SME POLICY

• competition from both domestic and multi-national companies:
• inadequate access to finance due to lack of financial information and non-formal business practices;
• lack of access to private equity and venture capital;
• lack of access to inter-state and international markets;
• limited access to secondary market instruments;
• fragmented markets in respect of their inputs as well as products;
• vulnerability to market fluctuations;
• limited access to technology and product innovations;
• lack of awareness of global best practices;
• Considerable delays in the settlement of dues/payment of bills by the large scale buyers;

1.4.The role of Banks, in general, has become very important in the above context and, Bank of India formulated its SME Policy in October 2005, which was duly approved by the Bank’s Board of Directors on 28/10/2005, encompassing the various schemes and norms within the overall ambit of the Govt./RBI directives. The SME sector’s demands were comprehensively taken care of by the Bank through several initiatives such as:

• Single Window dispensation,
• Quick decision with least Turnaround Time through specially constituted SME Cells, and above all,
• Better service.
  Cluster-based Schemes are also on the list of the Bank’s initiatives.
  The Bank prioritised the following more particularly:-
• Provision of timely and adequate credit to the SMEs,
• Encouraging Technology Upgradation, for better quality and competitiveness of their product(s), and
• Proactively detecting sick and viable units in time so as to nurse them back to health through appropriate re-structuring.
• Financing of Clusters with adequate and concessional Bank finance on liberal terms in several pockets for specified activities concentrated in these pockets, which would result in reducing transaction cost and greater economies of scale.

1.5.The Bank’s SME Policy covered all credit-related exposures (both Fund-Based and Non-Fund Based) and the policy guidelines relating to Credit Risk Management, Credit Delivery, Credit Monitoring and Recovery were made uniformly applicable to the SME to the extent these have not been modified under the Bank’s SME Policy. In case of modifications, the modified provisions of the SME Policy would prevail over the other Policy Guidelines of the Bank. With changes in any of these other policy guidelines, at appropriate levels, the SME Policy would also automatically stand amended.

2. SME Definition

The MSMED Act 2006, which came into force w.e.f. 02/10/2006, defines the Micro, Small, and Medium Enterprises. As per the Act, the activities are classifiedinto Manufacturing and Service Category. Initially, the MSMED Act 2006 had not defined the ‘Services Sector’ and RBI’s guidelines were awaited. However, subsequently RBI have defined the services sector and the activities that can be covered under the SME sector.

An illustrative list of Services Enterprises is furnished in Annexure I.
The following chart indicates the threshold investment levels for both Manufacturing sector (INVESTMENT IN PLANT & MACHINERY)* and Services sector (INVESTMENT IN EQUIPMENT)* for the above three categories of Manufacturing and Services Enterprises :

* While calculating the investment in plant and machinery/equipment referred to above, the original price thereof shall be taken into account,irrespective of whether the plant and machinery/equipment are new or second hand.
In case of imported machinery/equipment, the following duty/charges/costs shall be included in calculating their value:

• Import Duty (not to include miscellaneous expenses such as transportation from the port to the site of the factory, demurrage paid at the port);
• Shipping Charges;
• Customs Clearance charges; and Sales Tax or Value-added Tax. Cost of the following plant & machinery/equipments etc would be excluded:;
• equipments such as tools, jigs, dies, moulds, and spare parts for maintenance and the cost of consumable stores; 
•  installation of plant &machinery;
• research and development and pollution control equipments;
• power generation set and extra transformer installed by the enterprises as per the Regulations of the State Electricity Board;
• Bank charges and Service Charges paid to the National Small Industries Corporation or the State Small Industries Corporation;
• Procurement or Installation of cables, wiring bus bars, electrical control panels (not mounted on individual machines)
• Oil circuit breakers or miniature circuit breakers which are necessarily to be used for providing electrical power to the plant and machinery or for safety measures;
• Gas producer plants;
• Transportation charges (other than sales tax or value-added tax and excise duty) for indigeneous machinery from the place of their manufacture to the site of the enterprise);
• Charges paid for technical know-how for erection of plant machinery;
• Such storage tanks which store raw materials and finished products only and are not linked with the manufacturing process;
• Fire-fighting equipment; and
• Such other items as may be specified, by notification from time to time.

In case of Service Enterprises, the original cost to exclude furniture, fittings and other items not directly related to the services rendered. Land and Building would also not be included while computing the machinery/equipments cost.
SME would be meant to include Micro Small and Medium Enterprises (MSMEs). The above definitions of Micro, Small and Medium Enterprises would be in place of the existing definitions of Small & Medium Industries and SSSBEs/Tiny Enterprises.

• Micro Enterprises would include Tiny Industries also.
• Small Enterprises (Manufacturing) would mean Small Scale Industries (SSIs).
• Medium Enterprises (Manufacturing) would mean Medium Industries (MIs).
• Small Enterprises (Services) and Medium Enterprises(Services) would mean other Small & Medium Enterprises.
  Thus, SME Advances would be categorised as under:
• All advances to segments viz. Micro, Small and Medium Enterprises in the Manufacturing sector irrespective of sanctioned limits, (including advances against TDRs/Govt. Securities etc for business purposes to these categories of Borrowers), and
• Advances to Services Sectors such as Professional & Self-Employed, Small Business Enterprises, and Small Road/Water Transport Operators and other enterprises,
  - engaged in providing/rendering of services,
  - conforming to the above investment criteria and
  -enjoying borrowing/non-borrowing facilities with the Bank (including advances against TDRs/Govt. Securities etc for business purposes to these categories of Borrowers).
• Those enterprises exceeding the investment ceilings would be categorized as Large Enterprises and be outside the purview of SME.
• The sanctioned limits would no longer be the criteria determining the status as micro or small or medium enterprises in these cases.
• Reserve Bank of India has since reviewed the definition on Priority Sector and have issued revised guidelines on lending to Priority Sector vide their Master Circular dated 2nd July, 2007. As per this circular Retail Trade is excluded from the activities classified as SME.
  

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