CANARA BANK OFFICERS ASSOCIATION PROMOTION STUDY MATERIAL MSME ADVANCES

Transcription

1 MSME ADVANCES MSME sector constitutes an important segment of our national economy and has shown continued dynamism in terms of growth in number of enterprises, production, employment generation and its contribution to the country s manufacturing output and exports. To ensure balanced growth of the MSMEs, Govt. of India has enacted the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 on (notified on ). With the enactment of MSMED Act 2006, Services sector has become part of Micro, Small & Medium Enterprises. The MSMEs engaged in manufacturing or production and providing or rendering of services are defined as per MSMED Act 2006 for the purpose of bank credit. Definition of the MSME Sector as per MSMED Act, A. Direct Finance (Loans/advances granted directly to MSMEs): Enterprise Manufacturing Services Enterprises engaged in the Enterprises engaged in providing or Manufacture or production, rendering of services and whose processing or preservation of goods original investment in equipment is as and whose investment in plant specified below, irrespective of and machinery is the original cost location of the unit: as specified below, irrespective of location of the unit. Micro Small Medium Investment in plant and machinery does not exceed Rs.25 lacs. Investment in plant and machinery is more than Rs.25 lacs but does not exceed Rs.5 crore. Investment in plant and machinery is more than Rs.5 crore but does not exceed Rs.10 crore. Note (1): Investment in plant and machinery is the original cost excluding land and building and the items specified by the Ministry of MSME vide its notification No. S.O.1722 (E) dated Investment in equipment does not exceed Rs.10 lacs. Investment in equipment is more than Rs.10 lacs but does not exceed Rs.2 crore. Investment in equipment is more than Rs.2 crore but does not exceed Rs.5 crore. Note (2): Investment in equipment is the original cost excluding land & building and furniture, fittings and other items not directly related to the service rendered or as may be notified under the MSMED Act, Note: (3) 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 P a g e 1

2 Plant & Machinery / equipments to be considered as advances extended to Micro Enterprises sector. (4) RBI clarified that for ascertaining the investment in plant and machinery for classification of an enterprise as Micro, Small and Medium, the following documents could be relied upon: (H.O Cir 362/2017) i) A copy of the invoice of the purchase of plant and machinery; or ii) Gross block for investment in plant and machinery as shown in the audited accounts; or iii) A certificate issued by a Chartered Accountant regarding purchase price of plant and machinery Items to be included/excluded while calculating the original investment in P & M : Included The investment in establishing of windmill/s to generate electricity for captive consumption or partly for captive consumption and remaining power to sell to Electricity Boards/others are to be included in the investment in P&M for the purpose of computation of investment limit for classification as Micro, Small and Medium Enterprises under MSMED Act, Ministry of MSME, Govt. of India has also clarified as under: a) In case the wind mill is established solely for the purpose of selling its generated power to Electricity Boards or others, in premises, separate to the unit where other products are also manufactured, the investment in such wind mill shall be considered as an investment in new enterprises. In such case, the enterprise may be advised to file separate Entrepreneur s Memorandum for such wind mill (enterprise) and may be classified as Micro/Small/Medium Enterprises, as the case may be, engaged in production/generation of electricity based on the investment made therein. b) In case, a wind mill is established in the premises being used for manufacturing of other product/s, the investment in such unit may be included in the investment in plant and machinery of that manufacturing unit for the purpose of classifying it as Micro, Small and Medium Enterprises. Excluded While calculating the original investment in P& M the following cost shall be excluded: i. Equipment such as tools, jigs, dyes, moulds and spare parts ii. Installation of plant and machinery; iii. Research and development equipment and pollution control equipment; iv. Power generation set and extra transformer installed as per the regulations of the State Electricity Board; v. Bank charges and service charges paid to the National Small Industries Corporation (NSIC) or the State Small Industries Corporation Gas producer plant; vi. Procurement or installation of cables, wiring, bus bars, electrical control panels (not mounted on individual machinery), oil circuit breakers or miniature circuit P a g e 2

3 vii. breakers which are necessarily to be used for providing electrical power to the plant and machinery or for safety measures; Gas producer plant; viii. Transportation charges (excluding sales-tax or value added tax, excise duty) for indigenous machinery from the place of their manufacture to the site of the enterprise; ix. Charges paid for technical know-how for erection of plant and machinery; x. Such storage tanks which store raw materials and finished products only and are not linked with the manufacturing process; and xi. Fire fighting equipment. While calculating the investment in plant and machinery referred to in (1) above, the original price thereof, irrespective of whether the plant and machinery are new or second hand, shall be taken into account provided that in the case of imported machinery, the following shall be included while calculating the value, namely: Import duty (excluding miscellaneous expenses such as transportation from the port to the site of the factory, demurrage paid at the port); Shipping charges; Customs clearance charges; and Sales tax or Value Added Tax B. Other Finance (MSME) 1) Loans to entities involved in assisting the decentralized sector in the supply of inputs to and marketing of outputs of artisans, village and cottage industries. 2) Loans to co-operatives of producers in the decentralized sector viz. artisans, village and cottage industries. 3) Loans sanctioned by banks to MFIs for on-lending to MSME sector subject to compliance of following conditions. a) Margin cap at 12% for all MFIs. The interest cost is to be calculated on average fortnightly balances of outstanding borrowings and interest income is to be calculated on average fortnightly balances of outstanding loan portfolio of qualifying assets. b) Interest cap on individual loans at 26% per annum for all MFIs to be calculated on a reducing balance basis. c) Only three components are to be included in pricing of loans viz., d) processing fee not exceeding 1% of the gross loan amount, the interest charge andthe insurance premium. e) The processing fee is not to be included in the margin cap or the interest cap of 26%. f) Only the actual cost of insurance i.e. actual cost of group insurance for life, health and livestock for borrower and spouse can be recovered; administrative charges may be recovered as per IRDA guidelines. g) There should not be any penalty for delayed payment h) No Security Deposit / Margin are to be taken i) Loans granted by banks to NBFCs for on-lending to Small and Micro Enterprises. P a g e 3

