing and rehabilitation will
be within the ceiling limits prescribed for the respective layer of authority, which is as
under at present:
..136

Rs. In lacs
CMD
ED
GM
DGM
AGM

50.00
37.50
20.00
5.00
2.50

Proposals involving extension of relief and concessions beyond the prescribed

parameters may be considered by ED/CMD, who can consider such proposals,
subject to the total waiver/write off remaining within the discretionary powers vested
with them. All other cases may be referred to Management Committee of Board for
necessary sanction.
PRUDENTIAL NORMS FOR RESTRUCTURED ACCOUNTS
Asset classification and income recognition of accounts under Nursing and
Rehabilitation will be made as per the extant prudential norms of RBI for restructured
accounts.
Provision is to be made towards diminution in the fair value of advance, if any, and
such diminution in value is to be intimated to Credit Monitoring Department, Central
Office to make provision at Central Office level.
CONCLUDING REMARKS
The policy is subject to guidelines / instructions of regulatory authorities such as
RBI/Government of India. Therefore, the policy will be amended with the approval of
the Board whenever revised guidelines are received from the Regulatory Authorities.
The policy will be in force until a review is made by the Board of Directors for
accommodating the emerging situations.

..137

GLOSSARY
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21

AAIFR

Appellate Authority for Industrial and Financial

Reconstruction
BIFR
Board of Industrial and Financial Reconstruction
BPLR
Benchmark Prime Lending Rate
CC
Cash Credit
CCPC
Corporate Credit Processing Centre
CMD
Chairman and Managing Director
DSCR
Debt Service Coverage Ratio
ED
Executive Director
FITL
Funded Interest Term Loan
FTL
Funded Term Loan
MSME
Micro, Small and Medium Enterprises
MSMED Act Micro, Small and Medium Enterprises
2006
Development Act 2006
MSE
Micro and Small Enterprises
NABARD
National Bank for Agriculture and Rural Development
NPA
Non Performing Asset
RBI
Reserve Bank of India
RTL
Rehabilitation Term Loan
SIDBI
Small Industries Development Bank of India
SSI
Small Scale Industries
TNW
Tangible Net Worth
WCTL
Working Capital Term Loan

..138

ANNEXURE
DEBIT RESTRUCTURING MECHANISM FOR MICRO, SMALL AND MEDIUM
ENTERPRISES (MSMEs)
1. DEFINITION OF MSME ENTERPRISES
Micro, Small and Medium Enterprises Development Act 2006 defines Micro, Small and
Medium Enterprises based on (a) investment in Plant and Machinery in respect of
manufacturing enterprises and (b) cost of equipments in respect of Service
Enterprises.
CLASSIFICATIONS
MFG/SERVICE
INVESTMENT IN PLANT &
MACHINERY/ EQUIPMENTS
MICRO LEVEL - I
MANUFACTURING
Up to Rs. 10 lacs
SERVICE
Up to Rs. 4 lacs
MICRO LEVEL - Ii
MANUFACTURING
Rs. 10 lacs to Rs. 25 lacs
SERVICE
Rs. 4 lacs to Rs.10 lacs
SMALL
MANUFACTURING
Rs. 25 lacs to Rs. 500 lacs
ENTERPRISES
SERVICE
Rs. 10 lacs to Rs. 200 lacs
MEDIUM
MANUFACTURING
Rs. 500 lacs to Rs. 1000 lacs
ENTERPRISES
SERVICE
Rs. 200 lacs to Rs. 500 lacs
For computing the investments, the original cost of plant and machinery/equipments
should be taken into account and cost of land and building and other specified
items should be excluded.
2. Eligibility Criteria
i) These guidelines would be applicable to the following entities, which are viable or
potentially viable:
a. All non-corporate MSMEs irrespective of the level of dues to banks.
b. All corporate MSMEs, which are enjoying banking facilities
from a single
bank, irrespective of the level of dues to the
bank.
c. All corporate MSMEs, which have funded and non-funded outstanding up
to Rs. 10 crore under multiple/consortium banking arrangement
i. Loss Assets: - Accounts classified by bank as Loss Assets will not be eligible
for restructuring.
ii. BIFR Cases: - In respect of BIFR cases completion of all formalities in seeking
approval from BIFR should be ensured before implementing the package.
iii. Cases of Willful Default:
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While corporate indulging in frauds and malfeasance will continue to remain

