MSME PDF 2019 EXAMS
Download link here:
The classification of MSME for both goods and services organisation is done on the basis of the turnover and is as follows:-
Classification Turnover
Micro Enterprise Upto Rs. 5 Crores
Small Enterprise Rs. 5 Crores to Rs. 75 Crores
Medium Enterprise Rs. 75 Crores to Rs. 250 Crores
MSMEs to be decided based on turnover; Bill introduced in Lok Sabha
Until recently, the classification of MSMEs was done on the basis of the investment put in the business. It was calculated as a sum
total of the money invested in the plant, machinery and equipments.
For a company manufacturing goods-
Micro Enterprise- Upto Rs. 25 lakhs
Small Enterprise- Rs. 25 lakhs – 5 crores
Medium Enterprise- Rs. 5 crores – 10 crores
For a service organisation-
Micro Enterprise- Upto Rs. 10 lakhs
Small Enterprise- Upto Rs. 10 lakhs – 2 crores
Medium Enterprise- Rs. 2 crores – 5 crores
Due to this classification, the government had to incur expenses to physically verify the actual assets and chart up the actual
investments made.
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. The Reserve Bank has notified the changes to all scheduled commercial banks.
1.1 Definition of Micro, Small and Medium Enterprises
(a) Manufacturing Enterprises i.e. Enterprises engaged in the manufacture or production, processing or preservation of goods as specified below:
(i) A micro enterprise is an enterprise where investment in plant and machinery does not
exceed Rs. 25 lakh;
(ii) A small enterprise is an enterprise where the investment in plant and machinery is more
than Rs. 25 lakh but does not exceed Rs. 5 crore; and
(iii) 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
(b) Service Enterprises i.e. 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.
(i) A micro enterprise is an enterprise where the investment in equipment does not exceed Rs. 10 lakh;
(ii) A small enterprise is an enterprise where the investment in equipment is more than Rs.10 lakh but does not exceed Rs. 2 crore; and
(iii) A medium enterprise is an enterprise where the investment in equipment is more than Rs. 2 crore but does not exceed Rs. 5 crore.
1.2 Bank Loans to Micro and Small enterprises, both Manufacturing and Service are eligible to be classified under Priority Sector advance as per the following:
1.2.1 Direct Finance
1.2.1.1 Manufacturing Enterprises
The Micro and Small enterprises engaged in the manufacture or production of goods to any industry specified in the first schedule to the Industries (Development and regulation) Act, 1951 and notified by the Government from time to time. The manufacturing enterprises are defined in terms of investment in plant and machinery.
1.2.1.2. Loans for food and agro processing
Loans for food and agro processing will be classified under Micro and Small Enterprises,
provided the units satisfy investments criteria prescribed for Micro and Small Enterprises, as provided in MSMED Act, 2006.
1.2.1.3 Service Enterprises
Bank loans up to Rs.5 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.
1.2.1.4 Export Credit
Export credit to MSE units (both manufacturing and services) for export of goods/services
produced / rendered by them.
1.2.1.5 Khadi and Village Industries Sector (KVI)
All loans sanctioned to units in the KVI sector, irrespective of their size of operations and
location and amount of original investment in plant and machinery. Such loans will be eligible for classification under the sub-target of 60 percent prescribed for micro enterprises within the micro and small enterprises segment under priority sector.
1.2.1.6. If the loans under General credit Card (GCC) are sanctioned to Micro and Small
Enterprises, such loans should be classified under respective categories of Micro and Small Enterprises.
1.2.2 Indirect Finance
(i) Loans to persons involved in assisting the decentralised sector in the supply of inputs to
and marketing of outputs of artisans, village and cottage industries.
(ii) Loans to cooperatives of producers in the decentralised sector viz. artisans village and
cottage industries.
(iii) Loans sanctioned by banks to MFIs for on-lending to MSE sector as per the conditions
specified in extant Master Circular on Priority Sector Lending.
1.3 Lending by banks to medium enterprises will not be included for the purpose of
reckoning of advances under the priority sector.
1.4 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.
