Export Finance
Export Finance : Funds advanced by a lending institution (such as an exportimport
bank or trade development bank) against confirmed orders from qualified foreign
buyers to enable the exporter to make and supply ordered goods. Usually, the exporter
arranges a commitment from the buyer to make the payment directly to the lender.
Upon receipt of payment the lender deducts the loan amount plus interest and other
charges and forwards the balance to the exporter.
RBI and DGFT::
RBI controls Foreign Exchange and DGFT (Directorate General of Foreign
Trade) controls Foreign Trade. Exim Policy as framed in accordance with
FEMA is implemented by DGFT. DGFT functions under direct control of
Ministry of Commerce and Industry. It regulates Imports and Exports
through EXIM Policy.
On the other hand, RBI keeps Forex Reserves, Finances Export trade and
Regulates exchange control. Receipts and Payments of Forex are also
handled by RBI.
IEC - Importer Exporter Code::
One has to apply for IEC to become eligible for Imports and Exports. DGFT
allots IEC to Exporters and Importers in accordance with RBI guidelines
and FEMA regulations. EXIM Policy is also considered before allotting IEC.
Export
Declaration
Form
All exports (physically or otherwise) shall be declared in the following Form.
1. GR form--- meant for exports made otherwise than by post.
2. PP Form---meant for exports by post parcel.
3. Softex form---meant for export of software.
4. SDF (Statutory Declaration Form)----replaced GR form in order to
submit declaration electronically.
SDF is submitted in duplicate with Custom Commissioned who puts its
stamp and hands over the same to exporter marked “Exchange Control
Copy” for submission thereof to AD.
Exemptions
• Up to USD 25000 (value) – Goods or services as declared by the
exporter.
• Trade Samples, Personal effects and Central Govt. goods.
• Gift items having value up to Rs. 5.00 lac.
• Goods with value not exceeding USD 1000 value to Myanmar.
• Goods imported free of cost for re-export.
• Goods sent for testing.
ADs may consider waiver for export of goods free of cost for export
promotion up to 2% of average annual exports of previous 3 years subject
to ceiling of Rs. 5.00 lac. The limit is Rs. 10.00 lac for Status Holder
Exporters.
Prescribed Time limits::
The time norms for export trade are as under:
• Submission of documents with “Exchange Control Copy” to AD
within 21 days from date of shipment.
• Time period for realization of Export proceeds is has been reduced
to 9M for all types of exports including exports to SEZ (Special
economic zones), SHE(Status Holder Exporters) and 100%EOUs.
Previously, the time period was 12Months for SEZs and SHEs.
• For, Exports to Warehouse established outside India, as soon as it
is realized and in any case within fifteen months from the date of
shipment of goods
• After expiry of time limit, extension is sought by Exporter on ETX
Form. The AD can extend the period by 6M.
However, reporting will be made to RBI on XOS Form on half yearly basis
in respect of all overdue bills which remained outstanding for more than
prescribed period or the bills which are overdue
Direct Dispatch
of Shipping
Documents::
AD banks may handle direct dispatch of shipping documents provided
export proceeds are up to USD 1 Million and the exporter is regular
customer of at least 6 months.
Advance Payments::
Exporters may receive advance payments from their overseas importers
provided:
• Shipment is made within 1 year from receipt of advance.
• Rate of interest payable should not exceed LIBOR+100 bps.
• Documents are routed through AD from which advance was routed.
Prescribed
Method of
payment and
Reduction in
export proceeds
Exporter will receive payment though any of the following mode:
• Bank Drafts, TC, Currency, FCNR/NRE deposits, International
Credit Card. But the proceeds can be in Indian Rupees from Nepal
and Bhutan.
• Export proceeds from ACU countries can be settled in ACU/EURO
or ACU/Dollar. A separate Dollar/Euro account is maintained which
is denominated as ACU Dollar or ACU EURO.
ACU – Asian Clearing Union was formed in Tehran, Iran in 1974 and it
comprises of following 9 countries as members.
India, Bangladesh, Bhutan, Myanmar, Iran, Pak, Srilanka, Nepal and
Maldives.
Exporters may be allowed to reduce the export proceeds with the following:
• Reduction in Invoice value on account of discount for pre-payment
of Usance bills (maximum 25%)
• Agency commission on exports.
• Claims against exports.
• Write off the unrecoverable export dues up to maximum limit of 10%
of export value.
The proceeds of exports can be got deposited by exporter in any of the
following account:
1. Overseas Foreign Currency account.
2. Diamond Dollar account.
3. EEFC (Exchange Earners Foreign Currency account)
DDA _ diamond Dollar accounts
Diamond Dollar account can be opened by traders dealing in Rough and
Polished diamond or Diamond studded Jewellary with the following
conditions:
1. With track record of 2 years.
2. Average Export turnover of 3 crores or above during preceding 3
licensing years.
DDA account can be opened by the exporter for transacting business in
Foreign Exchange. An exporter can have maximum 5 Diamond Dollar
accounts.
EEFC Exchange Earners Foreign Currency accounts can be opened by exporters.
100% export proceeds can be credited in the account which does not earn
interest but this amount is repatriable outside India for imports (Current
Account transactions).
Pre-shipment
Finance or
Packing Credit::
Packing credit has the following features:
1. Calculation of FOB value of order/LC amount or Domestic cost of
production (whichever is lower).
2. IEC allotted by DGFT.
3. Exporter should not be on the “Caution List” of RBI.
4. He should not be under “Specific Approval list” of ECGC.
5. There must be valid Export order or LC.
6. Account should be KYC compliant.
Liquidation of Pre-shipment credit
• Out of proceeds of the bill.
• Out of negotiation of export documents.
• Out of balances held in EEFC account
• Out of proceeds of Post Shipment credit.
Concessional rate of interest is allowed on Packing Credit up to 270
days. Previously, the period was 180 days. Running facility can also be
allowed to good customers.
Post Shipment
Finance::
Post shipment finance is made available to exporters on the following
conditions:
• IEC accompanied by prescribed declaration on GR/PP/Softex/SDF
form must be submitted.
• Documents must be submitted by exporter within 21 days of
shipment.
• Payment must be made in approved manner within 6 months.
• Normal Transit Period is 25 days.
• The margin is NIL normally. But in any case, it should not exceed
10% if LC is there otherwise it can be up to 25%.
Types of Post Shipment Finance:
• Export Bills Purchased for sights bills and Discounting for Usance
bills.
• Export bills negotiation.
Discrepancies of Documents
Late Shipment, LC expired, Late presentation of shipping documents, Bill
of Lading not signed properly, Incomplete Bill of Lading, Clause Bill of
Lading , Short Bill of Lading or Inadequate Insurance.
Advance against Un-drawn Balance
Undrawn balance is the amount less received from Importers. Bank can
finance up to 10% undrawn amount up to maximum period of 90 days.
Advance against Duty Drawback
Duty drawback is the support by Government by way of refund of
Excise/Custom duty in case the domestic cost of the product is higher than
the Price charged from the importer. This is done to boost exports despite
international competition. Bank can make loan to exporter against Duty
Drawback up to maximum period of 90 days.
GATS Credit can be afforded to exporters of all the 161 services covered under
GATS “General Agreement on Trade in Services”. The provisions
applicable to export of goods apply mutatis mutandis to export of services.
Crystallization of
Overdue Bills
Consequent upon non-realization, Conversion of Foreign Exchange liability
into Rupees is called crystallization. It is done on 30th day from notional
due date at prevailing TT selling rate or Original Bill Buying Rate
(Whichever is higher).
DA Bills
Notional due date is calculated in DA Bill by adding normal period of transit
i.e. 25 days in the Usance period. 30th day is taken from notional due date.
DP Bills
30th day after Normal Transit Period
If 30th day happens to be holiday or Saturday, liability will be
crystallized on the following working day.
Policy has been liberalized and crystallization period will be decided by
individual banks.
Export of
services
Credit can be provided to exporters of all 161 tradable services covered
under GATS (General Agreement on Trade in services) where payment for
such services is received in Forex. The provisions applicable to export of
goods apply to export of services.
Gold Card
Scheme
All exporters in Small and Medium Sector with good track record are
eligible to avail Gold Card Scheme. The conditions are :
1. Account should be classified as Standard assets for the last 3
years.
2. Limit is sanctioned for 3 years and thereafter automatic renewal.
3. There is provision of 20% Standby limit.
4. Packing Credit is allowed in Foreign currency.
5. Concessional rate is allowed for 90 days initially which can be
extended for 360 days.
