MSME
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Q.. What is the definition of MSME?
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A:The Government
of India has enacted the Micro, Small and Medium Enterprises Development
(MSMED) Act, 2006 in terms of which the definition of micro, small and medium
enterprises is as under:
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Enterprises
engaged in the manufacture or production, processing or preservation of goods
as specified below:
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A micro
enterprise is an enterprise where investment in plant and machinery does not
exceed Rs. 25 lakh;
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A small
enterprise is an enterprise where the investment in plant and machinery is
more than Rs. 25 lakh but does not exceed Rs. 5 crore;
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A medium
enterprise is an enterprise where the investment in plant and machinery is
more than Rs.5 crore but does not exceed Rs.10 crore. In case of the above
enterprises, investment in plant and machinery is the original cost excluding
land and building and the items specified by the Ministry of Small Scale
Industries vide its notification No.S.O.1722(E) dated October 5, 2006 .
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Enterprises
engaged in providing or rendering of services and whose investment in
equipment (original cost excluding land and building and furniture, fittings
and other items not directly related to the service rendered or as may be
notified under the MSMED Act, 2006 are specified below.
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A micro
enterprise is an enterprise where the investment in equipment does not exceed
Rs. 10 lakh;
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A small
enterprise is an enterprise where the investment in equipment is more than
Rs.10 lakh but does not exceed Rs. 2 crore;
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A medium
enterprise is an enterprise where the investment in equipment is more than
Rs. 2 crore but does not exceed Rs. 5 crore.
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Q.. What is meant by Priority Sector
Lending?
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A:Priority sector
lending include only those sectors, as part of the priority sector that
impact large sections of the population, the weaker sections and the sectors
which are employment-intensive such as agriculture, and Micro and Small
enterprises.
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Q.. Are there any targets prescribed for
lending by banks to MSMEs?
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A:As per extant
policy, certain targets have been prescribed for banks for lending to the
Micro and Small enterprise (MSE) sector. In terms of the recommendations of
the Prime Minister’s Task Force on MSMEs banks have been advised to achieve a
20 per cent year-on-year growth in credit to micro and small enterprises, a
10 per cent annual growth in the number of micro enterprise accounts and 60%
of total lending to MSE sector as on preceding March 31st to Micro
enterprises.
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In order to
ensure that sufficient credit is available to micro enterprises within the
MSE sector, banks should ensure that:
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40 per cent of
the total advances to MSE 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 ;
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20 per cent of
the total advances to MSE sector should go to micro (manufacturing)
enterprises with investment in plant and machinery above Rs. 10 lakh and up
to Rs. 25 lakh, and micro (service) enterprises with investment in equipment
above Rs. 4 lakh and up to Rs. 10 lakh. Thus, 60 per cent of MSE advances
should go to the micro enterprises.
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Q.. Is there any provision for grant of
composite loans by banks?
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A:A composite
loan limit of Rs.1crore can be sanctioned by banks to enable the MSME
entrepreneurs to avail of their working capital and term loan requirement
through Single Window.
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Q.. What is Cluster financing?
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A:Cluster based
approach to lending is intended to provide a full-service approach to cater
to the diverse needs of the MSE sector which may be achieved through
extending banking services to recognized MSE clusters. A cluster based
approach may be 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.
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The banks have,
therefore, been advised to treat it 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, banks have been advised to take
appropriate measures to improve the credit flow to the identified clusters.
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Banks have also
been advised that they should open more MSE focused branch offices at
different MSE clusters which can also act as counseling Centres for MSEs.
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Q. What are the RBI guidelines on interest
rates for loans disbursed by the commercial banks?
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A:As part of the
financial sector liberalization, all credit related matters of banks
including charging of interest have been deregulated by RBI and are governed
by the banks' own lending policies.
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Q.. Why is credit rating of the micro
small borrowers important?
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A:With a view to
facilitating credit flow to the MSME sector and enhancing the comfort-level
of the lending institutions, the credit rating of MSME units done by reputed
credit rating agencies and it should be encouraged. Banks are advised to
consider these ratings as per availability and wherever appropriate structure
their rates of interest depending on the ratings assigned to the borrowing
SME units.
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Q. Is credit rating mandatory for the MSE
borrowers?
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A: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 that is cost of funds
(interest and other charges etc.) of the loans taken by them from banks.
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Q.. What is debt restructuring of
advances?
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A:A
viable/potentially viable unit may apply for a debt restructuring if it shows
early stage of stickiness. In such cases the banks may consider to reschedule
the debt for repayment, consider additional funds etc. A debt restructuring
mechanism for units in MSME sector has been formulated and advised to all
commercial banks. The detailed guidelines have been issued to ensure
restructuring of debt of all eligible small and medium enterprises.
Prudential guidelines on restructuring of advances have also been issued
which harmony the prudential norms over all categories of debt restructuring
mechanisms (other than those restructured on account of natural calamities).
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Q.. What is the definition of a sick
unit?
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A:As per the
extant guidelines, a Micro or Small Enterprise (as defined in the MSMED Act
2006) may be said to have become Sick, if
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Any of the
borrower account of the enterprise remains NPA for three months or more.