SECTION - II
2 Scheme of Small Enterprises Financial Centres (SEFCs):
As per announcement made by the Governor in the Annual Policy Statement 2005-06, a
scheme for strategic alliance between branches of banks and SIDBI located in clusters, named as “Small Enterprises Financial Centres” has been formulated in consultation with the Ministry of SSI and Banking Division, Ministry of Finance, Government of India, SIDBI, IBA and select banks and circulated to all scheduled commercial banks on May 20, 2005 for implementation. SIDBI has so far executed MoU with 15 banks (Bank of India, UCO Bank, YES Bank, Bank of Baroda, Oriental Bank of Commerce, Punjab National Bank, Dena Bank, Andhra Bank, Indian Bank, Corporation Bank, IDBI Bank, Indian Overseas Bank, Union Bank of India, State Bank of India and Federal Bank). List of MSME clusters covered by existing SIDBI branches is furnished in Annex II.
SECTION - III
3 Targets for lending to Micro and Small enterprises (MSE) sector by Domestic
Commercial Banks and Foreign Banks operating in India
3.1 Advances to micro and small enterprises (MSE) sector shall be reckoned in computing
achievement under the overall Priority Sector target of 40 percent (32 percent for Foreign
Banks operating in India with less than 20 branches) of Adjusted Net Bank Credit (ANBC) or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher.
3.2 Bank loans above Rs.5 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, shall not be reckoned in computing achievement under the overall above Priority Sector targets. However, such loans would be taken into account while assessing the performance of the banks with regard to their achievement of targets prescribed by the Prime Minister’s Task Force on MSMEs for lending to MSE sector.
3.3 In terms of the recommendations of the Prime Minister’s Task Force on MSMEs, banks are advised to achieve a 20 per cent year-on-year growth in credit to micro and small enterprises and a 10 per cent annual growth in the number of micro enterprise accounts.
3.4 In order to ensure that sufficient credit is available to micro enterprises within the MSE sector, banks should ensure that:
(a) 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;
(b) 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.
(c) While banks are advised to achieve the 60% target as above, in terms of the
recommendations of the Prime Minister’s Task Force, the allocation of 60% of the MSE
advances to the micro enterprises is to be achieved in stages viz. 50% in the year 2010-11, 55% in the year 2011-12 and 60% in the year 2012-13.
3.5 The target for lending to Micro Enterprises within the MSE sector (i.e. 60% of total
lending to MSE sector should go to Micro enterprises) will be computed with reference to the outstanding credit to MSE sector as on preceding March 31st.
SECTION - IV
4 Common Guidelines / Instructions for Lending to MSME Sector
4.1 Issue of Acknowledgement of Loan Applications to MSME borrowers
Banks have been 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. Banks are further encouraged to start Central Registration of loan applications. The same technology may be used for online submission of loan applications as also for online tracking of loan applications.
4.2 Collateral
Banks are mandated not to accept collateral security in the case of loans upto Rs.10 lakh
extended to units in the MSE sector. Banks are also advised to extend collateral-free loans upto Rs. 10 lakh to all units financed under the Prime Minister Employment Generation Programme of KVIC. Banks may, on the basis of good track record and financial position of the MSE units, increase the limit of dispensation of collateral requirement for loans up to Rs.25 lakh (with the approval of the appropriate authority).Banks are advised to strongly encourage their branch level functionaries to avail of the Credit Guarantee Scheme cover, including making performance in this regard a criterion in the evaluation of their field staff.
4.3 Composite loan
A composite loan limit of Rs.1 crore can be sanctioned by banks to enable the MSE
entrepreneurs to avail of their working capital and term loan requirement through Single
Window.
4.4 Specialised MSME branches
Public sector banks have been advised to open at least one specialised branch in each district. Further, banks have been permitted to categorise their MSME general banking branches having 60% or more of their advances to MSME sector in order to encourage them to open more specialised MSME branches for providing better service to this sector as a whole. As per the policy package announced by the Government of India for stepping up credit to MSME sector, the public sector banks will ensure specialized MSME branches in identified clusters/centres with preponderance of small enterprises to enable the entrepreneurs to have easy access to the bank credit and to equip bank personnel to develop requisite expertise. The existing specialised SSI branches may also be redesignated as MSME branches. Though their core
competence will be utilized for extending finance and other services to MSME sector, they will have operational flexibility to extend finance/render other services to other sectors/borrowers.