4 TARGET FOR LENDING TO MICRO, SMALL AND MEDIUM ENTERPRISES SECTOR: Priority sector advances (which include the micro and small enterprises (MSE) sector) constitute 40 per cent of Adjusted Net Bank Credit (ANBC) or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher. Mandatory target for lending to Micro & Small Enterprises stipulated. 10% annual growth in Micro Number of Accounts, 20% Y-o-Y growth in Micro & Small Enterprises outstanding and Micro Enterprises share constitute 60% of total outstanding under MSE as at March of previous year. Domestic Commercial Banks are required to achieve 7.5 % of ANBC target for Micro Enterprises (Include KVIC), by March In order to ensure that sufficient credit is available to Micro Enterprises within the Micro and Small Enterprises sector, branches/offices should ensure that share of Micro Enterprises in total lending to Micro and Small Enterprises sector is as under: CLASSIFICATION OF FINANCE TO MSME SECTOR (H O Cir 235/2015, 305/2016) I a b c d e Note: Loans/advances (both Fund & Non Fund Based) (Direct/Other finance) to Micro, Small and Medium Enterprises engaged in Manufacturing Sector Loans to food and agro processing units above Rs.100 crores per borrower/unit provided the unit satisfies investment criteria as per MSMED Act Classification Priority Priority loans up to Rs.5 crore per borrower / unit to Micro and Small Priority Enterprises and Rs.10 crore to Medium Enterprises engaged in providing or rendering of Services Sector Khadi and Village Industries Sector(KVI) - All loans to units in the KVI sector will be eligible for classification under the sub-target of 7.5 percent prescribed for Micro Enterprises under priority sector Other Finance to MSMEs (i) Loans to entities involved in assisting the decentralized sector in the supply of inputs to and marketing of outputs of artisans, village and cottage industries. (ii) Loans to co-operatives of producers in the decentralized sector viz. artisans, village and cottage industries. (iii) Loans sanctioned by banks to MFIs for on-lending to MSME sector as per the conditions specified above. (iv) Credit outstanding under General Credit Cards (including Artisan Credit Card, Laghu Udyami Card, Swarojgar Credit Card, and Weaver s Card etc. in existence and catering to the non-farm entrepreneurial credit needs of individuals). (v) Outstanding deposits with SIDBI on account of priority sector shortfall. Priority Priority P a g e 4

5 MSME will enjoy priority sector classification upto 3 years after they grow out of MSME category. II Loans/advances (both fund and non fund based) Classification (Direct finance) to a Micro and Small Enterprises (MSE) Services (including Retail Non-Priority Trade) where Bank loan is above an aggregate limit of Rs.5 crores per unit, provided the unit satisfies investment criteria as per MSMED Act b Medium Service Enterprises with aggregate sanctioned limit of Non-Priority above Rs.10 crores per borrower/unit, provided the unit Satisfies investment criteria as per MSMED Act Filing Of Memorandum By MSME Units (Cir 275/07, 212/2011, 579/15, 305/16) With the introduction of MSMED ACT, Filing of memorandum (Registration) is not mandatory in the case of Micro and Small units in both Manufacturing / Services Sector and also for Medium size units in Services sector. It is only optional or in other words, filing of memorandum is compulsory only for medium industry in manufacturing sector. Entrepreneurs Memorandum (EM-I) and EM-II have been replaced by Udyog aadhhar Memorandum (UAM) for the MSME enterprises registered after 18/09/15. Though it contain Aadhaar in its name, it is not mandatory to obtain aadhaar. TIME NORMS FOR DISPOSAL OF MSME PROPOSALS: (HO Cir 533/2017) (In Days) Sanctions at Loan amount Category of borrower Branc h RO / CO Processing at Bran ch RO /CO Tot al Head Office Processing at Bran ch RO/C O HO Tota l Up to Rs 25000/- Beyond Rs 25000/-, up to Rs 5 alcs Beyond Rs 5 alcs, up to Rs 25 lacs Above Rs 25 lacs Micro & Small NA NA NA 15 Medium NA NA NA 15 Micro & Small Medium Micro & Small Medium Micro & Small Medium P a g e 5

6 Provided such applications are complete in all respects. Branches to issue Token of Service on receipt of application Rejection Of Credit Proposals of MSME is subject to concurrence of the next higher authority. SECURITY NORMS FOR MSME ADVANCES: In respect of loans/advances to Micro and Small Enterprises (including loans sanctioned to Khadi & Village Industries and other Govt. sponsored schemes), no collateral security/third party guarantee is insisted, as under: i. Upto Rs.10 lakhs (which is mandatory). ii. Upto Rs.25 lakhs in respect of units whose track record and financial position are good as per Bank records. iii. Up to Rs.200 lakhs in respect of Micro & Small Enterprises whose borrowal accounts are covered under CGTMSE. In respect of credit facilities extended to Micro & Small Enterprises (MSEs) wherever collateral security and / or third party guarantee is not obtained, coverage offered by Credit Guarantee Trust Fund for Micro & Small Enterprises (CGTMSE) is to be necessarily taken. In respect of loans/advances to Micro, Small Enterprises other than above a (i) to (iii) and Medium Enterprises, the guidelines for obtaining collateral security/third party guarantee on case to case basis as determined by the Bank shall continue. Coverage under Credit Guarantee Fund for Micro and Small Enterprises (CGTMSE): i. Loans to Micro & Small Enterprises upto Rs.10 Lakhs coverage under CGMSE is mandatory (subject to exclusions noted here below). ii. iii. Loans/advances granted upto Rs.200 lakhs to Micro and Small Enterprises without collateral security and/or third party guarantee are to be covered under CGMSE unless the borrower provides primary security or primary and collateral security put together in the form of land and building to the extent of 75 % of the sanctioned limit, in addition to the security of assets created out of our finance (exposure, if more than one limits are sanctioned) and the borrower should be rated as LOW/NORMAL or MODERATE Risk and all the accounts are under standard category. (H O Cir 589/2017) Presently, CGTMSE cover is not available for credit facilities extended to retail traders, educational institutions, training institutes, training-cum-incubator centres, Self Help Groups (SHG), Joint Liability Groups (JLG) and Medium Enterprises. MoU for due diligence services of micro, small & medium enterprises P a g e 6