ineligible for restructuring under the Debt Restructuring Mechanism for MSMEs as
hitherto, bank may review the reasons for classification of the borrower as willful
defaulter specially in old cases where the manner of classification of a borrower as a
willful defaulter was not transparent and satisfy itself that the borrower is in a position
to rectify the willful default provided the borrower is granted an opportunity under the
Debt Restructuring Mechanism for MSMEs. Such exceptional cases may be admitted
for restructuring with the approval of the Board of Directors of the bank only. The bank
will ensure that cases involving frauds or diversion of funds with malafide intent are not
covered.
3. VIABILITY CRITERIA:
a) Viability study of the units:- The viability study of the units will be done as
mentioned below:Outstanding exposure
Viability study to be done by
only to IOB
a. Exceeding Rs. By a competent agency engaged in conducting
10 crores
viability studies at the discretion of the Bank and/or by
utilizing the in house facilities available at the Bank.
Cost of the study to be borne by the borrower.
b. Rs. 5 crores to By utilizing the in house facilities available at the
bank with or without the assistance of outside
Rs.10 crores.
consultants. Fees payable to the consultant should be
borne by the borrower.
c. Below
crores

Rs.

5 By utilizing the in house facilities available at the

Bank.

Note: 1. outstanding exposure shall mean and include fund based facilities; non-fund
based facilities; and investments.
2. Irrespective of the level of dues to the Bank, the above shall apply
to (i) all noncorporate MSMEs; and (ii) all Corporate MSMEs which
have exposure only to IOB.
3. In respect of Corporate MSMEs having dues of less than Rs.10 crores
to more
than one Bank (besides IOB) under Multiple/Consortium arrangement the decision to
conduct the viability study and the
agency entrusted to undertake such study will
be taken in
consultation with other financing banks.
b. Viability Benchmark Levels: - The unit should satisfy the following benchmark levels
to ensure the viability on giving effect to the restructuring package.

..140

RATIO
a. Debt Service
Coverage
Ratio (DSCR)
b. Current Ratio
c. Long term
debt/TNW
Ratio
(i.e. Debt
Equity Ratio)

BENCHMARK
Average DSCR of more than 1.15 and more
Than 1 in each year is considered adequate.

Above unity & progressively improving.

3;1.(Promoters to being in additional funds in the form of

capital only and not in the form of loans)

Depending on the adequacy of cash surplus

d. Holiday period
for payment
of instalments Entire restructured dues should be adjusted within a
and interest.
maximum period of ten years. (including holiday period),
but the interest concessions will be available only for a
e. Repayment
period of 7 years.
period
Restructured
dues with concessionary rates
of
interest/inadequate security should get precedence in
repayment.
Repayment period of restructured dues of sick units will be
governed by RBI guidelines, subject to the discretion of
the Bank or Sanctioned Scheme of BIFR.
i.

ii.

iii.

iv.

In the event of default in servicing of restructured debts for a period exceeding

six months at any given point of time, the restructuring package will be
withdrawn, at the discretion of the Bank.
The Bank will have the Right to Recompense the quantum of which will be
limited to waiver (excluding penal interest and liquidated damages) plus
present value of economic loss on account of reduction in interest rate.
At the discretion of the Bank, the Right to Recompense will be available at
any time after 3 years of implementation of the package and up to 2 years
after complete repayment of the restructured term loan/ working capital term
loan/ funded interest term loan etc. Further the bank will also invoke Right to
Recompense when the (i) borrower declares dividend/withdraws profits more
than 10% of the average capital; or (ii) approaches the Bank for prepayment
of the borrowings.
Working capital Term Loan should be secured by first charge on the fixed
assets of the borrowing units. If the fixed assets are under charge to State
Finance Corporation/Term Lending Institution, the Bank at its discretion may
insist first paripassu charge with these institutions.