4.5 Delayed Payment
Under the Amendment Act, 1998 of Interest on Delayed Payment to Small Scale and Ancillary Industrial Undertakings, penal provisions have been incorporated to take care of delayed payments to MSME units. After the enactment of the Micro, Small and Medium Enterprises Development (MSMED), Act 2006, the existing provisions of the Interest on Delayed Payment Act, 1998 to Small Scale and Ancillary Industrial Undertakings, have been strengthened as under:
(i) The buyer has to make payment to the supplier on or before the date agreed upon
between him and the supplier in writing or, in case of no agreement, before the appointed day. The period agreed upon between the supplier and the buyer shall not exceed forty five days from the date of acceptance or the day of deemed acceptance.
(ii) 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.
(iii) For any goods supplied or services rendered by the supplier, the buyer shall be liable to pay the interest as advised at (ii) above.
(iv) In case of dispute with regard to any amount due, a reference shall be made to the
Micro and Small Enterprises Facilitation Council, constituted by the respective State
Government. 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.
4.6 Revised Guidelines for Rehabilitation of Sick Micro and Small Enterprises
In view of the recommendations of Working Group on rehabilitation of potentially viable sick units (Chairman: Dr. K. C. Chakrabarty), regarding changing the definition of sickness and the procedure for assessing the viability of sick MSE units, a Committee was set up by the Ministry of MSME to look into the issue. Based on the recommendation of the Committee, The objective of the revised guidelines is to hasten the process of identification of a unit as sick, early detection of incipient sickness, and to lay down a procedure to be adopted by banks before declaring a unit as unviable. As per the new guidelines, a Micro or Small Enterprise (as defined in the MSMED Act 2006) may be said to have become Sick, if (a) any of the borrowal account of the enterprise remains NPA for three months or more OR (b) 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 revised guidelines also provide the procedures to be adopted by the banks before declaring any unit as unviable. Banks have been advised that the decision on viability of the unit should be taken at the earliest but not later than 3 months of becoming sick under any circumstances and the rehabilitation package should be fully implemented within six months from the date the unit is declared as 'potentially viable' / 'viable'.
4.7 Micro and Small Enterprises Sector – The imperative of Financial Literacy and
consultancy support
Keeping in view the high extent of financial exclusion (92 per cent) in the MSME sector, it is imperative for banks that the excluded units are brought within the fold of the formal banking sector. The lack of financial literacy, operational skills, including accounting and finance, business planning etc. represent formidable challenge for MSE borrowers underscoring the need for facilitation by banks in these critical financial areas. Moreover, MSE enterprises are further handicapped in this regard by absence of scale and size.
the banks could 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. The bank staff should also be trained through customised training programs to meet the specific needs of the sector.
4.8 Structured Mechanism for monitoring the credit growth to the MSE sector
In view of the concerns emerging from the deceleration in credit growth to the MSE sector, an Indian Banking Association (IBA)-led Sub-Committee (Chairman: Shri K.R. Kamath) was set up to suggest a structured mechanism to be put in place by banks to monitor the entire gamut of credit related issues pertaining to the sector. Based on the recommendations of the Committee, banks have been advised to:
· strengthen their existing systems of monitoring credit growth to the sector and put in
place a system-driven comprehensive performance management information system
(MIS) at every supervisory level (branch, region, zone, head office) which should be
critically evaluated on a regular basis; put in place a system of e-tracking of MSE loan applications and monitor the loan application disposal process in banks, giving branch-wise, region-wise, zone-wise and State-wise positions. The position in this regard is to be displayed by banks on their websites; and · monitor timely rehabilitation of sick MSE units. The progress in rehabilitation of sick MSE units is to be made available on the website of banks.
4.9 Revised General Credit Card (GCC) Scheme
In order to enhance the coverage of GCC Scheme to ensure greater credit linkage for all
productive activities within the overall Priority Sector guidelines and to capture all credit
extended by banks to individuals for non-farm entrepreneurial activity, the GCC guidelines have been revised on December 2, 2013.
4.10 State Level Inter Institutional Committee
In order to deal with the problems of co-ordination for rehabilitation of sick micro and small units, State Level Inter-Institutional Committees (SLIICs) were set up in the States. However, the matter of continuation or otherwise, of the SLIIC Forum has been left to the individual States / Union Territory. The meetings of these Committees are convened by Regional Offices of RBI and presided over by the Secretary, Industry of the concerned State Government. It provides a useful forum for adequate interfacing between the State Government Officials and State Level Institutions on the one side and the term lending institutions and banks on the other. It closely monitors timely sanction of working capital to units which have been provided term loans by SFCs, implementation of special schemes such as Margin Money Scheme of State Government and reviews general problems faced by industries and sickness in MSE sector based on the data furnished by banks. Among others, the representatives of the local state level MSE associations are invited to the meetings of SLIIC which are held quarterly. A sub-committee of SLIIC looks into the problems of individual sick MSE unit and submits its recommendations to the forum of SLIIC for consideration.
