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MSME LOAN POLICY & GUIDELINES : 2012-13

FOR MICRO, SMALL AND MEDIUM ENTERPRISES [MSME] SECTOR

PART - I : LOAN POLICY

1.000 INTRODUCTION Micro, Small & Medium Enterprises are the growth engines of the Indian economy due to their ability to create jobs, foster entrepreneurship and to provide depth to the industrial base of the economy. MSMEs are contributing to the process of economic growth, employment generation and helping in more equitable distribution of national income. The major advantage of the sector is its employment potential at low capital cost. MSMEs are second only to agriculture in the field of employment. Thus MSME plays a very significant role in the socio-economic development of the country. With the opening up of the Indian economy due to globalization and liberalization, this vital sector of the economy is facing a lot of challenges and competition from the domestic as well as multinational corporations. The above position is an issue of serious concern. 2.000 Problems & Challenges The problems and challenges faced by the SMEs and the factors responsible for their sickness are summarized as under: � Increased competition from cheap imports � Infrastructural constraints/bottlenecks � Delayed realisation of receivables � Delayed/inadequate credit � High cost of funds � Insistence on collateral / margin � Complicated and cumbersome procedures of banks � Limited financial resources � Non availability of adequate promoters’ contribution / equity � Obsolete technology. Low R & D and technology upgradation effort � Inadequate managerial competence � Lack of marketing skills / Poor marketing � Inadequacy of inputs and skills � Government policies

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� Financial problems � Low quality image (Low ability perceived) � Difficulty in dealing with Govt buying system 3.000 Problems Identified by Banks � High sickness / NPA level � Lack of entrepreneurship � Infrastructural constraints � Competition/ lack of marketing skills � Lack of credit information/ Asymmetry of information � Lack of knowledge of promoters � Obsolete technology/ inertia to technological upgradation � Multiple agencies overseeing the development of MSME sector � Diversion of funds/ overtrading � Inadequate reach of banks 4.000 Major Strengths of SME sector � Ability to produce specialised products � Can offer instant service � Ability for quick action – can cash in on opportunities � Relatively low overheads � Flexibility in operation – can jump from one product to another � Enjoys tax / duty advantage 5.000 Policy Package for MSMEs As per Prime Minister's High Level Task Force recommendations the share of Micro enterprises in MSE lending needs to be increased to 60% in a phased manner viz. 50% in the year 2010-11, 55% in the year 2011-12 and 60% in the year 2012-13. It would be mandatory for the public sector bank to achieve this target. Recommendations of Prime Minister’s High Level Task Force issued by Govt. of India, Ministry of Finance, Deptt. Of Financial Services vide circular Letter F.No.3/2/2009-IF-II (Vol.II) dated July 7, 2010 are given vide Annexure I 6.000 What MSME Sector wants: • Growth and better returns on capital employed • Not lose an opportunity / bag maximum orders • Financial requirements � Timely credit � Adequate credit � At competitive terms

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• Latest technology for competitive edge • Better infrastructure • Information symmetry

7.000 OBJECTIVE OF THE POLICY: The MSME sector is growing and in the process there is opening up opportunities for Bank for lending. Therefore, Banks have been focusing to broaden their MSME loan portfolio because lending to MSME is profitable and divides risk of NPAs into number of small units. The Policy aims to make Bank’s functionary at various level aware of this fact and also move aggressively to take a fair market share to build up an appropriate and sound MSME portfolio. However, to face the competition and facilitate growth, the policy shall be constantly evolving measures to foster growth, remain competitive and also to mitigate risk involved and thus built up a quality port folio. The Policy also aims to strengthen the arms of field functionaries to acquire new accounts and thus increase borrower base. 8.000 APPLICABILITY OF THE POLICY: Our Bank’s loan policy document covers policy guidelines for sanctioning fund based credit facilities such as Working Capital Facilities, Term Loan facilities and all Non Fund Based facilities. In case of advances to Small and Micro units, being a Priority Sector Advance, RBI guidelines/Govt. of India guidelines are followed. Thus, the captioned policy shall always act as supplementary and not a substitute for our Bank’s Loan Policy. 9.000 MSMED Act 2006: In line with the announcements in the policy package Govt of India brought in a special act called ‘THE MICRO, SMALL AND MEDIUM ENTERPRISES DEVELOPMENT ACT, 2006 which was passed on 16th June, 2006 to provide for facilitating the promotion and development and enhancing the competitiveness of Micro, Small and Medium Enterprises and for matters connected therewith or incidental thereto. The Act has come in force w.e.f. 2nd October, 2006.

With the passing of MSMED Act-2006 there has been clarity as per the definition of Micro Small and Medium Enterprises. Under the provision of the Act steps are also being taken to support MSME sector with a view to increasing their competitiveness and also to provide legal protection. With this development in the year 2006 the growth in MSME sector shall be accelerated visibly in the ensuing period

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10.000 DEFINITION OF MSME SECTOR: MSME Development Act, 2006 has given the definition of Micro, Small & Medium Enterprises for both sectors i.e. Manufacturing and Service Sector, RBI has issued last Master Circular No. RPCD.SME&NFS.BC.No.9/06.02.31/2011-12 dated 1st July, 2011 on guidelines for lending to Small & Medium Enterprises ( SMEs) Sector. The Definition of Micro, Small & Medium Enterprises is as follows : 10.001 Small Enterprises Small (manufacturing) Enterprises: Enterprise engaged in the manufacture/production or preservation of goods and whose investment in plant and machinery (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 as furnished in Annexure II) does not exceed Rs. 5 crore Small (service) Enterprises: Enterprise engaged in the providing/rendering of services and whose investment in equipment (original cost excluding land and building and furniture, fittings and other not directly related to the service rendered or as may be under the Micro, Small and Medium Enterprises Development, (MSMED), Act 2006) does not exceed Rs.2 crore. As per RBI circular No. RPCD.CO.Plan.BC. 24 /04.09.01/2009-10 dated 18.09.2009 on Priority Sector Lending – Categorisation of activities under service under the MSMED Act, 2006, certain activities under Service sector, as mentioned in Annexure III would henceforth be part of the Small (Service) Enterprises under Priority Sector. 10.002 Micro Enterprises Micro (manufacturing) Enterprises Enterprise engaged in the manufacture/production or preservation of goods and whose investment in plant and machinery (original cost excluding land and building and such items as per Annexure II) does not exceed Rs. 25 lakh, irrespective of the location of the unit. Micro (service) Enterprises Enterprise engaged in the providing/rendering of services and whose investment in equipment (original cost excluding land and building and furniture, fittings and such items as per Annexure II ) does not exceed Rs. 10 lakh.

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10.003 Medium Enterprises Medium (manufacturing) Enterprises Enterprise engaged in the manufacture/production or preservation of goods and whose investment in plant and machinery (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) is more than Rs. 5 crore but does not exceed Rs. 10 crore. Medium (service) Enterprises Enterprise engaged in the providing/rendering of services and whose investment in equipment (original cost excluding land and building and furniture, fittings and such items as per Annexure II) is more than Rs. 2 crore but does not exceed Rs. 5 crore. The Small and Micro (Service) enterprises shall include small road & water transport operators, small business, professional & self-employed persons and all other service enterprises. Illustrative list of SSSBEs (Small Scale Service Business Enterprises) along with Categorization of activities under ‘Manufacture’ or ‘Service’ under the MSMED Act 2006 are given as per ANNEXURE III. Bank's lending to medium enterprises will not be included for the purpose of reckoning under priority sector.

10.004 RETAIL TRADE: As per RBI Circular No.RPCD.CO.Plan.BC.24/04.09.01/2009-10 dated 18.09.2009 on categorization of activities under service : “ there will be no separate category for "Retail Trade" under priority sector. Loans granted by banks for Retail Trade [i.e. advances granted to retail traders dealing in essential commodities (fair price shops), consumer co-operative stores; and advances granted to private retail traders with credit limits not exceeding Rs.. 20 lakh) would henceforth be part of the Small (Service) Enterprises. (Refer Annexure III)

Manufacturing Sector Service Sector Original Investment in Plant

& Machinery Original Investment in Equipments

Micro Enterprises Upto Rs. 25 lacs Upto Rs. 10 lacs Small Enterprises More than Rs. 25 lacs but

not exceeding Rs. 500 lacs More than Rs. 10 lacs but not exceeding Rs. 200 lacs

Medium Enterprises

More than Rs. 500 lacs but not exceeding Rs. 1000 lacs

More than Rs. 200 lacs but not exceeding Rs. 500 lacs

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10.005 Khadi and Village Industries Sector (KVI) All advances granted to units in the KVI sector, irrespective of their size of operations, location and amount of original investment in plant and machinery. Such advances will be eligible for consideration under the sub-target (60 per cent) of the small enterprises segment within the priority sector 10.006 DIRECT / INDIRECT ADVANCES Direct advances to above referred entities shall be considered as direct finance whereas indirect finance in the Micro and Small Enterprises [MSE] sector will include credit to: � Persons involved in assisting the decentralized sector in the supply of inputs and marketing of outputs of artisans, village and cottage industries. � Cooperatives of producers in the decentralized sector sectors viz. artisans, village and cottage industries. � Financing of NBFCs or other intermediaries for on-lending to Small and Micro

Enterprises. 10.007 INVESTMENTS IN SECURITIZED ASSETS Investments made by banks in securitized assets representing loans to the SE sector shall be eligible for classification under priority sector [direct or indirect] depending upon the underlying assets, provided it satisfies the following conditions: i) The pooled assets represent direct loans to SE sector and which are

classified under priority sector before securitisation; ii) The securitized loans are originated by banks / financial institutions and iii) Fulfill the RBI guidelines on securitisation. 10.008 Outright purchases of any loan asset eligible to be categorized under priority sector, shall be eligible for classification under the respective categories of priority sector [direct or indirect] provided

(i) The loans purchased are eligible to be categorized under Priority sector. (ii) Assets are purchased [after due diligence and at fair value] from Banks & FIs, without any recourse to Seller. (iii) Eligible Loan assets are not disposed off, other than by way of repayment, within a period of 6 months from the date of purchases. 10.009 Investments by Banks in Inter Bank Certificates [IBPCs], on a risk sharing basis, shall be eligible for classification under the respective categories of priority sector [direct or indirect] provided

(i) The underline assets are eligible to be categorized under Priority sector. (ii) Assets are held for at least 180 days from the date of investment.

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11.000 BANK’S TARGET FOR MSME SECTOR: As per the policy package announced by the Government of India [GOI] in August -05 for stepping up credit to MSME sector, GOI asked banks to fix self set target for growth in advances to MSME sector in order to achieve a minimum 20% year on year growth in credit to MSMEs. 11.001 SUB TARGETS FOR MICRO AND SMALL ENTERPRISES In order to ensure that sufficient credit is available to micro enterprises within MSE Sector the RBI vide their Master Circular No. RPCD.SME & NFS.BC.NO.9 /06/02.31/2010-11 dated 1st July 2010 on "Lending to Micro, small & Medium Enterprises (MSME) Sector" has directed as follows: Out of total credit to Small Enterprises Sector: 40% Credit to the micro [manufacturing] enterprises having investment in ‘Plant

& Machinery’ up to Rs. 5.00 lacs and micro [service] enterprises having investment in equipment up to Rs. 2.00 lacs.

20% Credit to the micro [manufacturing] enterprises having investment in ‘Plant & Machinery’ above Rs. 5.00 lacs and up to Rs. 25.00 lacs, and micro [service] enterprises having investment in equipment above Rs. 2.00 lacs and up to Rs. 10.00 lacs.

Thus, 60% of Small Enterprises advances should go to the Micro Enterprises Further, as per Prime Minister's High Level Task Force recommendations the share of Micro enterprises in MSE lending needs to be increased to 60% in a phased manner viz. 50% in the year 2010-11, 55% in the year 2011-12 and 60% in the year 2012-13. It would be mandatory for the public sector bank to achieve this target. The bank should achieve annual growth in the number of micro enterprises account of 10% every year.

