Loan & Advances Circular No. 26/24 MSME Policy 2024-2025 PDF

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Head Office: Shri Vishnu Commercial Complex NH-30, New Bypass, Near BP Highway Services Petrol Pump, Asochak, Patna-800030 Phone – 0612-2385414 L & A Department TO ALL OFFICES Date: 01.08.2024 In Supersession of L&ACircular no. 29/23 dated 25.07.2023 LOAN & ADVANCES CIRCULAR NO. 26/24 MSME Policy – 2024-25 Page 1 of 23  DAKSHIN BIHAR GRAMIN BANK CREDIT DEPARTMENT, HEAD OFFICE Appendix I MSME POLICY CREDIT CIRCULAR No. 26/24: MSME POLICY_2024-25 Page 2 of 23  DAKSHIN BIHAR GRAMIN BANK CREDIT DEPARTMENT, HEAD OFFICE INDEX 1. Policy Overview 04 2. Micro, Small & Medium Enterprises Development (MSMED) Act, 2006 06 A. Definition of Micro, Small and Medium Enterprises B. Classification of Enterprises: C. Composite criteria of investment and turnover for classification: D. Calculation of investment in plant and machinery or equipment E. Calculation of turnover F. Registration of enterprises G. Addition of Retail & Wholesale Traders H. Two or more undertaking under the same ownership - Status of the unit 3. Classification & Target 11 A. Classification B. Targets for MSME Lending 4 Other Guideline: 13 A. Processing Fee and Upfront Fee for MSE borrower B. Delayed Payment C. Financial literacy and consultancy to the Micro and Small Enterprises Sector D. Empowered Committee on MSMEs 5. Common Guidelines / Instructions for Lending to MSME Sector 14 A. Loan Application Form B. Margin Requirement C. Collateral Security D. Credit Appraisal and Due-Diligence E. Other F. INSURANCE AGAINST FIRE AND OTHER RISKS CREDIT CIRCULAR No. 26/24: MSME POLICY_2024-25 Page 3 of 23  DAKSHIN BIHAR GRAMIN BANK CREDIT DEPARTMENT, HEAD OFFICE GENERAL GUIDELINES ON MSME 1. Policy Overview For a country to grow, the Government actively promotes business enterprises. Amongst the business enterprises, the Micro, Small and Medium Enterprises (MSME) deserve special attention. Though MSMEs are small investment enterprises, but their contribution to the Indian economy is very significant. The MSMEs are the powerful engine of economic growth for the country being the second largest employment generation sector in India. The MSME sector has emerged as highly vibrant and dynamic sector with its agility and dynamism. The sector has shown admirable innovativeness and adaptability to firm competition in the domestic and international arena. They not only play crucial role in providing large employment opportunities at comparatively lower capital cost than large industries but also help in industrialization of rural and backward areas, thereby reducing regional imbalances, assuring more equitable distribution of national income and wealth. MSMEs are complementary to large industries as ancillary units and this sector contributes enormously to the socio-economic development of country. MSMEs are very important to the Bank as the formalization of the sector will be the key growth-driver for the Bank and they also offer a huge opportunity of cross selling of Retail Asset products, Salary accounts, Insurance etc to the promoters and the employees thus, leading to additional business for the Bank. Government of India enacted MSMED act 2006 with an aim to enable MSME entrepreneurs for increasing their worth and efficiency so that they may sustain the competition, enlarge their scope of activity and enlist them among the top performers for their contribution towards economic growth, employment generation, balanced regional development, poverty reduction thus contributing to inclusive growth in the country and turn into established Corporates. Importance of MSME: Micro, Small and Medium Enterprises (MSMEs) are amongst the strongest drivers of economic development, innovation and employment. The MSME sector also contributes in a significant way to the growth of the Indian economy with a vast network of about 63.38 million enterprises. The sector contributes about 45% to manufacturing output, more than 40% of exports, over 28% of the GDP while creating employment for about 111 million people, which in terms of volume stands next to agricultural sector. The MSME sector in India is exceedingly heterogeneous in terms of size of the enterprises and variety of products and services, and levels of technology employed. However, the sector has the potential to grow at a faster pace. MSMEs are complementary to large industries as ancillary units and this sector contributes enormously to the socio economic development of the country. SMEs not only play crucial role in providing large employment opportunities at comparatively lower capital cost than large industries but also help in industrialization of rural & backward areas, thereby, reducing regional imbalances, assuring more equitable distribution of national income and wealth. Despite some infrastructural deficiencies and challenges like flow of institutional credit and inadequate market linkages, this CREDIT CIRCULAR No. 26/24: MSME POLICY_2024-25 Page 4 of 23  DAKSHIN BIHAR GRAMIN BANK CREDIT DEPARTMENT, HEAD OFFICE sector has registered remarkable success with regard to increase in number, quantum of investment, scale of production and overall contribution to national GDP. The study makes an attempt to focus on the huge growth potential and opportunities available in India for development of MSME sector, to identify important issues and challenges and offer suggestions to address the same. Micro, Small and Medium Enterprises in India offer a heterogeneous and varied nature of fabric in terms of the size and structure of the units, variety of products and services, scale of production and application of technology. These enterprises are quite complementary to the large scale industries as ancillary units. They contribute to the socio-economic development of the country quite significantly. The Government of India has introduced several major policy initiatives for support and promotion of micro, small & medium enterprises in the country. These include; establishment of Small Industries Development Bank of India (SIDBI) in 1990 for promotion and financing of MSME sector, Credit Guarantee Fund Trust of Micro and Small Enterprises (CGTMSE) was in 2000 to offer credit facilities to eligible borrowers and the Prime Minister‟s Employment Generation Programme (PMEGP) in 2008 to generate employment opportunities in rural, Semi-urban and urban areas through new self- employment ventures / projects / micro enterprises. MSMEs have greater opportunities to grow as ancillary industries to unleash higher industrial growth. MSMEs being less capital intensive and more employment-friendly have easier access to raw materials, subsidies and other incentives under cluster programs. The country has huge growth potential to create and enhance the capacity of enterprises both in the manufacturing and service sector by using the available resources. There