ANDHRA PRAGATHI GRAMEENA BANK HEAD OFFICE :: KADAPA

Transcription

1 ANDHRA PRAGATHI GRAMEENA BANK HEAD OFFICE :: KADAPA Circular No BC-CD Scheme for sanction of loans under Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) Attention of all Branches / Regional Offices is invited to the captioned subject. We are happy to inform all Branches / Regional Offices that our Bank joined as Member Lending Institution (MLI) under Credit Guarantee Scheme of Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE). The Credit Guarantee Fund Trust for Micro & Small Enterprises was set up by Government of India (GOI) and SIDBI with an objective to provide Bank credit without the hassles of collaterals / third party guarantees. The scheme guidelines in brief are as follows and the scheme will be implemented with effect from ) Objective: a) Availability of Bank credit without the hassles of collaterals / third party guarantees. b) The lender should give importance to project viability and secure his loan purely on the primary security of the assets financed. c) The lender availing guarantee facility should endeavour to give composite loans to the borrowers so that both term loan and working capital facilities are obtained by the borrowers from the single agency. d) The guarantee scheme assures the lender that in the event of an SME unit, which availed collateral free credit facilities, failing to discharge its liabilities to the lender, the Trust would make good the loss incurred by the lender upto 75 percent of the credit facility. 2. Operation a) The Credit Guarantee Scheme is operated through Banks / Financial Institutions registered as Member Lending Institutions (MLIs) with CGTMSE b) Operations under the Scheme are done online through web-based B2B E-Business Model Software c) MLIs are allotted unique Member ID, User ID and Password d) MLI s can access CGTMSE s website for online transactions using their Member and User Ids. 3. Eligible Lending Institutions a) Eligible Institutions Scheduled Commercial Banks and select Regional Rural Banks classified as Sustainably Viable by NABARD are eligible to enrol as Member Lending Institutions (MLIs) under the Scheme Page 1 of 13

2 Cir. No BC-CD : 2 : b) Other Lending Institutions as permitted by Ministry of MSME, GoI are eligible to enrol themselves as MLIs under the Scheme c) 66 Banks / Institutions are registered as MLIs with CGTMSE as on November 30, 2007 (28 PSU Banks, 13 Private Sector Banks, 22 RRBs and 3 Institutions) 4. Cardinal Principles of the Scheme a) Lender should extend credit without obtaining any Collateral Security / Third Party Guarantee b) Borrower to avail credit from a single Bank (Working Capital Credit sanctioned to an assisted unit of a PLI like SFC / NSIC / NEDFi / SIDBI, etc., can be covered under the scheme) c) Interest Rate levied should be in accordance with Government / Reserve Bank of India guidelines. 5. Credit Facilities eligible for Guarantee Cover a) Credit facility sanctioned to Micro and Small Enterprises as defined under Micro, Small and Medium Enterprises Development Act, 2006 (both manufacturing and service sector excluding retail trade) can be covered under the scheme. MSMED Act 2006 is enclosed. b) MLIs to adhere to RBI Guidelines on Lending to Priority Sector in this regard c) Both Term Credit and Working Capital Credit can be covered under the Scheme (Fund based as well as Non-fund based) 6. Guarantee Cover a) Eligible credit facility under the Scheme is Rs.50 lakh per borrower. Credit Facility of above Rs.50 lakh can also be covered under the Scheme. However, Guarantee Cover will be limited to Rs lakh and no collateral security / third party Guarantee shall be obtained by the MLI for credit facility above Rs.50 lakh b) Maximum Guarantee Cover is 75% of Credit facility sanctioned i.e., Rs lakh c) For units located in North Eastern Region (incl. Sikkim) and Women Entrepreneurs, the maximum Guarantee Cover is 80% of Sanctioned Amount i.e., Rs.40 lakh d) For credit facilities upto Rs.5 lakh to Micro Enterprises, the maximum Guarantee Cover is 80% of Credit facility sanctioned i.e., Rs.4 lakh Page 2 of 13