It will be seen that the Government of India is very keen to ensure that the credit need of Micro Sector and Small Sector are given priority and adequate financial assistance is made available to Micro & Small Sector. The credit need of both the sectors can be met within the discretionary power given to Branch Managers and Regional Managers. Thus in order to fulfill the sub-target field level functionaries will have to pay attention to the credit need of Micro & Small Sector. Special Credit Camps may also be arranged at various centers to step up finance to Micro & Small Sector.

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12.000 Strategy to achieve the Target: To achieve the set target, Bank proposes to move simultaneously into the following directions. � The Credit sanctioned for MSME sector has not been satisfactory at Branch level. The Regional Managers have to activate Branch Managers to canvass aggressively for acquiring new accounts. Further, the credit requirement of micro & small enterprises can be easily met by branches within their discretionary powers. Therefore, focused attention will be given to activate branches to sanction credit proposals more in numbers. As per the directives given in the Policy Package for stepping up advance to MSME Sector, each Semi-urban and Urban Branch has to sanction at least five new MSME proposals every year. � Presently, Bank has identified 95 branches for intensifying finance to MSME sector. Few more branches will be added, keeping in view the overall manpower position. Such branches will be called MSME branches. � MSME branches will be given all support service such as training, skill of credit appraisal etc. MSME branches are expected to contribute sizable growth in MSME sector. � Special Schemes are to be formulated in cluster areas as per the needs / requirements of entrepreneurs. For this purpose, help of MSME Department at Corporate Office may be taken. � Emphasis should be given to the efficient credit delivery system. The advance should be made available within minimum time. Guidance / assistance may also be extended in completing Bank’s formalities necessary for availing loans. Counseling services may be given to the entrepreneurs for their new as well as existing projects. � Our Bank has entered into Tie up arrangement with the following companies by signing MOUs

• TVS Motors for financing Auto Rickshaws/ three wheelers for carrying passengers / goods

• Tata Motors for financing commercial vehicles / equipments (other than three wheelers)

• Bajaj Auto for financing commercial vehicles � Our Bank has entered into MOU with CRISIL and Dun & Bradstreet Information Services for carrying out DUE DILIGENCE exercise of MSME borrowers (Refer Annexure V)

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12.001 A separate SME department has been formed at the Head Office to formulate necessary guidelines and monitor the performance of the MSME Sector. DGM –SME will be reporting to General Manager – SME. The team at the Regional Offices would drive the growth under MSME sector, specifically through identified designated SME branches of their Regions.

12.002 Initiatives to augment Credit flow to MSME Sector : Policy initiatives: a) Separate lending policy for financing MSME sector which will be renewed every year. b) Discretionary powers modified. c) Competitive rate of interest . d) Simplification / rationalization of forms and documents, standardization of appraisal system. e) Adequate and timely finance. f) Geographical cluster approach – based on risk profiles, identified clusters to be financed. g) Specialised delivery channels. h) Specific business models. i) Flexibility in takeover norms j) Relaxation in financial ratios in line with Loan Policy 12.003 Product initiatives � Special schemes to extend finance at competitive Rate of interest are formulated. � Dena Laghu Udyami Credit Card and Dena Artisans Credit Card are introduced with simplified credit delivery system for small borrowers / Artisans. � MOUs & Tie Ups with various companies 12.004 Other issues i) Adequate support to be provided to identified SME branches in terms of manpower and technology ii) Training on cluster financing to operational staff iii) Incentive scheme for performers iv) Special campaign for identifying new customers & giving On the spot “In Principle ‘ consent. v) Organizing ‘Prospective Customers’ meet ‘[ SME Meets ] vi) Display of schemes / facilities offered to SME at branches vii) Wide publicity through media and other modes. viii) Setting up ‘SME Help Desk’ at Specialised SME branches & at RO. 13.000 SCHEME OF SMALL ENTERPRISES FINANCIAL CENTRES (SEFCs): As per announcement made by the Governor in the Annual Policy Statement 2005-06, a scheme for strategic alliance between branches of banks and SIDBI located in clusters, named as “Small Enterprises Financial Centre” has been

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formulated in consultation with the Ministry of SSI and Banking Division, Ministry of Finance, Government of India, As per the ‘Scheme’ and with a view to increase credit flow towards MSMEs, our Bank has entered in the MOU with SIDBI on 16.08.2005 to work together in the areas of joint financing / co-financing of projects relating to Small and Medium Enterprises [MSME] sector, service sector and infrastructure projects and to adopt a coordinated / common approach towards project identification, appraisal, monitoring, follow-up and client servicing. Gist of MOU & List of MSME clusters covered by existing SIDBI branches is already circulated.

14.000 Lending Modules: To give a thrust to MSME business, the segment is sub-divided into Schematic and Non-Schematic Lending. Our Bank is continuously evolving various schemes considering the requirement of specific groups of borrowers. Bank has formed the following schemes.

14.001 Schemes in Brief are as under:

i. Channel Financing Scheme a. Supplier Bill Discounting Scheme b. Dealer Finance Scheme

ii. Rice Mill Scheme iii. Wind Mill Scheme. iv. Scheme for Textile units of ‘Bhilwara’ v. Scheme for Ceramic units of Morvi, Wankaner & Thangadh. vi. Dena Artisan’s Credit Card (DACC) vii. Scheme for Financing SMEs Engaged in Agro Processing & Cotton

Ginning viii. Scheme for Cluster Units as identified by UNIDO (United Nations

Industrial Development Organization) viz. Casting & Forging, Diesel Engines, Electric Motors, Machine Tools, Diamond Processing & Wall Clocks (only for Rajkot Region)

ix. MOU with TATA Motors, TVS & Bajaj for financing commercial vehicles / three wheelers (detailed schemes available on site as per the circulars mentioned as per Annexure V)

14.002 Financing of second hand commercial vehicles (other than three wheelers) upto 3 years old subject to Road Worthiness Certificate and Valuation from Regd. Auto. Engineer / Surveyor at the sole discretion of the Bank.

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15.000 LENDING METHODS / Methods of assessment

Type of borrower Method of assessment For Credit limits upto Rs.2 crore (Rs.5 crore in case of SSIs)

Turnover Method; however, In case working capital cycle is higher, the borrower will have the choice to be assessed under Turnover method or Modified MPBF method.

For Credit limits beyond Rs.2 crore (Rs.5 crore in case of SSIs) For operating cycle is reasonably uniform and working capital remains more or less stable

Modified MPBF Method

For industries, where operations are seasonal or project based in nature like, Tea, Sugar, Software, Contractors, Builders & Developers etc.

Cash Budget Method

15.001 Compliance to financial parameters: The desired / indicative levels fixed by the Bank, including hurdle ratio, under Loan Policy shall be applicable mutatis mutandis for Micro, Small & Medium Enterprises 15.002 Advances to borrowers appearing in Defaulters’ List/ Caution List : The guidelines mentioned in the Loan Policy shall be applicable mutatis mutandis for Small & Medium Enterprises also. 16.000 CREDIT GUARANTEE FUND TRUST FOR MICRO AND SMALL ENTERPRISES [CGTMSE] The Scheme “Credit Guarantee Fund Trust for Small Industries [ CGTSI]” shall be known as the “Credit Guarantee Fund Trust for Micro and Small Enterprises [CGTMSE]”. The said scheme shall cover new or existing Micro and Small enterprises for credit facilities up to Rs. 100 lakhs ( Term Loan and / or Working Capital, both fund and non fund based ) for viable projects in respect of single eligible borrower , without collateral Security and/or Third Party Guarantee. The eligibility for guarantee cover, maximum extent of guarantee available, etc under Credit Guarantee Scheme shall be as prescribed by Credit Guarantee Fund Trust for Micro & Small Enterprises (CGTMSE) from time to time. However, in terms of HO circular no. 321/154/2008-09 dated 29.01.2009, the coverage of loans above Rs. 50 lacs and upto Rs. 100 lacs is to be done on selective basis with the prior approval of concerned Regional Manager on the basis of risk involved in the account.

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The lock in period for invoking claims in respect of loans covered under Credit Guarantee Scheme shall be as prescribed by Credit Guarantee Fund Trust for Micro & Small Enterprises from time to time 17.000 Credit Linked capital subsidy scheme for Technology Upgradation of Small Scale Industries (CLCSS). Government of India, Ministry of Micro, Small and Medium Enterprises has not conveyed their approval for continuation of the Credit Linked Capital Subsidy Scheme(CLCSS) for Technology Upgradation of Micro and Small Enterprises from XI Plan to XII Plan (2012-17) as of date. If the scheme is revived / continued by the Ministry, the same will be conveyed to the field functionaries.

18.000 Technological Upgradation Scheme (TUFS): GOI had launched Technology Upgradation Fund Scheme (TUFS) for Textile and Jute Industries initially for a period of 5 years which was further extended as Restructured Technology Upgradation Scheme (RTUF) w.e.f. 28.04.2011 upto 31.03.2012. The scheme was earlier suspended from 29.06.2010 to 27.04.2011.

GOI, Ministry of Textile has not yet conveyed their approval for continuation of the scheme. If the scheme is revived / continued by the Ministry, the same will be conveyed to the field functionaries. 19.000 Risk Management: • The Credit Risk Management Policy issued by IRM Department, HO would be guiding principle for the MSME Policy. While MSME Policy would not only address the business development facet, the guidelines under Credit Risk Management Policy will also be integrated to build quality asset portfolio and to minimize risks. • Guidelines under Credit Risk Management Policy shall be strictly adhered to, with specific reference to Credit Risk Rating, Credit Monitoring, Risk Mitigation, Pricing and Operational procedures.

19.001 Credit Risk Rating System Matters relating to Credit Risk Rating will be governed by the Credit Rating Policy of the Bank. The details are incorporated in the Credit Rating policy circulated by Integrated Risk Management Department. The latest Credit Rating Policy has been circulated vide circular No.20/04/2011-12 dated 25.04.2011 and further the Administrative Guidelines for Credit Rating Exercise has been circulated vide circular No.248/34/2011-12 dated 18.11.2011 by Integrated Risk Management Department.

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Guidelines issued by IRM Department, HO, from time to time, in respect of Credit Rating of borrowers, to be strictly adhered to.

Our Bank also introduced standardized risk score for specified industries by adopting the industry risk score of CRIS-INFAC, in lieu of the risk categories, "External Risk / Govt. Policy Risk / Environmental Risk” and “Industry / Business sector Risk". The system has been in vogue since then. The standardized risk scores are being updated and circulated from time to time. Latest CRIS-INFAC scores for various industries are circulated on monthly basis by IRM Dept., HO which are to be strictly adhered to. 20.000 Pricing of loans: 20.001 On the basis of credit rating, rate of interest applicable to the borrowers will be fixed / charged in accordance with the HO circulars in force / as per the terms of sanction, wherever concession has been granted. Change will be effective from 1st of the next calendar month.

20.002 Interest rate structure for MSME Advances : As per the circular No. 365/09/2011-12 dated 07.02.2012, the interest rate structure for MSME advances has been modified. The same to be followed till further instructions / changes.

20.003 Schematic MSME Loans : a. Schematic MSME loans shall be governed by the rates indicated in the respective schemes. b. In case of schematic advances like Agro based industries, SRTO Schemes, etc.., lower of the two, i.e. Proposed rate or applicable rate of interest as per the scheme, will be applicable 20.004 While pricing the loan, we may give due weightage to ‘SMERA’ Rating. SMERA’s first 4 rating shall be synchronized with our Credit Risk Rating as under:

Our Rating SMERA rating AAA 1 AA 2 A 3

BBB 4

20.005 Concessional Rate of Interest for Collateral Security Coverage. In view of the modified interest rate structure and the competitive rates offered for MSME advances the existing concession of 1% to Micro enterprises and 0.50% to small and medium enterprises stands withdrawn.