..141

4. Discretionary powers for Restructuring of debts of MSMEs:

The following discretionary powers available for Restructuring of Advances as
advised in Credit Support Services Dept. Circular No: ADV/250/2008-09 dated
17.02.2009, may be utilized for Restructuring of debts of MSMEs. In the case of
BIFR cases, the limits can be sanctioned within overall per borrower limit
without any ceiling on secured and unsecured portion. In non-BIFR cases, such
ceilings will apply.

Sanctioning Authority
Chairman and Managing Director
Executive Director
General Managers Corporate Credit
General Managers Heading the
Rights
Deputy General Managers
Assistant General Managers

Rs. In lacs
Discretionary Powers*
Aggregate
Of which unsecured
per borrower
portion
Should not exceed
6000
4500
4500
3000
3000
1500
2250
1125
600
300

300
150

Branch Manages up to Scale IV are not empowered to sanction restructuring

packages though the original limits might have been sanctioned by them. Branch
Managers of Scale V and above heading the branches may sanction restructuring
packages within their discretionary powers.
In case of restructuring of advances which involves sanction of Working
Capital Term Loan (WCTL) & Funded Interest Term Loan (FITL) the restructuring
package can be sanctioned only by Regional Heads & above. Also in case of
sanction of WCIL & FITL where the limits are partly secured or fully unsecured then the
sanctioning authorities i.e. Regional Head & above can sanction the limits as per their
discretionary powers available for sanction of unsecured limits.
In respect of restructuring of standard accounts with additional limits, the
sanctioning authorities as mentioned above can sanction the restructuring package
within their discretionary powers.
The borrowal accounts which are restructured under the powers of various
sanctioning authorities should be reported to the reviewing authority for their review in
the following month as per guidelines in force. Any observations made by the
reviewing authority should be complied with by Branches/Regional Offices.

..142

5. Concessions/Relief that can be extended as part of Restructuring

of debts of MSMEs:As part of restructuring, the concessions/relief may be extended to the extent
indicated below:I For Non-sick units
1. The following layers of authority may reduce the interest rates to the extent
mentioned there against, depending on the merits of each case, from the
interest rates stipulated/sanctioned by higher authorities including MCB,
subject to total waiver/write off, remaining within their discretionary powers.
Chairman and Managing Director
Up to BPLR 3.5%
Executive Director
Up to BPLOR-3.5%
General Managers (Corporate)
Up to 1.5% below applicable rate
General
Managers(Heading
the Up to 1% below applicable rate
Region)
II) For Sick Units:Sick units may be restructured and rehabilitated as per policy on nursing and
rehabilitation of sick MSME units.
6. Time frame
The restructuring packages should be worked out and implemented within a
maximum period of 60 days from date of receipt of requests.
7. Prudential Norms for restructured accounts
RBI is issuing detailed guidelines with regard to prudential norms that govern the
restructured accounts from time to time. Based on the RBI guidelines, Central Office
has issued detailed circular in this regard. Branches/ Regional Offices are advised to
refer to the following circulars for detailed instructions with regard to asset
classification and income recognition of restructured accounts.
a. Circular No: ADV/65/2001-02 dated 10.12.2001 , on Treatment of Restructured
Accounts
b. Circular No: ADV/444/2005-06 dated 18.02.2006, on Revised Guidelines on
Corporate Debt Restructuring (CDR) Mechanism.
c. Circular No: ADV/445/2005-06 dated 02.03.2006, on Restructuring of Borrowal
Accounts Policy Guidelines.
d. Circular No: ADV/204/2008-09 dated 26.09.2008, on Prudential Guidelines on
Restructuring of Advances by Banks.
e. Circular No: ADV/226/2008-09 dated 18.12.2008, on Prudential Guidelines on
Restructuring of Advances.
f. Circular No: ADV/231/2008-09 dated 29.12.2008, on Prudential Guidelines on
Restructuring of Advances by Banks Calculation of Provision for Diminution in
the fair value of restructured advances.
..143