7 MSE units who approach our Bank for the first time for the credit facility requirement of above Rs.10 lakhs and upto Rs.100 Lakhs and eligible to be covered under CGMSE are to be brought under Due Diligence Service. Bank has entered MoU with M/s CARE Ltd, CRISIL Limited, M/S ONICRA Credit Rating Agency of India Ltd, M/S IRR advisory Services Pvt Ltd, M/S Brickwork Ratings India Pvt Ltd and M/s SMERA for Due Diligence Services of Micro, Small & Medium Enterprises. ( acumen a new company added ) TAKE OVER NORMS FOR MSME ADVANCES Risk Rating Grade Upto Normal Risk (Internal) / upto BBB (ECAI) Moderate Risk High Risk DELEGATION FOR TAKEOVER (MSME) Normal Sanctioning Sanctioning Authority for Authority (SA) takeover Respective SA Respective SA Upto and including DM- CO-CAC /AGM-CO-CAC DGM-CO-CAC DM-CO-CAC / AGM-CO-CAC subject to post sanction clearance from DGM-CO-CAC DGM-CO-CAC subject to post sanction clearance from GM- CO-CAC DGM-CO-CAC (Circle head) DGM-CO-CAC (Circle head) GM / CGM-CO-CAC and GM / CGM-CO-CAC and above above No powers In case of proposals for switch over from other Bank where the proposed borrower has cleared liabilities in previous 3 months, shall be considered as takeover of account and existing take over norms shall be applicable. Takeover Compliance Chart Sl.No Norms Compliance 1. Assess standing of the borrower, their credit worthiness, Credit Risk, collateral security, safety of the advance 1. Credit Information from transferor bank and satisfactory Credit Information from the transferor bank and specific approval of ECGC (wherever applicable) 2. Certificate from the statutory auditors of the borrower furnishing the details of limits/liabilities, overdue securities charged etc and counter check the same with other bank wherever possible) 3. For Corporate, ABS filed with ROC to be verified for previous three years 4. Where transfer of securities and/or mortgaged property from the transferor bank is involved it shall be ensured that the securities are chargeable and/ or mortgageable in favour of Bank and take steps to create charge P a g e 7

8 5. In respect of take over of TL, the remaining repayment period shall not be extended beyond the period of the existing loan 6. Profit earning should be commensurate with that of the similar units 7. CR should be atleast 1.33 per latest ABS (1.25 for turnover method accounts). Same trend to be projected. Can be relaxed upto 1 8. DER should not be more than 2 as per latest ABS and the same trend is to be projected. Exceptionupto 3 may be permitted selectively by respective sanctioning authority 9. The account must have been classified as Standard Asset in the transferor bank at the time of take over. 10. For term loan takeover, projection and performance are to be in tune with the actuals. If vast variation is observed, reappraisal to be done. If vast difference in actuals vis-s-vis projections, time and cost overrun are observed, takeover to be avoided 11. Where Project undertaken is yet to be completed may not be taken. Exceptional cases, may be taken after undertaking fresh project appraisal by PAG 12. Pass sheet for a minimum period of one year in case of term loan and 6 months in case of WC limits of borrower to be obtained and verified. 13. In case of takeover of term loans the repayment capacity has to be established by evaluating the profitability and cash flow and should satisfy the relevant bench mark parameters of the Bank 14. ABS for the previous 3 years shall be obtained and analysed. It should not be older than 6 months. If ABS is not available, provisional financial statements certified by auditors shall be obtained 15. Reasons for switch over shall be ascertained and satisfied. Shifting of accounts from banks during last 5 years shall not be more than one occasion during the last five years or period of existence of the borrower unit, whichever is less. Further, gap to last switch over shall be a minimum of 2 years. The stipulation of minimum of 2 years shall not be applicable in the following cases : (i) in case of those good borrowers who have exited our Bank for better pricing and who had a good relationship with our Bank. However, branches/ offices to ensure that while taking over of such accounts, the financials of the borrowal accounts has continued to be satisfactory. (ii) Entities in existence for a period less than 2 years 16. Sanction communication of previous banks including modifications, if any, for the last three years to be obtained & analyzed. 17. Wherever Chief Executive Officer and /or Independent Directors have resigned in one prior year, enquiries to be made in detail regarding their exit. 18. Need for proper assessment of limits & to secure Adequate collateral comfort while permitting substantial enhancement / fresh limits and the same need to be highlighted. P a g e 8

9 19. The collaterals offered to the previous lender shall be passed on. However if the same cannot be insisted, SA may permit alternate securities with proper and justifiable reasons. Additional limit- additional securities depending on merits No reduction in margin and no dilution of securities as far as possible. 20. Securities to be revalued at the time of take over and distress value to be ascertained. 21. Stock audit to be carried out for take over of WC limits as a pre release condition. 22. OPL to be obtained before take over. If on consortium basis OPL from leader bank to be obtained. Taking over of share of Leader bank to be avoided totally. 23. An opinion from the panel advocate after inspection/ verification of documents for ensuring that they are in order and as per the requirement of the Bank. 24. No cases should be taken over by a bank from any bank where any of the ED or CMD have worked earlier. In case of need to be taken over, the same is to be put up to Board with specific reasons justifying the need. 25. In case of proposals for switch over from other Bank where the proposed borrower has cleared liabilities in previous 3 months, shall be considered as takeover of account and existing take over norms shall be applicable 26. Additional exposure while takeover and also adhoc / enhancement during first year of takeover can be permitted by next higher authority 27. No NOC/Consent letter need be insisted from other banks/financial Institutions for MSME borrowers REJECTION OF CREDIT PROPOSALS UNDER MSME: Applications for credit facilities from SC/ST customers shall not be rejected at branch level and such applications shall be referred to the next higher authorities for their prior decision / permission. However, proposals of CAC of the Board/MC Powers may be rejected by C&MD or ED in the absence of C&MD. Whenever applications for loans under Govt sponsored schemes are rejected by the Branch Manager himself / herself for valid reasons, a register is to be maintained to this effect which shall be examined by the controlling authorities during their branch visits. Rejection of export credit proposals shall be immediately reported to C&MD through the concerned Wing at HO. Rejection of credit proposals from MSME is subject to concurrence of the next higher authority. However, proposals of CAC/MC powers may be rejected by MD &CEO or ED in the absence of MD & CEO. Rejection of proposals for educational loan is subject to concurrence of the next higher authority. Rejection of credit proposals by the branch level authorities shall be recorded in a register (web based NB-139 package) maintained for this purpose, which shall be reviewed by the controlling authorities visiting branches. P a g e 9