3 Cir.No BC-CD : 3 : 7. Tenure of Guarantee Cover a) Tenure of Guarantee Cover for Term Credit, Combined Working Capital & Term Credit and Composite Credit is tenure of Term Credit / Composite Credit b) Where Working Capital Credit alone is sanctioned, the tenure is for a block of five years. Thereafter, MLI should apply for renewal of Guarantee Cover 8. Lodging of applications a) It is advisable to lodge application immediately after sanction of credit facility b) MLIs are permitted to lodge applications with CGTMSE for credit facility sanctioned in a particular calendar quarter, latest by the end of the next calendar quarter c) To illustrate, for credit facility sanctioned between and , application for Guarantee Cover should be lodged by d) Thus maximum time of 6 months and minimum time of 3 months is available for lodging of application e) In case of Working Capital Credit, date of renewal can be taken as date of sanction 9. Guarantee Fee a) On approval of Guarantee Cover, Demand Advice for Guarantee Fee is generated by the system b) Guarantee Fee is a one-time fee and is to be paid upfront for commencement of Guarantee Cover by collecting from the borrower. c) Payment is to be made within one month from Demand Advice date or one month from date of first disbursement, whichever is later d) Present Guarantee Fee rate is 1.00% of sanctioned credit facility. 10.Service Fee a) Service Fee is to be paid annually for all accounts for which Guarantee Cover is in force in a financial year b) Payment is to be made within two months from the end of the financial year i.e., May 31 c) If payment is not received within stipulated period, Guarantee Cover lapses and account is liable to be closed. Page 3 of 13

4 Cir.No BC-CD : 4 : d) Present Service Fee rate is 0.50% of sanctioned credit facility e) Both Guarantee Fee and Service Fee are collected by the Trust from the MLIs f) The fees shall be passed on to borrowers. 11. Lodging of Claims a) In the unfortunate event of account turning NPA, claims may be lodged a) Pre-requisites for lodging claims are Guarantee Cover is in force Account classified as NPA. Lock-in period expired. Recall Notice issued Recovery proceedings initiated c) Guarantee Cover is in Force There should be no arrears in payment of Fee. Service Fee is to be paid till disbursement of first instalment of claim d) Lock-in Period 12 months from guarantee cover start date or last date of disbursement, which ever is later. e) Recovery proceedings initiated. Suit for recovery of primary security should be filed with Lok Adalat / RRA / Civil Court / DRT / SARFAESI Act. If recovery proceedings are initiated under SARFAESI Act, physical possession of security, as per Section 13(4) of the Act, has to be taken f) Subsidy availed, if any, should be indicated g) Declaration and Undertaking is to be signed by an officer not below the rank of Assistant General Manager Page 4 of 13

5 : 5 : Cir.No BC-CD 12. Claim Settlement a) Claim will be settled in two instalments b) First instalment of 75% of guaranteed portion of Amount in Default will be paid within 30 days of receipt of complete information. c) Penal Interest at prevailing Bank Rate will be paid in case of delay beyond 30 days. d) Second instalment shall be paid after conclusion of recovery proceedings e) Amount in Default - Principal and Interest Outstanding in the account as on date of NPA subject to maximum of credit sanctioned. f) Recoveries made after NPA date / payment of first instalment of claim should be remitted to CGTMSE (after deducting legal expenses, if any) g) MLI s may enter into OTS or Compromise Settlement with defaulted borrower as per RBI / Internal Guidelines. CGTMSE s interest has to be safeguarded in any such settlement and MLI shall intimate terms of such settlement to CGTMSE. h) On completion of recovery proceedings, final loss is shared by CGTMSE and MLI in the ratio 3 : Risk Mitigation: a) Credit facilities guaranteed under the Scheme carry Zero per cent Risk Weight for guaranteed portion Zero per cent provisioning for guaranteed portion, in case account turns NPA (Reserve Bank of India Circular DBOD No.BP.BC.128/ /00-01 dated June 07, 2001) 14. Interest rate payable by the borrower: Upto Rs.50000/ % Above Rs.50000/- and upto and inclusive of Rs / % Above Rs /- and upto and inclusiveof Rs / % Above Rs / % 15. Process Fees Upto Rs.25000/- NIL Above Rs.25000/- 0.50% Page 5 of 13