34. OTS POLICY FOR MSME

The One Time Settlement Policy of the Bank covers all sectors including MSME. The
OTS policy in line with SIDBI Scheme for OTS settlement of MSMEs has since been
approved by the Bank for implementation. While general provisioning under the SIDBI
Policy and our OTS Policy are in Conformity with each other, a few variations in the
method of computing OTS acceptable amount in tune with SIDBI guidelines is now
implemented as detailed below:
Our existing OTS policy is based on the Net Present Value of the available security
factored at 12%, reckoning 4 years as the realisation period of the security which
works out to 62% of the value of the property.
OTS policy of SIDBI is based on the Distress Sale Value (DSV) of the security (assessed
by two independent valuers). The DSV is reckoned at 75 % of the realizable market
value as per SIDBI guidelines.
OTS policy for sick non-viable MSMEs
Our policy will cover all NPA accounts including these assets where action is
initiated under Sarfaesi Act, Lok Adalats, DRTs, Decreed accounts subject to
obtaining consent decree from Court DRT/Lok Adalat.
Accounts falling under wilful default Fraud /Malfeasance shall be considered on a
case to case basis with permission of CO
Consortium if any with 75 % lenders consent
Settlement under OTS for MSME borrowers under NPA category :
Security value or Notional amount due whichever is higher as under:
1) Security value
In order to adopt a more flexible approach to MSME borrowers in the OTS policy in
respect of value of the property and also taking into account SIDBI guidelines in this
regard, security value as lower of a or
b given below:- the following approach:
a) 75 % of the FMV of the property
OR
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b) Net Present Value as per our existing policy outlined herein

Note

Fresh valuation, if the previous valuation is more than 1 year old.

Two valuations if the approved value is more than Rs 5 crores.
If the variation is more than 10 %, third valuation to be obtained 2

2) Notional Amount Due from the borrower

A. Outstanding as on date of NPA
B. ADD SI from NPA date till OTS app settlement date at BR
C. ADD Bills Returned unpaid/ Invoked Guarantees after date of NPA
D. ADD Interest on the above till OTS date
E. ADD other expenses
F. ADD Legal expenses
G. Less Recoveries made after NPA date
H. Less countervailing Interest on the above
I. NET Notional amount due from the party
OTS amount will be HIGHER of 1 and 2 above
OTS in case of LOSS Assets
Our banks OTS policy covers all accounts in NPA category
PAYMENT PERIOD FOR OTS AMOUNT
OTS amount should preferably paid within six months from the date of approval of
OTS;
25% upfront and balance within six months without any interest
If paid within a year, then interest at Base Rate from the sixth month to one year to
be paid
In exceptional cases, payment of OTS can be extended up to two years within
interest.
..145

Factors to be reckoned at the time of OTS offer

1. Realizable value of securities
2. Present status of the unit
3. Possibility of better recovery through other means
4. Provisions made
5. Consideration by other lenders ,if any
6.Impact of sacrifice on profitability
7.The premise of OTS to benefit both sides
If the borrowers fail to meet the OTS commitment all concessions will be withdrawn
and the bank will proceed with legal process for recovery of dues.
All other general provisions under our present OTS policy will apply to sick non-viable
MSMEs also.

