Karnataka Bank Limited

FINANCING MSME SECTOR

S.No.

Subject

1.

Definitions

2.

Bank’s Lending Policy for MSME

3.

Presence in MSME clusters

4.

Designated MSME Branches

5.

Sensitizing the Bank staff for MSME lending

6.

Loan Application Form with Checklist

7.

System of issuing acknowledgement of loan applications

8.

Interest rates and service charges on MSME advances

9.

Restructuring/rehabilitation policy of the Bank for MSME

10.

One Time Settlement(OTS) of loans of MSME borrowers

11.

Framework For Revival And Rehabilitation Of Micro, Small And Medium Enterprises

12.

RBI Compliances

13.

Customer meets

14.

Grievance Redressal Mechanism of the Bank for MSMEs

To Apply Online Click here

FINANCING MSME SECTOR

INTRODUCTION

The Government of India has enacted the Micro, Small and Medium Enterprises Development (MSMED) Act 2006 on 16th June 2006 and the same has been notified on 2nd October 2006. According to this, the enterprises engaged in the manufacture or production, processing or preservation of goods; enterprises engaged in providing or rendering of services are classified into three categories as [a] Micro Enterprises, [b] Small Enterprises and [c] Medium Enterprises, depending upon the amount of investment in Plant & Machineries/ in Equipments.

    1. DEFINITIONS :

a: Enterprises engaged in the manufacture or production, processing or preservation of goods:

b: Enterprises engaged in providing or rendering of services:

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:

These will include traders, small road- and water-transport operators, small business, professional and self-employed persons and all other service enterprises.

    2. Bank’s Lending Policy for MSME:

    3. Bank’s presence in identified MSME Clusters:

The United Nations Industrial Development Organisation (UNIDO) has identified in total 388 clusters having MSME concentration, across the country. Of these in more than 200 clusters the Bank has its presence/Branches for delivering credit to MSME sector units. List of the identified clusters having Bank’s presence is furnished in ANNEXURE—I

    4. Designated MSME Branches:

MSMEs form a major bulk of the business enterprise and they are significant contributors to the country’s economy. The Bank has been giving thrust to lending to MSMEs. Keeping in view the potential of the areas, the Bank has designated in total 210 Branches across India, as ‘MSME Specialized branches’ for giving focused attention on lending to MSME sector. List of Designated MSME Specialized Branches is furnished under ANNEXURE—II

    5.Sensitizing the Bank’s Staff for MSME Lending:

Bank’s Staff Training College has devised special training curriculum on MSME Financing. Bank’s staff members from the different offices/Branches are being drafted for the training programmes on MSME financing. Intricacies of MSME sector, various aspects of financing to this sector are being dealt in such training programmes and the participants are sensitized appropriately to deal with MSME sector advances.

    6. Loan Application Form with Checklist:

Bank’s loan application form for MSE sector along with checklist on the requirements to be complied with is furnished under Application Forms in Bank’s portal. In case of Medium Enterprises, the customers may please contact the nearest Branch of the Bank.

    7. System of issuing acknowledgement of loan applications:

The Bank has already introduced the system of issuing with serially numbered acknowledgement to the loan applicants on receipt of the loan application. Further, tracking of the loan proposals of customers of the Bank (including MSME customers) has already been enabled in Bank’s internal network system.

A system for accepting Online Application from MSME borrowers and Online Tracking of loan applications is made available. At the time of submitting the application (Online or Offline), the applicant will receive a reference number. Through this reference number the applicant can track the status of loan applications on a day to day basis.

    8. Interest rates and service charges on MSME advances :

Interest rate structure for MSME advances is furnished under ANNEXURE—III

For service charge details please Click here

    9. Restructuring/rehabilitation policy of the Bank for MSE :

    A. Objectives

    The objective of the Debt Restructuring Scheme [DRS] for MSEs is to ensure timely and transparent mechanism for restructuring the debts of entities declared as “viable/potentially viable” and facing problems, for the benefit of all concerned. In particular, the framework will aim at preserving viable MSEs that are affected by certain internal and external factors and minimize the losses to the creditors and other stakeholders through an orderly and coordinated restructuring programme.

    B. Eligibility Criteria of Cases under MSE-DRS:

    The Debt Restructuring guidelines shall be applicable for the following MSE entities, which are declared as “Sick” and viable or potentially viable:

  1. All corporate and non-corporate MSEs irrespective of the total exposure to the banking sector.

  2. All corporate MSEs, which have funded and non-funded outstanding up to Rs.10 crore under multiple/ consortium banking arrangement

    C. Cases, Which Cannot Be Considered Under MSE-DRS:

  1. Accounts of Units declared as “Unviable” or classified as “Loss Assets”.

  2. Accounts of Units involving malfeasance/fraud or where diversion of funds with mala fide intention has been observed.

  3. In the case of accounts referred to BIFR, the proposal of restructuring shall be approved by BIFR and any condition stipulated by BIFR should be complied with before implementation of the package.

  4. Accounts identified as wilful defaulters will not generally be considered for restructuring.

    Accounts of Units becoming sick on account of willful mismanagement, disputes among partners / promoters etc.