6 Cir.No BC-CD : 6 : 16. Responsibilities of Lending Institution under the scheme: a) The lending institution shall evaluate credit applications by using prudent banking judgment and shall use their business discretion / due diligence in selecting commercially viable proposals and conduct the account (s) of the borrowers with normal banking prudence. b) The lending institution shall closely monitor the borrower account. c) The lending institution shall safeguard the primary securities taken from the borrower in respect of the credit facility in good and enforceable condition. d) The lending institution shall ensure that the guarantee claim in respect of the credit facility and borrower is lodged with the Trust in the form and in the manner and within such time as may be specified by the Trust in this behalf and that there shall not be any delay on its part to notify the default in the borrowers account which shall result in the Trust facing higher guarantee claims. e) The payment of guarantee claim by the Trust to the lending institution does not in any way take away the responsibility of the lending institution to recover the entire outstanding amount of the credit from the borrower. The lending institution shall exercise all the necessary precautions and maintain its recourse to the borrower for entire amount of credit facility owed by it and initiate such necessary actions for recovery of the outstanding amount, including such action as may be advised by the Trust. f) The lending institution shall comply with such directions as may be issued by the Trust, from time to time, for facilitating recoveries in the guaranteed account, or safeguarding its interest as a guarantor, as the Trust may deem fit and the lending institution shall be bound to comply with such directions. g) The lending institution shall, in respect of any guaranteed account, exercise the same diligence in recovering the dues, and safeguarding the interest of the Trust in all the ways open to it as it might have exercised in the normal course if no guarantee had been furnished by the Trust. The lending institution shall, in particular, refrain from any act of omission or commission, either prior to or subsequent to invocation of guarantee, which may adversely affect the interest of the Trust as the guarantor. h) The lending institution shall also ensure either through a stipulation in an agreement with the borrower or otherwise, that he shall not create any charge on the security held in the account covered by the guarantee for the benefit of any account not covered by the guarantee, with itself or in favour of any other creditor(s) without the prior written approval of the Trust. Further, the lending institution shall secure for the Trust or its appointed agency, through a stipulation in an agreement with the borrower or otherwise, the right to list the defaulted borrower s names and particulars on the Website of the Trust. Page 6 of 13

7 Cir.No BC-CD : 7 : 17. Miscellaneous: a) Appropriation of amount received from the lending institutions: The amount received from the lending institutions shall be appropriated in the order in which the service fee, penal interest and other charges have fallen due. If the service fee and the penal interest have fallen due on the same date, then the appropriation shall be made first towards service fee and then towards the penal interest and finally towards any other charges payable in respect of the eligible credit facility. b) Appropriation of amount realized by the lending institution in respect of a credit facility after the guarantee has been invoked: Where subsequent to the Trust having released a sum to the lending institution towards the amount in default in accordance with the provisions contained in the Section 10 of this scheme, the lending institution recovers money subsequent to the recovery proceedings initiated by it, the same shall be deposited by the lending institution with the Trust, after adjusting towards the cost incurred by it for recovery of the amount. c) Trust s liability to be terminated in certain cases I. If the liabilities of a borrower to the lending institution on account of any eligible credit facility guaranteed under this scheme are transferred or assigned to any other borrower and if the conditions as to the eligibility of the borrower and the amount of the facility and any other terms and conditions, if any, subject to which the credit facility can be guaranteed under the Scheme are not satisfied after the said transfer or assignment, the guarantee in respect of the credit facility shall be deemed to be terminated as from the date of the said transfer or assignment. II. If a borrower becomes ineligible for being granted any credit facilities under the Scheme, by reason of cessation of his activity or his activity or his undertaking ceasing to come within the definition of a small scale industrial unit, the liability of the Trust in respect of any credit facilities granted to him by a lending institution under the Scheme shall be limited to the liability of the borrower to the lending institution as on the date on which the borrower becomes so ineligible, subject, however, to the limits on the liability of the Trust fixed under this scheme. III. Notwithstanding the death or retirement of a partner where the borrower is a partnership firm or the death of the joint borrowers, if the lending institution is entitled to continue the credit facilities to the surviving partner or partners or the surviving borrower or borrowers, as the case may be and if the credit facilities have not already become non performing asset, the guarantee in respect of such credit facilities shall not to be deemed to be terminated as provided in this paragraph. Page 7 of 13