are huge opportunities for the MSMEs to grow as ancillary industries to unleash greater industrial growth. Development of the sector is therefore extremely important as it holds the key to inclusive growth and plays a pivotal role in holistic development of the country. *********************************** CREDIT CIRCULAR No. 26/24: MSME POLICY_2024-25 Page 5 of 23  DAKSHIN BIHAR GRAMIN BANK CREDIT DEPARTMENT, HEAD OFFICE 2.Micro, Small & Medium Enterprises Development (MSMED) Act, 2006 The Government of India has enacted the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 on June 16, 2006 which was notified on October 2, 2006. With the enactment of MSMED Act 2006, the paradigm shift that has taken place is the inclusion of the services sector in the definition of Micro, Small & Medium enterprises, apart from extending the scope to Medium enterprises. The MSMED Act, 2006 has modified the definition of Micro, Small and Medium enterprises engaged in manufacturing or production and providing or rendering of services. A. Definition of Micro, Small and Medium Enterprises In accordance with the provision of Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 the Micro, Small and Medium Enterprises (MSME) is classified in two categories: a)Manufacturing Enterprises -The enterprises engaged in the manufacturing or production of goods to any industry specified in the first schedule to the Industries (Development and Regulation) Act, 1951 and as notified by the Government from time to time. Employing plant and machinery in the process of value addition to the final product having a distinct name or character or use. The Manufacturing Enterprises are defined in terms of investment in Plant & Machinery. b) Service Enterprises-The enterprises engaged in providing or rendering of services and are defined in terms of investment in equipment. Loans granted to Retail & Wholesale Traders would be eligible for classification under Micro and Small Enterprises Sector provided they satisfy the definition of Micro & Small (Service) Enterprises in respect of investment in Equipment. B. Classification of Enterprises: Government of India vide Gazette Notification S.O.2119 (E) dated June 26,2020, has notified new criteria for classifying the enterprises as Micro Small and Medium Enterprises. The new criteria is effective from July 1,2020. The details are as under: Classification Criteria Micro Where the investment in Plant and Machinery or Equipment Enterprise does not exceed One Crore rupees and turnover does not exceed Five crore rupees; Small Where the investment in Plant and Machinery or Equipment Enterprise does not exceed Ten crore rupees and turnover does not exceed Fifty crore rupees; Medium Where the investment in Plant and Machinery or Equipment does Enterprise not exceed Fifty crore rupees and turnover does not exceed Two hundred and fifty crore rupees. C. Composite criteria of investment and turnover for classification: i. A composite criterion of investment and turnover shall apply for classification of an enterprise as micro, small or medium. ii. If an enterprise crosses the ceiling limits specified for its present category in either of the two criteria of investment or turnover, it will cease to exist in that category CREDIT CIRCULAR No. 26/24: MSME POLICY_2024-25 Page 6 of 23  DAKSHIN BIHAR GRAMIN BANK CREDIT DEPARTMENT, HEAD OFFICE and be placed in the next higher category but no enterprise shall be placed in the lower category unless it goes below the ceiling limits specified for its present category in both the criteria of investment as well as turnover. iii. All units with Goods and Services Tax Identification Number (GSTIN) listed against the same Permanent Account Number (PAN) shall be collectively treated as one enterprise and the turnover and investment figures for all of such entities shall be seen together and only the aggregate values will be considered for deciding the category as micro, small or medium enterprise. D. Calculation of investment in plant and machinery or equipment: i. The calculation of investment in plant and machinery or equipment will be linked to the Income Tax Return (ITR) of the previous years filed under the Income Tax Act, 1961. ii. In case of a new enterprise, where no prior ITR is available, the investment will be based on self-declaration of the promoter of the enterprise and such relaxation shall end after the 31st March of the financial year in which it files its first ITR. iii. The expression ‘’plant and machinery or equipment’’ of the enterprise, shall have the same meaning as assigned to the plant and machinery in the Income Tax Rules, 1962 framed under the Income Tax Act, 1961 and shall include all tangible assets (other than land and building, furniture and fittings). iv. The purchase (invoice) value of a plant and machinery or equipment, whether purchased first hand or second hand, shall be taken into account excluding Goods and Services Tax (GST), on self-disclosure basis, if the enterprise is a new one without any ITR. v. The cost of certain items specified in the Explanation I to sub-section (1) of section 7 of the Act shall be excluded from the calculation of the amount of investment in plant and machinery. E. Calculation of turnover: i. Exports of goods or services or both, shall be excluded while calculating the turnover of any enterprise whether micro, small or medium, for the purposes of classification. ii. Information as regards turnover and exports turnover for an enterprise shall be linked to the Income Tax Act or the Central Goods and Services Act (CGST Act) and the GSTIN. iii. The turnover related figures of such enterprise which do not have PAN will be considered on self-declaration basis for a period up to 31st March, 2021 and thereafter, PAN and GSTIN shall be mandatory. In case of an upward change in terms of investment in plant and machinery or equipment or turnover or both, and consequent re-classification, an enterprise will maintain its prevailing status till expiry of one year from the close of the year of registration. In case of reverse-graduation of an enterprise, whether as a result of re- classification or due to actual changes in investment in plant and machinery or equipment or turnover or both, and whether the enterprise is registered under the Act CREDIT CIRCULAR No. 26/24: MSME POLICY_2024-25 Page 7 of 23  DAKSHIN BIHAR GRAMIN BANK CREDIT DEPARTMENT, HEAD OFFICE or not, the enterprise will continue in its present category till the closure of the financial year and it will be given the benefit of the changed status only with effect from 1st April of the financial year following the year in which such change took place. Other aspects relating to registration of enterprises, grievance redressal, etc. are mentioned in the Gazette Notification dated June 26, 2020. F. Becoming a micro, small or medium enterprise.