RBI POLICY ON MICRO,SMALL AND MEDIUM ENTERPRISES BY SUJIR PRABHAKAR VISITING FACULTY

DEFINITION The Government of India has enacted the Micro, Small and Medium Enterprises Development Act,2006 shortly known as MSMED ACT, 2006. For the first time the act covered service enterprises. Apart from extending scope to medium enterprises the act has modified the definition of micro, small and medium scale units

DEFINITION There are two broad heads 1. manufacturing and 2. service sectors. Manufacturing sector micro enterprise where investment in plant and machinery does not exceed Rs25 lakhs. Small enterprise where investment in plant and machinery is more than Rs25 lakhs but does not exceed Rs5 crores.

DEFINITION A Medium enterprise where investment in plant and machinery is more than Rs5 crores but does not exceed Rs10 crores. Service sector- A micro enterprise where invest in equipment does not exceed Rs10 lakhs. A Small enterprise where investment in equipment is more than Rs10 lakhs but does not exceed Rs2 crores.

DEFINITION A Medium enterprise where investment in equipment is more than Rs2 crores. Original cost of plant and machinery and equipment at the time of purchase should be taken for arriving at the eligibility. The following sectors come under priority sector. Loans to micro and small enterprises

Priority sector Loans to food and agro processing units. Loans up to Rs5 crores to micro and small service enterprises. Loans to small and micro enterprises engaged in export of goods and services. All loans to units under khadi and village industries irrespective of their size of operations, locations and amount of original investment in plant and machinery.

PRIORITY SECTOR General credit card issued to micro and small enterprises Loan to supplier of inputs and marketing of outputs of artisans, village and cottage industries. Loans to producers’ cooperatives run for artisans, village and cottage industries. Loans to micro financial institutions(MFIs)

RBI’S GUIDELINES TO BANKS Banks have to acknowledge all loan application submitted manually or online by MSME borrowers. Banks are mandated not to accept collateral security for loans up to Rs10 lakhs. If the track record is good for well performing MSME units, Banks can waive the existing collateral security.

RBI’S GUIDELINES TO BANKS Banks should try to bring loans to up to Rs100 lakhs under Insurance cover of Credit Guarantee Trust for Micro Small Enterprises(CGTMSE). No collateral security or personal guarantee of third party should be insisted if the loans is covered under CGTMSE cover. All banks should strive to open specialised branches only to cater to the needs of micro small and medium enterprises.

KAPUR COMMITTEE RECOMMENDATIONS RBI has directed all banks to implement 88 suggestions accepted by it to give more thrust to credit expansion to MSME sector. More powers to branch managers to grant ad-hoc limits. Simplification of loan application forms. Freedom to banks to decide their own norms for assessment of credit requirements.

KAPUR COMMITTEE RECOMMENDATIONS opening more specialized branches to cater to units. Enhancement of limit for composite loan to Rs1 crore. Strengthening of recovery mechanism. Banks to pay more attention to backward states. Special training programme to branch managers to develop credit appraisal skills. Banks to make their customer grievances committee more effective and customer grievances redressal to be speeded up.