8 Cir.No BC-CD : 8 : d) Returns and Inspections: I. The lending institution shall submit such statements and furnish such information as the Trust may require in connection with any credit facility under this scheme. II. The lending institution shall also furnish to the Trust all such documents, receipts, certificates and other writings as the latter may require and shall be deemed to have affirmed that the contents of such documents, receipts, certificates and other writings are true, provided that no claim shall be rejected and no liability shall attach to the lending institution or any officer thereof for anything done in good faith. III. The Trust shall, insofar as it may be necessary for the purposes of the Scheme, have the right to inspect or call for copies of the books of account and other records (including any book of instructions or manual or circulars covering general instructions regarding conduct of advances) of the lending institution, and of any borrower from the lending institution. Such inspection may be carried out either through the officers of the Trust or of SIDBI or any other person appointed by the Trust for the purpose of inspection. Every officer or other employee of the lending institution or the borrower, who is in a position to do so, shall make available to the officers of the Trusts or SIDBI or the person appointed for the inspection as the case may be, the books of account and other records and information which are in his possession. e) The Chief Promoter of the guaranteed unit aged between 18 to 59 years is provided with free life insurance cover upto Rs.2.00 lakhs by the Trust. 18. Role of Regional Offices: a) Arrange small meetings of Branch managers & Officer (Adv) to explain the scheme guidelines, its objectives and benefits to the Bank etc. and impart the scheme guidelines to all the field functionaries. b) Encourage the branches to scout the eligible proposals, collect the details as per the proformae immediately after disbursement of the loan. c) Submit the information to the Trust on line. The member ID, User ID will be supplied to all ROs soon. d) The guarantee fee shall be remitted to the trust after getting Demand from the Trust. e) The service fee is to be paid annually for all accounts for which guarantee cover is in force in a financial year. f) Monitor the loans disbursed under the scheme periodically. g) Advise the branches to prefer lodging of claim, in the event of account turning NPA. Page 8 of 13

9 Cir.No BC-CD : 9 : h) While preferring claims observe the pre-requisites for lodging claim such as Guarantee cover in force, Account classified as NPA, Expiry of lock in period, Issue of recall notice, Initiation of recovery proceedings.. i) Submit the claims with complete information. j) After lodging the claim monitor with Trust to receive first installment of 75% of guaranteed portion of amount in default within 30 days after submission of complete information. k) Ensure to remit the Trust s share out of the recoveries received from Branches. l) Maintain clear record of applications filed, guarantee fee paid, service fee paid, claims lodged, claims settled, recovery remittances etc. The credit limits, sanctioning powers, reporting system and documentation shall be followed as per the guidelines issued in Desk guide under SSIs / latest circulars issued. Clarifications, if any, regarding the circular, shall be sought from Credit Department, Head Office. (M.JAI PRAKASH) CHAIRMAN Encl: Annexure Page 9 of 13