10 RISK RATING OF MSME ACCOUNTS: (H O Cir 493/2017) The risk rating of eligible borrowers is a pre sanction exercise. All borrowers with exposure of Rs.2 Lakhs and above are rated individually and under the appropriate risk rating models developed for the purpose. The individual borrower ratings are subject to annual review. Internal Rating Model Borrowal accounts with sanctioned/ proposed limit Risk Assessment Model (RAM) Above Rs. 2 Crore Manual Model Above Rs. 20 lakhs and not more than Rs. 2 Crores Small Value Model Above Rs. 2 Lakhs and not more than Rs.20 Lakhs Portfolio Model Up to 2 Lakhs (at HO Level) All exposures above Rs.5 Crores are to be mandatorily rated External Credit Assessment Institutions (ECAI). Bank has also entered into memorandum of understanding with various credit rating agencies for SME rating of the Micro, Small & Medium Enterprises. Subsidy from NSIC is available towards rating fee in respect of Micro & Small enterprises. PRESENT RATE OF INTEREST (185/2016 & 532/2016, 579/2017) Overnight MCLR 7.85% One month MCLR 7.90% Three months MCLR 8.10% Six months MCLR 8.15% One year MCLR 8.30% w.e.f RATE OF INTEREST FOR MSME SECTOR: (H.O Cir 185/2016, 532/2016 & 579/2017) A) ROI ON LOANS AND ADVANCES UPTO Rs.2 LACS MANUFACTURING Exposure Working Capital Term Loan Micro and Medium Micro and Medium Small Small Upto Rs.50000/- MCLR+0.95 MCLR+0.95 MCLR+1.20 MCLR+1.20 Above Rs.50000/- upto Rs.2 lacs MCLR+0.95 MCLR+0.95 MCLR+1.45 MCLR+1.45 SERVICES Exposure Working Capital Term Loan Micro and Medium Micro and Medium Small Small Upto Rs.50000/- MCLR+0.95 MCLR+0.95 MCLR+1.20 MCLR+1.20 Above Rs.50000/- upto Rs.2 lacs MCLR+0.95 MCLR+0.95 MCLR+1.45 MCLR+1.45 P a g e 10

11 B) EXPOSURE ABOVE Rs.2 LAKHS AND UPTO Rs.2 CRORES (BOTH MANUFACTURING / SERVICES) 1) FOR EXPOSURE ABOVE RS.2 LAKHS UPTO RS.1 CRORES Rating Grade Low Risk 3 Normal Risk Moderate Risk High Risk 1 High Risk 2 & 3 ROI MCLR+1.55 MCLR+2.15 MCLR+2.80 MCLR+3.80 MCLR ) FOR EXPOSURES ABOVE RS.1 CRORES UPTO RS.2 CRORES (ROI linked to value of immovable property (freehold) mortgaged / approved collaterals viz., Life Insurance Policies, NSCs, KVPs, PSU Bonds, as security either as prime or collateral or in aggregate ) Rating Grade Upto 50% 51% - 75% Revised Spread % of Value of immovable property/approved collaterals in proportion to the exposure 76% - 100% >100% Low Risk 3 MCLR+2.60 MCLR+2.50 MCLR+2.30 MCLR+2.05 Normal Risk MCLR+2.90 MCLR+2.75 MCLR+2.55 MCLR+2.30 Moderate Risk MCLR+3.15 MCLR+3.00 MCLR+2.80 MCLR+2.55 High Risk 1 MCLR+4.90 MCLR+4.70 MCLR+4.50 MCLR+4.25 High Risk 2 & 3 MCLR+5.90 MCLR+5.70 MCLR+5.50 MCLR+5.25 For term loan the following liquidity premium to be loaded to the card rates additionally Notes: Repayment Premium More than 1 year upto 5 years 0.40% More than 5 years 0.85% 1. Concession of 0.25 % in applicable rate of interest in CGTMSE covered accounts upto an exposure of Rs.2.00 Crs is available, subject to the condition that the ultimate rate of interest shall not fall below the respective MCLR. 2. A reduction of 0.50% in the applicable rate of interest on loans and advances to Women Entrepreneurs under Micro and Small enterprises (both manufacturing and services) to be extended to new loans. P a g e 11

12 C) EXPOSURES ABOVE Rs.2 CRS AND UPTO Rs.5 CRS, RATED INTERNALLY UNDER RAM MODEL & EXTERNALLY UNRATED ACCOUNTS WITH EXPOSURE MORE THAN Rs.5 CRS (RATED INTERNALLY) BOTH MANUFACTURING / SERVICES (Other than NBFCs, Commercial Real Estate, Capital Market exposures) (I) EXPOSURES ABOVE Rs.2 CRORE AND UPTO Rs.5 CRORE, RATED INTERNALLY UNDER RAM MODEL (II) EXTERNALLY UNRATED EXPOSURE ABOVE Rs.5 CRORE (RATED INTERNALLY) (RoI linked to value of immovable property (freehold) mortgaged / approved collaterals viz., Life Insurance Policies, NSCs, KVPs, PSU Bonds, as security either as prime or collateral or in aggregate ) Rating Grade Upto 50% 51% - 75% Revised Spread % of Value of immovable property/approved collaterals in proportion to the exposure 76% - 100% >100% Low Risk 1 MCLR+2.00 MCLR+1.90 MCLR+1.70 MCLR+1.45 Low Risk 2 MCLR+2.10 MCLR+2.00 MCLR+1.80 MCLR+1.55 Low Risk 3 MCLR+2.60 MCLR+2.50 MCLR+2.30 MCLR+2.05 Normal Risk MCLR+2.90 MCLR+2.75 MCLR+2.55 MCLR+2.30 Moderate Risk MCLR+3.15 MCLR+3.00 MCLR+2.80 MCLR+2.55 High Risk 1 MCLR+4.90 MCLR+4.70 MCLR+4.50 MCLR+4.25 High Risk 2 & 3 MCLR+5.90 MCLR+5.70 MCLR+5.50 MCLR+5.25 *Exposure above Rs.5 Crore externally unrated, an additional interest of 0.25% pa shall be charged till such time external rating is obtained by the entity. For term loan the following liquidity premium to be loaded to the card rates additionally Repayment Premium More than 1 year upto 5 years 0.40% More than 5 years 0.85% D) EXPOSURES ABOVE Rs.5 CRS AND EXTERNALLY RATED (H.O CIR 185/2016, 532/2016) BOTH MANUFACTURING / SERVICES (Other than NBFCs, Commercial Real Estate, Capital Market exposures) P a g e 12