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Also the powers of Operational General Manager /GM (SME) to sanction Rate of interest at Base Rate(10.70% w.e.f. 04.08.2011) +3.00% i.e. 13.70% in case the borrower provides minimum 125% collateral security coverage (at distress value) stands withdrawn in view of the competitive rates offered for MSME advances as per Circular no.365/09/2011-12 dated 07.02.2012. 21.000 Cut off level / Acceptance / Tolerance level: i. For new borrowers, acceptance level will be 60%. If Credit Rating score of a new borrower is less than 60%, his loan request will not be considered. ii. For existing borrowers, tolerance level will be 55%. a. If any existing borrower gets credit rating score less than 55%, Bank will not

increase the exposure and will stipulate requisite conditions in terms of sanction such as increase of capital funds, reduction of outside liabilities, etc.. so that the credit rating score increases above the tolerance level.

b. If he is not willing to take any steps for improvement, all possible steps will be taken to exit the account.

c. In special cases, where the applicant's market reputation is very good and financials are sound, request may be entertained with prior permission of Executive Director or in his absence, Chairman & Mg. Director, where the credit rating score is less than 60% and upto 55% by placing a suitable note with justification and value of the account.

Any further modifications circulated by IRM Dept., HO to be strictly adhered to.

21.001 In view of the fact that each bank is having separate rating processes and disclosure requirements for the purpose of disbursing loans, MSMEs find themselves spending significant time, effort and money while approaching different banks for credit. Hence, to provide MSMEs faster access to timely and adequate credit, a Rating Scheme for Small Scale Industries, as approved by the Ministry of SSI - Govt. Of India , has been formulated by NSIC in consultation with various stake holders i.e., Small Industries Association , Indian Banks’ Association and various Rating Agencies viz. CRISIL , ICRA, Dun & Bradstreet (D&B) and ONICRA. 21.002 External Rating: With a view to comply with Basle II norms, all MSMEs having exposure more than Rs..5.00 crore to get External Credit Rating from out side agencies [CARE, ICRA, FITCH & CRISIL] as per Loan Policy

21.003 Based on the guidelines of IBA, our Board in the meeting held on 26.08.2005, has approved “Scheme for Rating of Small Scale Industries : Performance & Credit Rating Scheme for Small Scale Industries”. As per the scheme, SSI unit will be free to get the Performance and Credit rating done from National Small Industries Corporation Ltd.,[NSIC] or from the credit rating agencies empanelled with NSIC. Credit rating assigned to the borrower would be

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synchronized with existing credit rating model of our Bank and accordingly, the interest rate for such credit rating will be decided.

Our Bank has already entered into MoU with SMERA on 27-01-2006 for credit rating of SME units at concessional rates. Bank has also entered MoU with CARE & CRISIL in April, 2006 for credit rating of units having credit limits of Rs..5.00 cr. and above. The Branch Managers are advised to encourage SME entrepreneurs to get rated by external agencies with whom our Bank has MoU arrangements. 22.000 TEV Study for MSME Accounts Techno Economic Viability to be conducted in case of SME projects having Term loan limit of Rs.10 Crs. and above for new projects and Rs. 15 crs and above for expansion / diversification from TEV agencies as per loan policy. Further, for empanelling local TEV agencies having sufficient experience in carrying out TEV study for SME, can be empanelled on recommendation from the respective regional offices. The Chairman & Managing Director and his absence Executive Director will be authorized to approve the empanelment of such TEV agencies for SMEs 23.000 Cluster based approach: ‘Cluster’ means ‘geographical concentration of MSMEs, producing similar products and facing similar threats and opportunities’. Clusters may be identified based on factors such as trade record, competitiveness and growth prospects and/or other cluster specific data. 60 clusters have already been identified by the Ministry of Micro, Small and Medium Enterprises, GOI for focused development of Small Enterprises Sector. Our branches located in the cluster areas / centres have already been advised to explore opportunities for financing cluster activities. As per Ganguly Committee recommendations, banks have been advised that a full-service approach to cater to the diverse needs of the SSI sector may be achieved through extending banking services to recognized MSME clusters by adopting a 4-C approach namely, Customer focus, Cost control, Cross sell and Contain risk.

23.001 A cluster based approach to lending may be more beneficial: i. in dealing with well-defined and recognized groups; ii. availability of appropriate information for risk assessment, iii. Monitoring by the lending institutions. iv. Lower transaction and monitoring cost v. Synthesis and standardization of documents vi. Identification of common risk elements and their mitigation vii. Wide reach

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23.002 In the ‘Policy Package’ for SME it is suggested that Bank may adopt ‘Cluster’ base approach for financing SME sector to enable the SME entrepreneur to have easy access to the Bank credit and to equip bank personnel to develop requisite expertise. It is observed that our Bank has quite a few branches located in areas known for cluster activities. This factor shall be of great help to us in enhancing credit to MSMEs. The Branch Managers have been advised to adopt following strategies for acquiring MSME accounts. • To collect statistical information from the associations and Govt. agencies,

, lead bank, MSME Entrepreneurs regarding the No. of units ,their addresses,

• Key persons, Telephone No. etc. • To study the business activity in detail i.e the requirement of registration

and NOCs, Requirement of plant and machinery, other infrastructure facility, Marketing, Creditors & debtors, Peculiarity of production and marketing of particular industry.

• In the light of the above study assess the credit need of the industry. • To meet regularly the office bearers of Association, Govt. Officials, Fellow bankers, valued customers, Well wishers of our Bank and through them constantly look out for opportunities for finance. • To spare sufficient time to meet potential customers and canvass

accounts. • Branch will regularly arrange SME meet and keep themselves appraise of entrepreneur’s problems and expectations. • Branches should take support of Regional Office for handling MSME accounts and also to acquire new accounts. 24.000 Proposals put up to competent authority for approval of relaxations / concession etc… The proposals may be first sanctioned / approved by authorities as per discretionary powers and thereafter put up for approval of relaxation / concessions with due justifications / mitigations. 25.000 TAKE OVER OF LIMITS FROM OTHER BANKS Take over of limits from other banks/FIs is a valuable source for increasing the Bank’s advances. a. The ‘take over’ guidelines as prescribed in Loan Policy are to be strictly

followed b. Credit Risk rating of the account, to be taken over, should not be below

‘D’ c. The financial ratios should be as prescribed in Loan Policy. d. In case there is a primary/collateral security available in form of land and

building by way of equitable mortgage by deposit of title deeds, a legal opinion from a legal counsel should be available with the bank from

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whom the loan is being taken over or otherwise legal opinion of Advocate [from Bank’s approved list] should be obtained before disbursement.

e. Branch Manager should carry out pre-sanction visit of the borrower’s factory / office and submit a report thereof including market information.

f. Disbursement can be made for principal plus the accrued interest from the date of last interest application date with the other bank till the date of take over. A letter towards confirmation of balance/amount needed to fully repay the loan with the other bank must be obtained from the other bank.

g. The disbursement should be made by way of a Pay Order favouring the other bank along with a covering letter clearly setting out the facilities to be repaid and closed by the other bank. The branch should retrieve the documents from other bank and complete the creation of security within TEN working days from the date of issue of pay order.

h. Specific reasons for shifting the account from Financial institution/other banks to our bank are to be ascertained. It should be ensured that the Bank’s endeavor to improve credit off take does not facilitate avoiding/circumvent the asset classification norms etc.

i. Names of the Company / Firm its associate concerns, its directors / Promoters should not be appeared in the defaulter / Caution list of RBI /ECGC/CIBIL etc. except as permitted in Loan Policy

j. In case of taking over of an account from other Bank (FB & NFB facilities), the Bank should obtain satisfactory credit report of the borrower from their Bank and statement of account (at least one year) to be examined scrupulously and it is to be ensured that the operations in the account including servicing of interest/installments are satisfactory,

k. Sanctioned letter should not be issued to borrowers unless ‘Process Fee’ is recovered.

l. Before taking over the account falling below the power of Regional Manager, prior permission of Regional Manager is to be obtained furnishing point–wise compliance to take over code and justification for take over of the limits. However, no prior permission will be required in case of proposals falling within the discretionary powers of Regional Manager & above.

m. All other usual formalities such as detailed appraisal, an independent assessment of the credit requirement, sanction and execution of documents and obtaining ‘Credit Report’ from the parent Bank should be followed before the disbursement. In case ‘Credit Report’ is not available, the concerned Branch Manager should obtain the Bank’s statement of accounts for the last one year (minimum for one year) and certify that the operations in the account including servicing of interest/installments are satisfactory

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26.000 Processing of Applications 26.001 Issue of Acknowledgement of Loan Applications Branches / Regional Offices to give manual acknowledgement immediately on receipt of MSME loan applications till the system of online submission and central registration of loan application is put in place. Each branch may affix a running serial number on the main application form as well as the corresponding portion for acknowledgement. (refer Circular No.383/11/2011-12 dated 21.02.2012) 26.002 Disposal of Applications All loan applications from MSME for a credit limit or enhancement in existing credit limit up to Rs. 5 lacs should be disposed of within 10 days and for credit limit up to Rs.. 25 lacs within 15 days, for credit limit upto Rs. 100 lacs within 21 days & for credit limits above Rs. 100 lacs within 30 days from the date of receipt provided the loan application is complete in all respects and is accompanied by documents as per 'check list' provided. All requests for transfer of borrowal accounts, either from the borrower or from a bank/financial institutions, will be processed in the normal course and Bank's concurrence or otherwise will be conveyed within 21 days of date of receipt of request. 26.003 Specialized SME Branches may submit advance copy of credit proposals, which falls beyond the discretionary powers of respective RA, directly to SME Dept. –HO, simultaneously with copy to RO, with a view to avoid delay in disposal of Proposal. RO to submit the proposal along with their views / recommendation to SME Dept. within ONE week from the date of receipt by them. Wherever Field GM offices are operational their views and recommendation is mandatory.

27.000 Register of Rejected Applications A register should be maintained at branch wherein the date of receipt, sanction/rejection/disbursement with reasons therefore etc., should be recorded. The register should be made available to all inspecting agencies. i) Rejection of applications for fresh limits / enhancement of existing limits should not be done without the approval of the next higher authority. ii) Sanction of reduced limits should be reported to the next higher authority immediately with full details for review and confirmation. 28.000 Security: 28.001 Collateral Security: As per the RBI guidelines, the exemption limit for all borrowal accounts under MSE sector (both manufacturing or production and providing or rendering of services) for obtention of collateral security is Rs..10 lakh. Our Bank has been registered as a Member Lending Institution with Credit Guarantee Fund Trust for Small Industries (CGTMSE), which guarantees collateral free loans to MSE units upto Rs. 100 lacs This will enable us to extend collateral free loans to MSE

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units at competitive rates. Branch/es may on the basis of good track record and financial position of the MSME units and as per the extant guidelines issued by our Bank in respect of CGTMSE approve the limit up to 100.00 lacs without collateral. With view to get the benefit of concessional rate of interest, borrower has to provide collateral security as stated in item no.22.000 of the note. 29.000 Composite Loan Limit of composite loan is enhanced to Rs. 1 crore to enable the MSME entrepreneurs to avail of their working capital and term loan requirement through Single Window. 30.000 Specialised SME branches As per the policy package announced by the Government of India for stepping up credit to SME sector, Bank to ensure that specialized SME branches are opened in identified clusters/centres with preponderance of small enterprises to enable the entrepreneurs to have easy access to the bank credit and to equip bank personnel to develop requisite expertise. 31.000 Sanctioning Authority: 31.001 The limits in MSME sector will be sanctioned by the authority under whose Discretionary Powers it falls in terms of Loan Policy and delegation of discretionary powers from time to time.