10 Annexure to Circular No BC-CD THE MICRO, SMALL & MEDIUM ENTERPRISES DEVELOPMENT (MSMED) ACT, 2006 BECOMES OPERATIONAL FROM 2 OCTOBER 2006 Heralding the commencement of renewed efforts for facilitating promotion and development and enhancing the competitiveness of micro, small and medium enterprises NEW NOMENCLATURE AND CLASSIFICATION OF MSME ENTERPRISES Manufacturing Enterprises (Ceiling on investment in Plant & Machinery) Rs.25 lakh Rs.5 crore Rs.10 crore Micro Small Medium Service Enterprises (Ceiling on investment in Equipment) Rs.10 lakh Rs.2 crore Rs.5 crore Salient Features Definitions Memorandum Statutory Frame Two-stage registration process of SSI substituted with optional filing of memorandum with District Industries Centres (DICs) by all micro and small enterprises. Filing of memorandum by Defines Enterprise instead of Industry to give due recogniion to the Service Sector. Pride of place to Micro Enterprises. Investment ceiling for Manufacturing Small Enerprises raised to Rs.5 crore. Defines Medium Enterprises to facilitate technology upgradation and graduation. Medium enterprises rendering services also optional. Filing of memorandum by manufacturing medium enterprises with District Industries Centres (instead of the Central Government) Provides statutory basis (legally enforceable) to Procurement Preference Policies of Central & State Govts. For goods & Services provided by micro & small enterprises. Strengthens the legal provisions to check delayed payment to micro and small enterprises. Representatives of enterprises Associations included in the MSE Facilitation Councils for adjudicating on cases of delayed payment. Provision for ensuring timely and smooth flow of credit to MSMEs. All Schemes/Programmes of assistance being notified under the Act. Provides for a statutory National Board for Micro, Small & medium enterprises to advise the Central Government on matters under the Act. Ministry of Small Scale Industries and Ministry of Agro & Rural Industries Government of India Page 10 of 13

11 Annexure to Circular No BC-CD MSMED ACT 2006 : PRE ENACTMENT V/S POST ENACTMENT : A COMPARATIVE ANALYSIS S. No. Basis of comparision 1. Apex Statutory body Scenario: Pre Enactment of MSMED Act Small Scale Industries (SSI) Board SSI Board is the apex non-statutory advisory body constituted by the Government of India to render advice on all issues pertaining to the SSI sector. More than 100 Members on Board, with no specific representation for women. 2. As an entity Existing concept of only the Industries. I.e. the Small Scale Industries (SSIs) 3. Classification of Enterprises A definition existed only for tiny and small units, however medium sized enterprises are not defined either technically or legally. According to the Industries (Development and Regulation) Act, 1951, Small Scale Industrial Undertaking is one in which the investment in fixed assets in plant and machinery, excluding land and building, whether held on ownership terms or on lease or on hire purchase, does not exceed Rs.1 Crore (One crore). No further classification as per the definition for Manufacturing & the Services sector, however the status of a Small Scale Industrial Undertaking might be that of a Ancillary, Tiny, Expore oriented, Small Scale Service Business Enterprises (SSSBE) or a certain types of industries / activities wherein investment on plant and machinery can go upto Rs.5 crores. Scenario: Post Enactment of MSMED Act National Small and Medium Clause 3 of the MSMED Act provides for the establishment of National MSME Board. Hence, it is now a statutory body that will mandatorily have Quarterly Meetings. The Board will replace the currently existing nonstatutory Small Scale Industries (SSI) Board. 46 Members on Board, with specific representation for women. Clause 7 (1) introduces the concept of Enterprises as against Industries Broadly classified into enterprises engaged in manufacture / production of goods those engaged in providing / rendering services. As per the Clause 7 (1) a definition exists for Micro, Small and Medium units. As per the MSMED Act 2006, that a Micro enterprise engaged in the manufacture or production of goods will be the one, where the investment in Plant & Machinery does not exceed Rs.25 lakh, a Small enterprise engaged in the manufacture of production of goods will be the one, where the investment in Plant & Machinery is more that Rs.25 lakh but does not exceed Rs.5 crore, while a medium enterprise will be the one, where the investment is more than Rs.5 crores but does not exceed Rs.10 crore. As per the new Act, Micro enterprise engaged in providing or rendering of services will be the one, were the investment in Plant & Machinery is more than Rs.10 lakh but does not exceed Rs.2 crore, while a medium enterprise will be the one, where the investment is more that Rs.2 crores but does not exceed Rs.5 crored. Page 11 of 13