6. Bank may waive collateral and provide exemption from ECGC
Guarantee schemes.
7.Factoring and
Forfaiting
Factoring is financing and collection of Receivables. The client sells
Receivables at discount to Factor in order to raise finance for Working
Capital. It may be with or without recourse. Factor finances about 80%
and balance of 20% is paid after collection from the borrower. Bill should
carry LR/RR. Maximum Debt period permitted is 150 days inclusive of
grace period of 60 days. Debts are assigned in favour of Factor. There are
2 factors in International Factoring. One is Export Factor and the other is
Import Factor. Importer pays to Import factor who remits the same to Export
Factor.
Forfaiting is Finance of Export Receivables to exporter by the Forfaitor. It
is also called discounting of Trade Receivablessuch as drafts drawn under
LC, B/E or PN.It is always No Recourse Basis (i.e. without recourse to
exporter). Forfaitor after sending documents to Exporters‟ Bank makes
100% payment to exporter after deducting applicable discount. Maximum
period of Advance is 180 days.
Priority Sector – RBI Guidelines
The need for commercial banks to improve Priority Sector advances was emphasized
since 1968 with special focus on Agriculture and Small Scale industries. Initially there
was no specific target fixed in respect of priority sector lending but in the year 1974
banks were advised to raise the share of these sectors to 1/3rd of their aggregate
advances by March 1979. Subsequently, on the basis of the recommendations of the
Working Group on the Modalities of Implementation of Priority Sector Lending and
the Twenty Point Economic Programme by Banks under the chairmanship of Dr. K. S.
Krishna swamy, all commercial banks were advised to achieve the target of priority
sector lending at 40% of aggregate bank advances with specified sub-targets for
lending to agriculture and weaker sections. The Internal Working Group of the RBI
headed by Shri C. S. Murthy and the Shri Y.H.Malegam committee constituted to
study issues and concerns in the Micro Finance institutions (MFI) sector, inter alia,
had recommended review of the guidelines on priority sector lending. Subsequently,
RBI has setup a Committee headed by Shri M V Nair to re-examine the existing
classification and suggest revised guidelines with regard to Priority Sector lending
classification and related issues. Subsequently, an Internal Working Group was set
up by RBI in July 2014 to revisit the existing priority sector lending guideline and
accordingly, revised guidelines are issued on 23.04.2015 which is as under:
1. Agriculture: The present distinction between direct and indirect agriculture is
dispensed with. The lending to agriculture has been defined which includes Farm
sector, Agriculture infrastructure and Ancillary activities. List of eligible activities
under each category are furnished here under:
i) Farm Credit: Loans to individual farmers, including SHGs/JLGs directly engaged
in agriculture and allied activities such as dairy, fishery, animal husbandry, poultry,
bee-keeping and sericulture. The credit facilities to the above segments covers crop
loans as well as term loans. Loans to farmers up to `50 lakh against
pledge/hypothecation of agriculture produce for a period not exceeding 12 months. It
also covers loans to corporate farmers, farmers’ producer organizations, partnership
firms and co-operatives of farmers.
ii) Agriculture infrastructure: Loans for construction of storage facilities
(warehouses, market yards and silos) including cold storage units irrespective of
their location. Soil conservation, watershed development programs, plant tissue
culture, agri-biotechnology, seed production, production of bio-pesticides, biofertilizer
and vermi composting are also cover under this category. To consider under
priority, the aggregate sanction limit per borrower should not exceed `100 lakhs
from the banking system.
iii) Ancillary activities: It covers, loans for setting up of Agri-clinics, Agri Business
Centres, Food and Agro processing units (not exceeding `100 crore per borrower),
loans to PACS, FSS, MFIs for on-lending to agriculture sector, and loans to cooperative
societies of farmers up to `500 lakh for disposing of the produce of
members. Outstanding deposits under RIDF and other eligible funds with NABARD on
account of priority sector shortfall is considered as part of agriculture lending.
2. Micro, Small and Medium Enterprises: Manufacturing Enterprises are those
engaged in manufacturing or production of goods. These are defined in terms of
investment in Plant & Machinery. Loans extended to Medium Manufacturing
Enterprises shall be classified as Priority Sector advances. Similarly, Service
Enterprises are the enterprises engaged in providing or rendering of services. These
are defined in terms of investment in Equipment. The modified definitions of MSM
Enterprises are as under:
No Category Investment in Plant & Machinery / Equipment
Manufacturing Service
1 Micro Enterprise Up to `25 lakhs Up to `10 lakhs
2 Small Enterprise `25 to `500 lakhs `10 to 200 lakhs
3 Medium Enterprise `500 to `1000 lakhs `200 to 500 lakhs
Bank loans to Micro, Small and Medium enterprises, for both manufacturing and
service sectors are eligible to be classified under the priority sector. However, bank
loans up to `500 lakh per unit to Micro and Small enterprises and `1000 lakh to
Medium enterprises engaged in providing or rendering services are covered under
priority sector advances. All loans sanctioned to units in the Khadi and Village
Industries (KVI) sector, irrespective of their size of operations, location and amount
of original investment in plant & machinery. Such advances will be eligible for
consideration under the sub-target of 7% / 7.5% prescribed for Micro enterprises
under priority sector.
3. Housing Loans: Loans to individuals up to `28 lakh in metropolitan centres (with
population of ten lakh and above) and loans up to `20 lakh in other centres for
purchase/construction of a dwelling unit per family provided the overall cost of the
dwelling unit in the metropolitan centre and at other centres should not exceed `35
lakh and `25 lakh respectively. However, housing loans to banks’ own employees will
be excluded. As housing loans which are backed by long term bonds are exempted
from ANBC, banks should either include such housing loans to individuals up to `28
lakh in metropolitan centres and `20 lakh in other centres under priority sector or
take benefit of exemption from ANBC, but not both. Further, housing loans to the
following are also treated as priority sector:
_ Loans for repairs to damaged dwelling units of families up to `5 lakh in
metropolitan centres and up to `2 lakh in other centres.
_ Bank loans to any governmental agency for construction of dwelling units or
for slum clearance and rehabilitation of slum dwellers subject to a ceiling of
`10 lakh per dwelling unit.
_ Loans sanctioned for housing projects exclusively for the purpose of
construction of houses only to economically weaker sections and low income
groups, the total cost of which does not exceed `10 lakh per dwelling unit, will
qualify for priority sector status. However, the family income of the borrower
should not exceed `2 lakh per annum irrespective of location.
_ Loans to Housing Finance Companies (HFC), for on-lending for the purpose of
purchase/construction/reconstruction of individual dwelling units or for slum
clearance and rehabilitation of slum dwellers, subject to an aggregate loan
limit of `10 lakh per borrower, provided the all inclusive interest rate (Interest
rate, processing fee and service charges). However, this segment should not
exceed five percent of the individual bank’s total priority sector, on an
ongoing basis. The maturity of bank loans should be co-terminus with
average maturity of loans extended by HFCs. Banks should maintain
necessary borrower-wise details of the underlying portfolio.
_ Outstanding deposits with NHB on account of priority sector shortfall.
_ Bank loans up to a limit of `5 crore per borrower for building social
infrastructure for activities namely schools, health care facilities, drinking
water facilities and sanitation facilities in Tier II to Tier VI centres.
4. Education Loans: Loans to individuals for education purposes including
vocational courses up to `10 lakh in India and `20 lakh for abroad studies
irrespective of the sanctioned amount will be considered as eligible for priority
sector.
5. Social Infrastructure: Bank loans up to a limit of `5 crore per borrower for
building social infrastructure for activities namely schools, health care facilities,
drinking water facilities and sanitation facilities in Tier II to Tier VI centres.
6. Renewable Energy: Bank loans up to a limit of `15 crore to borrowers for
purposes like solar based power generators, biomass based power generators, wind
mills, micro-hydel plants and for non-conventional energy based public utilities viz.
street lighting systems, and remote village electrification. For individual households,
the loan limit will be `10 lakh per borrower.
7. Weaker Sections: Priority sector loans to the following borrowers will be
considered under weaker sections category:
No Category
1. Small and Marginal Farmers
2. Artisans, village and cottage industries where individual credit limits do
not exceed `1 lakh
3.