- i. Any person who intends to establish a micro, small or medium enterprise may file Udyam Registration online in the Udyam Registration portal, based on self- declaration with no requirement to upload documents, papers, certificates or proof. ii. On registration, an enterprise (referred to as ―Udyam‖ in the Udyam Registration portal) will be assigned a permanent identity number to be known as ―Udyam Registration Number. iii. An e-certificate, namely, ―Udyam Registration Certificate‖ shall be issued on completion of the registration process. G. Registration of enterprises: I. The form for registration shall be as provided in the Udyam Registration portal. II. There will be no fee for filing Udyam Registration. III. Aadhaar number shall be required for Udyam Registration. IV. The Aadhaar number shall be of the proprietor in the case of a proprietorship firm, of the managing partner in the case of a partnership firm and of a karta in the case of a Hindu Undivided Family (HUF). V. In case of a Company or a Limited Liability Partnership or a Cooperative Society or a Society or a Trust, the organisation or its authorised signatory shall provide its GSTIN and PAN along with its Aadhaar number. VI. In case an enterprise is duly registered as an Udyam with PAN, any deficiency of information for previous years when it did not have PAN shall be filled up on self- declaration basis. VII. No enterprise shall file more than one Udyam Registration: Provided that any number of activities including manufacturing or service or both may be specified or added in one Udyam Registration. VIII. Whoever intentionally misrepresents or attempts to suppress the self-declared facts and figures appearing in the Udyam Registration or updation process shall be liable to such penalty as specified under section 27 of the Act. IX. Classification / re-classification of MSMEs is the statutory responsibility of the GoI, Ministry of MSME, as per the provisions of the MSMED Act, 2006. X. As per para 2 of the said Gazette notification all enterprises are required to register online and obtain ‘Udyam Registration Certificate’. All lenders may, therefore, obtain ‘Udyam Registration Certificate ’from the entrepreneurs. CREDIT CIRCULAR No. 26/24: MSME POLICY_2024-25 Page 8 of 23  DAKSHIN BIHAR GRAMIN BANK CREDIT DEPARTMENT, HEAD OFFICE XI. Value of Plant and Machinery or Equipment The online form for Udyam Registration captures depreciated cost as on 31st March each year of the relevant previous year. Therefore, the value of Plant and Machinery or Equipment for all purposes of the Notification dated June 26, 2020 and for all the enterprises shall mean the Written Down Value (WDV) as at the end of the Financial Year as defined in the Income Tax Act and not cost of acquisition or original price, which was applicable in the context of the earlier classification criteria. Registration of existing enterprises.- I. All existing enterprises registered under EM–Part-II or UAM shall register again on the Udyam Registration portal on or after the 1 st day of July, 2020. II. All enterprises registered till 30th June, 2020, shall be re-classified in accordance with this notification. III. The existing enterprises registered prior to 30th June, 2020, shall continue to be valid only for a period up to the 30th June, 2020. IV. An enterprise registered with any other organisation under the Ministry of Micro, Small and Medium Enterprises shall register itself under Udyam Registration. H. Updation of information and transition period in classification. i. An enterprise having Udyam Registration Number shall update its information online in the Udyam Registration portal, including the details of the ITR and the GST Return for the previous financial year and such other additional information as may be required, on selfdeclaration basis. ii. Failure to update the relevant information within the period specified in the online Udyam Registration portal will render the enterprise liable for suspension of its status. iii. Based on the information furnished or gathered from Government’s sources including ITR or GST return, the classification of the enterprise will be updated. iv. In case of graduation (from a lower to a higher category) or reverse-graduation (sliding down to lower category) of an enterprise, a communication will be sent to the enterprise about the change in the status. v. In case of an upward change in terms of investment in plant and machinery or equipment or turnover or both, and consequent re-classification, an enterprise will maintain its prevailing status till expiry of one year from the close of the year of registration. vi. In case of reverse-graduation of an enterprise, whether as a result of re- classification or due to actual changes in investment in plant and machinery or equipment or turnover or both, and whether the enterprise is registered under the Act or not, the enterprise will continue in its present category till the closure of the financial year and it will be given the benefit of the changed status only with effect from 1st April of the financial year following the year in which such change took place. CREDIT CIRCULAR No. 26/24: MSME POLICY_2024-25 Page 9 of 23  DAKSHIN BIHAR GRAMIN BANK CREDIT DEPARTMENT, HEAD OFFICE I. Addition of Retail & Wholesale Traders: It has been decided by the Government to include Retail & Wholesale Traders as MSMEs and they are allowed to be registered on Udyam Registration Portal. However, benefits to Retail and Wholesale trade MSMEs are to be restricted to Priority Sector Lending only. It has been communicated vide Ministry of MSME, GoI, vide letter no. 5/2(2)/2021-E/P&G/Policy(E-19025) dated 02.07.2021. Accordingly, the list of eligible additional activities under for Retail and Wholesale trade under NIC Code 45, 46 and 47 are as under: NIC Code Description Wholesale and Retail trade and repair of motor vehicle and motor 45 cycles 46 Wholesale trade except of motor vehicles and motor cycles 47 Retail trade except of motor vehicles and motor cycles The Udyam Registration is allowed for above three NIC Codes and activities mentioned against them. The enterprises having Udyam Aadhaar Memorandum (UAM) under above three NIC Codes are now allowed to migrate to Udyam Registration Portal or they can file Udyam Registration afresh. H. Two or more undertaking under the same ownership - Status of the unit Since the MSMED Act, 2006 does not provide for clubbing of investments of different enterprises set up by same person / company for the purpose of classification as Micro, Small and Medium enterprises, the Gazette Notification No. S.O.2 (E) dated January 1, 1993 on clubbing of investments of two or more enterprises under the same ownership for the purpose of classification of industrial undertakings as SSI has been rescinded vide GOI Notification No. S.O. 563 (E) dated February 27, 2009 *********************************** CREDIT CIRCULAR No. 26/24: MSME POLICY_2024-25 Page 10 of 23  DAKSHIN BIHAR GRAMIN BANK CREDIT DEPARTMENT, HEAD OFFICE 3. Classification & Target A. Classification In terms of RBI Circular No. RBI/FIDD/2020-21/72 Master Directions FIDD.CO.Plan.BC.5/04.09.01/2020-21 dated 04.09.20120 on „Priority Sector Lending - Targets and Classification‟, Bank loans to Micro, Small and Medium Enterprises, for both Manufacturing and Service sectors are eligible to be classified under the Priority Sector without any credit cap. 