12 Annexure to Circular No BC-CD 4. Establishment procedure Two-stage registration process of Micro & Small industry in place. Two-stage registration process of Micro & Small industry is dispensed with & replaced by filing of memoranda, as per Clause 8. Filing of memoranda optional for Micro & Small enterprises in manufacturing & services sector, for Medium enterprises in services sector but mandatory for Medium enterprises in manufacturing sector. 5. Procurement Policies Non statutory Clause 11 provides for the notification of preference policies, by the Central or a State Govt. in respect of procurement of goods & services, produced and provided by the MSEs, by its Ministries, departments or its aided institutions and public sector companies. 6. Delayed Payments Repayment, Penalty 7. Delayed Payments Dispute Resolution 8. Delayed Payments Deduction under the Income Tax Act, 1961 Period of repayment by the supplier 120 days. Penal interest rate is 150% (or 2 ½ times) of the PLR. No stipulated time period for a decision on a reference made to a Industry Facilitation Council. Amount of interest payable or paid by any buyer is allowable for the purposes of computation of income under the Income Tax Act, Closure of Business Non existent as a statutory requirement Clause 15 period of repayment by the supplier 45 days. Clause 16 Penal interest rate is 200% (or three times) of the Prime Lending Rate (PLR). Reference made to the MSE Facilitation council to be decided within 90 days from the date of reference, as per the Clause 18 (5). Clause 23 Provides to disallow, for the purposes of computation of income under the Income Tax Act, 1961, the amount of interest payable or paid by any buyer, under or in accordance with the provisions of this Act. Clause 25 provides that the Central Govt. may (within 1 year of the commencement of the Act) notify a scheme for facilitating closure of business by a micro, small and medium enterprise. Page 12 of 13

13 Annexure to Circular No BC-CD 10. Promotional & Enabling provisions 11. Provisions for facilitating Credit Non existent as a statutory requirement Non Existent as a statutory requirement Page 13 of 13 Clause 9 provides for notification of programmes, guidelines or instructions for facilitating the promotion and development and enhancing the competitiveness of MSMEs, by the Central Govt. Clause 12 provides for constitution, by notification, one or more funds, by the Central Govt. Clause 13 provides to credit (by the Central Government) to the fund or funds, such sums as the Govt. may provide after de appropriation made by Parliament by law in this behalf. Clause 14 provides to administer (by the Central Govt.) the fund or funds for purpose mentioned in Clause 9 & coordinate and ensure timely utilization and release of sums with such criteria, as may be prescribed. Clause 10 provides that the policies & practices in respect of credit to the MSMEs shall be progressive and such as may be specified in the guidelines or instructions issued by the RBI. IMPLEMENTATION OF MSMED ACT 2006 : LIST OF NOTIFICATIONS ISSUED TILL JANUARY Principal Notification No. S.O (E) dated 18 July, 2006 that MSMED Act 2006 becomes operational from 2 nd October, Notification No.S.O.1622 (E) dated 27 September 2006 for the constitution of the Advisory Committee. 3. Notification No.S.O.1642 (E) dated 27 September, 2006 for classifying the Classes of Enterprises. 4. Notification No.S.O.1636 (E) dated 27 September, 2006 for the Authority for filing of Entrepreneurs Memorandum. 5. Notification No.S.O.1643 (E) dated for filing of Entrepreneur s Memorandum. 6. Notification G.S.R. 596 (E) dated 26 September, 2006 for the Rules for National Board for Micro, Small and Medium Enterprises (NMBSME). 7. Draft Rules of Micro & small Enterprises Facilitation Council (MSEFC) under MSMED Act 2006 as approved by Union Minister (SSI & ARI) to be notified by States / Union Terri- tories as per the power conferred by section 30 read with sub-section 21 as per the Act. ****