- A Micro enterprise is an enterprise where investment in plant and machinery does not exceed Rs. 25 lakh.
- A small enterprise is an enterprise where the investment in plant and machinery does not exceed Rs. 25 lakh but does not exceed Rs. 5 crore.
- A medium enterprise is an enterprise where the investment in plant and machinery is more than Rs. 5 crore but does not exceed Rs. 10 crore.
In case of the above enterprises, investment in plant and machinery is the original cost excluding land and building and the items specified by the Ministry of Small Scale Industries. Enterprises engaged in providing or rendering of services and whose investment in equipment (original cost excluding land and building and furniture, fittings and other items not directly related to the service rendered or as may be notified under the MSMED Act, 2006) are specified below.
- A micro enterprise is an enterprise where the investment in equipment does not exceed Rs. 10 lakh.
- A small enterprise is an enterprise where the investment in equipment is more than Rs. 10 lakh but does not exceed Rs. 2 crore.
- A medium enterprise is an enterprise where the investment in equipment is more than Rs. 2 crore but does not exceed Rs.5 crore.
Q.2. What is the status of lending by banks to this sector ?
Ans :- Bank’s lending to the Micro and Small enterprises engaged in the manufacture or production of goods specified in the first schedule to the Industries (Development and regulation) Act, 1951 and notified by the crore per borrower/unit to Micro and Small Enterprises engaged in providing or rendering of services and defined in terms of investment in equipment under MSMED Act, 2006 are eligible to be considered for of priority sector advances. Lending to Medium enterprises is not eligible to be included for the purpose of computation of priority sector lending.
Q.3. What is meant by Priority Sector Lending ?
Ans :- Priority sector lending include only those sectors as part of the priority sector, that impact large sections of the population, the weaker sections and the sectors which are employment –intensive such as agriculture, and Micro and Small enterprises.
Q.4. Are there any targets prescribed for lending by banks to MSMEs
Ans :- As per currednt policy, certain targets have been prescribed for banks for lending to the Micro9 and Small enterprise(MSE) sector. In terms of the recommendations of the Prime Minister’s Task Force on MSMEs(Chairman: Shri T.K.A.Nair, Principal Secretary), banks have been advised to achieve a 20 per cent year-on-year growth in credit to micro and small enterprises, a 10 per cent annual growth in the number of micro enterprise accounts and 60 % of total lending to MSE sector as on preceding March 31st to Micro enterprises. In order to ensure that sufficient credit is available to micro enterprises within the MSE sector, banks should ensure that : 40 per cent of the total advances to MSE sector should go to micro (manufacturing) enterprises having investment in plant and machinery up to Rs. 10 lakh and micro (service) enterprises having investment in equipment up to Rs. 4 lakh : 20 per cent of the total advances to MSE sector should go to micro (manufacturing) enterprises with investment in plant and machinery above Rs. 10 lakh and up to Rs.25 lakh, and micro(service) enterprises with investment in equipment above Rs. 4 lakh and up to Rs. 10 lakh. Thus. 60 per cent of MSE advances should go to the micro enterprises.
Q.5. What is Cluster financing ?
Ans:- Cluster based approach to lending is intended to provide a full-service approach to cater to the diverse needs of the MSE sector which may be achieved through extending banking services to recognized MSE Clusters. A cluster based approach may be more beneficial,
- In dealing with well-defined and recognized groups.
- Availability of appropriate information for risk assessment.
- Monitoring by the lending institutions.
- Reduction in costs.
The banks have, therefore, been advised to treat it as a thrust area and increasingly adopt the same for SME financing. United Nations Industrial Development Organisation (UNIDO) has identified 388 clusters spread over 21 states in various parts of the country. The Ministry of Micro, Small and Medium Enterprises has also approved a list of clusters under the Scheme of Fund for Regeneration of Traditional Industries (SFURTI)and Micro and Small Enterprises Cluster Development Programme (MSE-CDP) located in 121 Minority Concentration District . Accordingly, banks have been advised to take appropriate measures to improve the credit flow to the identified clusters. Banks have also been advised that they should open more MSE focussed branch offices at different MSE clusters which can also act as counseling centres for MSEs. Each lead bank of the district may adopt at least one cluster.