13 Rating Grade AAA or Equivalent AA or Equivalent A or Equivalent BBB or Equivalent BB or Equivalent B or Equivalent C&D or Equivalent ROI MCLR+1.80 MCLR+2.00 MCLR+2.50 MCLR+2.70 MCLR+3.50 MCLR+4.70 MCLR+6.00 For term loan the following liquidity premium to be loaded to the card rates additionally E) OTHERS Repayment Premium More than 1 year upto 5 years 0.40% More than 5 years 0.85% Limit Upto 90 days usance Above 90 days upto 180 days BE-MSME MCLR+0.50 MCLR+0.95 BULC-Constituent Borrower 3M MCLR M MCLR BULC-Non Constituent Borrower 3M MCLR M MCLR The rate of interest is subject to change as advised by the HO from time to time. Concession in ROI for BULC: Regional Head CAC/Circle Head CAC, in respect of accounts up to their Delegated Power, based on merits, rating and standing of the borrower can permit concession up to 145 bps on the normal applicable rate under the BULC scheme, subject to Minimum of applicable MCLR, based on the tenor of the bill, on case to case basis. However, this power is available to Regional Head CAC / Circle Head CAC till March 31, 2018 as a special measure, other guidelines as per H.O Cir 543/2016. F) MSME SCHEMES SI.No. Schemes Working Capital 1. Canara Trade MCLR Trader s Loan a) Upto Rs.2 lacs b) Above Rs.2 lacs MCLR+4.30 MCLR+5.55 Term Loan Other condition /remarks 3. Canara MSE Unnati MCLR+1.55 Applicable Concession for liquidity CGMSE / Women premium to entrepreneur can be be loaded extended subject to ultimate lending does not fall below respective MCLR 4. Canara MSE Smart Concession for P a g e 13

14 (i) Upto Rs.50 lacs a) Low and Normal Risk b) Moderate Risk (ii) Above Rs.50 lacs a) Low and Normal Risk b) Moderate Risk MCLR+1.55 MCLR+1.80 MCLR+1.80 MCLR+2.05 Applicable liquidity premium be loaded to CGMSE / Women entrepreneur can be extended subject to ultimate lending does not fall below respective MCLR 5. MSME Vahan MCLR+0.80 Concession for CGMSE / Women entrepreneur not to be extended 6. MSE Vijeta Model II a) Low and Normal Risk b) Moderate Risk 7. MSME CAP a) Low and Normal Risk b) Moderate Risk 8. Rice Shellers Scheme Security comfort a) 100% and above b) 75% and above c) 50% and above 9. Canara Dal Mill Super Security comfort a) 100% and above b) 75% and above 10. Canara Contractor Scheme MCLR+1.30 MCLR+1.55 MCLR+1.55 MCLR+2.30 MCLR+0.80 MCLR+1.05 MCLR+1.30 MCLR+1.05 MCLR+1.30 MCLR+1.80 MCLR+2.30 (Applicable liquidity premium to be loaded) Applicable liquidity premium to be loaded MCLR+1.55 MCLR+1.80 (Applicable liquidity premium to be loaded) Concession for CGMSE to be extended Concession for Women entrepreneur not to be extended Concession for CGMSE / Women entrepreneur can be extended subject to ultimate lending does not fall below respective MCLR Concession for CGMSE / Women entrepreneur can be extended subject to ultimate lending does not fall below respective MCLR ROI applicable to MSME and concession as per HO Cir.372/ Canara Caravan ROI applicable to MSME and concession as per HO Cir.419/ Others ROI applicable to MSME segment For term loan the following liquidity premium to be loaded to the card rates additionally P a g e 14

15 13. Doctor s Choice (MSME SERVICES): a) Term Loan Repayment Premium More than 1 year upto 5 years 0.40% More than 5 years 0.85% Low Risk Normal Risk Moderate Risk Upto Rs.2 lacs MCLR+1.45 MCLR+1.45 MCLR+1.45 Above Rs.2 lacs upto Rs.5 crs MCLR+1.45 MCLR+1.95 MCLR+2.20 b) Working Capital Low Risk Normal Risk Moderate Risk Upto Rs.2 lacs MCLR+0.95 MCLR+0.95 MCLR+0.95 Above Rs.2 lacsupto Rs.5 crs MCLR+0.95 MCLR+1.70 MCLR+1.95 Concession for CGMSE / Women entrepreneur can be extended subject to ultimate lending does not fall below respective MCLR APPRAISAL OF TERM LOAN PROPOSALS A. Term Loan is a single transaction loan repayable in installments along with interest. is provided for a specific purpose / project, where investment is fixed in nature is repayable in not less than 12 months. is granted for both industrial and non industrial purposes. is normally extended for acquisition of land, building, machinery and purchase of vehicles, equipment and also in the form of risk capital assistance etc. B. Documents to be obtained: Along with application, project report and projected balance sheets for the entire repayment period are to be obtained in case of new units/ projects. No financial statements need be insisted upon from non-corporate priority sector advances of aggregate limits up to Rs.25000/-, provided the borrower is not otherwise bound by any statute / regulation. In all other cases, financial statements are to be insisted upon. C. The following are the provisions regarding audit of financial statements submitted: P a g e 15