31.002 CONCESSIONS FOR MICRO ADVANCES / PRIORITY ADVANCES UP TO Rs..25000/- A) No Penal Rate of Interest. B) No Service / Inspection Charges. C) Waiver of Insurance of Assets financed by Bank in the following cases.

Category Type of Risk Type of Assets All categories of priority sector advances upto and inclusive of Rs. 10,000/-

Fire & other risks

Equipment and current assets

Advances to Micro & Small sector upto and inclusive of Rs. 25,000/- by way of -

• Composite loans to artisans, village and cottage industries

Fire Equipment and current assets

• All term loans Fire Equipment • Working capital where these are against non-hazardous goods

Fire Current Assets

• Working capital where these are against non-hazardous goods

Fire Current Assets

For the purpose of identification, Photographs of all borrowers are mandatory. However, in respect of borrower falling in the category of Weaker Sections,

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Branches have to make arrangement for Photographs and to bear expenses for the same. 32.000 Customer Relation Cell Each Regional office to set up Customer Relation Cell [CRC] at their office to entertain the complaints from the borrower and to ensure that Bank’s guidelines are complied with by the branches. Every Branch to display the names and addresses of the officer/s of CRC with whom complaints to be lodged.

33.000 Regional MSME Care Centre: Operational Regional MSME Care Centres are set up in all Regional Offices. Regional Managers would function as Nodal Officer in charge of the said Regional MSME Centres. List of all ROs with names of Nodal Officers are already displayed on Bank’s website. All RMs, being Nodal Officers of Regional MSME Centres, will attend all requests and representations received from MSMEs either through branches or directly on priority. 34.000 Monitoring : 34.001 The concerned sanctioning/reviewing authority would have discretion to increase the review frequency. Downward migration of rating of assets at the time of review should be reported immediately to the Regional / Head Office Department by branches. 34.002 Credit Audit : Credit Audit of borrowal accounts above Rs.5 crore shall be taken up every year with comprehensive scrutiny on quality of management, financial position, risk perception, project viability, and operations etc. Such Credit Audit Reports shall be placed before Audit Committee of the Board along with views / suggestions of concerned General Manager by the Internal Audit & Inspection Department, HO. Inspection & Internal Audit Department shall frame operational guidelines and undertake Credit Audits. 35.000 CODE OF BANK’S COMMITMENT TO MICRO AND SMALL ENTERPRISES (MSE Code) Banking Codes and Standard Board of India (BCSBI) The Banking Codes and Standard Board of India (BCSBI) has formulated a Code of Bank's Commitment to Micro and Small Enterprises. The Code has been released by the Hon’ble Finance Minister on May 31, 2008. The Reserve Bank of India has, in public interest, issued an advertisement about the MSE Code in 82 dailies in English, Hindi and 12 Regional Languages This is a voluntary Code, which sets minimum standards of banking practices for dealing with Micro and Small Enterprises (MSEs) as defined in the Micro Small and Medium Enterprises Development (MSMED) Act, 2006. It provides

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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 will comply with such instructions /directions issued by the RBI from time to time. This is a voluntary code, reflecting Dena Bank’s positive commitment to its Micro and Small Enterprise (MSE) customers to provide easy, speedy and transparent access to banking services in their day-to-day operations and in times of financial difficulty. This Code is not only a Charter of Rights of the MSE but also enshrines his obligations vis-a-vis his bank. 35.001 OBJECTIVES OF THE 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 MSEs. C. Increase transparency so that MSEs can have a better understanding of what they can reasonably expect of the services. D. Improve our understanding of MSEs business through effective communication. E. Encourage market forces, through competition, to achieve higher operating standards. F. Promote a fair and cordial relationship between Bank and MSEs and also ensure timely and quick response to their banking needs. G. Foster confidence in the banking system. 35.002 KEY COMMITMENTS Our key commitments to MSME : 1. To Act Fairly and Reasonably in all our Dealings with MSEs. 2. To Help MSEs Understand how our Financial Products and Services work. 3. To Help MSEs use their Account or Services by providing Updates. 4. To Deal quickly and sympathetically when things go wrong. 5. To treat all MSEs Personal and Business Information as Private and Confidential. 6. To Publicise the Code. 7. To Adopt and Practice a Non Discrimination Policy 35.003 APPLICATION OF THE CODE Unless it says otherwise, all parts of this Code apply to all the products and services, provided by branches across the counter, over the phone, by post, through interactive electronic devices, on the internet or by any other mode.

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Branches are advised to go through the “Code” carefully and ensure that the commitments, which the Bank has made in the “Code”, are implemented in true spirit, so as to eliminate the reasons for dissatisfaction and complaints among MSE customers. Branches are advised to display the “Code” at a prominent place in the branch for information of customers and public. In case of need, copies can be downloaded from Bank’s website.

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PART - II : MSME RESTRUCTURING / REHABILITATION POLICY – 2012-13

PREFACE: Micro, Small & Medium Enterprises (MSMEs) are the growth engines of the Indian economy due to their ability to create jobs, foster entrepreneurship and to provide depth to the industrial base of the economy. Thus the sector plays a very significant role in the socio-economic development of the country. With the opening up of the Indian economy due to globalization and liberization, this vital sector of the economy started facing a lot of challenges and competition from the domestic as well as multinational corporations and the same is an issue of serious concern. Considering the above, Govt of India announced a policy package in August 2005 to boost advances to MSME sector. In line with the announcements in the policy package Govt of India brought in MSMED Act which was passed on 16th June 2006 and came into effect from 2nd October 2006. As per the Act, MSMEs are defined as under : Sector Manufacturing Sector Service Sector Original investment in

Plant & Machinery Original investment in Equipment

Micro Enterprise Upto Rs. 25 lacs Upto Rs. 10 lacs Small Enterprise More than Rs. 25 lacs but

not exceeding Rs. 500 lacs More than Rs. 10 lacs but not exceeding Rs. 200 lacs

Medium Enterprise More than Rs. 500 lacs but not exceeding Rs.1000 lacs

More than Rs. 200 lacs but not exceeding Rs. 500 lacs

1. Recent Economic Developments : 1.1. The recent recession in US, Europe etc. have already impacted various sectors of the industries in India also. MSME sector is already facing issues such as diminished demand, orders including export orders getting cancelled, customers who have placed orders are asking units to hold back deliveries and large corporate and overseas clients are delaying payments resulting in stretched working capital cycle for quality products. 1.2. In response to the evolving global and domestic developments, Govt of India and Reserve Bank of India have taken a number of measures since mid-September 2008 and in view of the same it is now imperative to draw a full fledged restructuring / rehabilitation policy for MSME borrowers so as to ensure smooth flow of credit to the sector. 2. Incipient Sickness : An account shows the symptoms of becoming sick much before the account turns NPA. These symptoms are called Early Warning Signals (EWS) and on

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identification of these symptoms through EWS the account can be termed as having incipient sickness. On eligible cases where bank is convinced about the genuine requirement of the borrowing concern can go for restructuring / rehabilitation measures even when the account has not turned NPA. A unit may be considered to have reached the stage of incipient sickness / potential sickness if any of the following events are triggered: 2.1. 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

2.2. 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.

2.3. The illustrative list of warning signals of incipient sickness are : 2.3.1. Continuous irregularities in cash credit / overdraft accounts such as

inability to maintain stipulated margin on continuous basis or drawings frequently exceeding sanctioned limits, periodical interest debited remaining unrealized

2.3.2. Outstanding balance in cash credit account remaining continuously at the maximum

2.3.3. Failure to make timely payment of installments of principal and interest on term loans

2.3.4. Complaints from suppliers of raw materials, water, power, etc., about non- payment of bills

2.3.5. Non submission or undue delay in submission or submission of incorrect stock statements and other control statements

2.3.6. Attempts to divert sales proceeds through accounts with other /banks 2.3.7. Downward trend in the credit summations 2.3.8. Frequent return of cheques or bills 2.3.9. Steep decline in production figures 2.3.10. Downward trends in sales and fall in profits 2.3.11. Rising level of inventories, which may include large proportion of slow or

non-moving items 2.3.12. Larger and longer outstanding in bill accounts 2.3.13. Longer period of credit allowed on sale documents negotiated through

the bank and frequent return by the customers of the same as also allowing large discount on sales

2.3.14. Failure to pay statutory liabilities 2.3.15. Utilization of funds for purposes other than running the units 2.3.16. Not furnishing the required information / data on operation in time 2.3.17. Unreasonable/wide variation in sales/ receivable levels vis-à-vis level of

operation of the unit 2.3.18. Non-cooperation for stock inspection 2.3.19. Delay in meeting commitments towards payment of installments due,

crystallized liabilities under LC/BGs, etc.

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2.3.20. Diverting/routing of receivables through non-lending banks 2.4. Standard B accounts – Bank has introduced and stabilized the system of identifying Standard-B accounts based on parameters set out by HO in line with RBI guidelines. The Standard B accounts show the signals of incipient sickness of borrowal concerns. Therefore they are eligible for restructuring/rehabilitation on merits and subject to adherence to RBI guidelines. 3. Sick Units : The definition of sickness for Micro and Small Enterprises (MSEs) as suggested for revision by Working Group on Rehabilitation of sick SMEs (Dr KC Chakraborty Committee) is as under:

Existing definition Revised Definition a) b) c)

Any of the borrowal accounts of the unit remains sub-standard for more than six months, i.e., principal and interest, in respect of any of its borrowal accounts has remained overdue for a period exceeding one year. The requirement of overdue period exceeding one year will remain unchanged even if the present period for classification of an account as sub-standard, is reduced in due course. Or There is erosion in the networth due to accumulated cash losses to the extent of 50 % of its networth during the previous accounting year; and The unit has been in commercial production for at least two years.

A micro or small enterprise (as defined in the MSMED Act 2006) may be said to have become sick, if any of the borrowal account 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.

However, till date the revised definition has not been accepted. Hence the existing definition is applicable. 4. Non industrial Sick Units : Non industrial sick units are defined as an undertaking (regardless of type of incorporation) whose accumulated losses as at the end of the latest financial year, equal or exceed its entire networth (viz., paid up capital and free reserve). 5. Non industrial Weak Units : A non industrial weak unit is an undertaking (regardless of type of incorporation) if there is erosion in the networth due to accumulated losses to the extent of 50 % of its networth during the previous financial year. 6. Medium Enterprise (Industrial Units) : 6.1. The corporate medium industrial enterprises are covered under SICA 1985 for determining it as a sick unit, defined as under :

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“sick industrial company” means an industrial company (being a company registered for not less than five years) which has at the end of any financial year accumulated losses equal to or exceeding its entire net worth. 6.2. Under the provisions of SICA the corporate medium industrial enterprises are supposed to make a reference to BIFR within 60 days from the date of finalization of the audited accounts of the company for the financial year as at the end of which the company has become a sick industrial unit. As such Bank cannot go for implementing a rehabilitation package of its own in such cases pending reference to BIFR. 6.3. Corporate medium industrial enterprises with fund and non-fund based limits of Rs. 10 crore and above and financed through multiple / consortium arrangement are eligible to be referred to CDR and if reference has been made it would be restructured under CDR guidelines. However, such accounts can also be restructured under non-CDR route, if not referred to CDR. 6.4. Other non corporate medium industrial enterprises can be entertained for rehabilitation / restructuring by the Bank subject to fulfillment of other conditions mentioned elsewhere. 7. Sick / weak units, units with incipient sickness and accounts classified as Standard B will be eligible for restructuring / rehabilitation. 8. Medium Enterprise (Non industrial units, i.e., Service sector) : These units are also eligible for rehabilitation / restructuring by Bank subject to fulfillment of other conditions under the head ‘Other Conditions’ mentioned elsewhere. Sick / weak units, units with incipient sickness and accounts classified as Standard B will be eligible for restructuring / rehabilitation. Accounts under this category irrespective of the limits and regardless of type of incorporation can be taken up for restructuring / rehabilitation by the Bank. 9. Accounts not eligible for restructuring / rehabilitation : 9.1. Units becoming sick / weak / incipient-sick / standard B / NPA on account of willful mismanagement, willful default, unauthorized diversion of funds, dispute among the partners / promoters, fraud, malfeasance, misrepre-sentation / falsification of records, siphoning of funds, borrower (any of the partners/promoters) absconding etc. will not be eligible for rehabilitation / restructuring. 9.2. Cases of willful defaults or any of the directors of the company appearing as a willful defaulter in RBI willful defaulter list for some other defaulting company in which they are directors, will be referred to the Board of Directors of the Bank for consideration of restructuring / rehabilitation with proper justification. 9.3. In case willful default has been notified by Bank to RBI as per old guidelines wherein the company/directors/partners have not been given chance to be heard by the Bank before notifying to RBI, and since such provisions now available as per RBI guidelines, such cases may be referred to Board with justification for considering restructuring / rehabilitation.