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. Bank loans to food and agro processing units shall form part of agriculture. Other Finance to MSMEs i. Loans up to ₹50 crore to Start-ups, as per definition of Ministry of Commerce and Industry, Govt. of India that confirm to the definition of MSME as per Para 9. ii. Loans to entities involved in assisting the decentralized sector in the supply of inputs and marketing of output of artisans, village and cottage industries. In respect of UCBs, the term “entities” shall not include institutions to which UCBs are not permitted to lend under the RBI guidelines / the legal framework governing their functioning. iii. Loans to co-operatives of producers in the decentralized sector viz. artisans, village and cottage industries (Not applicable for UCBs). iv. Loans sanctioned by banks to NBFC-MFIs and other MFIs (Societies, Trusts etc.) which are members of RBI recognised SRO for the sector for on-lending to MSME sector as per the conditions specified in paragraph 21 of these Master Directions (not applicable to RRBs, SFBs and UCBs) v. Loans to registered NBFCs (other than MFIs) for on-lending to Micro & Small Enterprises as per conditions specified in para 22 of these Master Directions (not applicable to RRBs, SFBs and UCBs) vi. 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). vii. Overdraft to Pradhan Mantri Jan-Dhan Yojana (PMJDY) account holders as per limits and conditions prescribed by Department of Financial Services, Ministry of Finance from time to time, will qualify as achievement of the target for lending to Micro Enterprises. viii. Outstanding deposits with SIDBI and MUDRA Ltd. on account of priority sector shortfall. To ensure that MSMEs do not remain small and medium units merely to remain eligible for priority sector status, the MSME units will continue to enjoy the priority sector lending status up to three years after they grow out of the MSME category concerned. B. Targets for MSME Lending Advances to Micro, Small and Medium Enterprises (MSME) sector shall be reckoned in computing achievement under the overall Priority Sector target of 75 percent of Adjusted Net Bank Credit (ANBC) or credit equivalent amount of Off-Balance Sheet CREDIT CIRCULAR No. 26/24: MSME POLICY_2024-25 Page 11 of 23  DAKSHIN BIHAR GRAMIN BANK CREDIT DEPARTMENT, HEAD OFFICE Exposure, whichever is higher, as per the extant guidelines on priority sector lending. Further, in terms of the recommendations of the Prime Minister‟s Task Force on MSMEs, banks are advised to achieve: (i) 20 per cent year-on-year growth in credit to micro and small enterprises. (ii) 10 per cent annual growth in the number of micro enterprise accounts and (iii) 60% of total lending to MSE sector as on preceding March 31st to Micro enterprises. As per RBI stipulation the target fixed for the Micro Sector in MSE is as below: Category Sub- Targets Micro 7.5% of ANBC or Credit Equivalent Amount of Off- Enterprises Balance Sheet Exposure, whichever is higher. *********************************** CREDIT CIRCULAR No. 26/24: MSME POLICY_2024-25 Page 12 of 23  DAKSHIN BIHAR GRAMIN BANK CREDIT DEPARTMENT, HEAD OFFICE 4. Other Guideline A. Processing Fee and Upfront Fee for MSE borrower: The processing fee (including upfront fee and processing fee for review of term loan) is not to be charged in case of fresh /enhancement /renewal /adhoc/short review for credit limits (including Fund Based and Non Fund based) upto Rs. 5 Lacs to MSE borrowers. However, processing fee for credit limits above Rs 5 lacs (including upfront fee and processing fee for review of term loan etc.) shall be as per Bank‟s schedule of service charges. B. Delayed Payment: In the Micro, Small and Medium Enterprises Development (MSMED), Act 2006, the provisions of the Interest on Delayed Payment Act, 1998 to Small Scale and Ancillary Industrial Undertakings, have been strengthened as under where penal provisions have been incorporated to take care of delayed payments to MSME units.  In case the buyer fails to make payment on or before the date agreed on between him and the supplier in writing or, in case of no agreement before the appointed day, the agreement between seller and buyer shall not exceed more than 45 days.  In case the buyer fails to make payment of the amount to the supplier, he shall be liable to pay compound interest with monthly rests to the supplier on the amount from the appointed day or, on the date agreed on, at three times of the Bank Rate notified by Reserve Bank.  For any goods supplied or services rendered by the supplier, the buyer shall be liable to pay the interest as advised at (ii) above.  In case of dispute with regard to any amount due, an MSME unit can approach the Micro and Small Enterprises Facilitation Council, constituted by the respective State Government under the Ministry of Micro, Small Enterprises.  Further, banks have been advised to fix sub‐limits within the overall working capital limits to the large borrowers specifically for meeting the payment obligation in respect of purchases from MSMEs. C. Financial literacy and consultancy to the Micro and Small Enterprises Sector: Keeping in view the high extent of financial exclusion in the MSME sector, their heavy dependence on the non-institutional sources for the funding needs at a very high cost and lack of dignity/clarity; it is imperative that the excluded units are brought within the fold of the formal banking sector. The role of the Financial Literacy Centres (FLCs) and Bank Branches to handhold the MSE Units. D. Empowered Committee on MSMEs: As part of the announcement made by the Union Finance Minister, at the Regional Offices of Reserve Bank of India, Empowered Committees on MSMEs have been constituted under the Chairmanship of the Regional Directors with the representatives of SLBC Convenor, senior level officers from two banks having predominant share in MSME financing in the state, representative of SIDBI Regional Office, the Director of Industries of the State Government, one or two senior level representatives from the MSME/SSI Associations in the state, and a senior level officer from SFC/SIDC as members. The Committee meets periodically and reviews the progress in MSME financing as also rehabilitation of sick Micro, Small and Medium units. *********************************** CREDIT CIRCULAR No. 26/24: MSME POLICY_2024-25 Page 13 of 23  DAKSHIN BIHAR GRAMIN BANK CREDIT DEPARTMENT, HEAD OFFICE 5. Common