Beneficiaries under Government Sponsored Schemes such as National
Rural Livelihoods Mission (NRLM), National Urban Livelihood Mission
(NULM) and Self Employment Scheme for Rehabilitation of Manual
Scavengers (SRMS)
4. Scheduled Castes and Scheduled Tribes
5. Beneficiaries of Differential Rate of Interest (DRI) scheme
6. Self Help Groups
7. Distressed farmers indebted to non-institutional lenders
8. Distressed persons other than farmers, with loan amount not exceeding
`1 lakh per borrower to prepay their debt to non-institutional lenders
9. Individual women beneficiaries up to `1 lakh per borrower
10. Persons with disabilities
11.
Overdrafts up to `5000/- under Pradhan Mantri Jan Dhan Yojana(PMJDY)
accounts, provided the borrowers’ household annual income does not
exceed `100,000/- for rural areas and `1,60,000/- for non-rural areas
12. Minority communities as may be notified by Government of India from
time to time
8. Investments by banks in securitised assets, representing loans to various
categories of priority sector, except 'others' category, are eligible for classification
under respective categories of priority sector.
9. Transfer of Assets through Direct Assignment/Outright purchases by
banks representing loans under various categories of priority sector, except the
'others' category, will be eligible for classification under respective categories of
priority sector.
10. Bank credit to MFIs extended for on-lending to individuals and also to
members of SHGs / JLGs will be eligible for categorisation as priority sector advance
under respective categories viz., Agriculture, Micro, Small and Medium Enterprises,
and 'Others', as indirect finance, provided not less than 85 percent of total assets of
MFI (other than cash, balances with banks and financial institutions, government
securities and money market instruments) are in the nature of “qualifying assets”. In
addition, aggregate amount of loan, extended for income generating activity, should
be not less than 50 percent of the total loans given by MFIs. “Qualifying asset” shall
mean a loan disbursed by MFI, which satisfies the following criteria:
_ The household annual income of the borrower in rural areas does not exceed
`1 lakh while for non-rural areas it should not exceed `1.60 lakh.
_ Loan does not exceed `60,000/- in the first cycle and `1 lakh in the
subsequent cycles. Tenure of loan is not less than 24 months when loan
amount exceeds `15000/- with right to borrower of prepayment without
penalty.
_ Total indebtedness of the borrower does not exceed `1 lakh.
_ The margin cap should not exceed 10 percent for MFIs having loan portfolio
exceeding `100 crore and 12 percent for others. With effect from April 1,
2014, interest rate on individual loans will be the average Base Rate of five
largest commercial banks by assets multiplied by 2.75 per annum or cost of
funds plus margin cap, whichever is less.
The banks should obtain from MFI, at the end of each quarter, a Chartered
Accountant’s Certificate stating, inter-alia, that the criteria on qualifying assets, the
aggregate amount of loan, extended for income generation activity, and pricing
guidelines are followed.
Factoring - Reserve Bank has included factoring transactions under priority sector
lending with an aim to increase cash flow to small and medium enterprises. Factoring
transactions on 'with recourse' basis shall be eligible for priority sector classification.
Factoring is a type of financial transaction and debtor finance in which a business
sells its invoices to a third party, called a factor, at a discount. TReDS is an
exchange-based trading platform to facilitate financing of bills raised by such small
entities to corporate and other buyers, including government departments and PSUs,
by way of discounting. Factoring through TReDS shall also be eligible for
classification under priority sector upon operationalisation of the platform.
Differential Rate of Interest Scheme (DRI): The target stipulated for lending
under DRI scheme is 1% of previous year total advances of the Bank. The existing
loan limit is increased from `6500/- to `15000/- and the housing loan limit is also
increased from `5000/- to `20000/-. The borrower’s family income eligibility criteria
is revised to `18000/- & `24000/- p.a. for Rural & Semi-Urban/Urban areas
respectively. The interest rate on DRI loans is 4% p.a. simple interest at half-yearly
rests. At least two third of DRI advances should be granted through rural/semi-urban
branches. 40% of DRI advances should go to SC/ST. 2/3rd of total DRI lending is to
be routed through Rural and Semi Urban branches. Branches can assist the
handicapped/disabled persons for acquiring aids, appliances and equipment needed
especially by students for pursuing studies and vocational training – example Braille
Typewriters for blind etc.
Classification of Farmers
Category Irrigated Land Holding Un-irrigated Land Holding
Marginal 1.25 Acres Or 2.5 Acres
Small 2.50 Acres Or 5.0 Acres
Others Above 2.50 Acres Or Above 5 Acres
Credit flow to SC/ST
Scheme Reservation / Relaxation
DRI 40% of Advances. Land holding criteria is not applicable
SGSY 50% of the families assisted
SJSRY Credit to be extended to the extent of their strength in the local
PMEGP p2o2p.5u0la%ti oonf Advances. Age relaxation – 10 Years
Adjusted Net Bank Credit (ANBC): This concept is applicable to Scheduled
Commercial banks, Urban Cooperative Banks and Small Finance Banks. Hitherto,
Priority Sector Lending (PSL) being a percentage of total credit which was not getting
truly reflected for various reasons and hence the, the concept of ANBC has been
introduced. The spirit of the concept is to calculate the total credit as on close of
business of preceding year in a non-discriminatory way so that the banks are neither
unduly benefitted nor adversely penalized. The ANBC is arrived at in a judicious
manner by reducing the quantum of total credit whenever banks did not part with
their own funds and by increasing the same by the quantum of credit which should
have formed part of the credit but had gone to other avenues. The computation of
ANBC = Total credit minus Bills discounted with RBI and other approved financial
institutions plus Bonds/Debentures in Non-SLR categories under HTM category +
other investments eligible to be treated as PSL + outstanding deposits under RIDF
and other eligible funds with NABARD, NHB, SIDBI and Mudra Limited on account of
priority sector shortfall + outstanding PSLCs
Credit Equivalent Amount of Off-Balance Sheet Exposure (CEOBE): Some
banks business models allow them to focus less on credit and more on Off-balance
sheet items such as Letter of Credit, Bank Guarantees, Derivatives, etc. In such
cases, PSL, if calculated on ANBC would be less as off-balance sheet items do not
form part of credit. Hence, PSL in such cases will be computed as a percentage of
CEOBE so that the quantum of PSL does not become casuality
ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is
higher. The additional priority sector lending target of 2% has to be achieved every
year from 2016-17 and reach 40% by 2019-20. To ensure continuous flow of credit
to priority sector, there will be more frequent monitoring of priority sector lending
compliance of banks on ‘quarterly’ basis instead of annual basis as of now.
Scheduled Commercial Banks having any shortfall in lending to priority sector shall
be allocated amounts for contribution to RIDF established with NABARD and other
Funds with NABARD/NHB/SIDBI, as decided by the Reserve Bank from time to time.
Non-achievement of priority sector targets and sub-targets will be taken into account
while granting regulatory clearances/approvals for various purposes.
Priority Sector Lending Certificates (PSLC): Presently, Banks which are short fall
in Priority Sector (PS) lending are investing in Rural Infrastructure Development
Fund (RIDF) of NABARD. However, the yield on such investments is low. To obviate
the above situation, RBI introduced PSLC. The banks who have PS advances more
than the stipulated norm, may issue PSLCs. The banks who contribute to these
certificates can show the amounts subscribed against their PS lending. At the same
time, the bank which has issued the certificate will reduce the amount from their PS
advances. However, there will be no transfer of credit risk on the underlying assets.
The transactions can be done through the CBS portal “e-Kuber” maintained by RBI.
The standard lot size is `25 lakh and multiples thereof and the validity period is 31st
March every year. This is credit positive for banks without expertise in making
priority sector loans because it allows them to focus on their strengths and purchase
credits from banks with expertise in making such loans, instead of diverting their
own resources towards meeting PS lending targets.
Prime Minister Employment Generation Programme (PMEGP): Prime Minister’s
Employment Generation Programme (PMEGP) by merging the two schemes that were
in operation till 31.03.2008 namely Prime Minister’s Rojgar Yojana (PMRY) and Rural
Employment Generation Programme (REGP) for generation of employment
opportunities through establishment of micro enterprises in rural as well as urban
areas. The Scheme will be implemented by Khadi and Village Industries Commission
(KVIC) and the details are as under:
business/service sector is `25 lakh & `10 lakh respectively. The balance amount,
excluding Margin Money/subsidy, will be provided by Banks as term loan.