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9.4. Accounts in loss category and accounts where legal proceeding has been initiated for recovery are not eligible for restructuring / rehabilitation. 9.5. Banks cannot restructure / rehabilitate borrowal account with retrospective effect. 10. General Eligibility Criteria : 10.1. All non-corporate MSMEs irrespective of the outstanding (both funded and non-funded) to the Bank 10.2. All corporate MSMEs, which are enjoying banking facilities from a single bank, irrespective of the outstanding (both funded and non-funded) to the Bank 10.3. All corporate MSMEs, which have funded and non funded outstanding upto (i.e., below) Rs. 10 crore under multiple / consortium banking arrangement. 10.4. All corporate MSMEs, which have funded and non funded outstanding of Rs. 10 crore and above under multiple / consortium banking arrangement are eligible to be referred to CDR. However, if it is not preferred to be referred to CDR, can be considered for restructuring / rehabilitation under non-CDR route, subject to unanimous consent of the lenders and accepted by the borrower. 10.5. Restructuring / rehabilitation is to be considered only on written request of the borrower. However, the process of restructuring can be initiated by the Bank in deserving cases, subject to the borrower agreeing to the terms and condition. 11. Elements of Special Regulatory Framework : 11.1. The special regulatory treatment is available in respect of following two components 11.1.1. Incentive for quick implementation of the restructuring package 11.1.2. Retention of the asset classification of the restructured account in the pre-restructuring asset classification category 12. Regulatory Concessions as to Asset Classification : 12.1. All standard accounts in MSME sector on restructuring will continue to be classified as standard category subject to stipulations / conditions appearing hereinafter. 12.2. Assets under Substandard and Doubtful category are eligible for restructuring (fully secured) and upon restructuring MSME account will not be deteriorated, if satisfactory performance is demonstrated during the specified period of one year from the date of instalment or interest under restructured terms falls due. 12.3. If satisfactory performance is demonstrated during the specified period of one year from the date of instalment or interest under restructured terms falls due, then the account can be upgraded to standard category, i.e., directly from substandard/doubtful to standard category 12.4. If satisfactory performance is not demonstrated during the specified period of one year from the date of instalment or interest under restructured

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terms falls due, then the asset classification of the borrowal account will be determined as per pre-restructuring repayment terms. 12.5. Asset classification would not deteriorate on the ground that request has been received for restructuring. In other words the usual asset classification norm would be applicable during the pendency of the restructuring proposal. However, as an incentive for quick implementation of the package, if the approved package is implemented as per the following time schedule, the asset classification status may be restored to the position which existed when the reference was made to CDR / restructuring application received by the Bank under non-CDR route. 12.5.1 within 120 days from the date of approval under the CDR mechanism

(in case of CDR referred accounts) 12.5.2 within 90 days from the date of receipt of the application for

restructuring by the Bank in other cases 12.6 A restructuring / rehabilitation package may or may not involve additional finance. When additional finance is involved in restructuring an NPA account, the additional finance portion would continue to be treated in standard category for a specified period of one year from the date of instalment or interest under restructured terms falls due. If satisfactory performance is not evidenced during the said specified period, the asset classification of such additional finance would be determined as per the restructured debt, being classified as per pre-restructuring repayment terms. 12.7 Income recognition on restructured asset in standard category would be recognized on accrual basis, whereas income recognition would be made on restructured assets in NPA category only on cash basis. However, the portion of additional exposure on restructuring of NPA account, though ranks to continue under standard category for the specified period, would recognize income on cash basis only. 13 Other Conditions : 13.5 These benefits of restructuring and regulatory concessions would be available with the following conditions 13.6 The dues of the Bank are fully secured by tangible securities (prime as well as collateral), except in case of MSE borrowers, where outstanding is upto Rs. 25 lacs and / or accounts covered under CGTMSE. (Personal guarantee is not considered as tangible security) 13.7 The unit becomes viable maximum in 7 years and repayment period does not exceed 10 years 13.8 The Promoter's sacrifice and additional funds required to be brought by the promoters should generally be brought in upfront. However, incase promoters face genuine difficulty in bringing their share of sacrifice immediately and need some extension of time to fulfill their commitments, the promoters could be allowed to bring in 50% of their sacrifice i.e. 50% of 15%, upfront and balance within a period of one year. However, in case the promoter fails to bring in their share of sacrifice within the extended time of one year, the asset classification benefit derived from Special

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Regulatory Treatment will cease to accrue and the Bank will have to revert to classifying such accounts 13.9 Further, it is also to clarify that the contribution by the promoter need not necessarily be brought in cash and can be de-rating of equity, conversion of unsecured loan brought by the promoter into equity and interest free loan 13.10 Personal guarantee is offered by the promoters except when the unit is affected by the external factors pertaining to the economy and industry 14 Restructuring of Advance could take place in the following stages :

14.5 Before commencement of commercial production / operation 14.6 After commencement of commercial production / operation but before the asset has been classified as ‘sub-standard’ 14.7 After commencement of commercial production / operation and the asset has been classified as ‘sub-standard’ or ‘doubtful’ 15 Repeated Restructuring : 15.5 Regulatory concessions to continue the account in the same asset category after restructuring of MSME accounts is available, subject to compliance of other conditions, where account is restructured for the first time. 15.6 Repeatedly restructured accounts is one where the bank restructured an account for second or more times. In this case with exception to the Point no 17.2 above, account to be downgraded on second restructuring. 15.7 However, if the second restructuring takes place after the period upto which the concessions were extended under the terms of the first restructuring, an account will not be considered as repeatedly restructured account. 15.8 In case of repeated restructuring, and account being downgraded, with exception to the point no 17.2 above, account can be upgraded directly to standard category if satisfactory performance is demonstrated during the specified period of one year from the date the instalment or interest falls due under the terms of restructuring package. 16 Viability Study : 16.5 No account will be taken up for restructuring / rehabilitation by the Bank unless the financial viability is established and there is a reasonable certainty of repayment from the borrower. The viability should be determined based on the acceptable viability benchmark which may be applied on a case to case basis, depending on merits of each case. The parameters may include return on capital employed, debts service coverage ratio, gap between internal rate of return and cost of funds and the amount of provision required in view of the diminution in the fair value of the restructured advance. 16.6 In view of above it is decided as under : 16.6.1 In the borrowal account taken for restructuring, where there is no involvement of additional funds to be sanctioned to the borrower, the viability study should be done in-house depending on the projected balance sheet, profit and loss account and cash-flow.

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16.6.2 Wherever Bank’s outstanding (fund based as well as non-fund based) is upto and inclusive of Rs. 5 crore, the viability study would be conducted in-house. 16.6.3 Where part disbursement has taken place in a term loan sanctioned for funding / part funding the project and the project cost is more than Rs. 5 crore, in such cases viability study is to be done by outside agency in case of sole banking and as decided by the lenders in case of multiple / consortium lending. 16.6.4 Subject to the points 18.2.1, 18.2.2 and 18.2.3 above, in case of eligible MSME accounts which are under consortium / multiple banking arrangement, the bank with maximum outstanding may work out the restructuring package along with the bank having the second largest share. 16.6.5 Outside agencies for conducting viability study would be appointed from among the list of agencies provided in the credit policy. However, the authorities may appoint reputed chartered accountants having appropriate experience and exposure for conducting viability studies. CA firms working in the list of IDBI / SBI Caps / IL&FS and other term lending institutions etc. with adequate experience may be preferred, subject to the amount of fees acceptable by the borrower. 16.6.6 In case of hardship faced by MSME borrowers to pay the fee for conducting viability study, the amount may be debited to borrower’s account with his explicit consent and would form a part of the package. In case the viability is not established and therefore a restructuring package is not workable, the fee so payable may be debited to borrower’s account since the borrower would have already given consent and accepted the fee structure before commencement of the viability study. 16.6.7 The viability study includes techno-feasibility study, wherever required, in addition to economic viability study. 16.6.8 In case of viability study done in-house where techno-feasibility study is also required, Bank may hire the services of appropriate agency for techno-feasibility study only and the cost of the same may be borne by the borrower in the same procedure as mentioned in point no 18.2.6 above. 16.6.9 Wherever conducting viability study is to be entrusted to outside agency the letter of intent (LoI) describing the scope of the study must be spelt out clearly with time limit to complete the assignment. 16.6.10 The competent authority for appointment of outside agency for conducting viability study would be the sanctioning authority in whose discretionary powers the existing borrowal limits fall. However, in the proposals falling beyond the discretionary powers of Chairman & Managing Director, i.e. proposals sanctioned by Managing Committee, Chairman & Managing Director, and in his absence Executive Director, would be the competent authority for appointment of outside agency. 17 Provisioning Norms ; 17.5 Normal Provisioning: Bank will hold provisions against restructured advances as per provisioning norms, i.e., for standard accounts, substandard or doubtful accounts. The

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provisions held for sub-standard and doubtful accounts are called NPA provisions which will be reversed when the account is upgraded to standard category on completion of the specified period of one year with satisfactory performance demonstrated for repayment as per terms of restructuring package. Such provisions are accounted for at HO level. 17.6 Provision for diminution in the fair value of the restructured advance: 17.6.1 Reduction in the rate of interest and/or reschedulement of principal amount, on restructuring will result in the diminution in the fair value of the advance. This amounts to an economic loss for the Bank which should be calculated on the net present value (NPV) terms and provision should be made debiting to the profit and loss accounts, which is called NPV provisions. 17.6.2 NPV provision is different from NPA provision and is to be maintained in a distinct account (at Head Office). 17.6.3 NPV provision is made based on the NPV sacrifice calculated for the present value of the future cash-flows (principal and interest). The future cash-flows are to be discounted at a rate applicable to the advance equivalent to BPLR plus appropriate term premium plus credit risk premium applicable to the borrower on the date of restructuring. 17.6.4 In case of working capital facilities the diminution in the fair value (NPV sacrifice) of the cash credit / overdraft component may be computed as per point no 19.2.3 above reckoning the higher of the outstanding or limit as the principal amount and the tenor of the advance is taken as one year. In this case term premium in the discount factor would be as applicable for one year. 17.6.5 In respect of WCTL and FITL, NPV sacrifice would be calculated as per the cash-flows taking the BPLR plus risk premium and term premium in the discount factor as applicable for the maturity of the respective term loans. 17.6.6 The NPV sacrifice would be recomputed on each balance sheet date, till the satisfactory completion of the repayment obligation, based upon the discounting factor applicable on each balance sheet date and shortfall in provision is to be provided and excess provision to be reversed. 17.6.7 Banks have been given option by Reserve Bank of India to provide NPV provision at a notional value of 5 % of the total exposure in the accounts where total dues to the Bank is less than Rs. 1.00 crore. 17.6.8 NPV provision and NPA provision taken together would not exceed 100 % of the outstanding debt amount. 17.6.9 NPV sacrifice calculation must be incorporated in every restructuring / rehabilitation proposal and sanctioning authority should check the correctness of the amount since it would directly affect the profitability of the Bank and is subject to audit. 18 Regulatory Guidelines for Asset Classification of Restructured / Rehabilitated Accounts : 18.5 It is clarified that accounts restructured / rehabilitated having complied with the condition stipulated hereinbefore under the head ‘Other Conditions’ are eligible for regulatory concessions to keep the asset in the same category for a

