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MSME Sector Gained Top Priority Now A

MSME Sector Gained Top Priority Now A

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Published by rajeshmundrakriti
msme financing
msme financing

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Published by: rajeshmundrakriti on Jan 29, 2010
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08/02/2010

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MSME
MSME sector gained top priority now a days Specially after economicrecession and slowdown govt. is pursuing lending to this sector and RBI is alsoguiding banks to lend this sector ,But lending to this sector is nothing new, onlyclassification is changed MSME is not a new sector for lending . earlier we lend inSmall road and transport operator , Small scale industries , small business, professional and self employed sectors now all these sectors are merged andtermed as MSME sector.Basis of classification of MSME sector is as under— MANUFACTURINGENTERPRISESSERVICE ENTERPRISESBasisOriginal Investment inP & MOriginal Cost of EquipmentMicroNot Exceeding Rs. 25lac Not Exceeding Rs. 10 lacSmallExceeding Rs. 25 lac, but not exceeding Rs. 5croreExceeding Rs. 10 lac, but notexceeding Rs. 2 croreMediumExceeding Rs. 5 crore, but not exceeding Rs.10 croreExceeding Rs. 2 crore, but notexceeding Rs. 5 croreSince MSME sector is playing a vital role in the economy of thecountry, Govt. wants its growth at a faster pace through the support of financial institutions. And for this purpose it came out with freshguidelines in 2005 as special package for MSME and introducedfollowing important steps to boost growth of MSME Sector --
1.
Define Micro, Small and Medium enterprises2.PSBs to fix their own target - Min 20% growth every year so that outstanding is doubled every five years.3.Doubling of Credit flow from 67,600 cr in 2004-05 to 135,200cr by 2009-104.PSBs to introduce a transparent rating System5.SIDBI, in association with IBA have developed an IT enabledsoftware programme for application appraisal andmonitoring for Small Clusters known as CART
 
6.Each branch to finance at least five new Tiny, S M & E at Semi-Urban and Urban branches every year.
7.
 Nursing of Sick units through Debt Restructuring.
8.
CGTSME –This scheme is modified and its scope widened.
9.
Cluster based approach to be adopted for robust growth of thissector.
10.
Setting up of watchdogs-RBI, Banks to monitor Credit flow toSME.Based on these guidelines Govt. came out with an Act. Known asMSMED Act.2006— which is Effective from 02.10.2006SPECIAL FEATURES of MSMED Act.2006--A) classification of enterprises—MSME has been properly defined(As above)B) Promotional Provisions –In various promotional activities i.e. tradefair etc. there will be some reservation of stalls for MSME Sector todisplay their products.C) Preference Procurement Policies—Public sector undertakings willgive preference to the products produced by MSME sector if other aspects are same.D) Checking Delayed Payments—If Public sector undertaking procure some goods from MSME Entrepreneur the payment will bemade within 30 days otherwise interest has to be paid for delayed period.RBI has taken following steps For smooth credit flow to this sector inthe recent past – 
a)
Fixation of targets/sub-targets as per new definition.
 b)
Outreach of formal credit: Opening of new accounts.
c)
 Nursing the sick units :- Debt Restructuring Mechanism.
d)
Facilitative measures.e)Encouragement of CGTMSE scheme.f)Cluster based approach.g)Setting up of watchdogs: Monitoring & ReviewRBI instructed all banks to formulate a comprehensive andmore liberal policy for MSME financing taking into account followingguidelines as indicative minimum:-
1.
Disposal of applications within 2 or 4 week as applicable.
2.
loan application register is to be maintained at branches.
3.
Issue of Acknowledgement of Loan Applications
 
4.Rejection of applications not to be done without the approval of the next higher authority
5.
Photo of Borrowers : Free of cost for weaker section
6.
Collaterals are not require up to 100 lac.
7.
Composite loan up to 100 lac through single window.
8.
Specialised financing branches renames as SME branches.
9.
 Norms for computation of limits up to 5.00 crore working capital by turnover method.10.Where CGTMSE guarantee coverage has not been taken, Securitycoverage in case of loan above Rs.10.00 Lac will be based on theRisk Rating status of the borrower AB-1
à
1.25:1AB-2
à
1.50:1AB-3
à
1.75:1Others
à
2.00:1METHODOLOGY FOR CALCULATION OF BANK FINANCE-
W C limit up to Rs. 5.00 crore to be computed on the basis of min20% of estimated annual turnover ( T/O method ),
Incase of borrower applying for W C limit higher or lower thanthe W C computed as above, shall be assessed as per actualrequirement, 
For W C requirement above Rs.5.00 crore, traditional method of computing MPBF as per 2nd method of lending to continue.TERM LOAN FINANCE—Some important points— Cash flow statement will be required from the clients, seekingfresh term loan.Actual availability of cash is considered towards repayment of the term loan.Apart from computing DSCR, it is suggested to observe theexpected cash surplusProjected closing cash balance at the end of each year must be atleast 50% of proposed repayment of installment of termliabilities for the respective year.

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