Any individual above 18 years of age is eligible for the loan. Self Help Groups
(including those belonging to BPL provided that they have not availed benefits under
any other Scheme) are also eligible for assistance under PMEGP. Institutions
registered under Societies Registration Act 1860; Production Co-operative Societies,
and Charitable Trusts. However, existing Units (PMRY / REGP or any other scheme of
Central / State Government) and the units that have already availed Government
Subsidy (including units registered & certified khadi institutions who have availed
subsidy from central/state government) are not eligible.There will be no income
ceiling for assistance for projects under PMEGP. For setting up of project costing
above `10 lakhs in the manufacturing sector and above `5 lakhs in the
business/service sector, the beneficiaries should possess at least VIII standard pass
educational qualification. Assistance is available only for new projects under the
PMEGP. To claim Margin Money (Subsidy), the borrower is required to submit
caste/community certificate or relevant document issued by the competent authority.
In case of institutions, a certified copy of the bye-laws is required. Project cost will
include Capital Expenditure and one cycle of Working Capital. Cost of the land should
not be included in the Project cost. Projects costing more than `5 lakh, which do not
require working capital, need clearance from controlling office
PMEGP is applicable to all new viable micro enterprises, including Village Industries
projects except activities indicated in the negative list of Village Industries.
Existing/old units are not eligible. Only one person from one family is eligible for
obtaining financial assistance for setting up of projects under PMEGP. The ‘family’
includes self & spouse. No collateral security will be insisted upon for projects
involving loan upto `10 lakhs in respect of the projects cleared by the Task Force.
After issuance of the sanction letter by the financing branch, the beneficiary must
have to undergo EDP training (at least 2 weeks) for the purpose of release of funds.
The margin money (subsidy) is to be kept in Term Deposit for three years at branch
level in the name of the beneficiary/Institution. No interest will be paid on the TDR
and no interest will be charged on loan to the corresponding amount. Repayment
schedule may range between 3 to 7 years after an initial moratorium as may be
prescribed by the concerned bank/financial institution. Corporation Bank is acting as
Nodal bank in implementation of PMEGP scheme in the country.
Swarnajayanti Gram Swarojgar Yojana (SGSY): It is a Scheme which is a
restructure of the erstwhile schemes like IRDP, TRYSEM, DOWCRA, SITRA, GKY &
MWS etc., with the objective to bring the assisted poor rural families above poverty
line. The scheme aims at establishing a large number of micro enterprises in the
rural area. The identification of the borrowers will be done by Grama Sabha.
Productive and viable activities under Agriculture & ISB are eligible under this
scheme with 50% coverage by SC/ST, 40% coverage by women and 3% to
Physically Handicapped borrowers. The size of the loan under the scheme would
depend on the nature of the project. The loans under the scheme would be
composite loan comprising of Term Loan and Working Capital. Subsidy admissible is
@ 30% or maximum `7500/- (For SC/ST- 50% or maximum `10000) & for groups –
50% or maximum `1.25 lac (no ceiling for minor irrigation projects). For all
individual loans exceeding one lakh and group loans exceeding `10 lakh, suitable
margin money/other collateral security in the form of insurance policy; marketable
security/deeds of other property etc. may be obtained. The repayment period –
minimum of 5 years and branches should ensure that repayment not to exceed 50%
of incremental income. In the event of unfortunate/untimely death of the borrower,
LIC make payment of `6000/- for natural death and `12000/- for accidental death to
the legal heirs of the borrower. (Cir no. 189 Ref 28/3 dated 2.8.2012)
Self Employment scheme for rehabilitation of Manual Scavengers (SRMS):
The objective of the National Scheme for Liberation and Rehabilitation of Scavengers
and their dependents is to liberate them from their existing hereditary and
obnoxious occupation of manually removing night soil and filth and to provide for
and engage them in alternative and dignified occupations. The Scheme would cover
primarily all scavengers belonging to Scheduled Castes community. Scavengers
belonging to other communities would also be covered. The scheme covers rural
and urban areas and the identification will be done by Ministry of Social Welfare &
National SC/ST financial development corporation. The beneficiaries are eligible for
term loan up to ` 15 lakh and Micro finance up to `25000/- is allowed without any
margin. The loans sanctioned under this scheme are eligible for subsidy @ 50% for
the projects where the unit cost is up to ` 2 lakh and `1 lakh + 33.30% of project
cost between `2 to 5 lakh; `2 lakh + 25% of project cost between 5 to 10 lakh and
`3.25 lakh for projects above `10 lakh. The moratorium period for repayment of loan
is maximum of 2 years. The beneficiaries are eligible for cash assistance of `40000/-
payable in monthly installments of `7000/- after the identification of manual
scavenger. Government provides training to the beneficiaries and pays `3000/- per
month as stipend during training period. Repayment period of the loan is 5 years for
the projects costing up to `5 lakh and 7 years for projects above `5 lakh. Rate of
Interest – For loans up to `25000 @ 4% for women; others 5%. For loans above
`25000/-, the interest rate is @ 6% p.a.
Deendayal Antyodaya Yojana - National Urban Livelihood Mission (DAY –
NULM): The GOI restructured the existing SJSRY and launched the NULM in the year
2013 in all district headquarters and all the cities with population of 1 lakh or more.
The Self Employment Program (SEP) is one of the components of NULM which will
focus on providing financial assistance through a provision of interest subsidy on
loans to support establishment of individual & group enterprises and SHGs of urban
poor. With a view to improving the livelihood of opportunities for the poor in urban
areas, GOI has enhanced the scope of NULM and renamed as “Deendayal Antyodaya
Yojana - National Urban Livelihood Mission (DAY – NULM)” and the salient features
are as under:
Swarna Jayanti Shahari Rojgar Yojana (SJSRY): The objective of the scheme is
to address Urban poverty alleviation, the scheme seeks to provide gainful selfemployment
to the urban poor (living below the urban poverty line) either
unemployed or under employed, through setting up of self-employment ventures or
provision of wage employment. The scheme has components such as Urban self
Employment Programme (USEP), Urban Women Self-help Programme (UWSP), Skill
Training for Employment promotion amongst Urban Poor (STEP-UP), Urban Wage
The defaulter to any nationalized bank / financial institution / cooperative bank is not
eligible to avail loan under SJSRY. The loans granted under this scheme should be
treated as advances under priority sector. The scheme is meant for Urban Poor who
are under below poverty line and aims to cover 30% Women & 3% physically
handicapped and SC & ST borrowers as per proportion to their population. Urban Self
Employment Programme (USEP) – Operational details in regard to Self-Employment
Individual through setting up of Micro-Enterprises
Urban Women Self-Help Programme (UWSP) – Operational details in regard
to self-employment (group) through setting up of Micro-Enterprises
STEP-UP, UWEP & UDCN – Inputs under the scheme would be delivered both
through the medium of community structures to be set up along with Urban Local
Bodies (ULBs) like Community Development Society-CDS/ town-Urban Poverty
Alleviation-UPA Cell.
Rajiv Gruha Kalpa Scheme is meant for Economically Weaker section segment in
Urban areas. The borrowers income should be minimum `2,000/- per month and
maximum `36000/- per annum. The unit cost `75,000/- and the borrower is required
to bring 10% margin and the maximum Bank loan is `67,500 per house. 10%
increase in unit cost is permitted. Site will be allotted by Govt. of A.P. at free of cost.
Interest Rate 8% fixed.
Valmiki Ambedkar Awas Yojana (VAMBAY): Housing Finance Scheme was
launched in Andhra Pradesh on 01.11.2002 with an objective to provide shelter or
upgrade the existing shelter for people below the poverty line and EWS in urban
slums. The ultimate objective of the Scheme is to have “Slum Less Cities”. The
funding pattern is 50% Government, 40% bank Loan and 10% Borrower Margin.
These loans attract interest @ 10% p.a. tripartite agreement between Beneficiary
Bank & APSHCL.
Interest Subsidy Scheme for Housing the Urban Poor (ISHUP) is introduced
by Government of India with an objective to enable the Economic Weaker Sections
(EWS) and Lower Income Group (LIG) segments in the urban areas to construct or
purchase houses by providing an interest subsidy of 5% on loan amount of
maximum `1 lakh. EWS and LIG are defined as households having an average
monthly income up to `5,000 and `5,001 to `10,000 respectively. The borrowers
under the scheme must have a plot of land for the construction or have identified a
purchasable house. The preference under the scheme should be given to
SC/ST/Minorities/Women/persons with disabilities in accordance with their population
in the total population of the area as per 2001 census. The scheme will provide a
subsidized loan for 15-20 years for a maximum amount of `1 lakh for EWS individual
Export Finance : Funds advanced by a lending institution (such as an exportimport
bank or trade development bank) against confirmed orders from qualified foreign
buyers to enable the exporter to make and supply ordered goods. Usually, the exporter
arranges a commitment from the buyer to make the payment directly to the lender.