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OR
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There is erosion
in the net worth due to accumulated losses to the extent of 50% of its net
worth during the previous accounting year. This criterion enables banks to
detect sickness at an early stage and facilitate corrective action for
revival of the unit.
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Q.. Are all sick units put under
rehabilitation by banks?
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A:No. If a sick
unit is found potentially viable it can be rehabilitated by the banks. The
viability of the unit is decided by banks. A unit should be declared unviable
only if such a status is evidenced by a viability study.
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Q.. Is there a time frame within which
the banks are required to implement the rehabilitation package?
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A:Viable /
potentially viable MSE units/enterprises, which turn sick in spite of debt
re-structuring, would need to be rehabilitated and put under nursing. It will
be for the banks/financial institutions to decide whether a sick MSE unit is
potentially viable or not. The rehabilitation package should be fully
implemented by banks within six months from the date the unit is declared as
potentially viable/viable. During this six months period of identifying and
implementing rehabilitation package banks/FIs are required to do “holding
operation” which will allow the sick unit to draw funds from the cash credit
account at least to the extent of deposit of sale proceeds.
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Q.. What is the procedure and time frame
for conducting the viability study?
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A:The decision on
viability of the unit should be taken at the earliest but not later than 3
months of the unit becoming sick under any circumstances. The following
procedure should be adopted by the banks before declaring any unit as
unviable:
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A unit should be
declared unviable only if the viability status is evidenced by a viability
study. However, it may not be feasible to conduct viability study in very
small units and will only increase paperwork. As such for micro
(manufacturing) enterprises, having investment in plant and machinery up to
Rs. 5 lakh and micro (service) enterprises having investment in equipment up
to Rs. 2 lakh, the Branch Manager may take a decision on viability and record
the same, along with the justification.
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The declaration
of the unit as unviable, as evidenced by the viability study, should have the
approval of the next higher authority/ present sanctioning authority for both
micro and small units. In case such a unit is declared unviable, an
opportunity should be given to the unit to present the case before the next
higher authority. The modalities for presenting the case to the next higher
authority may be worked out by the banks in terms of their Board approved
policies in this regard.
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The next higher
authority should take such decision only after giving an opportunity to the
promoters of the unit to present their case.
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For sick units
declared unviable, with credit facilities of Rs. 1 crore and above, a Committee
approach may be adopted. A Committee comprising of senior officials of the
bank may examine such proposals. This is expected to improve the quality of
decisions as collective wisdom of the members shall be utilized, especially
while taking decision on rehabilitation proposals.
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The final
decision should be communicated to the promoters in writing. The above
process should be completed in a time bound manner and should not take more
than 3 months.
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Q.. What are the RBI guidelines on One
Time Settlement scheme(OTS) for MSEs for settlement of their NPAs?
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A:Scheduled
commercial banks have put in place a non -discretionary One time Settlement
scheme duly approved by their Boards.
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Q.. Can the MSE borrowers get collateral
free loans from banks?
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A:In terms of RBI
Guidelines, banks are mandated not to accept collateral security in the case
of loans upto Rs 10 lakh extended to units in the MSE sector. Further, in
terms of RBI circular, banks may, on the basis of good track record and
financial position of MSE units, increase the limit of dispensation of
collateral requirement for loans up to Rs.25 lakh with the approval of the
appropriate authority.
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Q:. Who can apply under PPF scheme?
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A:An individual
can open a PPF account on his / her own behalf and / or on behalf of a minor
of whom he is the guardian. An individual can open only one PPF account on
his/ her own behalf.
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Q:. Who can not open a PPF Account?
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A:A Non Resident
India (NRI) cannot open an account under the scheme. However if a resident
who subsequently becomes an NRI during the currency of the maturity period
prescribed under PPF can subscribe to his/her account till maturity but
cannot
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extend the
account.Since May 13, 2005, Hindu Undivided Family also can not open a
account under the scheme. Accounts opened prior to May 13, 2005 may continue
subscription to their account till maturity. They also can not extend the
account any further.
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Q:. What is the Limit of Subscription to
a PPF account?
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A:An individual
on his / her own behalf and on behalf of a minor of whom he is the guardian
can subscribe an amount (in integral multiples of ` 5/-) not less than `
500/- and not more than ` 1,50,000/-, in a financial year.
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The ceiling on
deposits as provided for by the Central Government from time to time, which
is ` 1,50,000/- in a financial year at present, is both for individual self
account and account(s) opened on behalf of minor(s) of whom he is the
guardian, taken together.
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Q. How many subscriptions are permitted
in a financial year?
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A: The
subscription into an account can be made in a single lump sum or in
installments not exceeding twelve in a financial year.
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Q. When is an account treated as
Discontinued?
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A:Where
subscribers having subscribed ` 500/- or more in the initial year fail to
subscribe the minimum amount in the following years, the account will be
treated as discontinued.
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The subscriber in
such cases will not be entitled to obtain a loan or make a partial withdrawal
unless the account is revived.
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The subscriber
cannot open another PPF account in addition to thediscontinued one at any
other Account Office.
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