Guidelines / Instructions for Lending to MSME Sector A. Loan Application Form: Bank‟s approved Application Form and documents as per the checklist is to be obtained from all MSME borrowers irrespective of limit requested. However, additional information, required for processing the proposal, may be obtained as annexure. Wherever scheme specific application form is prescribed the same should be obtained. Photograph of the Borrower: For the purpose of identification of borrowers, branches themselves should make arrangements for the photographs. Cost of photographs of borrowers falling in the category of Weaker Sections should be borne by the bank. Issue of Acknowledgement of Loan Applications: All Branch/Cluster Offices are advised to mandatorily acknowledge all loan applications, submitted manually or online, by their MSME borrowers and ensure that a running serial number is recorded on the application form as well as on the acknowledgement receipt. (Separate guideline has been issued in this regard). Disposal of Loan Application: The time frame for disposal of loan applications of MSE borrowers in line with BCSBI- Code of Bank‟s Commitment to Micro and Small Enterprises (MSE) is as under. (time limit start from the date of submission of complete information/data by the applicant) Credit Limits Time Schedule (Max.) Up to Rs. 2 lakh 2 Weeks Above Rs.2 lakh &up to Rs.50 Lakh 4 weeks Above Rs.50 lakh &up to Rs.100 Lakh 5-6 weeks Above Rs.100 lakh &up to Rs.10 Crore 6-7 weeks Register of Receipt/Sanction/Rejection of Applications:  A register should be maintained at branch wherein the date of receipt, sanction/rejection/disbursement with reasons thereof etc., should be recorded for all the Applications received by the Branches for their consideration as and when received.  Rejection of application for fresh limit/enhancement of existing limits should not be done without the approval of next higher authority.  Sanction of reduced limits should be reported to the next higher authority immediately with full details for review and confirmation  The reason for rejection should be communicated in writing to the borrower within the period stipulated for disposal in line with stipulation mentioned in the Fair Practice Lenders Code. Type of Loan / Facility: The Bank provide all types of fund based and non-fund based facilities to the borrower under this sector viz. Term Loan, Cash Credit, Overdraft facility, Bank guarantee, etc. CREDIT CIRCULAR No. 26/24: MSME POLICY_2024-25 Page 14 of 23  DAKSHIN BIHAR GRAMIN BANK CREDIT DEPARTMENT, HEAD OFFICE B. Margin Requirement In case of MSME advances where Scheme specific margins have not been prescribed, the following margin norms would be applicable: WORKING CAPITAL FACILITIES Against stocks of raw material, components, spares, stores, material in process and finished goods. a) Cash Credit (Hyp.) I. Upto Rs. 2.00 lakh: NIL II. Above Rs.2 lakh & upto Rs.5 lakh: 15% III Above Rs.5 lakh: 20% b) Cash Credit (Pledge) : 15% c) Cash Credit (Book Debts) I. Limits upto Rs.5 lakh : 20% II. Above Rs. 5 lakh : 25% d) Bills for collection ABC limits covering RRs and MTRs of IBA approved transporters : 20% Govt. supply bills : 10% Against existing : 25% unencumbered machinery Against Selective Credit Control Commodities margin is to be maintained as per RBI/ Bank’s guidelines issued from time to time MEDIUM TERM LOAN Land and building for factory, plant and machinery I. Upto Rs. 2.00 lakh: NIL II. Above Rs.2 lakh & upto Rs 5 lakh: 5% III. Above Rs.5 lakh: 20% For purchase of old machinery Minimum life of 5 years. (In case of old generator sets, it should not be older than three years) : 25%* Deferred payment guarantees : 25%* Where subsidy/margin money is available from Govt. and/or other agencies and is not less than 15% of loan amount it should serve as margin and no fresh margin should be asked for. C. Primary Security  Hypothecation of entire Assets i.e. Stock, Book Debts, P&M, Equipment, Vehicles etc. created out of Bank finance (present and future).  Mortgage of Project Land with existing / future construction thereon (for Loan above Rs. 10.00 Lakh). However if Mortgage of Project Land (with existing / future construction thereon) is not possible in favour of Bank, bank may accept other 100% Collateral security. CREDIT CIRCULAR No. 26/24: MSME POLICY_2024-25 Page 15 of 23  DAKSHIN BIHAR GRAMIN BANK CREDIT DEPARTMENT, HEAD OFFICE D. Collateral Security: In respect of MSME advances, where collateral security/3rd party guarantee norms have been categorically mentioned the security norms under that specific scheme to be followed. However, where no specific collateral security norms have been prescribed, the endeavour should be to adequately secure the advance by obtaining minimum of 100% collateral security, to the satisfaction of sanctioning authority and to safe guard Bank’s interest. Further, the scheme specific discretionary powers for relaxation in collateral security vested at various levels would be applicable as mentioned in Scheme Specific guidelines. Other Parameters:  While considering proposals under MSME sector, the book debt up to six months may be treated as current assets, for the purpose of computation of permissible bank finance and drawing power calculation.  In regard to age of the book debts, banks credit policy is to be referred.  All book debts more than 180 days are to be treated as Non-current asset.  All the applicable charges including review/renew for MSME loans above Rs.5.00 lakhs are to be guided by Bank‟s Policy on Service Charges.  Following will be guided by CREDIT policy of the Bank issued from time to time.  Applicable rate of interest  Loan review mechanisms  Pre and Post sanction inspection, its frequency and charges etc.  Monitoring of the Loans including submission of QIS/MCR etc.  Requirement of External rating Report/TEV report/Due Diligence report /Charges on Penal Interest and other charges  Periodicity for submission of Stock Statement, calculation of Drawing Power (DP) and requirement of its Authentication/Verification by CA if any.  Applicable Penal Charges for MSME loans  Criteria on eligibility of accounts under Stock Audit  As per Companies Act, close relative covers : Father, mother (including step mother), son (including step son), son's wife, daughter (including step daughter), son's son, son's son's wife, son's daughter, son's daughter's husband, daughter's husband, daughter's son, daughter's son's wife, daughter's daughter, daughter's daughter's husband, brother (including step brother), brother's wife, sister (including step sister), wife/husband and sister's husband.  