Upon receipt of payment the lender deducts the loan amount plus interest and other
charges and forwards the balance to the exporter.
RBI and DGFT::
RBI controls Foreign Exchange and DGFT (Directorate General of Foreign
Trade) controls Foreign Trade. Exim Policy as framed in accordance with
FEMA is implemented by DGFT. DGFT functions under direct control of
Ministry of Commerce and Industry. It regulates Imports and Exports
through EXIM Policy.
On the other hand, RBI keeps Forex Reserves, Finances Export trade and
Regulates exchange control. Receipts and Payments of Forex are also
handled by RBI.
IEC - Importer Exporter Code::
One has to apply for IEC to become eligible for Imports and Exports. DGFT
allots IEC to Exporters and Importers in accordance with RBI guidelines
and FEMA regulations. EXIM Policy is also considered before allotting IEC.
Export
Declaration
Form
All exports (physically or otherwise) shall be declared in the following Form.
1. GR form--- meant for exports made otherwise than by post.
2. PP Form---meant for exports by post parcel.
3. Softex form---meant for export of software.
4. SDF (Statutory Declaration Form)----replaced GR form in order to
submit declaration electronically.
SDF is submitted in duplicate with Custom Commissioned who puts its
stamp and hands over the same to exporter marked “Exchange Control
Copy” for submission thereof to AD.
Exemptions
• Up to USD 25000 (value) – Goods or services as declared by the
exporter.
• Trade Samples, Personal effects and Central Govt. goods.
• Gift items having value up to Rs. 5.00 lac.
• Goods with value not exceeding USD 1000 value to Myanmar.
• Goods imported free of cost for re-export.
• Goods sent for testing.
ADs may consider waiver for export of goods free of cost for export
promotion up to 2% of average annual exports of previous 3 years subject
to ceiling of Rs. 5.00 lac. The limit is Rs. 10.00 lac for Status Holder
Exporters.
Prescribed Time limits::
The time norms for export trade are as under:
• Submission of documents with “Exchange Control Copy” to AD
within 21 days from date of shipment.
• Time period for realization of Export proceeds is has been reduced
to 9M for all types of exports including exports to SEZ (Special
economic zones), SHE(Status Holder Exporters) and 100%EOUs.
Previously, the time period was 12Months for SEZs and SHEs.
• For, Exports to Warehouse established outside India, as soon as it
is realized and in any case within fifteen months from the date of
shipment of goods
• After expiry of time limit, extension is sought by Exporter on ETX
Form. The AD can extend the period by 6M.
However, reporting will be made to RBI on XOS Form on half yearly basis
in respect of all overdue bills which remained outstanding for more than
prescribed period or the bills which are overdue
Direct Dispatch
of Shipping
Documents::
AD banks may handle direct dispatch of shipping documents provided
export proceeds are up to USD 1 Million and the exporter is regular
customer of at least 6 months.
Advance Payments::
Exporters may receive advance payments from their overseas importers
provided:
• Shipment is made within 1 year from receipt of advance.
• Rate of interest payable should not exceed LIBOR+100 bps.
• Documents are routed through AD from which advance was routed.
Prescribed
Method of
payment and
Reduction in
export proceeds
Exporter will receive payment though any of the following mode:
• Bank Drafts, TC, Currency, FCNR/NRE deposits, International
Credit Card. But the proceeds can be in Indian Rupees from Nepal
and Bhutan.
• Export proceeds from ACU countries can be settled in ACU/EURO
or ACU/Dollar. A separate Dollar/Euro account is maintained which
is denominated as ACU Dollar or ACU EURO.
ACU – Asian Clearing Union was formed in Tehran, Iran in 1974 and it
comprises of following 9 countries as members.
India, Bangladesh, Bhutan, Myanmar, Iran, Pak, Srilanka, Nepal and
Maldives.
Exporters may be allowed to reduce the export proceeds with the following:
• Reduction in Invoice value on account of discount for pre-payment
of Usance bills (maximum 25%)
• Agency commission on exports.
• Claims against exports.
• Write off the unrecoverable export dues up to maximum limit of 10%
of export value.
The proceeds of exports can be got deposited by exporter in any of the
following account:
1. Overseas Foreign Currency account.
2. Diamond Dollar account.
3. EEFC (Exchange Earners Foreign Currency account)
DDA _ diamond Dollar accounts
Diamond Dollar account can be opened by traders dealing in Rough and
Polished diamond or Diamond studded Jewellary with the following
conditions:
1. With track record of 2 years.
2. Average Export turnover of 3 crores or above during preceding 3
licensing years.
DDA account can be opened by the exporter for transacting business in
Foreign Exchange. An exporter can have maximum 5 Diamond Dollar
accounts.
EEFC Exchange Earners Foreign Currency accounts can be opened by exporters.
100% export proceeds can be credited in the account which does not earn
interest but this amount is repatriable outside India for imports (Current
Account transactions).
Pre-shipment
Finance or
Packing Credit::
Packing credit has the following features:
1. Calculation of FOB value of order/LC amount or Domestic cost of
production (whichever is lower).
2. IEC allotted by DGFT.
3. Exporter should not be on the “Caution List” of RBI.
4. He should not be under “Specific Approval list” of ECGC.
5. There must be valid Export order or LC.
6. Account should be KYC compliant.
Liquidation of Pre-shipment credit
• Out of proceeds of the bill.
• Out of negotiation of export documents.
• Out of balances held in EEFC account
• Out of proceeds of Post Shipment credit.
Concessional rate of interest is allowed on Packing Credit up to 270
days. Previously, the period was 180 days. Running facility can also be
allowed to good customers.
Post Shipment
Finance::
Post shipment finance is made available to exporters on the following
conditions:
• IEC accompanied by prescribed declaration on GR/PP/Softex/SDF
form must be submitted.
• Documents must be submitted by exporter within 21 days of
shipment.
• Payment must be made in approved manner within 6 months.
• Normal Transit Period is 25 days.
• The margin is NIL normally. But in any case, it should not exceed
10% if LC is there otherwise it can be up to 25%.
Types of Post Shipment Finance:
• Export Bills Purchased for sights bills and Discounting for Usance
bills.
• Export bills negotiation.
Discrepancies of Documents
Late Shipment, LC expired, Late presentation of shipping documents, Bill
of Lading not signed properly, Incomplete Bill of Lading, Clause Bill of
Lading , Short Bill of Lading or Inadequate Insurance.
Advance against Un-drawn Balance
Undrawn balance is the amount less received from Importers. Bank can
finance up to 10% undrawn amount up to maximum period of 90 days.
Advance against Duty Drawback
Duty drawback is the support by Government by way of refund of
Excise/Custom duty in case the domestic cost of the product is higher than
the Price charged from the importer. This is done to boost exports despite
international competition. Bank can make loan to exporter against Duty
Drawback up to maximum period of 90 days.
GATS Credit can be afforded to exporters of all the 161 services covered under
GATS “General Agreement on Trade in Services”. The provisions
applicable to export of goods apply mutatis mutandis to export of services.
Crystallization of
Overdue Bills
Consequent upon non-realization, Conversion of Foreign Exchange liability
into Rupees is called crystallization. It is done on 30th day from notional
due date at prevailing TT selling rate or Original Bill Buying Rate
(Whichever is higher).
DA Bills
Notional due date is calculated in DA Bill by adding normal period of transit
i.e. 25 days in the Usance period. 30th day is taken from notional due date.
DP Bills
30th day after Normal Transit Period
If 30th day happens to be holiday or Saturday, liability will be
crystallized on the following working day.
Policy has been liberalized and crystallization period will be decided by
individual banks.
Export of
services
Credit can be provided to exporters of all 161 tradable services covered
under GATS (General Agreement on Trade in services) where payment for
such services is received in Forex. The provisions applicable to export of
goods apply to export of services.
Gold Card
Scheme
All exporters in Small and Medium Sector with good track record are
eligible to avail Gold Card Scheme. The conditions are :
1. Account should be classified as Standard assets for the last 3
years.
2. Limit is sanctioned for 3 years and thereafter automatic renewal.
3. There is provision of 20% Standby limit.
4. Packing Credit is allowed in Foreign currency.
5. Concessional rate is allowed for 90 days initially which can be
extended for 360 days.