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35. CODE OF BANKS COMMITMENT TO MICRO AND SMALL ENTERPRISES

Note: The Code of Banks Commitment to MSE is a voluminous document running to
more than 40 pages which is available in the Banks website. The code is worded in
the form of a direct one-to-one assurance given by the bank to the clients using we
to denote the bank and you denote the client. Links are available in the homepage
of iob.in as well as iobonline to access this document. This chapter gives a gist of the
code followed by few key questions on the code with their answers.
A . Summary of the Code of Commitment
This code sets minimum standards of 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 does not replace or
supersede regulatory or supervisory instructions issued by RBI.
Major objectives of the code are to augment the MSE sector by providing easy
banking access, to promote good and fair banking practices by setting minimum
standards and to increase transparency between bank and borrower. It will promote
a fair and cordial relationship between the parties, generating quick response from
banks and enhance confidence of entrepreneurs. (Para 1 and sub paras)
The key commitments of the bank to MSEs under the code are (a) To act fairly and
reasonably in all dealings (b) To help understand banks products and services by
giving information about them (d) To help them use their accounts by providing
regular updates on interest rate etc. (e) To deal quickly and sympathetically when
things go wrong by correcting mistakes and refunding service charges (f) To treat all
personal and business information as private and confidential (g) To publicise the
Code and (h) to adopt and practice a Non Discrimination Policy. (Para 2)
Bank also assures
Information and transparency to the MSEs on (a) changes in
interest rate, service fee etc. (b) Fees and charges with periodical changes thereon
(c) terms and conditions and changes, if any, thereon. Information on these points will
be made available through various channels like notice boards, s.m.s, letters, e mail,
passbooks and statements, website, media etc.(Para 3)
The code lays down ground rules for advertisements, marketing, promotional offers
and use of DSA (Direct Selling Agents). (Para 4)
The banks duty to maintain Privacy and Confidentiality is upheld in the Code with a
provision that bank may disclose select information to the Credit Reference Agencies
with prior knowledge of the client. (Para 5)
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Banks collection policy is detailed in the code affirming that bank will explain to the
client the repayment period and process, the steps that may be taken in case of
default in repayment, use of recovery agencies, modes of contacts by staff for
recovery, time and place of such contacts and handling of clients complaints, if any,
on this issue. It also states that a Security Repossession Policy will be followed in
conformity of law. (Para 6)
Mechanism to lodge a complaint along with information about Banking Ombudsman
Scheme are also covered in the said code. (Para 7)
This follows exhaustive discussion on various kinds of deposit accounts that can be
opened with the bank. It covers (a)general rules governing deposit accounts
(b)Savings and Current Accounts (c)Term Deposits and advance against term
deposits (d)No-Frill Accounts ( e)Accounts of Minors (f)Special Accounts and
(g)Dormant and Inoperative Accounts and (h) Closure of accounts. . (para 8 up to
sub para 8.1.6)
The code also lays down banks commitment in respect of miscellaneous services like
Clearing and Collection , Standing Instruction , Stop Payment of cheques, Claims in
accounts of deceased persons , Safe Deposit Lockers , Foreign Exchange Services
(para 8 up to 8.11)
A key area of commitment concerns lending by the bank. The bank asserts that
before lending any money bank will assess whether the client can repay it ; and then
goes on to inform the modes of applications , processing, sanction , terms of sanction
and third party guarantees. (Para 8 up to 8.13).
The code also commits on the credit card, mobile banking, credit counselling and
facility to provide records to the client on request. (Para 8 up to 8.18)
The code contains mechanism to protect the customers accounts and finally ends
with monitoring, helpline and review provisions (paras 9 to 12).
B. Clarification on Key points of the Code
Why is the scope of the Code confined to only Micro and Small enterprises?
MSEs play a very significant role in maintaining a balanced and sustainable growth of
the economy, through employment generation, development of entrepreneurial skills
and contribution to export earnings. The Report of the Working Group on
rehabilitation of sick SMEs has brought out that this vibrant segment of the Indian
economy has been contributing over 39 per cent of the manufacturing sector output,
33 per cent of the national exports and providing employment to nearly 312 lakh
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people through about 128 lakh units, located in both the rural and urban areas across
the country. The Third Census of small enterprises conducted by the Government of
India in 2001-02 revealed that 95.5% of Micro & Small Enterprises have been outside
the purview of the jurisdiction of financial structure and that there is a critical need to
provide banking services to fully exploit the potential of this sector
If banks do not implement the Code, what is the recourse left for the customers?
All banks have adopted a Model Grievance Redressal policy framed by the IBA. All
banks have a set of internal Grievance Redressal Procedures for handling of
complaints with given specific time frame consistent with External Grievance
Redressal Mechanisms such as the Banking Ombudsman Scheme. The Code even
provides that if customers are not satisfied with the banks response, they should not
be discouraged from escalating the complaints and should be helped to take up the
matter with the Banking Ombudsman. Individual complaints are also dealt with by
the Customer Service Department of the Reserve Bank of India and if the complaints
involve systemic issues, the BCSBI pursues the matter with the banks for rectification of
the systemic lapses.
What are some of the positive features of this Code?
Through this Code, banks are committed to make available to MSEs, free of cost:

A copy of the Code of Banks Commitment to MSEs which is their Charter of

Rights.
A check list of all legal and regulatory requirements along with a simple
standardised, easy to understand application form for loan.