16 Audited financial statements need not be insisted in case of finance to non-corporate borrowers (both existing and new), except in the case of such entities where submission of Audited Financial Statements is mandatory as per statute, for sanction / renewal / enhancement of aggregate credit limits upto Rs.20 lakhs. (FB /NFB including TLs & DPGs). However in such cases, unaudited financial statements are to be obtained. For aggregate credit limits of over Rs. 20 lakhs, audited financial statements are to be obtained. Where the audit of account is mandatory by virtue of existing statute / law in force, in such cases audited financial statements are to be obtained irrespective of the amount of aggregate credit facilities. In case of corporate borrowers, audit of the accounts is mandatory and therefore audited financial statements should be insisted irrespective of nature / quantum of credit facilities. Financial statements are to be obtained for the preceding 3 years in case of existing units. Financial statements submitted should not be more than 6 months old at the time of submission of proposal for fresh limits as otherwise provisional financial statements of the latest date are to be obtained. Projected cash flow & funds flow statements to be insisted covering the period of repayment. For loans uptors. 5 lakhs, these need not be insisted upon, provided the sanctioning authority is satisfied with the details furnished in NF 527 & 528/NF998. D. Others: Proof of Identity of Proprietor, partner or Director Copy of PAN card (for generating CIBIL) Proof of Residence of Proprietor, partner or Director Proof of Business Address Profile of the Unit Rent agreement (If business premises is on rent) Project Report furnishes a complete report of the project right from the stage of establishing to the stage of marketing the products. A copy of the project report is to be obtained and studied. Form of Credit Monitoring Arrangement (CMA) in the prescribed format where aggregate fund based working capital limit sought is Rs.1 Crore and above. Copies of all licenses / permits/pollution control certificates in respect of establishing the unit, import of machinery etc should be obtained. Particulars of the assets standing in the name of the borrower / guarantor (NF 589) are to be obtained wherever applicable with clear details of the assets. Latest sales tax assessment orders of the unit and returns filed to be obtained. Income tax and wealth tax assessment orders of the unit and returns filed by the proprietor / partners / directors and / or guarantors are to be obtained. For small borrowers under priority sector up to a limit of Rs.25000/- submission of IT, WT, ST assessment orders need not be insisted upon. However, in respect of sales tax, the following requirements are to be satisfied. o The borrower should be registered as a dealer under the relevant sales tax laws. o The borrower should be regularly paying tax dues as required under sales tax laws. o The borrower should furnish a copy of the sales tax registration certificate. P a g e 16

17 o The borrower to give a declaration regarding the sales tax paid by him in the latest financial year. No due certificate from PF Commissioner to be obtained wherever required. Details of other statutory dues like Family Pension, Employees State Insurance etc. if any have to be called for. Power sanction letters/feasibility certificate from Electricity Board E. Broad project parameters for considering term loan proposal: While taking up the large projects, the project shall conform to the following broad financial indicators: Transport operators: In case of loans for acquiring and operating Heavy Commercial vehicles / Light Commercial Vehicles, an independent appraisal shall be carried out and repayment capacity will be established with reference to satisfactory DSCR. Financial viability from the net revenues from the vehicles proposed to be financed can be established. Benchmark parameters in this regard are as under: Parameters Benchmarks DSCR Not less than 1.50 Debt/Equity ratio Not more than 3:1 and can be relaxed upto 4:1 Repayment Period Not exceeding 6 years excluding Moratorium period of maximum 3 months. Others: Key parameters Other than Infrastructure Projects Project Cost Upto Rs.100 Lakhs Project Cost above Rs.100 Lakhs Not more than 2:1. In exceptional cases sanctioning authorities not less than DGM- CO-CAC (Circle Head) canaccept upto 4: 1 duly justifying the reasons. Debt/Equity Ratio Not more than 3:1. In exceptional cases the sanctioning authority may accept upto 4:1 duly justifying the reasons. Promoters contribution Minimum of 20% of project cost. Fixed Assets Coverage Ratio Not less than Exceptions upto 1.20 Repayment period Upto 7 years excluding moratorium, but not to Minimum of 20% of project cost. Not less than In exceptional cases sanctioningauthorities not less than DGM-CO-CAC (Circle Head) canaccept upto 1.20 duly justifying the reasons. Upto 7 years & in exceptional cases upto 10 years, P a g e 17

18 Overall Debt Service Coverage Ratio(DSCR) Internal Rate of Return (IRR) (Post tax) (Applicable toproject cost of Rs crore& above) exceed an overall tenor of 10 years excludingmoratorium, but not to exceed an overall tenor of 12 years Not below 1.50 Not less than In exceptional cases sanctioningauthorities not less than DGM-CO-CAC (Circle Head) canaccept upto 1.40 duly justifying the reasons. Not Applicable At least 4% above estimated weighted average cost of funds F. The following are to be studied/ carried out while appraising a term loan project: Background of the promoter/s. Product choice & market survey. Industry profile. Government consents. Location Cost of project & means of finance, availability of margin for working capital. Details of machinery. Availability of raw materials, manpower, water, power, transport etc. Marketability of the proposed product/s. Managerial ability of the promoter/s. Break even analysis and sensitivity analysis. Such other indicators necessary for appraisal ASSESSMENT OF WORKING CAPITAL Methods of Assessment: Turnover Method MPBF System Cash Budget System A. Turnover Method of Assessment of working Capital: Method a) 25% of the projected and accepted annual sales turnover value shall be computed as working capital requirement. b) Branches / offices to ensure maintenance of Minimum margin of 5% on the projected annual sales turnover accepted by the bank which should be equal to 20% of (a) above. c) Working Capital limit to be computed at 20% of the projected gross sales turnover accepted Applicability: MSME Mfg& Other Services Other than MSME Traders, Merchants, Exporters, others etc.who WC (FB) upto Rs.5 crores. WC (FB) upto Rs.2 crores. WC (FB) upto Rs.2 Crores P a g e 18