4.11 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 will meet periodically and review the progress in MSME financing as also rehabilitation of sick Micro, Small and Medium units. It will also coordinate with other banks/financial institutions and the state government in removing bottlenecks, if any, to ensure smooth flow of credit to the sector. The committees may decide the need to have similar committees at cluster/district levels.
4.12 Debt Restructuring Mechanism for MSMEs
(i) As part of announcement made by the Hon'ble Finance Minister for stepping up credit to small and medium enterprises, a debt restructuring mechanism for units in MSME sector has been formulated by Department of Banking Operations & Development of Reserve Bank of India and advised all commercial banks
These detailed guidelines have been issued to ensure restructuring
of debt of all eligible small and medium enterprises. These guidelines would be applicable to the following entities, which are viable or potentially viable:
(a) All non-corporate MSMEs irrespective of the level of dues to banks.
(b) All corporate MSMEs, which are enjoying banking facilities from a single bank, irrespective of the level of dues to the bank.
(c) All corporate MSMEs, which have funded and non-funded outstanding up to Rs.10 crore under multiple/ consortium banking arrangement.
(d) Accounts involving willful default, fraud and malfeasance will not be eligible for
restructuring under these guidelines.
(e) Accounts classified by banks as “Loss Assets” will not be eligible for restructuring.
For all corporate including MSMEs, which have funded and non-funded outstanding of Rs.10 crore and above, Department of Banking Operations & Development has issued separate guidelines on Corporate Debt Restructuring Mechanism DBOD Mail Box clarification dated June 6, 2013.
(ii) In the light of the recommendations of the Working Group on Rehabilitation of Sick MSEs (Chairman: Dr. K.C. Chakrabarty), all commercial banks were advised
to:
(a) put in place loan policies governing extension of credit facilities,
Restructuring/Rehabilitation policy for revival of potentially viable sick units/enterprises and non- discretionary One Time Settlement scheme for recovery of non-performing loans for the MSE sector, with the approval of the Board of Directors and
(b) implement recommendations with regard to timely and adequate flow of credit to the
MSE sector.
(iii) Banks have been advised to give wide publicity to the One Time settlement scheme
implemented by them, by placing it on the bank’s website and through other possible modes of dissemination. They may allow reasonable time to the borrowers to submit the application and also make payment of the dues in order to extend the benefits of the scheme to eligible borrowers.
4.13 Cluster Approach
(i) 60 clusters have been identified by the Ministry of Micro, Small and Medium Enterprises,
Government of India for focused development of Small Enterprises sector. All SLBC Convenor banks have been advised to incorporate in their Annual Credit Plans, the credit requirement in the clusters identified by the Ministry of Micro, Small and Medium Enterprises, Government of India.
As per Ganguly Committee recommendations banks have been advised that a full-service
approach to cater to the diverse needs of the MSE sector may be achieved through extending banking services to recognized MSE clusters by adopting a 4-C approach namely, Customer focus, Cost control, Cross sell and Contain risk. A cluster based approach to lending may be more beneficial:
(a) in dealing with well-defined and recognized groups;
(b) availability of appropriate information for risk assessment and
(c) monitoring by the lending institutions. Clusters may be identified based on factors such as trade record, competitiveness and growth prospects and/or other cluster specific data.
(ii) As per announcement made by the Governor in paragraph 157 of the Annual Policy
Statement 2007-08, all SLBC Convenor banks have been advised vide letter RPCD.PLNFS.No. 10416/06.02.31/ 2006-07 dated May 8, 2007 to review their institutional arrangements for delivering credit to the MSME sector, especially in 388 clusters identified by United Nations Industrial Development Organisation (UNIDO) spread over 21 states in various parts of the country. A list of SME clusters as identified by UNIDO has been furnished in Annex III.
(iii) The Ministry of Micro, Small and Medium Enterprises has 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 Districts. Accordingly, appropriate measures have been taken to improve the credit flow to the identified clusters of micro and small entrepreneurs from the Minorities Communities residing in the minority concentrated districts of the country.