Banks are also committed to make available to MSEs information about:

The interest rates applicable, and the fees/charges, if any, and any other matter
which affects MSEs interest, so that a meaningful comparison with those of other
banks can be made and informed decision can be taken by you.
The specific time frames for dealing with MSEs loan application, disbursement,
services etc.
The availability of collateral-free loan.
The parameters for credit assessment and post disbursement.
MSEs obligations when you are in financial difficulty and how your bank can help
you.
Nursing sick MSEs and debt restructuring.
The services which it has committed to give to MSEs.
The internal procedures for dealing with MSEs complaints.

The banks policy for collection of dues, cheque collection, compensation, grievance
redressal, etc.
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38. Frequently Asked Questions

Is credit rating mandatory for the MSE borrowers?
Credit rating is not mandatory but it is in the interest of the MSE borrowers to get their
credit rating done as it would help in credit pricing of the loans taken by them from
banks.
Is there any concession available in interest rate if a Company/Firm gets a good
rating?
As per extant guidelines top three ratings from an accredited external rating agency
are eligible for an interest concession of 0.25 % on the applicable rate of interest.
Is there any exemption in credit limit for obtention of rating for a SME?
Rating is not compulsory up to a credit limit of Rs. 2 crores for a SME. But there is no
bar for a SME to voluntarily opt for rating by an external agency
What are the guidelines for delayed payment of dues to the MSE borrowers?
With the enactment of the Micro, Small and Medium Enterprises Development
(MSMED), Act 2006, for the goods and services supplied by the MSEME units payments
have to be made by the buyers as under:
(i) The buyer to make payment on or before the date agreed on between him and
the supplier in writing or, in case of no agreement before the appointed day. The
agreement between seller and buyer shall not exceed more than 45 days.
(ii) 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.
This provision is not applicable for Medium Enterprises.
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Does the bank have any role in the matter of delayed payment to MSE borrowers?
To take care of the payment obligations of large corporate borrowers to MSEs, RBI has
advised banks that while sanctioning/renewing credit limits to their large corporate
borrowers (i.e. borrowers enjoying working capital limits of Rs. 10 crore and above
from the banking system), to fix separate sub-limits, within the overall limits, specifically
for meeting payment obligations in respect of purchases from MSEs either on cash
basis or on bill basis. This provision is not applicable for Medium Enterprises.
How do we assess the working capital requirements of MSE borrowers?
Our Bank has put in place a board approved loan policy governing extension of
credit facilities for the MSE sector. Limits have to be sanctioned after proper appraisal
of the genuine working capital requirements of the borrowers keeping in mind their
business cycle and short term credit requirement. As per Nayak Committee Report,
working capital limits to SSI units is computed on the basis of minimum 20% of their
estimated turnover up to credit limit of Rs.7.5 crore. For more details the policy may
be perused (available in this book).
What is the SME Platform in Bombay Stock exchange (BSE) and National stock
exchange (NSE)?
In order to help small companies tap Indias capital markets, in 2011 the Securities
and Exchange Board of India (SEBI) allowed the two national exchanges to set up
platforms dedicated to small and medium enterprises (SMEs). The basic objective was
to help them raise capital to meet their growth opportunities. As small enterprises
typically find it difficult to get investors and raise money, the guidelines on SMEs have
several relaxations compared with norms for other listed companies. For instance,
unlike other publicly traded companies, a listed SME can submit only half-yearly
financial results. SMEs are also exempt from giving detailed annual reports.
If the same person or entity has set up more than one enterprise, should the
investments of all enterprises be clubbed in order to determine MSME status?
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. Hence the earlier (1993) direction of 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 in 2009. Now there is
no need for clubbing.