6. Bank may waive collateral and provide exemption from ECGC
Guarantee schemes.
7.Factoring and
Forfaiting
Factoring is financing and collection of Receivables. The client sells
Receivables at discount to Factor in order to raise finance for Working
Capital. It may be with or without recourse. Factor finances about 80%
and balance of 20% is paid after collection from the borrower. Bill should
carry LR/RR. Maximum Debt period permitted is 150 days inclusive of
grace period of 60 days. Debts are assigned in favour of Factor. There are
2 factors in International Factoring. One is Export Factor and the other is
Import Factor. Importer pays to Import factor who remits the same to Export
Factor.
Forfaiting is Finance of Export Receivables to exporter by the Forfaitor. It
is also called discounting of Trade Receivablessuch as drafts drawn under
LC, B/E or PN.It is always No Recourse Basis (i.e. without recourse to
exporter). Forfaitor after sending documents to Exporters‟ Bank makes
100% payment to exporter after deducting applicable discount. Maximum
period of Advance is 180 days.
Priority Sector – RBI Guidelines
The need for commercial banks to improve Priority Sector advances was emphasized
since 1968 with special focus on Agriculture and Small Scale industries. Initially there
was no specific target fixed in respect of priority sector lending but in the year 1974
banks were advised to raise the share of these sectors to 1/3rd of their aggregate
advances by March 1979. Subsequently, on the basis of the recommendations of the
Working Group on the Modalities of Implementation of Priority Sector Lending and
the Twenty Point Economic Programme by Banks under the chairmanship of Dr. K. S.
Krishna swamy, all commercial banks were advised to achieve the target of priority
sector lending at 40% of aggregate bank advances with specified sub-targets for
lending to agriculture and weaker sections. The Internal Working Group of the RBI
headed by Shri C. S. Murthy and the Shri Y.H.Malegam committee constituted to
study issues and concerns in the Micro Finance institutions (MFI) sector, inter alia,
had recommended review of the guidelines on priority sector lending. Subsequently,
RBI has setup a Committee headed by Shri M V Nair to re-examine the existing
classification and suggest revised guidelines with regard to Priority Sector lending
classification and related issues. Subsequently, an Internal Working Group was set
up by RBI in July 2014 to revisit the existing priority sector lending guideline and
accordingly, revised guidelines are issued on 23.04.2015 which is as under:
1. Agriculture: The present distinction between direct and indirect agriculture is
dispensed with. The lending to agriculture has been defined which includes Farm
sector, Agriculture infrastructure and Ancillary activities. List of eligible activities
under each category are furnished here under:
i) Farm Credit: Loans to individual farmers, including SHGs/JLGs directly engaged
in agriculture and allied activities such as dairy, fishery, animal husbandry, poultry,
bee-keeping and sericulture. The credit facilities to the above segments covers crop
loans as well as term loans. Loans to farmers up to `50 lakh against
pledge/hypothecation of agriculture produce for a period not exceeding 12 months. It
also covers loans to corporate farmers, farmers’ producer organizations, partnership
firms and co-operatives of farmers.
ii) Agriculture infrastructure: Loans for construction of storage facilities
(warehouses, market yards and silos) including cold storage units irrespective of
their location. Soil conservation, watershed development programs, plant tissue
culture, agri-biotechnology, seed production, production of bio-pesticides, biofertilizer
and vermi composting are also cover under this category. To consider under
priority, the aggregate sanction limit per borrower should not exceed `100 lakhs
from the banking system.
iii) Ancillary activities: It covers, loans for setting up of Agri-clinics, Agri Business
Centres, Food and Agro processing units (not exceeding `100 crore per borrower),
loans to PACS, FSS, MFIs for on-lending to agriculture sector, and loans to cooperative
societies of farmers up to `500 lakh for disposing of the produce of
members. Outstanding deposits under RIDF and other eligible funds with NABARD on
account of priority sector shortfall is considered as part of agriculture lending.
2. Micro, Small and Medium Enterprises: Manufacturing Enterprises are those
engaged in manufacturing or production of goods. These are defined in terms of
investment in Plant & Machinery. Loans extended to Medium Manufacturing
Enterprises shall be classified as Priority Sector advances. Similarly, Service
Enterprises are the enterprises engaged in providing or rendering of services. These
are defined in terms of investment in Equipment. The modified definitions of MSM
Enterprises are as under:
No Category Investment in Plant & Machinery / Equipment
Manufacturing Service
1 Micro Enterprise Up to `25 lakhs Up to `10 lakhs
2 Small Enterprise `25 to `500 lakhs `10 to 200 lakhs
3 Medium Enterprise `500 to `1000 lakhs `200 to 500 lakhs
Bank loans to Micro, Small and Medium enterprises, for both manufacturing and
service sectors are eligible to be classified under the priority sector. However, bank
loans up to `500 lakh per unit to Micro and Small enterprises and `1000 lakh to
Medium enterprises engaged in providing or rendering services are covered under
priority sector advances. All loans sanctioned to units in the Khadi and Village
Industries (KVI) sector, irrespective of their size of operations, location and amount
of original investment in plant & machinery. Such advances will be eligible for
consideration under the sub-target of 7% / 7.5% prescribed for Micro enterprises
under priority sector.
3. Housing Loans: Loans to individuals up to `28 lakh in metropolitan centres (with
population of ten lakh and above) and loans up to `20 lakh in other centres for
purchase/construction of a dwelling unit per family provided the overall cost of the
dwelling unit in the metropolitan centre and at other centres should not exceed `35
lakh and `25 lakh respectively. However, housing loans to banks’ own employees will
be excluded. As housing loans which are backed by long term bonds are exempted
from ANBC, banks should either include such housing loans to individuals up to `28
lakh in metropolitan centres and `20 lakh in other centres under priority sector or
take benefit of exemption from ANBC, but not both. Further, housing loans to the
following are also treated as priority sector:
_ Loans for repairs to damaged dwelling units of families up to `5 lakh in
metropolitan centres and up to `2 lakh in other centres.
_ Bank loans to any governmental agency for construction of dwelling units or
for slum clearance and rehabilitation of slum dwellers subject to a ceiling of
`10 lakh per dwelling unit.
_ Loans sanctioned for housing projects exclusively for the purpose of
construction of houses only to economically weaker sections and low income
groups, the total cost of which does not exceed `10 lakh per dwelling unit, will
qualify for priority sector status. However, the family income of the borrower
should not exceed `2 lakh per annum irrespective of location.
_ Loans to Housing Finance Companies (HFC), for on-lending for the purpose of
purchase/construction/reconstruction of individual dwelling units or for slum
clearance and rehabilitation of slum dwellers, subject to an aggregate loan
limit of `10 lakh per borrower, provided the all inclusive interest rate (Interest
rate, processing fee and service charges). However, this segment should not
exceed five percent of the individual bank’s total priority sector, on an
ongoing basis. The maturity of bank loans should be co-terminus with
average maturity of loans extended by HFCs. Banks should maintain
necessary borrower-wise details of the underlying portfolio.
_ Outstanding deposits with NHB on account of priority sector shortfall.
_ Bank loans up to a limit of `5 crore per borrower for building social
infrastructure for activities namely schools, health care facilities, drinking
water facilities and sanitation facilities in Tier II to Tier VI centres.
4. Education Loans: Loans to individuals for education purposes including
vocational courses up to `10 lakh in India and `20 lakh for abroad studies
irrespective of the sanctioned amount will be considered as eligible for priority
sector.
5. Social Infrastructure: Bank loans up to a limit of `5 crore per borrower for
building social infrastructure for activities namely schools, health care facilities,
drinking water facilities and sanitation facilities in Tier II to Tier VI centres.
6. Renewable Energy: Bank loans up to a limit of `15 crore to borrowers for
purposes like solar based power generators, biomass based power generators, wind
mills, micro-hydel plants and for non-conventional energy based public utilities viz.
street lighting systems, and remote village electrification. For individual households,
the loan limit will be `10 lakh per borrower.
7. Weaker Sections: Priority sector loans to the following borrowers will be
considered under weaker sections category:
No Category
1. Small and Marginal Farmers
2. Artisans, village and cottage industries where individual credit limits do
not exceed `1 lakh
3.