19 by the Bank. d) Bank to provide atleast 4/5 th (i.e., 20%) as working capital facility and the borrower to bring in 1/5 th (5%) as margin. e) If the NWC available in the system is more, the same shall be reckoned for while assessing the extent of bank finance and lower limit can be considered. are not having a predetermined manufacturing / trading cycle B. Modified WC Assessment for MSEs upto Rs.5.00 Cr Opting for Digital Transaction: (HO Cir 395/2017) For MSE, additional 5% working capital limit increased i.e. 30% of the portion of the assessed projected turnover of the entity expected to be carried out through digital mode for MSEs with FB working capital limits up to Rs. 5 Crore. Margin would be 3.33 % of projected accepted turnover. New parties who have just started their business shall be provided selectively by reckoning 25% of the projected sales accepted by the Bank for the current financial year under digital mode. The extent of Digital transaction shall be monitored on Month on-month basis and any excess finance on account of lack / absence / shortfall of such transactions shall result in pro-rata reduction in additional limit assessed based on digital transaction. In case the Working Capital limit has been assessed as per the Modified Methodology stated herein, the Adhoc Limit shall be sanctioned only after due assessment of the need and based on the specific requirement of the entity. All proposals for sanction of Adhoc facility (other than Temporary over Limit) shall be placed to next higher authority. The aggregate limit to the borrower with Adhoc facility shall not exceed 35% of the projected turnover Example: (Rs in lakhs) Sl. No Particulars Digital Mode Non Digital Total Mode 50 % 50 % 1 Projected Sales Working Capital Cycle 120 Days 120 Days 120 Days 3 No of Cycle Turnover to be financed % of (1) 5 Margin Digital 3.33 % of (1) Non Digtal 8.33 % of (1) 6 Eligible Bank Finance (4) (5) 7 Current Ratio P a g e 19

20 As per the above, for the estimated turnover of Rs.100 lakhs, the firm is eligible for Rs lakhs under modified method subject to 50 % of the transactions are routed through digital mode. At the time of the renewal of the facility, the assessment shall be carried under the revised method up to or until further instructions. B. MPBF System of Assessment of Working Capital: Method a) Uniform classification of current assets and current liabilities shall be adopted on the lines given in the CMA data format. b) Assessment of credit requirement of a party shall be made based on the total study of the borrower s business operation vis-à-vis the production / processing cycle of the industry which shall represent a reasonable buildup of current assets for being supported by bank finance. c) RBI has allowed freedom to Banks to decide the holding levels of various components of current assets for financial support to ensure efficient functioning of the unit. d) For norms related to level of inventory, margin etc., please refer to Manual of Instructions on Working Capital Finance updated till Applicability: MSME Mfg& WC (FB) above Other Services Rs.5 crores up to Rs.25 Crores. Other than WC (FB) above MSME Rs.2 crores up to Rs.25 Crores. Limits over Rs. 25 Cr can be assessed on the basis of MPBF system or cash budget system at the option of the borrower. C. Cash Budget System of Assessment of Working Capital: Method Working capital needs of the borrower are assessed on the basis of projected cash flow statements. Assessment of working capital by grouping the cash flows under three heads viz., Operating, Investing and Financing. Assessment is done by Applicability: a. Borrowers seeking / enjoying credit facilities of over Rs. 25 crores can be assessed on the basis of Cash Budget system or MPBF system at their option. b. In case of specific industries / seasonal activities such as software export, construction activity, tea, sugar, normally, this system may be adopted. c. In the case of specific industries like tea, wherever for specific reasons, the borrower opts to avail the Working Capital facility under MPBF system, the P a g e 20

21 arriving at the deficit between cash inflow and cash outflow during a period of time. same may be permitted by the respective sanctioning authority. IMPORTANT SCHEMES AVAILABLE FOR MICRO, SMALL & MEDIUM ENTERPRISES (MSMEs) OPEN CASH CREDIT (OCC) Purpose Eligibility Assessment of limit Security Repayment / Tenability For working capital needs of MSME units. Individuals, Proprietorship, Partnership, Ltd. Companies etc. Depending on the working capital requirement of the unit assessed as per turnover method/mpbf System/Cash Budget System. Drawings from the account shall be against Drawing limit arrived based on stocks viz, raw materials, work-in-process, finished goods and receivables. Wherever required, Overdraft against Book debts (ODBD) is also permitted against book debt of specific age arising out of genuine trade transactions with Govt./Public Sector Undertakings/Joint Stock Companies/firms of repute. Prime security - Stocks, receivables. Collateral security - Land and building, plant and machinery plus Personal guarantee to be obtained wherever required. Stock Inspection Monthly. Normally the duration of OCC limits will not exceed 12 months from the date of sanction.the policy of the Bank prescribes discriminatory time schedules for fixing tenability of WC limits (standard assets) based on rating of the borrowers. SN Risk rating Grade MaximumPeriod 1 Low risk Grade I& II 24 months 2 Low Risk Grade III 15 months 3 Normal risk Grade IV 12 months 4 Moderate risk Grade V 12 months 5 High Risk-Grade VI & above 12 months Guarantee cover Others Cover under Credit Guarantee Scheme for Micro & Small Enterprises (CGMSE) is available, subject to conditions. Audited Balance Sheet to be obtained for corporate irrespective of the loan amount. For others, Limit above Rs 20 lacs or Turnover of Rs 100 lacs and above per annum, where total receipts exceeds Rs 50 lacs and also where audit of balance sheet is mandatory by statute. MSOD cum Stock Statement (NF902) details shall be obtained Monthly from Industrial borrowers enjoying working capital limits of P a g e 21