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specified period of one year from the date of instalment and/or interest falls due under the restructured terms. The asset category would be determined on completion of the specified period of one year, for upgradation or deterioration. 18.6 A standard account restructured / rehabilitated without compliance of the condition for regulatory concession would be deteriorated from standard category to sub-standard category immediately on restructuring. During this specified period of one year such accounts would be downgraded as per aging pattern of NPA, i.e., sub-standard, D1, D2, D3 etc. However, such accounts would be eligible for upgradation directly to standard category on evidencing satisfactory performance during the specified period of one year from the date of instalment and/or interest falls due under the restructured terms. 19 Non Viable Units : 19.5 On finding the unit unviable the borrower should be communicated in writing about the reason for not taking up the account for restructuring / rehabilitation. The decision for declaring the unit unviable is to be approved by next higher authority (authority one step higher than the sanctioning authority of the existing limit) before the written communication is made to the borrower as aforesaid. However, for tiny/micro category account with limits upto Rs. 25 lacs, the sanctioning authority can decide about the non-viability of the unit and the same can be conveyed in writing to the borrower. 19.6 In the said written communication Bank should inform the borrower/promoters to present their case within seven days from the date of such decision conveyed to them, if they so desire; otherwise the decision is final. In case the borrower/promoters present their case within the stipulated period of seven days, Bank’s final decision must be conveyed in writing to all concerned by the authority stated above after listening to the presentation of the borrower/promoters. 19.7 The above process should be completed in a time bound manner, i.e., maximum 90 days from the date of receipt of the application of the borrower for restructuring / rehabilitation. 19.8 Where the account is not found viable, Bank should go ahead for recovery action, as deemed fit. 20 Discretionary Powers for Sanction of Restructuring / Rehabilitation Package : 20.5 In case of restructuring / rehabilitation of an NPA account (irrespective of whether sacrifice is involved or not), the approval has to be done by the next higher authority as compared to the sanctioning authority who had originally sanctioned the proposal, subject to point no 22.3 below. 20.6 In case of standard accounts (irrespective of whether sacrifice is involved or not), the approval has to be done by the authority under whose discretionary powers the restructured / rehabilitated amount falls for sanction, subject to point no 22.3 below.

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20.7 The sanctioning authority has to ensure that sacrifice due to write off and/ or waiver (if any), and also total exposure in the account on restructuring / rehabilitation etc. are within his/her discretionary powers. 20.8 The powers for write off / waiver for the purpose of restructuring / rehabilitation would be as under :

(Rs. in lacs)

CMD ED GM DGM AGM/ RM

CM/ DRM

LB MMB MSB

Sacrifice (Write off + Waiver) 500 100 50 25 15 5 NIL NIL NIL Write Off 250 50 25 10 5 1 NIL NIL NIL

20.9 Note 20.9.1 Reversal of interest / penal interest / other charges would amount to write off since it is to be debited to profit and loss account. Concession / remission of uncharged interest fully or partially would amount to waiver since it is not to be charged to the profit and loss account. 20.9.2 The power for write off and waiver stated above is for restructuring / rehabilitation package and should not be linked to the powers stated in Loan Recovery Policy for sanctioning OTS. 20.9.3 NPV sacrifice provisions would not be taken into account while determining the discretionary power of the sanctioning authority as mentioned in 22.4 under Discretionary Powers above. 21 Guidelines / Modalities for Restructuring / Rehabilitation : 21.5 Holding on Operation: While identifying and implementing the restructuring / rehabilitation package, ‘holding on operation’ would be allowed in the concerned account till restructuring package is implemented. This would enable MSME units to draw funds from the cash credit account at least to the extent of their deposit of sale proceeds during the period of such ‘holding on operation’. Cut back arrangement may also be explored in eligible cases depending on the cash-flow with express consent of the borrower. The decision for allowing holding on operation / cut back arrangement would be taken by the respective sanctioning authority of the existing (pre- restructured) limit. After receipt of application from the borrower for restructuring of limit the holding on operation to be allowed in respect of Fund Based Working Capital Limit and Non Fund Based limit. Holding on operation means no further exposure to be increased and amount to be freezed and deposit / credit in the account may be allowed to be utilized by the borrower .

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In case of BG Limit, if any guarantee is cancelled, fresh guarantee to that extent may be allowed to be issued. In case of LC Limit, fresh LC limit may be permitted to the extent of payment of LC liability. However, in case of devolvement of LC or invocation of BG, no further LC or BG is allowed to be issued further, till the same is cleared. 21.6 Interest on Cash Credit and Term Loan Account : Every restructuring / rehabilitation case would determine a cut off date depending upon the irregularities and identification of the account as a sick / weak / incipient-sick / standard B account, as the case may be. Penal interest should be waived from the accounting year in which the unit started incurring losses continuously. The unpaid interest on term loan and cash credit accounts as on the cut off date should be segregated from the total liability and be funded. Interest for implementation period and till the unit stabilizes production and earns cash profit should also be funded. The cut off date will be the earliest date from which the dues are in default. In case of multiple loan account, the date of earliest dues in default in any account should be taken as cut off date. Interest may be reduced from cut off date irrespective of the fact whether the company has incurred cash loss or not. 21.7 Funded Interest Term Loan (FITL) : The uncharged interest / future interest as stated in point no 23.2 above may be converted to FITL repayable over a period with suitable installments and interest rate depending on the cash-flow and subject to relief and concessions available on terms of repayment and interest rate provided under the head ‘Relief and Concessions’ appearing hereinafter. Where FITL is created for the uncharged interest on restructuring / rehabilitating an NPA account it is to be maintained in shadow ledger. On actual recovery amount would be taken to profit and loss account through FITL account to the extent of recovery made. 21.8 Working Capital Term Loan (WCTL) : After the unadjusted / unrecovered interest portion in the cash credit account is segregated and penal interest / other charges reversed as indicated above, the balance representing principal dues may be treated as irregular to the extent it exceeds drawing power. This amount may be converted to WCTL with repayment schedule depending on the cash-flow and subject to relief and concessions available on terms of repayment and interest rate provided under the head ‘Relief and Concessions’ appearing hereinafter.

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21.9 Term Loans : Restructuring / reschedulement of the repayment programme of the existing term loan may be taken up depending upon the cash-flow of the projected balance sheet for the restructuring period, wherever warranted, subject to annual review. Interest on term loan may be reduced wherever considered necessary, depending upon the cash-flow and subject to relief and concessions available on terms of repayment and interest rate provided under the head ‘Relief and Concessions’ appearing hereinafter. Reduction in Rate of interest could be considered in isolation for restructuring an account as well as a part of a restructuring package. 21.10 Working Capital : After the irregular portion of the working capital is carved out to WCTL and/or FITL, as the case may be, the regular portion of the working capital may not be adequate to run the business for the projected level of operation. Therefore, proper assessment of the working capital to be made and additional financial assistance may be extended. If the assessed limits is lower than the existing regular portion of the working capital limit the difference may be converted to WCTL. The concession and rate of interest are as stated under the head ‘Relief and Concessions’. Wherever necessary reduction in margin and combined DP against stock and book debt may be considered ( in line with Dr K C Chakraborty Committee recommendations ). 21.11 Cash Losses: As mentioned earlier, units put under restructuring / rehabilitation may incur cash losses during the implementation period of the project or due to operation of the unit below BEP level till stabilization of commercial production and marketing. The unit may face hardship for servicing interest and repayment of debt during the said period. Therefore interest accrued, due and payable by the unit during the said period (period for stabilization of commercial production and marketing) may be funded and repayment of principal may be scheduled after the said period of stabilization depending on the cash-flow and DSCR. 21.12 Additional Term Loan : The restructuring / rehabilitation package may involve capital expenditure for acquiring fixed assets to enhance production capacity to the projected level as assumed in the viability plan. Bank may sanction the same on merits with 15 % margin contributed by the promoters. Repayment of principal and interest may be stipulated as mentioned in point no 23.5 and 24 above. 21.13 Funds for Start up Expenses and Margin on Working Capital : There may be need to provide start up expenses and margin money requirement in certain restructuring / rehabilitation packages which may be provided as a soft loan from the Bank with shorter repayment period and concessional rate of

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interest of 1 to 1.5 % below BPLR. The repayment period should be not more than 3 years. Where margin money assistance is possible to be received from SIDBI / State Govt, the same may be credited to the soft loan account directly. 21.14 Promoter’s Contribution : Promoters have to bring in 15 % of the cost of the scheme plus sacrifice of the Bank. At least 50 % of the promoter’s contribution should be brought upfront for implementation of the restructuring / rehabilitation package and the balance within next six months. 21.15 Right of Recompense : Bank should incorporate a condition in the terms of sanction and documents as to right of recompense that when such unit would turn around and restructuring / rehabilitation package is successfully completed, the sacrifice given by the Bank should be recovered from the unit out of their future profit and cash accruals. 21.16 Annual Review : The sanction of the restructuring / rehabilitation package is subject to annual review. Bank has the right to accelerate repayment schedule and charge higher rate of interest in the event the cash accrual of the unit is higher than the projections / assumptions considered in the package. 21.13 Contingency Loan Assistance: Bank may provide appropriate additional financial assistance upto 15% of cost of rehabilitation by way of contingency loan assistance. Interest on this loan may be charged at the concessional loan allowed for working capital assistance. 22 Interest Rate : Subject to the concessions in the rate of interest mentioned under the head ‘Relief and Concessions’ mentioned hereinafter, it is stated that rate of interest is to be fixed taking care of the interest coverage ratio which may be flat rate or ballooning and step up mode during the repayment period. However, it should be ensured that average yield during the package period is received by the Bank as per the rate of interest fixed and approved in the proposal. 23 Conversion of Debt into Equity : Where unpaid interest or part of debt is proposed to be converted to equity or debentures as a part of restructuring package, prior approval of HO Integrated Treasury Deptt is to be obtained and valuation and provisioning requirements would be dealt with by Integrated Treasury Deptt as per extant RBI guidelines.