Any other Regulatory guideline for financing MSME loans is also applicable as per guidelines issued by respective department. Note: I. No collateral security is required for Term Loan portion, in case Primary Security is in the shape of Land or Land & Building. Further, Residual value of land & building (charged as primary security) over and above 135% of the total exposure shall be treated as collateral security for credit facility/ies, other than Term Loan. II. In all cases(other than proprietary concerns), personal guarantee of the Promoters / Partners / Promoter Directors of the firm/company will be mandatorily obtained. Corporate guarantee of holding company wherever applicable to be obtained. CREDIT CIRCULAR No. 26/24: MSME POLICY_2024-25 Page 16 of 23  DAKSHIN BIHAR GRAMIN BANK CREDIT DEPARTMENT, HEAD OFFICE III. Extension of Charge over security for other accounts Respective sanctioning authority is empowered for permitting as under: a. Property already mortgaged in any existing loans, may be extended in this scheme subject to availability of residual realizable value(after carving out135% of the RV of the security of the existing exposure or as per security coverage norms of the scheme (whichever is higher) under which existing facility has been sanctioned). b. Property charged in this scheme may be extended to cover any other facility to the extent of spill over available i.e. property value in excess of 135% of the exposure. IV. Equipment’s / Commercial Vehicles to existing business loan borrowers No Collateral Security/ Credit Guarantee Coverage under CGTMSE/CGSSI shall be obtained from our existing business loan borrowers for financing Equipment’s /Commercial Vehicles, which requires registration with RTO, with the following conditions/ checks:  Existing account of the Borrowers be classified as Standard regular as on date of sanction of loan under this scheme.  Existing account has never remained SMA2/ NPA in the past six months.  Borrower’s account has never been settled/written off in the past, excluding Credit Card facility. However, HOCAC I & above may waive this condition on case to case basis. D. Credit Appraisal and Due-Diligence Appraisal-cum-Processing Format: For appraisal cum processing of MSME loans, Bank‟s approved format by the CREDIT/Credit department is to be followed. a. Processing of Applications (i) Loan applications should be processed upon exercising proper due diligence and identification of the borrower. (ii) CIR Reports of the MSME Entrepreneurs (Both personal and commercial) should be extracted. Each item in the Report is to be critically analysed and after full satisfaction, loan proposal is to be sanctioned. (iii) Though, it is the primary responsibility of the borrowers to find out the genuineness of the supplier of machinery etc. (for which we are funding), whether they are the authorized dealers/supplier of the manufacturer, whether adequate service facilities are available in the near vicinity, Branches are also required to verify the veracity of the invoices, on the basis of which the disbursement orders are issued. The branches have to satisfy themselves by making discreet inquiries about the suppliers, in whose name the disbursement is to be released, by telephone calls, on-line verification, visits etc. The disbursement is to be preferably released in the bank account of the supplier whose details are also to be verified from the respective banks. (iv) At the time of disbursement of the limits, the Borrowers are to be properly guided about the mode of repayment, mode of maintaining the account (more specifically for cash credit account), timely submission of stock statements, renewal of insurance of the assets, deposition of NCGTC/CGTMSE Annual Service fee in applicable cases, realization of any other charges, submission of audited CREDIT CIRCULAR No. 26/24: MSME POLICY_2024-25 Page 17 of 23  DAKSHIN BIHAR GRAMIN BANK CREDIT DEPARTMENT, HEAD OFFICE accounts and any other terms and condition as given in the offer letter etc. These also have to be clearly spelt in the sanction letter along with all other normal conditions. This is required as mostly the MSME entrepreneurs are not acquainted with the banking practices. (v) To adhere to the above instruction meticulously all possible measures at all stages of credit delivery i.e. Pre-sanction inspection. Appraisal, Post disbursement monitoring to avoid chances of misuses by unscrupulous borrowers so that the end use of fund is ensured at all stages by inspection of assets created immediately after disbursement and later on a regular monthly basis. (vi) Proper identification of the Enterprises, verification of applicant(s) and his/her/their antecedents in accordance with KYC Norms/Guidelines, their experience in the proposed line of activity, educational and social background, technical/ professional competence, integrity, initiatives, etc. (vii) Checking out for Willful Defaulters' List of RBI, Specific Approval List (SAL) of ECGC, CIR reports individuals as well as commercial etc. (viii) The acceptability of the product manufactured, its market demand/ supply position, market competition, marking arrangement, etc. (ix) Evaluation of State and Central Govt. Policies (enabling environment) with specific reference to the Enterprise in question, Environmental stipulations, availability of necessary infrastructure-roads, power, labor, raw material and markets. (x) Techno-economic Appraisal / Requirement of TEV report for loan proposals of above prescribed limit which is to be guided by CREDIT policy of the Bank. (xi) Project Cost, the Proponent's own financial contribution, projections for corresponding period of project, and other important parameters which would include the BEP, liquidity, solvency, and profitability ratios, etc. b. Working Capital Assessment To sustain the business payment cycle every unit needs a working capital based on the period within which it is expected to recover its dues from the buyer. This is a very critical area of lending which is based on the existing cash flow, if any, and/ or the projected cash flow. This analysis is to be made discreetly as per the three methods discussed below: i) Turnover method – For loan upto Rs.5.00 Cr. A. Turnover Method where the borrower that made more than or equal to 75% transactions Digitallysuch as cheques, DD, Pos. The Working Capital requirement shall be assessed based on 37.50% of annual turnover based upon realistic projection. Bank shall fix the limit to the extent of 30%, keeping the prescribed margin of 7.50%. If the margin available is higher, WC limit shall be reduced accordingly. B.Turnover Method where the borrower that made transactions non digital i.e. less than 75% transactions through digital mode. The Working Capital requirement shall be assessed based on 31.25% of realistic projected annual turnover. Bank shall fix the limit to the extent of 25%, keeping the prescribed margin of 6.25%. If the margin available is higher, WC limit shall be reduced accordingly. Standard Operating Procedure (SOP) for digital transaction: CREDIT CIRCULAR No. 26/24: MSME POLICY_2024-25 Page 18 of 23  DAKSHIN BIHAR GRAMIN BANK CREDIT DEPARTMENT, HEAD OFFICE  Digital Transactions: All sales transitions reflected in bank books other than cash and paper based instruments like cheques, DD, Posetc should be considered.  