Beneficiaries under Government Sponsored Schemes such as National
Rural Livelihoods Mission (NRLM), National Urban Livelihood Mission
(NULM) and Self Employment Scheme for Rehabilitation of Manual
Scavengers (SRMS)
4. Scheduled Castes and Scheduled Tribes
5. Beneficiaries of Differential Rate of Interest (DRI) scheme
6. Self Help Groups
7. Distressed farmers indebted to non-institutional lenders
8. Distressed persons other than farmers, with loan amount not exceeding
`1 lakh per borrower to prepay their debt to non-institutional lenders
9. Individual women beneficiaries up to `1 lakh per borrower
10. Persons with disabilities
11.
Overdrafts up to `5000/- under Pradhan Mantri Jan Dhan Yojana(PMJDY)
accounts, provided the borrowers’ household annual income does not
exceed `100,000/- for rural areas and `1,60,000/- for non-rural areas
12. Minority communities as may be notified by Government of India from
time to time
8. Investments by banks in securitised assets, representing loans to various
categories of priority sector, except 'others' category, are eligible for classification
under respective categories of priority sector.
9. Transfer of Assets through Direct Assignment/Outright purchases by
banks representing loans under various categories of priority sector, except the
'others' category, will be eligible for classification under respective categories of
priority sector.
10. Bank credit to MFIs extended for on-lending to individuals and also to
members of SHGs / JLGs will be eligible for categorisation as priority sector advance
under respective categories viz., Agriculture, Micro, Small and Medium Enterprises,
and 'Others', as indirect finance, provided not less than 85 percent of total assets of
MFI (other than cash, balances with banks and financial institutions, government
securities and money market instruments) are in the nature of “qualifying assets”. In
addition, aggregate amount of loan, extended for income generating activity, should
be not less than 50 percent of the total loans given by MFIs. “Qualifying asset” shall
mean a loan disbursed by MFI, which satisfies the following criteria:
_ The household annual income of the borrower in rural areas does not exceed
`1 lakh while for non-rural areas it should not exceed `1.60 lakh.
_ Loan does not exceed `60,000/- in the first cycle and `1 lakh in the
subsequent cycles. Tenure of loan is not less than 24 months when loan
amount exceeds `15000/- with right to borrower of prepayment without
penalty.
_ Total indebtedness of the borrower does not exceed `1 lakh.
_ The margin cap should not exceed 10 percent for MFIs having loan portfolio
exceeding `100 crore and 12 percent for others. With effect from April 1,
2014, interest rate on individual loans will be the average Base Rate of five
largest commercial banks by assets multiplied by 2.75 per annum or cost of
funds plus margin cap, whichever is less.
The banks should obtain from MFI, at the end of each quarter, a Chartered
Accountant’s Certificate stating, inter-alia, that the criteria on qualifying assets, the
aggregate amount of loan, extended for income generation activity, and pricing
guidelines are followed.
Factoring - Reserve Bank has included factoring transactions under priority sector
lending with an aim to increase cash flow to small and medium enterprises. Factoring
transactions on 'with recourse' basis shall be eligible for priority sector classification.
Factoring is a type of financial transaction and debtor finance in which a business
sells its invoices to a third party, called a factor, at a discount. TReDS is an
exchange-based trading platform to facilitate financing of bills raised by such small
entities to corporate and other buyers, including government departments and PSUs,
by way of discounting. Factoring through TReDS shall also be eligible for
classification under priority sector upon operationalisation of the platform.
Differential Rate of Interest Scheme (DRI): The target stipulated for lending
under DRI scheme is 1% of previous year total advances of the Bank. The existing
loan limit is increased from `6500/- to `15000/- and the housing loan limit is also
increased from `5000/- to `20000/-. The borrower’s family income eligibility criteria
is revised to `18000/- & `24000/- p.a. for Rural & Semi-Urban/Urban areas
respectively. The interest rate on DRI loans is 4% p.a. simple interest at half-yearly
rests. At least two third of DRI advances should be granted through rural/semi-urban
branches. 40% of DRI advances should go to SC/ST. 2/3rd of total DRI lending is to
be routed through Rural and Semi Urban branches. Branches can assist the
handicapped/disabled persons for acquiring aids, appliances and equipment needed
especially by students for pursuing studies and vocational training – example Braille
Typewriters for blind etc.
Classification of Farmers
Category Irrigated Land Holding Un-irrigated Land Holding
Marginal 1.25 Acres Or 2.5 Acres
Small 2.50 Acres Or 5.0 Acres
Others Above 2.50 Acres Or Above 5 Acres
Credit flow to SC/ST
Scheme Reservation / Relaxation
DRI 40% of Advances. Land holding criteria is not applicable
SGSY 50% of the families assisted
SJSRY Credit to be extended to the extent of their strength in the local
PMEGP p2o2p.5u0la%ti oonf Advances. Age relaxation – 10 Years
Adjusted Net Bank Credit (ANBC): This concept is applicable to Scheduled
Commercial banks, Urban Cooperative Banks and Small Finance Banks. Hitherto,
Priority Sector Lending (PSL) being a percentage of total credit which was not getting
truly reflected for various reasons and hence the, the concept of ANBC has been
introduced. The spirit of the concept is to calculate the total credit as on close of
business of preceding year in a non-discriminatory way so that the banks are neither
unduly benefitted nor adversely penalized. The ANBC is arrived at in a judicious
manner by reducing the quantum of total credit whenever banks did not part with
their own funds and by increasing the same by the quantum of credit which should
have formed part of the credit but had gone to other avenues. The computation of
ANBC = Total credit minus Bills discounted with RBI and other approved financial
institutions plus Bonds/Debentures in Non-SLR categories under HTM category +
other investments eligible to be treated as PSL + outstanding deposits under RIDF
and other eligible funds with NABARD, NHB, SIDBI and Mudra Limited on account of
priority sector shortfall + outstanding PSLCs
Credit Equivalent Amount of Off-Balance Sheet Exposure (CEOBE): Some
banks business models allow them to focus less on credit and more on Off-balance
sheet items such as Letter of Credit, Bank Guarantees, Derivatives, etc. In such
cases, PSL, if calculated on ANBC would be less as off-balance sheet items do not
form part of credit. Hence, PSL in such cases will be computed as a percentage of
CEOBE so that the quantum of PSL does not become casuality
ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is
higher. The additional priority sector lending target of 2% has to be achieved every
year from 2016-17 and reach 40% by 2019-20. To ensure continuous flow of credit
to priority sector, there will be more frequent monitoring of priority sector lending
compliance of banks on ‘quarterly’ basis instead of annual basis as of now.
Scheduled Commercial Banks having any shortfall in lending to priority sector shall
be allocated amounts for contribution to RIDF established with NABARD and other
Funds with NABARD/NHB/SIDBI, as decided by the Reserve Bank from time to time.
Non-achievement of priority sector targets and sub-targets will be taken into account
while granting regulatory clearances/approvals for various purposes.
Priority Sector Lending Certificates (PSLC): Presently, Banks which are short fall
in Priority Sector (PS) lending are investing in Rural Infrastructure Development
Fund (RIDF) of NABARD. However, the yield on such investments is low. To obviate
the above situation, RBI introduced PSLC. The banks who have PS advances more
than the stipulated norm, may issue PSLCs. The banks who contribute to these
certificates can show the amounts subscribed against their PS lending. At the same
time, the bank which has issued the certificate will reduce the amount from their PS
advances. However, there will be no transfer of credit risk on the underlying assets.
The transactions can be done through the CBS portal “e-Kuber” maintained by RBI.
The standard lot size is `25 lakh and multiples thereof and the validity period is 31st
March every year. This is credit positive for banks without expertise in making
priority sector loans because it allows them to focus on their strengths and purchase
credits from banks with expertise in making such loans, instead of diverting their
own resources towards meeting PS lending targets.
Prime Minister Employment Generation Programme (PMEGP): Prime Minister’s
Employment Generation Programme (PMEGP) by merging the two schemes that were
in operation till 31.03.2008 namely Prime Minister’s Rojgar Yojana (PMRY) and Rural
Employment Generation Programme (REGP) for generation of employment
opportunities through establishment of micro enterprises in rural as well as urban
areas. The Scheme will be implemented by Khadi and Village Industries Commission
(KVIC) and the details are as under:
business/service sector is `25 lakh & `10 lakh respectively. The balance amount,
excluding Margin Money/subsidy, will be provided by Banks as term loan.