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24 Tools for Restructuring / Rehabilitation Package : DSCR : Average DSCR of 1.5:1 should be ensured during the moratorium and repayment period of the restructuring / rehabilitation package.Other tools like interest coverage ratio, IRR, sensitivity analysis, BEP, SWOT analysis and other relevant features as have been discussed in the viability study report are to be examined and incorporated in the proposal. 25 Accounts covered under ECGC, CGTMSE etc.: The package would be implemented with approval / information of ECGC / CGTMSE and any other agency as applicable to the respective accounts restructured. 26 Relief and Concessions ; 26.5 The following table is indicative of giving relief and concessions to various facilities for the borrowers in different segments. The rate of interest and repayment may be fixed based upon the cash-flow and DSCR. It is also stipulated by RBI to make NPV provisions towards diminution of fair value of the principal amount as per restructured terms of payment and due to reduction of rate of interest which is an additional burden on the Bank. Therefore, while the indicative bench-mark is a thumb rule to follow, any deviation to that would be referred to concerned operational General Manager/ GM (SME) with proper justification for the same for consideration. 26.6 Indicative Repayment Period : Period for

concessions in interest rates on Term Loans & Working Capital limits as well as fresh Term Loans

Repayment period for restructured debts

Repayment period for WCTL

Repayment period for FITL

Medium Enterprise

7 years 10 years 7 years 3 to 5 years

Small Enterprise

5 years 7 years 5 years 3 years

Micro Enterprise

2 years 3 years 2 years 2 years

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26.7 Indicative Rate of Interest :

Facility Indicative rate of Interest Micro & Small

Enterprises Medium

Enterprises Cash Credit / Other WC limits

Base Rate + 3.55 % Base Rate + 5.05 %

Term Loan / Additional Term Loans

Base Rate + 3.55 % Base Rate + 4.55 %

WCTL Base Rate + 3.55 % Base Rate + 4.05 % FITL Base Rate + 2.05 % Base Rate + 3.05 % Soft Loan for Start-up Expenses & Margin for Working Capital

Base Rate + 3.55 % Base Rate + 4.05 %

Note : Wherever the existing rate of interest is less than the indicative rate of interest the same (existing rate) should continue. Accounts Referred to CDR : Accounts referred to CDR would be restructured under guidelines issued by Reserve Bank of India conveyed to branches by way of Head Office circulars from time to time, last being Credit administration Department circular no 228/46/2008-09 dated November 04, 2008. 27 DISCLOSURE : Bank would disclose in its balance sheet under “Notes on Accounts” the information relating to the number and amount of advances restructured and NPV sacrifice made for standard, sub-standard and doubtful advances on MSME category separately.. Conclusion : The Policy & guidelines are specifically for lending to MSME Sector and supplementary to the Bank’s Loan Policy. The policy will come into effect immediately and will be in force till further review or/and modification, if any, from time to time.

V K SUMBLY Dy. GENERAL MANAGER

(SME)

M K SHARMA GENERAL MANAGER

(SME)

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ANNEXURE I

Recommendation of the Prime Minister’s High Level Task Force (vide circular letter No.F.No.3/2/2009-IF-II (Vol.II dated 07.07.2010

Issued by GOI, Min. of Finance, Dept. of Financial Services)

A Task Force on Micro, Small and Medium Enterprise (MSME) was constituted under the Chairmanship of Principal Secretary to the Prime Minister to address the issues of the MSME Sector. The Task Force submitted its report to Hon’ble Prime Minister in January 2010. The Task Force recommended several measures having a bearing on the functions of MSMEs viz. credit, marketing, labour, exit policy, infrastructure / technology / skill development and taxation.

2) The recommendations of the High Level Task Force have been considered by GoI and it has been decided as under :

i) The share of Micro enterprises in MSE lending needs to be increased to 60% in a phased manner viz. 50% in the year 2010-11, 55% in the year 2011-12 and 60% in the year 2012-13. It would be mandatory for the public sector bank to achieve this target.

ii) The bank should achieve annual growth in the number of micro enterprises

account of 10% every year. iii) All schedule commercial banks were advised by RBI on 4th May’2009 that the

banks which have sanctioned term loan must also sanction working capital (WC), limit to avoid delay in the commencement of commercial production, thereby ensuring that there are no cases where term loan have been sanctioned and working capital facilities are yet to be sanctioned.

iv) RBI has advised all banks to use scoring model so as to have speedy disposal of

loan application of micro and small enterprises. v) RBI has advised all banks on 2.3.2010 to participate in organizing joint programme

relating to entrepreneurship and skill development. RUDSETI, which are promoted by the banks, should also impart entrepreneurship and skill development training at different MSME clusters.

vi) Taking into account the recent experience during the economic slowdown RBI has

advised all banks to extend liberal moratorium on their term loans and working capital to MSE entrepreneurs by including interest during first 6 – 12 months of operation as part of the long term funding of the projects.

vii) RBI on May 4, 2009 has advised banks to prepare in association with the DIC, the

model cost of project for different sizes of commonly prevailing industry and overall viability of the activity by a committee comprising of 2-3 major banks of the district under the aegis of the lead bank so as to obviate the need for any expert/professional to prepare TEV study in individual cases.

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viii) RBI has advised that each lead bank of the district may adopt at least one MSE cluster and banks should open more MSE focused branch offices at different MSE clusters which can also act as counseling centres for MSEs.

ix) All banks have been advised on 25.2.2010 to encourage their officials to undergo

specialized certificate course run by Indian Institute of Banking and Finance on the subject of SME finance for bankers by suitably incentivizing them.

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ANNEXURE II While calculating the investment in plant and machinery in the case of the Manufacturing enterprises the following items, the cost of which shall be excluded from the cost of Plant and Machinery.

i) Equipment such as tools, jigs, dyes, moulds and spare parts for maintenance and the cost of consumables stores;

ii) Installation of plant and machinery; iii) Research and development equipment and pollution controlled equipment iv) Power generation set and extra transformer installed by the enterprise as per

regulations of the State Electricity Board; v) Bank charges and service charges paid to the National Small Industries

Corporation or the State Small Industries Corporation; vi) Procurement or installation of cables, wiring, bus bars, electrical control panels

(not mounded on individual machines), oil circuit breakers or miniature circuit breakers which are necessarily to be used for providing electrical power to the plant and machinery or for safety measures

vii) Gas producers plants; viii) Transportation charges (excluding sales-tax or value added tax and excise duty)

for indigenous machinery from the place of the manufacture to the site of the enterprise; ix) charges paid for technical know-how for erection of plant and machinery x) such storage tanks which store raw material and finished produces and are not

linked with the manufacturing process; and xi) Fire fighting equipment. 2. While calculating the investment in plant and machinery refer to paragraph 1, the original

price thereof, irrespective of whether the plant and machinery are new or second handed, shall be taken into account provided that in the case of imported machinery, the following shall be included in calculating the value, namely;

i. Import duty (excluding miscellaneous expenses such as transportation from the port to the site of the factory, demurrage paid at the port);

ii. Shipping charges; iii. Custom clearance charges; iv. Sales tax or value added tax.

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ANNEXURE III Categorisation of activities under service under the MSMED Act, 2006, (As per RBI circular No. RPCD.CO.Plan.BC.24 /04.09.01/2009-10 dated 18.09.2009) It has been decided to include loans granted by banks in respect of following activities under Micro and Small (Service) Enterprises within the priority sector, provided such enterprises satisfy the definition of Micro and Small (Service) Enterprises in respect of 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) (i.e. not exceeding Rs. 10 lakh and Rs. 2 crore respectively).

a. Consultancy Services including Management Services; b. Composite Broker Services in Risk and Insurance Management; c. Third Party Administration (TPA) Services for Medical Insurance Claims of Policy

Holders; d. Seed Grading Services; e. Training-cum-Incubator Centre; f. Educational Institutions; g. Training Institutes; h. Retail Trade; i. Practice of Law, i.e. legal services; j. Trading in medical instruments (brand new); k. Placement and Management Consultancy Services; and l. Advertising agency and Training centres

3. Accordingly, there will be no separate category for "Retail Trade" under priority sector. Loans granted by banks for Retail Trade [i.e. advances granted to retail traders dealing in essential commodities (fair price shops), consumer co-operative stores; and advances granted to private retail traders with credit limits not exceeding Rs.. 20 lakh) would henceforth be part of the Small (Service) Enterprises. 4. The commercial banks may report such loans under the head "Total credit to Small Enterprises" in the half-yearly (Ad-hoc) [under 2 (a) and 2 (ii)] and yearly (final) [under 14, 15, 19, 20 and 21] return on priority sector advances.

Reg. : Categorization of activities under ‘Manufacture’ or ‘Service’ under the MSMED Act 2006 . Attention of Branches / Offices is invited towards clarification received from Office of the Development Commissioner [ MSME], Govt. of India in respect of Categorization of activities under manufacture of service under the MSMED Act 2006.

The Office of the Development Commissioner [ MSME], Govt. of India has examined the references received by them under provision of MSMED Act 2006 and clarified as under:

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A) Activities considered as manufacturing: 1. Medical Equipment and Ayurvedic Product. 2. Composite Unit of Bacon Processing and Piggery Farm [ Piggery Farm without bacon

processing shall not be classified either as manufacturing or as service enterprise because this is a farming activity]

3. Tobacco Processing. 4. Beedi / Cigarette manufacturing and other tobacco products. 5. Extraction of Agave Spirit from Agave juice ( imported medicinal plant) extraction of

Agave. 6. Manufacture of Bio- fertilizer. B) Activities Considered as Service: 1. Sanitation Services ( Hiring of Septic Tank Cleaner) 2. Clinical / Pathological Laboratories and scanning, MRI Test. 3. Hospitals. 4. Agri – clinic and Agri – Business. 5. Restaurants with Bar. 6. Canteens. 7. Hotels. 8. Motel Industry. 9. Consultancy Services including Management Services. 10. Renting of Agriculture Machinery ( Harvesting) 11. Composite Broker Services in Risk and Insurance Management.

12. Third Party Administration (TPA) services for Medical Insurance Claims of Policy Holders.

13. Seed Grading Services. 14. Training cum Incubator Centre. 15. Educational Institutes. 16. Training Institutes. 17. Retail Trade. 18. Practice of Law i.e. Legal Services. 19. Trading in medical instruments( brand new) 20. Placement and Management Consultancy Services. 21. Advertising agency and Training Centres.

All concerned are advised to take note of the above and to ensure that advances to above activities are considered as advances to SME sector provided investment in plant & machinery / equipments is as per extant guidelines.

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Master Circular GENERAL GUIDELINES ON SME SECTOR LENDING

Illustrative List of Small Scale Service Business (Industry Related) Enterprises (SSSBEs)

[As per circular issued by the Ministry of SSI, Government of India] 1. Advertising Agencies 2. Marketing Consultancy 3. Industrial Consultancy 4. Equipment Rental & Leasing 5. Typing Centres 6. Photocopying centres (Xeroxing) 7. Industrial Photography 8. Industrial R&D Labs 9. Industrial Testing Labs 10. Desk Top Publishing 11. Internet Browsing/ Setting up of Cyber Cafes 12. Auto Repair, Services and Garages 13. Documentary Films on themes like family planning, social forestry, energy

conservation and commercial advertising 14. Laboratories engaged in testing of raw materials, finished products 15. ‘Servicing Industry’ Undertakings engaged in maintenance, repair, testing or

servicing of all types of vehicles & machinery of any description including electronic/electrical equipment/instruments, i.e., measuring/control instruments, televisions, tape recorders, VCRs, radios, transformers, motors, watches, etc.

16. Laundry & Dry-cleaning 17. X-Ray Clinic 18. Tailoring 19. Servicing of Agricultural Farm equipment, e.g., Tractor, Pump, Rig, Boring Machines,

etc. 20. Weigh Bridge 21. Photographic Lab 22. Blue printing and enlargement of drawing/designs facilities 23. ISD/STD Booths 24. Teleprinter / FAX services 25. Sub-contracting Exchanges (SCXs) established by Industry Associations 26. EDP Institutes established by Voluntary Associations/ Non-Government

Organisations 27. Coloured, and Black and White Studios equipped with processing laboratory 28. Ropeways in hilly areas 29. Installation and operation of Cable TV Network 30. Operating EPABX under franchises 31. Beauty Parlours and Creches

The list is only indicative. [Computerised Design and Drafting, Creation of Databases suitable for foreign/ Indian markets and Computer Software Development which were hitherto being registered as SSSBE, have since been deleted from the list as Computer Software Development and Software Services (including computer graphics, engineering design, computerised design and drafting) have since been recognised as industrial activity eligible for registration as Small Scale Industries]

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ANNEXURE IV VARIOUS SCHEMES UNDER MSME

1) DENA LAGHU UDYAMI CREDIT CARD (DLUCC) SCHEME :

� Under this scheme all existing customers / borrowers belonging to small business units, retail traders, artisans, village industries, small scale industrial units and tiny units, professionals and self employed persons, etc.. enjoying credit limits upto Rs..10.00 lacs and whose dealings with the Bank have been satisfactory for the last three years would be provided with credit limits under the DLUCC Scheme.

