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;
• 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 MSME Policy in October 2005, which was duly approved by the Bank’s Board of Directors on 28/10/2005 and reviewed annually, the last review done on 27-07-2009 encompassing the various schemes and norms within the overall ambit of the Govt./RBI directives. The MSME 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 MSME 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? MSMEs,
• Encouraging Technology Up gradation, 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? concessionary 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 MSME 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 MSME Policy as well to the extent these have not been modified under the Bank’s MSME Policy. In case of modifications, the modified provisions of the MSME Policy would prevail over the other Policy Guidelines of the Bank. With changes in any of these other policy guidelines, at appropriate levels, the MSME Policy would also automatically stand amended.

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 classified into Manufacturing and Service Category. Initially the MSMED Act 2006 had not given the definition of “Services sector” and RBI’s guidelines were awaited. However, subsequently RBI has defined the services sector and the activities that can be covered under MSME (Services) Sector. An illustrative list is furnished in Annexure III

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..

• 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.

• 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 indigenous 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.

MSME would henceforth 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

• 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 Retail Traders, 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 MSME.
• The sanctioned limits would no longer be the criteria determining the status as micro or small or medium enterprises in these cases.
• As per RBI guidelines, advances made to micro & small enterprises would be categorized as Priority sector advances whereas lending by banks to medium enterprises will not be included for the purpose of reckoning of advances under the priority sector.