Any individual above 18 years of age is eligible for the loan. Self Help Groups
(including those belonging to BPL provided that they have not availed benefits under
any other Scheme) are also eligible for assistance under PMEGP. Institutions
registered under Societies Registration Act 1860; Production Co-operative Societies,
and Charitable Trusts. However, existing Units (PMRY / REGP or any other scheme of
Central / State Government) and the units that have already availed Government
Subsidy (including units registered & certified khadi institutions who have availed
subsidy from central/state government) are not eligible.There will be no income
ceiling for assistance for projects under PMEGP. For setting up of project costing
above `10 lakhs in the manufacturing sector and above `5 lakhs in the
business/service sector, the beneficiaries should possess at least VIII standard pass
educational qualification. Assistance is available only for new projects under the
PMEGP. To claim Margin Money (Subsidy), the borrower is required to submit
caste/community certificate or relevant document issued by the competent authority.
In case of institutions, a certified copy of the bye-laws is required. Project cost will
include Capital Expenditure and one cycle of Working Capital. Cost of the land should
not be included in the Project cost. Projects costing more than `5 lakh, which do not
require working capital, need clearance from controlling office
PMEGP is applicable to all new viable micro enterprises, including Village Industries
projects except activities indicated in the negative list of Village Industries.
Existing/old units are not eligible. Only one person from one family is eligible for
obtaining financial assistance for setting up of projects under PMEGP. The ‘family’
includes self & spouse. No collateral security will be insisted upon for projects
involving loan upto `10 lakhs in respect of the projects cleared by the Task Force.
After issuance of the sanction letter by the financing branch, the beneficiary must
have to undergo EDP training (at least 2 weeks) for the purpose of release of funds.
The margin money (subsidy) is to be kept in Term Deposit for three years at branch
level in the name of the beneficiary/Institution. No interest will be paid on the TDR
and no interest will be charged on loan to the corresponding amount. Repayment
schedule may range between 3 to 7 years after an initial moratorium as may be
prescribed by the concerned bank/financial institution. Corporation Bank is acting as
Nodal bank in implementation of PMEGP scheme in the country.
Swarnajayanti Gram Swarojgar Yojana (SGSY): It is a Scheme which is a
restructure of the erstwhile schemes like IRDP, TRYSEM, DOWCRA, SITRA, GKY &
MWS etc., with the objective to bring the assisted poor rural families above poverty
line. The scheme aims at establishing a large number of micro enterprises in the
rural area. The identification of the borrowers will be done by Grama Sabha.
Productive and viable activities under Agriculture & ISB are eligible under this
scheme with 50% coverage by SC/ST, 40% coverage by women and 3% to
Physically Handicapped borrowers. The size of the loan under the scheme would
depend on the nature of the project. The loans under the scheme would be
composite loan comprising of Term Loan and Working Capital. Subsidy admissible is
@ 30% or maximum `7500/- (For SC/ST- 50% or maximum `10000) & for groups –
50% or maximum `1.25 lac (no ceiling for minor irrigation projects). For all
individual loans exceeding one lakh and group loans exceeding `10 lakh, suitable
margin money/other collateral security in the form of insurance policy; marketable
security/deeds of other property etc. may be obtained. The repayment period –
minimum of 5 years and branches should ensure that repayment not to exceed 50%
of incremental income. In the event of unfortunate/untimely death of the borrower,
LIC make payment of `6000/- for natural death and `12000/- for accidental death to
the legal heirs of the borrower. (Cir no. 189 Ref 28/3 dated 2.8.2012)
Self Employment scheme for rehabilitation of Manual Scavengers (SRMS):
The objective of the National Scheme for Liberation and Rehabilitation of Scavengers
and their dependents is to liberate them from their existing hereditary and
obnoxious occupation of manually removing night soil and filth and to provide for
and engage them in alternative and dignified occupations. The Scheme would cover
primarily all scavengers belonging to Scheduled Castes community. Scavengers
belonging to other communities would also be covered. The scheme covers rural
and urban areas and the identification will be done by Ministry of Social Welfare &
National SC/ST financial development corporation. The beneficiaries are eligible for
term loan up to ` 15 lakh and Micro finance up to `25000/- is allowed without any
margin. The loans sanctioned under this scheme are eligible for subsidy @ 50% for
the projects where the unit cost is up to ` 2 lakh and `1 lakh + 33.30% of project
cost between `2 to 5 lakh; `2 lakh + 25% of project cost between 5 to 10 lakh and
`3.25 lakh for projects above `10 lakh. The moratorium period for repayment of loan
is maximum of 2 years. The beneficiaries are eligible for cash assistance of `40000/-
payable in monthly installments of `7000/- after the identification of manual
scavenger. Government provides training to the beneficiaries and pays `3000/- per
month as stipend during training period. Repayment period of the loan is 5 years for
the projects costing up to `5 lakh and 7 years for projects above `5 lakh. Rate of
Interest – For loans up to `25000 @ 4% for women; others 5%. For loans above
`25000/-, the interest rate is @ 6% p.a.
Deendayal Antyodaya Yojana - National Urban Livelihood Mission (DAY –
NULM): The GOI restructured the existing SJSRY and launched the NULM in the year
2013 in all district headquarters and all the cities with population of 1 lakh or more.
The Self Employment Program (SEP) is one of the components of NULM which will
focus on providing financial assistance through a provision of interest subsidy on
loans to support establishment of individual & group enterprises and SHGs of urban
poor. With a view to improving the livelihood of opportunities for the poor in urban
areas, GOI has enhanced the scope of NULM and renamed as “Deendayal Antyodaya
Yojana - National Urban Livelihood Mission (DAY – NULM)” and the salient features
are as under:
Swarna Jayanti Shahari Rojgar Yojana (SJSRY): The objective of the scheme is
to address Urban poverty alleviation, the scheme seeks to provide gainful selfemployment
to the urban poor (living below the urban poverty line) either
unemployed or under employed, through setting up of self-employment ventures or
provision of wage employment. The scheme has components such as Urban self
Employment Programme (USEP), Urban Women Self-help Programme (UWSP), Skill
Training for Employment promotion amongst Urban Poor (STEP-UP), Urban Wage
The defaulter to any nationalized bank / financial institution / cooperative bank is not
eligible to avail loan under SJSRY. The loans granted under this scheme should be
treated as advances under priority sector. The scheme is meant for Urban Poor who
are under below poverty line and aims to cover 30% Women & 3% physically
handicapped and SC & ST borrowers as per proportion to their population. Urban Self
Employment Programme (USEP) – Operational details in regard to Self-Employment
Individual through setting up of Micro-Enterprises
Urban Women Self-Help Programme (UWSP) – Operational details in regard
to self-employment (group) through setting up of Micro-Enterprises
STEP-UP, UWEP & UDCN – Inputs under the scheme would be delivered both
through the medium of community structures to be set up along with Urban Local
Bodies (ULBs) like Community Development Society-CDS/ town-Urban Poverty
Alleviation-UPA Cell.
Rajiv Gruha Kalpa Scheme is meant for Economically Weaker section segment in
Urban areas. The borrowers income should be minimum `2,000/- per month and
maximum `36000/- per annum. The unit cost `75,000/- and the borrower is required
to bring 10% margin and the maximum Bank loan is `67,500 per house. 10%
increase in unit cost is permitted. Site will be allotted by Govt. of A.P. at free of cost.
Interest Rate 8% fixed.
Valmiki Ambedkar Awas Yojana (VAMBAY): Housing Finance Scheme was
launched in Andhra Pradesh on 01.11.2002 with an objective to provide shelter or
upgrade the existing shelter for people below the poverty line and EWS in urban
slums. The ultimate objective of the Scheme is to have “Slum Less Cities”. The
funding pattern is 50% Government, 40% bank Loan and 10% Borrower Margin.
These loans attract interest @ 10% p.a. tripartite agreement between Beneficiary
Bank & APSHCL.
Interest Subsidy Scheme for Housing the Urban Poor (ISHUP) is introduced
by Government of India with an objective to enable the Economic Weaker Sections
(EWS) and Lower Income Group (LIG) segments in the urban areas to construct or
purchase houses by providing an interest subsidy of 5% on loan amount of
maximum `1 lakh. EWS and LIG are defined as households having an average
monthly income up to `5,000 and `5,001 to `10,000 respectively. The borrowers
under the scheme must have a plot of land for the construction or have identified a
purchasable house. The preference under the scheme should be given to
SC/ST/Minorities/Women/persons with disabilities in accordance with their population
in the total population of the area as per 2001 census. The scheme will provide a
subsidized loan for 15-20 years for a maximum amount of `1 lakh for EWS individual
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