(iv) In terms of recommendations of the Prime Minister’s Task Force on MSMEs banks
should open more MSE focused branch offices at different MSE clusters which can also act as CounsellingCentres for MSEs. Each lead bank of a district may adopt at least one MSE cluster.
4.14 Credit Linked Capital Subsidy Scheme (CLSS)
Government of India, Ministry of Micro, Small and Medium Enterprises has conveyed their approval for continuation of the Credit Linked Capital Subsidy Scheme (CLSS) for Technology Upgradation of Micro and Small Enterprises from X Plan to XI Plan (2007-12) subject to the following terms and conditions:
(i) Ceiling on the loan under the scheme is Rs.1 crore.
(ii) The rate of subsidy is 15% for all units of micro and small enterprises up to loan ceiling at Sr. No. (i) above.
(iii) Calculation of admissible subsidy will be done with reference to the purchase price of
plant and machinery instead of term loan disbursed to the beneficiary unit.
(iv) SIDBI and NABARD will continue to be implementing agencies of the scheme.
4.15 Committees on flow of Credit to MSE sector
4.15.1 Report of the High Level Committee on Credit to SSI (now MSE) (Kapur Committee)
Reserve Bank of India had appointed a one-man High Level Committee headed by Shri S L Kapur, (IAS, Retd.), Former Secretary, Government of India, Ministry of Industry to suggest measures for improving the delivery system and simplification of procedures for credit to SSI sector. The Committee made 126 recommendations covering wide range of areas pertaining to financing of SSI sector. These recommendations have been examined by the RBI and it has been decided to accept 88 recommendations which include the following important recommendations:
(i) Delegation of more powers to branch managers to grant ad-hoc limits;
(ii) Simplification of application forms;
(iii) Freedom to banks to decide their own norms for assessment of credit requirements;
(iv) Opening of more specialised SSI branches;
(v) Enhancement in the limit for composite loans to Rs. 5 lakh. (since enhanced to Rs.1
crore);
(vi) Strengthening the recovery mechanism;
(vii) Banks to pay more attention to the backward states;
(viii) Special programmes for training branch managers for appraising small projects;
(ix) Banks to make customers grievance machinery more transparent and simplify the
procedures for handling complaints and monitoring thereof.
A circular was issued to all scheduled commercial banks vide RPCD.No.
PLNFS.BC.22/06.02.31/98-99 dated August 28, 1998 thereby advising implementation of the
Kapur Committee Recommendations.
4.15.2 Report of the Committee to Examine the Adequacy of Institutional Credit to SSI Sector(now MSE) and Related Aspects (Nayak Committee)
The Committee was constituted by Reserve Bank of India in December 1991 under the
Chairmanship of Shri P. R. Nayak, the then Deputy Governor to examine the issues confronting
SSIs (now MSE) in the matter of obtaining finance. The Committee submitted its report in 1992. All the major recommendations of the Committee have been accepted and the banks have been inter-alia advised to:
(i) give preference to village industries, tiny industries and other small scale units in that
order, while meeting the credit requirements of the small scale sector;
(ii) grant working capital credit limits to SSI (now MSE) units computed on the basis of
minimum 20% of their estimated annual turnover whose credit limit in individual cases
is upto Rs.2 crore [ since raised to Rs.5 crore ];
(iii) prepare annual credit budget on the `bottom-up’ basis to ensure that the legitimate
requirements of SSI (now MSE) sector are met in full;
(iv) extend ‘Single Window Scheme’ of SIDBI to all districts to meet the financial
requirements (both working capital and term loan) of SSIs(now MSE);
(v) ensure that there should not be any delay in sanctioning and disbursal of credit. In case
of rejection/curtailment of credit limit of the loan proposal, a reference to higher
authorities should be made;
(vi) not to insist on compulsory deposit as a `quid pro-quo’ for sanctioning the credit;
(vii) openspecialised SSI (now MSE) bank branches or convert those branches which have a fairly large number of SSI (now MSE) borrowal accounts, into specialised SSI (now MSE) branches;
(viii) identify sick SSI (now MSE) units and take urgent action to put them on nursing
programmes;
(ix) standardise loan application forms for SSI (now MSE) borrowers; and
(x) impart training to staff working at specialised branches to bring about attitudinal change in them.