� The borrower would be issued a photo card indicating sanctioned limit and validity period of credit facility

� He would also be issued cheques book specially marked ‘DLUCC Account’ and the limit sanctioned would be allowed as an overdraft limit.

� Credit Card limit valid for three years, renewal on a yearly basis

� Limits upto Rs. 10.00 lacs are to be covered under the scheme

� Interest not exceeding Bank’s BPLR / Base Rate + 5.05% at present

� Assessment of Credit Card Limit : o For Small business, retail traders : 20% of annual turnover declared for

tax purpose of last 12 months turnover in the operative account, whichever is higher o For professionals and self employed : 50% of their gross annual income

as per IT return would be considered as limit o For Small scale industrial units including tiny sector, the assessment

norms in vogue as per the Nayak Committee recommendations would continue 2) DENA ARTISAN’S CREDIT CARD (DACC) :

(circular No. 186/46/2003 dated 18.09.2003)

DACC is a convenient delivery channel for financing artisans specifically to meet the working capital requirement of the artisans and weavers in the Handicrafts Sector and aims at providing adequate and timely assistance up to Rs.. 2.00 lakh to the artisans to meet with their credit requirements both for the investment as well as working capital needs in a flexible and cost effective manner. ELIGIBILITY : Artisans involved in production /manufacturing process would be eligible. Preference would be given to artisans registered with Development Commissioner (Handicrafts) Thrust in financing would be on clusters of artisans and artisans who have joined to form Self Help Groups Beneficiaries of other Government Sponsored loan will not be eligible for coverage under DACC scheme.

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All existing artisan borrowers of the Bank enjoying credit facilities upto Rs. 2 lakh and having satisfactory dealings with the Bank will be eligible to avail credit facilities under the scheme. This would enable them to get limit sanctioned for a period of Three year period as also benefit from simplified procedures stipulated for availment for credit. Credit Limit : The credit limit will be fixed based on assessment of working capital requirements as well as cost of tools and equipment required for carrying out manufacturing process. While evaluating working capital requirements 20 % of anticipated turnover will be kept in view. (Nayak Committee) The limit is a revolving cash credit and will provide for any number of drawals and repayments with in the limit. Validity / Renewal of limits : The Credit card should normally be valid for 3 years subject to an annual review. The review may result in continuation of the facility, enhancement of the limit or cancellation depending upon the performance of the borrower. For the purpose of annual review the borrower would not be required to submit any financial statement. No process fees will be charged at the time of review / renewal of card Insurance Cover : Beneficiaries who are registered with the Development Commissioner (Handicrafts) are eligible for coverage under Group Insurance Scheme and the premium would be paid by the Government and the beneficiaries in the ratio of 60:40 respectively or as mutually agreed between Office of Development Commissioner (Handicrafts) and Insurance Company. 3) CHANNEL FINANCING SCHEME : A. SUPPLIER BILL DISCOUNTING SCHEME Considering the difficulties faced by the suppliers of large Corporates in getting their payments and at the same time to take the advantage of our existing borrower base the above scheme is being evolved This will help the Suppliers / Vendors of our Reputed Corporate Borrower[RCB] to get their payment timely and instantly. As per the Scheme, RCB furnishes a list of their suppliers with recommendation and letter of comfort to the Bank. Bank appraises the individual supplier independently and finalizes the list. Bank provides immediate finance to the selected suppliers / Vendors by discounting Bills / invoices raised by them against their supply of goods to the Corporate. On the maturity date of the bill / invoice, the said corporate makes the payment to Bank directly. The scheme is also extended to Reputed Corporate Clients who are not banking with us on selective basis.[ Details of the scheme as per Circular no. 309/4/2005 dated 09.06.06 and 81/1/2006 dated 09.06.06 ]

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B. DEALER FINANCE SCHEME Bills Discounting / Overdraft / Short Loans. Procedure of selection of Borrower is the same. Under the captioned Scheme, Bank provides finance to the Dealers / Distributors of our Reputed Corporate Borrowers [RCB] to enable them to make immediate payment to RCB for their purchases exclusively from them. RCB supplies the goods to their dealers either on Cash Basis or Credit Basis. Bank shall have discretion to finance the dealers either by way of Bills Discounting, Overdraft or Short Loan depends on their appraisal. Rate of interest: With respect to

BPLR With respect to Base Rate

- With recourse to the Corporate OR – Borrower is assigned Top credit rating as per our rating system [AAA] or *SMERA [1]. For tenor of 90 days.

BPLR – 1.50% BR + 3.30 %

Without recourse to Corporate and eligible borrower

BPLR BR + 4.80 %

Penal rate of interest – Applicable ROI as per Credit Rating of borrower + 2%

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4) Scheme for Financing to Agro Processing & Cotton Ginning & Pressing Unit : Please refer Circular No. 364/42/211-12 dated 08.02.2012 issued by PS & RRB Department, HO. 5) Wind Mill Scheme : [Circular No 284/02/2006 dt 23.11.2006 ] With a view to encourage the Energy Generation through Non conventional methods, Government of India, Ministry of Non Conventional Energy, New Delhi have announced various incentives to encourage the erection of Wind Mills more and more in numbers. With the above incentives in mind, many business enterprises are coming forward to set up Wind Mills. It is pertinent to note that setting up of wind mill is a viable / profitable proposition as it generates profits for a very long period (15 to 20 years). Major industrial groups have been investing in wind power not only to reduce their dependence on conventional power but also as new business proposition. The Tata Group, Aditya Birla Group, RPG Enterprises, Bajaj Group, Godrej, etc. have set up wind farm projects. In order to attract the potential customers to avail the Bank finance from our Bank, we launched a special scheme – ‘Wind Mill Scheme’. As per the Scheme, our targeted group of customers will be creditworthy / cash rich companies and individuals. By acquiring such customers, we may have further scope to cross sell our other loan and deposit products to the company and their employees. As per the ‘Scheme’ credit facility will be in the form of Term Loan which will be need based. The eligible constituents may be a Partnership concern, a Private Limited company or a Limited Company OR any business concern whether our existing or new clients but in existence for 3 years. Credit Rating should be B̀BB’ for our existing customers as well as new customers.

PURPOSE : To extend financial support to the business firms / companies proposing to set up Wind Mills under the provisions laid down by Ministry of Non Conventional Energy. ELIGIBILITY : � The constituents may be a Partnership concern, a Private Limited company or a Limited Company. � Any business concern whether our existing or new clients, in existence for 3 years. � Credit Rating should be B̀BB’ for our existing customers or new customers. CREDIT FACILITY : Credit facility will be in the form of Term Loan which will be need based. MARGIN : 25% of Project Cost RATE OF INTEREST : 1% below the rate applicable as per our Credit Rating System. SECURITY : a. Documents relating to the ownership of the Land to be deposited with the Bank alongwith a Letter of Authority of the borrower for allowing the Bank to create mortgage of the Land at any date. Stamp Duty as applicable should be kept with the Bank in the

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form of Fixed Deposit for the entire tenure of the Bank advance, duly discharged in the favour of the Bank. b. Personal Guarantee of the promoters / Directors c. Hypothecation of Wind Mill and other equipments d. Our charge on the Wind Mill should be noted by the concerned state electricity board. e. COLLATERAL SECURITY : 20% of sanctioned limit REPAYMENT : � Repayment is to be made in 7 years with a moratorium of one year. � Loan should be paid in Equal quarterly instalments OTHER TERMS AND CONDITIONS: 1. Borrower should give an Irrevocable Authority Letter to the Bank to collect the monthly receivables / proceeds from the Electricity Board and credit to the Loan account. 2. Deviations may be considered on merits by appropriate authority. 3. All other terms and conditions will be as per our Credit Policy. 6) Scheme for Textile units of ‘Bhilwara’ : As per the scheme the existing and new borrowers of Bhilwara branch are eligible to get credit facility for their Textile project at concessional rate of interest. Nature of Finance : � Working Capital Finance for purchase of raw materials and stock holding � Term loan for acquiring machinery Amount of finance : � Depending upon the requirement of the borrower (inclusive of 15% to 20% peak level finance: Repayment : Term loan to be repaid within a period of maximum 5 years Rate of Interest : Base Rate + 4.30 for accounts having rating “BB”. Others as per Credit Rating Security : Besides Prime Security (Stocks / Machinery) usual collateral security (Land & Building) to be taken as security

7) Scheme for Ceramic units for Morvi, Wankaner Districts under Rajkot Region & Thangadh District under Bhavnagar Region: As per the scheme the existing and new borrowers with credit rating “B’ & above of Morvi, Wankaner and Thangadh branches are eligible to get credit facility (FB & NFB) to the maximum level of Rs. 20 crores for their ceramic project at concessional rate of interest. a. Purpose : Term Loan/Working Capital requirements

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b. Eligibility: i. Existing units engaged in this line of activity and/or new units proposed to be established. ii. For takeover of units, the takeover norms to be fully complied with. iii. Units rated "B" and above only to be considered. iv. In case of existing accounts, operations in the a/c. should be satisfactory and account should be performing asset. v. Concessions extended to be withdrawn if the a/c. ceases to be operated satisfactorily. a. Concessions will be applicable for finance to ceramic industry at Morvi and

Wankaner dist under Rajkot Region and Thangad (Dist Surendra Nagar) under Bhavnagar Region only. b. General Manager, Gujarat may extend the scheme to other ceramic clusters, if

any in Gujarat, at the request of concerned Regional Manager. c. Type of Facility: Cash Credit against Stocks / Book debts, BP/BD Term Loan for

fixed assets. And other non fund based limits. d. Quantum: Maximum Rs.. 2000 lacs (under both FB+NFB limits) under this concessional pricing. e. Collateral Security: Minimum 50% for credit rating B & BB 40% and above where credit rating is “BBB” 30% and above where credit rating id “A” 20% and above where credit rating is “AA & AAA” 1. The units having rating below “B” shall not be covered under the proposed special package for credit to Ceramics Industries, hence normal interest rates as per rating would be applicable for such units. 2. The proposed rates indicated above are excluding the term premia of 0.50% which shall be charged over and above the proposed rate in respect of term loans, if sanctioned.

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8. Special Scheme for Cluster Units as identified by UNIDO (United Nations Industrial Development Organisation) viz. Casting & Forging, Diesel Engines, Electric Motors, Machine Tools, Diamond Processing & Wall Clocks. ONLY FOR RAJKOT REGION Ref : DCC/SME/471/07 dated 07.12.2007 Maximum Loan Amount Rs. .10.00 crs (FB + NFB) Eligible Accounts SME units with minimum “BB” rating Process Fees 50% concession in normal rate Collateral Security Minimum 50% for credit rating of “BB”

40% and above where credit rating is “BBB” 30% and above where credit rating is “A” 20% and above where credit rating is “AA” and “AAA”

Rate of Interest For AAA rated borrowers = Base Rate + 1.80 % For AA to BB rated borrowers = Base Rate + 3.05 %

Special conditions Casting & forging activity falls under Discretionary List. Hence :The casting of iron and steel for the purpose of machine tools, engineering products, diesel engines, brass parts, auto parts etc. under SME sector should only be covered under this specialized scheme

The casting of iron & Steel activity under the category of Mini Steel Plant is not to be covered under this scheme (whether SME or otherwise) since such units are under discretionary list.

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9. Modifications in the Scheme of of Dena Construction Finance to Contractors In the Scheme of Dena Construction Finance to Contractors (as circulated under circular No. 271/44/2002 dated 11.12.2002 and further modified on 01.03.2011) as below : Existing as per Loan Policy Proposed modification for SME

borrowers Proprietary concerns, Partnership concerns and account corporate entities (both public and private ltd. co.) having annual contract revenue of more than Rs.5.00 crs during the last 3 consecutive financial years.

Proprietary concerns, Partnership concerns and account corporate entities (both public and private ltd. co.) without any minimum criteria of contract revenue / turnover.