Q.6. What are the RBI guidelines on interest rates for loans disbursed by the commercial banks ?
Ans :- As part of the financial sector liberalization, all credit related matters of banks including charging of interest have been deregulated by RBI and are governed by the bank’s own lending policies. With a view to enhancing transparency in lending rates of banks and enabling better assessment of transmission of monetary policy, all scheduled commercial banks had been advised to introduce the Base Rate system w.e.f. July 1, 2010. Accordingly, the Base Rate System has replaced the BPLR system with effect from July 1, 2010. All categories of loans should henceforth be priced only with reference to the Base Rate.
Q.7. Can the MSE borrowers get collateral free loans from banks?
Ans :- Banks are instructed not to accept collateral security in the case of loans upto Rs. 10 lakh extended to units in the MSE sector. Banks may, on the basis of good track record and financial position of MSE units, increase the limit of dispensation of collateral requirement for loans up to Rs. 25 lakh with the approval of the appropriate authority.
Q.8. What is Credit Guarantee Fund Trust Scheme for MSEs ?
Ans:- The Ministry of MSME, Government of India and SIDBI set up the Credit Guarantee Fund Trust for Micro and Small Enterprises(CGTMSE) with a view to facilitate glow of credit to the MSE sector without the need for collaterals/third party guarantees. The main objective of the scheme is that the lender should give importance to project viability and secure the credit facility purely on the primary security of the assets financed, The Credit Guarantee scheme (CGS) Seeks to reassure the lender that, in the event of a MSE unit , which availed collateral-free credit facilities, fails to discharge its liabilities to the lender, the Guarantee Trust would make good the loss incurred by the lender up to 85 per cent of the outstanding amount in default. The CGTMSE would provide cover for credit facility up to Rs. 100 lakh which have been extended by lending institutions without any collateral security and/o third party guarantees. A guarantee and annual service fee is charged by the CGTMSE to avail of the guarantee cover. Presently the guarantee fee and annual service charges are to be borne by the borrower.
Q.9. What is the definition of a sick unit ?
Ans :- As per the extant guidelines, a Micro or Small Enterprise (as defined in the MSMED Act 2006) may be said to have become sick, if Any of the borrowal account of the enterprise remains NPA for three months or more OR There is erosion in the net worth due to accumulated losses to the extent of 50 % of its net worth during the previous accounting year. The criteria will enable banks to detect sickness at an earlyh stage and facilitate corrective action for revival of the unit.
Q.10. What are the RBI guidelines on One Time Settlement (OTS) for MSEs for settlement of their NPAs ?
Ans :- Scheduled commercial banks have been advised to put in place a non-discretionary, one time settlement scheme duly approved by their Boards. The banks have also been advised to give adequate publicity to their OTS policies.
Q.11. Apart from the loans and other banking facilities, do the banks provide any guidance to MSE entrepreneurs ?
Ans :- Yes. Banks provide following services to the MSE entrepreneurs :- Rural Self Employment Training Institutes (RSETIs) At the initiative of the Ministry of Rural Development (MoRD), Rural Self Employment Training Institutes (RSETIs) have been set up by various banks all over the country. These RSETIs are managed by banks with active co-operation from the Government of India and State Governments. RSETIs conduct various short duration (ranging preferably from 1 to 6 weeks ) skill upgradation programmers to help the existing entrepreneurs compete in this ever-changing global market. RSETIs ensure that a list of candidates trained by them is sent to all bank branches of the area and co-ordinate with them for grant of financial assistance under any Govt. sponsored scheme or direct lending. Financial Literacy and consultancy support : Banks have been advised to either separately set up special cells at their branches, or vertically integrate this function in the Financial Literacy Centres (FLCs) set up by them, as per their comparative advantage. Through these FLCs, banks provide assistance to the MSE entrepreneurs in regard to financial literacy, operational skills, including accounting and finance, business planning etc.