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Is it possible for a unit to upgrade from Small to Medium and again back to Small
Enterprises category?
Yes it is possible. The only defining criterion is the original investment in plant and
machinery (for manufacturing) or equipments (for services). If new machineries or
equipments are added, the investment l increases sometimes changing classification.
When obsolete machineries or equipments are sold or discarded, reverse
classification may happen. Such migrations may happen within micro, small and
medium categories.
What is the source to get accurate information about original investment (in
plant/machinery/equipments) of a unit? Does the balance sheet reveal this?
The balance sheet shows only the depreciated value forming part of the asset side.
The schedule to balance sheet may contain a list of machineries/equipments
showing original cost and written down values; but this may not be enough to
ascertain the MSME status as the machineries are generally not listed item by item in
the schedule. Branches may have to verify the original invoices of machineries and
equipments to ascertain this, taking into account the items excluded in the MSMED
Act. Certificates issued by Chartered Accountants are also accepted for this
purpose. But it need not be obtained for every single MSE financed by the bank as for
majority of cases it will be self-evident under which bracket a unit will come. For
example there is no use to calculate original investment figure for small borrowers like
hair-cutting saloons, bakeries, single commercial vehicle operators and dry-cleaners
etc.
What is a Non-Banking Financial Company?
A Non-Banking Financial Company (NBFC) is a company a) registered under the
Companies Act, 1956, b) its principal business is lending, investments in various types
of shares/stocks/bonds/debentures/securities, leasing, hire-purchase, insurance
business, chit business, and c) its principal business is receiving deposits under any
scheme or arrangement in one lump sum or in installments. However, a Non-Banking
Financial Company does not include any institution whose principal business is
agricultural activity, industrial activity, trading activity or sale/purchase/construction
of immovable property. One key aspect to be kept in view is that the financial
activity of loans/advances should be for activity other than its own. In the absence of
this provision, all companies would have been NBFCs.

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In what way is the Code of Bank's Commitment to Micro and Small Enterprises
different from the existing regulatory prescription of the Reserve Bank of India
and the Government policy framework?
The objective of the Code is not to replace the existing regulatory framework
but to complement it. Regulations by themselves cannot ensure availability of
quality service to all. The Code seeks to achieve this through a positive and
voluntary commitment of the bankers to provide easy access to transparent,
speedy and efficient banking services. Banks are also committed to provide
products and services suiting the needs of MSEs and to consider their financial
difficulties sympathetically. In a sense, the code is a Charter of Rights of the
individual vis-a-vis his bank.
Whether credit facility extended to self-help groups can be covered under
CGTMSE guarantee scheme?
No. At present, as per the Scheme, the credit facility extended to Self Help
Group cannot be covered.
Whether borrowers from all service sector enterprises are eligible under the
credit guarantee scheme?
As of now, all activities that come under service sector as per RBI's guidelines
on 'Lending to Priority Sector' and MSMED Act, 2006 except retail trade are
eligible for coverage under the scheme.
Is it necessary that a borrower to be eligible should obtain all the required
credit facilities from a single institution?
Credit facilities extended by more than one bank or financial institution jointly
or separately to eligible borrower up to a maximum up to Rs.100 lakh per
borrower also qualify for guarantee cover.
Can a Proprietor of a unit avail CGTMSE cover for another unit for the same
activity where he is in partnership with another person?
Yes. But the overall ceiling for availing the guarantee is only Rs 100 lacs.
Is it mandatory norms for providing collateral free loans to MSEs?
Yes.RBI has made it mandatory that all MSE loans up to Rs 10 lacs should be
granted without obtaining any collateral and third party guarantee.
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Is any facility available with the bank for submitting credit applications Online
and also for E-tracking of applications?
Yes. A credit applicant can log on to the banks website where the provision
for uploading a loan application online is available with Tracking status. The
applicant will receive a serially numbered acknowledgement when the
application is submitted and he can subsequently e-track the
application
status by providing the application number. However one has to submit the
required documents in person at the concerned branch within 7 days of
sending the online application. Merely submitting the application online
will not entitle him for the credit facility applied for.
How does the bank take care of stressed SMEs? Is there any guideline for
providing relief to stressed SMEs?
The bank has a policy for Restructuring and Rehabilitation of sick viable SME
units and the policy is placed in our website. Any sick MSE unit can approach
the bank under this scheme which will be dealt by the bank on merits and
within the policy framework.
If there any exit option for a sick non-viable SME unit?
Yes. Our bank has framed a policy for One Time Settlement of sick non-viable
units which is non-discretionary and non-discriminatory. This policy is also
available in the banks website.