    D. Stages at which proposal under MSME-DRS can be considered:

    Any account irrespective of present status of irregularity can be considered for restructuring provided it meets the viability criteria as set under para E below. However, if a NPA account is restructured it shall be upgraded only after completion of satisfactory performance for one year as per prudential norms.

    E. Viability criteria for MSME-DRS :

    The following viability criteria are prescribed.

    PARTICULARS

    VIABILITY NORMS FOR MSME-DRS

    Minimum Average DSCR

    1.25

    Maximum Period within which the unit should become viable

    7 years

    Maximum Repayment period of the restructured debt

    12 years

    Minimum Promoters’ Contribution

    (of which at least 50% must come upfront and balance within 6 months)

    Micro sector -10%

    All other sectors - 15%

    F. Procedure :

The borrowers intending to avail the benefits of restructuring under DRS for MSMEs shall approach the branch with the following papers:

    10. One Time Settlement (OTS) of loans of MSME borrowers:

The Bank has introduced One Time Settlement Schemes(OTS) called Recovery By Settlement (RBS) for small borrower accounts which have been classified as Sub-Standard (NPA) as on the financial year ending 31st March, with total outstanding balance up to Rs.5.00 lakh.

In respect of other borrowers, settlements of their accounts are being considered on case to case basis.

    11. FRAMEWORK FOR REVIVAL AND REHABILITATION OF MICRO, SMALL AND MEDIUM ENTERPRISES – OPERATIONAL GUIDELINES:

In terms of RBI circular FIDD.MSME & NFS.BC.No.21/06.02.31/2015-16 dated 17th March 2016, Reserve Bank of India has advised all the Banks to operationalize the framework for Revival and Rehabilitation of Micro, Small and Medium Enterprises.

The Framework for Revival and Rehabilitation of Micro, Small and Medium Enterprises, duly approved by the Board is furnished hereunder

  1. The provisions made in this framework is applicable to all MSMEs having loan limits up to Rs.25 crore, including accounts under consortium or multiple banking arrangements (MBA).

    2. Identification of incipient stress:

      2.1 Identification by Banks or Creditors :– Before a loan account of a Micro, Small and Medium Enterprise turns into a Non-Performing Asset (NPA), Banks or Creditors should identify incipient stress in the account by creating three sub-categories under the Special Mention Account (SMA) category as given in the Table below:

SMA Sub-categories

Basis for classification

SMA-0

Principal or interest payment not overdue for more than 30 days but account showing signs of incipient stress

SMA-1

Principal or interest payment overdue between 31-60 days

SMA-2

Principal or interest payment overdue between 61-90 days

    3.On the basis of the above early warning signals, the branch maintaining the account should consider forwarding the stressed accounts with aggregate loan limits of above Rs.10 lakh to the Committee within five working days for a suitable Corrective Action Plan (CAP). Forwarding the account to the Committee for CAP will be mandatory in cases of accounts reported as SMA-2.

    4. As regards accounts with aggregate loan limits up to Rs.1.00 lakh identified as SMA-2, the account shall be mandatorily examined for CAP by the branch itself under the authority of the Branch Manager. Loan limits exceeding Rs.1.00 lakh upto Rs.10.00 lakh shall be examined by the respective Regional Office for CAP. Thus, for SMA 2 reported loans under MSME of above Rs.1.00 lakh up to Rs.10.00 lakh, branches shall refer to the respective Regional Office for a Corrective Action Plan.

    5. Other terms and conditions, such as time limits, procedures to be followed, etc., as applicable to the cases referred to the Committee as referred in para 3.3, shall be followed by the Branch Manager/Regional Office. However, the cases, where the Branch Manager has decided the option of recovery under CAP instead of rectification or restructuring as mentioned in para 5.3 (a) or (b), shall refer to the Committee headed by Regional Head at Regional Office for their concurrence. In similar way, the Branch Manager/Regional Office shall also examine the accounts, reported as SMA-0 and SMA-1 for CAP, if it is deemed necessary, as mentioned above.

    6. Identification by the Borrower Enterprise :- Any MSME borrower may voluntarily initiate proceedings under this framework, if the enterprise reasonably apprehends failure of its business or its inability or likely inability to pay debts or there is erosion in the net worth due to accumulated losses to the extent of 50% of its net worth during the previous accounting year, by making an application to the branch or directly to the Committee as referred in para 3.3, wherever applicable. When such a request is received by lender, the account with aggregate loan limit of above Rs.10 lakh shall be referred to the Committee. In respect of loans upto Rs.10 lakh, the instructions mentioned under 2.2 (a) shall be followed. The Committee shall convene its meeting at the earliest but not later than five working days from the receipt of the application, to examine the account for a suitable CAP.

    7. Internal Group headed by Regional Head of respective Regional Office shall examine the CAP at Regional level.

    8. The Committee set up at Head Office is headed by General Manager (Credit Dept). General Manager (Credit Monitoring), Deputy General Managers of RFD, MCFD and CrMD, One MSME Expert and Joint Director, DIC, Mangalore are members.


Corrective Action Plan by the Committee :

(b) Restructuring:–