Assessment of limit on digital portion of projected turnover should be based on past and current trends.  In case, the actual digital transaction is below 75% of the accepted digital sales then credit limit assessed at 30% should be restored to 25%. Note: All the fresh accounts i.e. first time borrower is to be treated at par with non-digital i.e. less than 75% transactions through digital mode. ii) MPBF (Maximum Permissible Bank Finance) method – In case of fund based working capital limit above Rs.5.00 crore, the MPBF(2nd method) of assessment of working requirement will continue with minimum projected margin of 25 % total buildup of current asset, which translate to the desirable level of current ratio of 1.33:1. iii) Cash Budget method – As per this method if working capital requirement is more than Rs. 5 Cr., assessments should be carried out under cash budget method especially where the borrower is engaged as contractor or revenue is recognized on progressive billing basis, etc. Under this method, the peak level cash deficit will be the level of total working capital finance to be extended to the borrower. The peak level cash deficit will be ascertained from the projected Cash Budget statement submitted by the borrower. The cash budget statement would comprise of projected receipts and payments for the next 12 months on account of business operations including advance payment, mobilization advance, non-business operations, cash flow from capital accounts and other sundry items. Cash budget system should be followed for certain industry like tea, sugar mill, cold storage, Brick Field and information technology sector. c. Term Loan assessment I. Term loan may be for normal capital expenditure, acquisition of fixed assets, expansion of existing operational facilities etc. II. Maximum duration of loans including of moratorium period should be upto 10 years, based on cash flow. Relaxation may be allowed in the line of lending policy and as per Scheme specific products of MSMEs. III. Moratorium period should be considered depending on requirement of the project / proposal. Generally Moratorium period should be 6 to 12 months under different schemes depending upon the project profitability. However, in deserving cases, i.e. in the event of delay in the execution of project and/or due to circumstances beyond the control of the promoter, Regional Officer may extend the repayment period up to 12 months only on the merits of each case keeping in view the cash generating capacity of the unit and the life of the machinery. Interest debited during this period be treated as long term funding of project and installments after moratorium period be fixed accordingly. IV. The technical feasibility and economic, financial, commercial viability, Managerial competence, environment viability and bank-ability of the proposal with reference to risk should be assessed. CREDIT CIRCULAR No. 26/24: MSME POLICY_2024-25 Page 19 of 23  DAKSHIN BIHAR GRAMIN BANK CREDIT DEPARTMENT, HEAD OFFICE V. Disbursement of term loan should be made , upon compliance of all pre- disbursement formalities, phase wise as per draw-down schedule maintaining stipulated margin, preferably directly to the supplier, as per as practicable. Proper end-use of disbursed fund is to be ensured. VI. Repayment schedule should be fixed taking into account the sustenance requirements, surplus generating capacity, breakeven point, life of the asset, etc., and not in an “ ad hoc” manner. VII. Other parameters and benchmark financial ratios like, TOL/TNW, Debt equity Ratio, Current Ratio, DSCR, etc. should be in line with the Bank‟s lending policy. Non Fund Limits The non-fund limits are sanctioned as per need-based requirements of the borrower. The proposals for non-fund facilities should be dealt with same diligence as in case of funded limits. d. Due Diligence One peculiarity associated with MSME sector is that a major chunk of them are single owner run or family run businesses. It could take the shape of proprietorship or partnership, but generally unregistered. Proper due diligence in borrower selection assumes paramount importance. The due diligence exercise should inter alia cover the following aspects  KYC formalities (identification & address verification through generally accepted documents).  Checking of CIR Reports (to be done annually at the time of review).  Verification RBI / ECGC defaulters' list / SAL.  Search in records of Registrar of Companies (RoC).  Verification of PAN.  Educational qualifications, experience, skills.  Employment / business details.  Scrutiny of existing Bank Accounts / borrowing if any  Family background, social reputation, standing/duration in the business.  Market reports.  Interview of the borrower and compliance of KYC norms.  Financial Statements/Data submitted by the borrower.  Integrity of the borrower  Track record with special emphasis on servicing/repayment/ restructuring history.  Report from existing bankers.  Scrutiny of RBI Willful / Defaulters' (Non-Suit Rs.1 Crore& above) List/ CIR/SAL List/RBI‟s Caution List/List of NPA Borrowers of the Bank.  Behavior of Payment history of electricity bill and telephone bill to be checked. e. Benchmark parameters for New Proposals including (Takeover cases with or without enhancement), existing proposals (renewal / enhancement / reduction): Facilities to be sanctioned to the units are to be financially assessed based on their past/current years‟ performance (in case of existing units), future projections etc. The parameters are various benchmark financial ratios like TOL/TNW, Debt equity Ratio, Current Ratio, DSCR, etc.The benchmark parameters shall be applicable for CREDIT CIRCULAR No. 26/24: MSME POLICY_2024-25 Page 20 of 23  DAKSHIN BIHAR GRAMIN BANK CREDIT DEPARTMENT, HEAD OFFICE New Proposals including (Takeover cases with or without enhancement), existing proposals (renewal / enhancement / reduction). Approved benchmark ratios are guided by IRMD circular on the Benchmark ratios issued from time to time. f. Review of the Accounts Credit facilities sanctioned to borrowers are subjected to annual review as per the prevailing guidelines. While reviewing the loan accounts following statements including financials statements of the unit are to be taken and analysed:-  Satisfactory repayment history (in case of term loan), Credit Summation/Business Turn over/Interest servicing (cash credit), No invocation history (Non fund based Facilities)  Satisfactory periodic inspection of the unit/Business establishment vis-à-vis what has been envisaged while appraising/sanctioning the loan.  Adequacy of securities, drawing power, insurance coverage etc.  