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37.GLOSSARY OF TERMS
Benchmarking: A systematic procedure of comparing a company's practices against
the best practice and modifying actual knowledge to achieve superior performance.
BIM : Basic Information Memorandum in respect of credit proposals under Loan
facilitation Service of SIDBI
Bonded Warehouse: A warehouse authorized by CUSTOMS authorities for storage of
goods on which payment of DUTIES is deferred until the goods are removed.
Compliance Risk: The risk of legal or regulatory sanctions, material financial loss, or loss
to reputation a bank may suffer as a result of its failure to comply with laws,
regulations, rules, related self-regulatory organization standards, and codes of
conduct applicable to its banking activities.
Discounting: Calculating the present value of a future amount. The process is the
opposite of compounding.
Discounted Cash Flow: A valuation methodology that discounts expected future cash
flows at a discount rate appropriate for the risk, currency, and maturity of the cash
flows.
Duty Drawback : Articles manufactured or produced in the India with the use of
imported components or raw materials and later exported are entitled to a refund of
the duty charged on the imported products or components
Economies of Scale : Achieving lower average cost per unit through a larger scale of
production
Factoring : Sale of an accounts receivable balance to buyers (factors) that are willing
and able to bear the costs and risks of credit and collections
Financial (Capital) Structure: The proportion of debt and equity and the particular
forms of debt and equity chosen to finance the assets of the firm.
First-to-Market Advantage: Also known as "first-mover advantage." The idea of firstmover advantage is that the initial occupant of a strategic position or niche (market
segment) gains access to resources and capabilities that a follower cannot match.
Fixed Cost: A cost that is fixed in total for a given period of time and for given volume
levels. It is not dependent on the amount of goods or services produced during the
period
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Forfeiting : A form of factoring in which large, medium- to long-term receivables are

sold to buyers (forfeiters) that are willing and able to bear the costs and risks of credit
and collections
Franchising: A parent company grants another independent entity the privilege to do
business in a pre-specified manner, including manufacturing, selling products,
marketing technology and other business approach.
General Agreement on Tariffs and Trade (GATT): A post-World War II agreement
designed to promote freer international trade among the nations of the world. The
GATT was replaced by the World Trade Organization (WTO) in 1994
Intellectual Property: Material or communicable result in forms of discoveries,
inventions, designs and literary and art works of scientific, humanistic, literary, and
artistic endeavor. It includes, but is not limited to, works in the form of scientific
discoveries and invention.
ISO-9000 : Refers to international standards, laid down by the International Standards
Organisation
Kyoto Protocol : A multilateral environmental agreement; its goal is to control global
warming by reducing greenhouse gases emitted into the Earth's atmosphere
Lease: A contract in which one party conveys the use of an asset to another party for
a specific period of time at a predetermined rate.
LFS : Loan Facilitation Service : An arrangement between our bank and SIDBI for
receiving credit- rated proposals with due diligence in complete form which will
enable quick sanction
Net Present Value (NPV): The present value of future cash returns, discounted at the
appropriate market interest rate, minus the present value of the cost of the
investment.
Patent: A government grant that gives inventors exclusive right of making, using, or
selling the invention.
Predatory Pricing: It is a form of price discrimination that requires selling below cost
with the intention of destroying competition. However, predatory pricing is against
law

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SEZs: SEZs means Special Economic Zones In principle approvals have already been
given for setting up of 26 new SEZs (state government/private sector) at Nanguneri
(Tamil Nadu), Paradeep (Orissa), Gopalpur (Orissa), Kulpi (West Bengal), Bhadohi
(Uttar Pradesh)
Value Chain : A value-added process in a firm to transform raw materials and other
inputs to finished goods, which creates value to customers
Value Addition: Value addition refers to the increment added in the process of
manufacture of a particular item, which also becomes part of its price.
Value-Added Tax (VAT): A sales tax collected at each stage of production in
proportion to the value added during that stage.
World Trade Organization (WTO): The WTO is a multilateral organization that promotes
free and fair trade among the nations of the world. It was created in 1994 by 121
nations at the Uruguay Round of the General Agreement on Tariffs and Trade (GATT).
The WTO is responsible for implementation

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