22 Rs 10 lac and above.(322/2011) Branches shall obtain the Simplified stock statement (NF 1003) from all borrowers (industrial and non industrial borrowers) who are enjoying SOCC limits upto Rs 5 lacs and OCC/PC limits upto Rs 10 lacs. In NF1003, godown inspection report is embedded hence separate NF814 is not required.(322/2011) Treatment of unpaid stock : Normally, drawing limit shall be computed by deduction entire trade creditors from stock value to determine drawing limit. As a special case, with the permission of GM(HO) and above authorities trade creditors may not be deducted from stocks, upto accepted level for arriving drawing power In case of SME working capital limits upto Rs 2 crores for LR1, LR2 parties obtention of detailed stock statements and godown inspection may be prescribed at quarterly intervals QOS / HOS Operational Guidelines : Applicability: Parties enjoying Fund & Non-Fund based working capital limits of Rs 5 crore and above. penal interest of 1% for delayed/non-submission of QOS/ HOS from borrowers, to be collected for the entire quarter. Penal interest of 0.25% on NFB liability subject to a cap of Rs 1 Lakh per month for Parties who enjoy exclusive NFB. Where Party is enjoying and NFB limit, penalty shall be 1% on FB liability and 0.25% on NFB as above shall be charged Periodicity of submission: QOS within 6 weeks from the closure of the relevant quarter (14th May / August / November / February) and HOS within 8 weeks from the closure of the half year (31st May and 30th November) OD-MSME (MANUFACURING) Purpose Eligibility Quantum Finance Margin Security of To provide hassle-free working capital assistance (fund based) in the form of running limit to the existing and prospective Micro, Small & Medium Manufacturing (Manufacturing) units. 1. MSME (Manufacturing) engaged in industrial activity and falling within the meaning of Micro, Small & Medium Enterprises as defined in MSMED Act, a. Existing clients whose dealing with the Bank is satisfactory in the preceding 2 years and whose borrowal accounts are rated as under: i. For advances upto Rs.2 lacs: Asset Sub classification Code-Standard 1/Standard 2 (ASCC-S1/S2) ii. For advances above Rs.2 lacs: Risk Grades III (Low Risk), IV (Normal Risk), V (Moderate Risk) b. New clients/units whose market report and prospects are satisfactory subject to their dealings confined to our Bank. Maximum limit permissible under the scheme is Rs.3 crores. A suitable Sub Limit for Inland Letter of Credit (ILC) and/or Bank Guarantee (BG) may be fixed within the overall OD-MSME limit depending on the need, by the sanctioning authority. Stocks and Book Debts NIL Hypothecation of stocks and/or book debts acceptable to the Bank whose value as per the stock/book debt statement is to the extent of the liability P a g e 22

23 Tenability Stock inspection Guarantee Cover Scheme Code outstanding. The book debts should be arising out of genuine trade transactions and not older than 90 days. Mortgage of immovable property either prime or collateral (land and building -factory/business/residential building) whose value shall not be less than 125% of the limit. Vacant sites with no superstructure thereupon may also be taken as security for the above purpose provided they are allotted by Govt. approved local bodies/ competent authority and converted for non agricultural purpose by the competent authority. However, the valuation of the same to be in relation to Guideline Value as advised by the competent authority in respective States from time to time. For limits upto Rs.2 lacs (ASCC- 2 years S1/S2) For limits above Rs.2 lacs with Low Risk: 18 months Risk Grades Normal Risk: 15 months Moderate Risk: 12 months Annual review of accounts to be conducted to step up/step down the limits. The tenability as above may be permitted by the respective sanctioning authority specified under the scheme. Upto 10 lakh- Half Yearly, Beyond 10 lakh-quarterly Eligible collateral free advances shall be covered under CGMSE as per prevailing guidelines Ho Cir 215/2012, 421/2013 SIMPLIFIED OPEN CASH CREDIT (SOCC) Purpose Quantum Finance Security Repayment Guarantee cover of For working capital needs of Small MSE units. Upto Rs.5 lakhs. Cir Nos 322/2011 Prime security - Assets created out of the credit facility Facility is permitted as a Running Limit subject to review/ renewal every year. CGMSE cover is available, subject to conditions. LAGHU UDYAMI CREDIT CARD SCHEME (LUCC) Purpose Eligibility To meet the working capital requirement of artisans, village industries, micro and small enterprises including tiny units. All existing small borrowers of above category enjoying aggregate loan and/or operative limits of Rs.10 lakhs are eligible. Total aggregate limit including proposed card limit should not exceed Rs.10 lakhs. P a g e 23

24 Quantum of loan Margin Security Guarantee cover Validity Borrowers should have satisfactory dealings with us for the last 3 years. Borrowers with continuous satisfactory past dealings for a minimum period of 3 years but not having any liability can also be issued the card Maximum up to Rs.10 lakhs per borrower (aggregate). Assessment of credit card limit in respect of Micro and Small Enterprises including tiny units shall be as per Turnover Method. For limits upto Rs.25,000/- : Nil For limits above Rs.25,000/- : 15 to 25% Assets created out of the finance are to be hypothecated to the Bank. No collateral security is insisted for credit facilities up to Rs.10 lakhs. All accounts are mandatorily to be covered under Credit Guarantee Scheme for Micro & Small Enterprises (CGMSE) is available, subject to conditions. 3 years. Renewal of working capital limit is subject to annual review. Cir Nos 46/02, 144/04, 104/06 CANARA MSE UNNATI Purpose To meet business related needs including purchase/ construction of business premises, machinery, equipment, vehicles and working capital requirements of Micro and Small Enterprises whose credit requirement is above Rs.10 lakhs and upto Rs.100 lakhs. Eligibility 1. Existing customers with satisfactory track record for last 2 years (both conduct of account with financing branch and financials of the applicant unit) 2. New customers subject to satisfactory OPL from their existing bankers 3. New units subject to satisfactory market opinion on the promoters and prospects of the project/business proposed 4. Individuals, proprietorship, partnership concerns, private limited company, trusts, HUF are eligible. a. Partnership concerns with HUF as one of the partners, Educational institutions, Self Help Groups, Joint Liability Groups and units engaged in Retail Trade activity are not eligible. b. Units whose Risk rating is above moderate are not eligible. Scoring norm is not to be considered for eligibility criteria. Type of Term loan and/or Working capital and non-fund based limits credit facility Margin 20% / Book debts 25% Maximum 1. Term loan: As per scheme guidelines loan 2. Working capital: As per Turnover Method 3. Maximum finance: Rs.100 lakhs Rate of interest Upfront fee / Processing charges Linked to MCLR and floating 0.50% interest concession is available for women entrepreneurs 0.25% interest concession is available for CGTMSE covered accounts 75% of the normal charges Repayment Term loan Repayable in maximum of 7 years in monthly P a g e 24