Rectification of inspection irregularities (other than non-submission of financial statements)  Compliance of all terms and conditions of previous sanction  Satisfactory trend in production and /or Sales as per projections  Documentations and mortgages in the account being complete, valid and enforceable  Prompt payment of bills under LCs, realization of BP/BDs, Guarantee Commission etc.  Submission of Income Tax / GST returns filed with Statutory Authority as per time schedule prescribed, wherever applicable (which will also indicate about the sales and profitability of the operations). The Audited financial statements should, however, be obtained within 6 months from the date of Balance Sheet and satisfied upon by the sanctioning authority on financial parameters emerging out of the Balance Sheet/ Profit and Loss Account submitted by the borrowers at a later date. If the financial parameters emerging from the submitted Balance Sheet are not found satisfactory, appropriate actions, as may be warranted, should be initiated. E. Other Streamlining flow of credit to Micro and Small Enterprises (MSEs) for facilitating timely and adequate credit flow during their „Life Cycle‟: RBI has advised to review and tune their existing lending policies to the MSE sector by incorporating therein the following provisions so as to facilitate timely and adequate availability of credit to viable MSE borrowers especially during the need of funds in unforeseen circumstances: I. To extend standby credit facility in case of term loans II. Additional working capital to meet with emergent needs of MSE units III. Mid-term review of the regular working capital limits, where banks are convinced that changes in the demand pattern of MSE borrowers require increasing the existing credit limits of the MSMEs, every year based on the actual sales of the previous year. IV. Timelines for Credit Decisions Government Initiative to promote MSMEs CREDIT CIRCULAR No. 26/24: MSME POLICY_2024-25 Page 21 of 23  DAKSHIN BIHAR GRAMIN BANK CREDIT DEPARTMENT, HEAD OFFICE a. PMEGP Loans:-Khadi and Village Industries Commission (KVIC), an implementing agency of PMEGP has introduced a new online portal from 01.07.2016 for the processing of PMEGP applications, i.e. from filling applications to margin money sanction. Margin Money subsidy funds will be disbursed directly to financing bank branches by the single nodal bank i.e. Corporation Bank. Detailed guidelines of the scheme has been issued separately. The maximum cost of the project/unit admissible in manufacturing sector is ₹ 50 lakhs and in the business/service sector, it is ₹ 20 lakhs. Beneficiary’s Rate of Subsidy (of Categories of beneficiaries under PMEGP contribution (of project cost) project cost) Area (location of project/unit) Urban Rural General Category 10% 15% 25% Special (including SC / ST / OBC /Minorities/Women, Ex-servicemen, 5% 25% 35% Physically handicapped, NER, Hill and Border areas etc. b. MUDRA Loans: Pradhan Mantri Mudra Yojana was launched on 08th April 2015 to “fund the unfunded” by bringing such enterprises to the formal financial system and extending affordable credit up to Rs.10 lakh. Earlier, MUDRA loans were specially branded loans under MSE category with a maximum limit upto Rs.10.00 lac. However, the Department of Financial Services, Ministry of Finance, Government of India has broaden the scope and coverage of Mudra Loan decided to cover activities allied to Agriculture and Services under Pradhan Mantri Mudra Yojana (PMMY)from the FY 2016-17 and onward. Loans under PMMY are classified as under: Scheme Loan Limit Shishu For loans uptoRs 50,000/- Kishore For above Rs 50,000/- and uptoRs 5 lakh Tarun For Loans above Rs 5 lakh and uptoRs 10 lakh c. Stand Up India Scheme:- Stand Up India Scheme has been launched on 5th April, 2016 by Hon‟ble Prime Minister. The objective of the Stand-Up India scheme is to facilitate bank loans above Rs. 10.00 lakh and upto Rs.100.00 lakh to at least one Scheduled Caste (SC) or Scheduled Tribe (ST) borrower and at least one woman borrower per bank branch for setting up a greenfield (New) enterprise. This enterprise may be in manufacturing, services or the trading sector. In case of non-individual enterprises at least 51% of the shareholding and controlling stake should be held by either an SC/ST or Woman entrepreneur. Loans sanctioned under the scheme may be secured by collateral or covered under Credit Guarantee Fund Scheme for Stand-Up India Loans (CGFSIL) as decided by the banks. d. PMSVANidhi Scheme:- Ministry of Housing and Urban Affairs have launched “PM street vendor's AtmaNirbhar Nidhi (PM SVANidhi)” scheme, which is a special Micro-credit facility for providing affordable loan to street vendors, to resume their livelihoods, who have been adversely affected due to COVID – 19 lockdown. The “PM SVANidhi” scheme CREDIT CIRCULAR No. 26/24: MSME POLICY_2024-25 Page 22 of 23  DAKSHIN BIHAR GRAMIN BANK CREDIT DEPARTMENT, HEAD OFFICE targets to benefit over 50 lakh street vendors, who had been vending on or before 24.03.2020 in urban areas. The scheme has been launched by the bank on 12.08.2020. In addition to this, Ministry of Housing & Urban Affairs (MoHUA) has further issued guidelines to provide an enhanced loan (2nd tranche of ₹20,000.00 and 3rd tranche of ₹50,000.00) to PM SVANidhi beneficiaries on timely repayment of earlier loan under PM SVANidhi Scheme. F. INSURANCE AGAINST FIRE AND OTHER RISKS All the securities mortgaged or hypothecated to the Bank should be kept fully insured against fire and other risks, which may be considered necessary. The insurance policies should be in the joint names of the borrower and the Bank with the agreed Bank clause and remain in the custody of the Bank. a) Where IP is mortgaged to the Bank as Primary Security In respect of IP mortgaged to the bank as primary security, Risk Coverage Policy equivalent to reconstruction cost of the property excluding land cost instead of full market value should be obtained. b) Where IP is mortgaged to the Bank as Collateral Security In respect of IP mortgaged to the bank as collateral security, Risk Coverage Policy equivalent to full market value excluding land cost should be obtained. BMs should ascertain by reviewing on an ongoing basis that the adequate coverage of insurance is available for reconstruction cost/ market value (as the case may be) at all times as the cost may increase during the period of insurance policy. The value of property for arriving at insurance premium is to be based on rate of construction of the building as per PWD rates for that particular region and the same is suitably loaded for extra fittings and fixtures, superior construction and other relevant details. In fire insurance, building above the plinth and foundation is covered. However, when the policy is extended to cover the risk of earthquake, then the cost of plinth and foundation can be included in the sum insured. *********************************** CREDIT CIRCULAR No. 26/24: MSME POLICY_2024-25 Page 23 of 23