BANK’S POLICY FOR STEPPING UP CREDIT TO

” SMALL & MEDIUM ENTERPRISES”

(SMEs POLICY OF THE BANK)

In India SMEs have an important role to play which is evident from their contribution
to GDP, employment generation, reduction in regional disparities, export earnings
etc. GOI/RBI has taken several initiatives to support the SME sector by formulating
various schemes and policy guidelines for promotion and development of SME units.

The Union Finance Minister announced certain measures in Parliament on Aug.

10,2005 for stepping up credit to small and Medium enterprises which is required to
be implemented by all public sector banks.

In consonance with Govt. priority of growth of SMEs, the Bank has formulated its
policy for stepping up credit to SMEs sector and chalked out the following operational
guidelines :-

A. ELIGIBILITY AND DEFINITION OF SME :

“ A small scale industrial unit is an industrial undertaking in which investment in

Plant & Machinery, does not exceed Rs.1.00 crores except in respect of certain
specified items under hosiery, hand tools, drugs & Pharmaceuticals, stationery items
and sports goods where this investment limit has been enhanced to Rs.5 crores.
Units with investment in plant and machinery in excess of SSI limit and upto Rs. 10
crores may be treated as Medium enterprises (ME). The exact definition will be
enacted after passing of the legislation of SME by the parliament. Only SSI financing
will be included in Priority Sector.”

B) CREDIT GROWTH TARGETS & CHANNELS OF FINANCE :

(i)Allocation of targets for SMEs: For the next financial year 2006-07, a
target of 20% on YOY basis is also allocated so as to achieve 20% growth on
YOY basis in respect of SSI as well as MEs sector. Further, the sub targets
for financing to tiny units and smaller units to the extent of 40% and 20%
respectively will continue.

(ii)Redesignation of SSI Branches : At present Bank has five SSI Branches

viz, Batala, Ludhiana, Jalandhar, Godhewala and Lalru. All these SSI Branch
are renamed as ‘SMALL SCALE & MEDIUM ENTERPRISE BRANCH”. Bank is also
identifying the branches which can provide exclusive finance to this sector in
phased manner, apart from allowing finance from normal branches.

(iii)Cluster Approach : The Bank is exploring cluster based approach for

finance to any particular group etc. As per RBI Cir. NO. RPCD.PLNFS.BC.31/
06.02.31/ 2005-06 dated 19.8.05, 388 clusters have already been identifiedby
GOI.

(iv)Other avenues for financing SMEs which are as under :

a. Industry linked SMEs : Field functionaries to contact their large borrowers
which have business relationship with SME borrowers, for business
relationship with such SME borrowers.
b. Financing through NBFCs/Micro Financing Instututions (MFIs) which lend to
the Tiny &SSI etc.
 c. Bank to encourage collateral fee lending and cover maximum cases under
CGFT scheme where 75% cover is available.
d. SSI/SME Branches and other branches to givie complete structured and
customized financial solutions to SMEs.
e. Lending under TUF and NEF of SIDBI: Branches are advised to educate the
borrowers about these two schemes so as to avail maximum benefit. So far
the benefits derived by the Bank under these schemes is very dismal.

C) RISK WEIGHT & EXPOSURE CAPS: Presently risk weight on exposure to this
sector is 100%. The Bank would maintain an exposure cap on this portfolio of 10%
of total advances plus non SLR portfolio for SMEs.

D) MANAGEMENT INFORMATION SYSTEM : Bank branches to submit the

periodical returns/data to Head office, with regard to SSI/SME sector.

E)EXTENT OF COLLATERALS : - No collaterals to be insisted in cases with

guarantee cover of credit guarantee fund trust, up to the limit set and revised by
them. Presently, the limits of CGFT cover is for advances up to Rs.25 lacs.

F) MARGINS :
i) Term loan margin : Mimum margin of 25% has been prescribed on P&M/Land
&Bldg.

ii) WC receivables margin : For WC a margin of 25% on all the

parameters/different heads of WC cycle be maintained except receivables/book debts
where the margin would be 40%.

G) SANCTIONING AUTHORITY : Sanctioning authority would remain in terms of

Bank’s guidelines and its amendments from time to time.

H) RATING :

1. SSI RATING : The accounts of SSI borrowers with Bank’s exposure of Rs.50
lacs and above require mandatory credit rating from outside approved
agencies such as CRISIL, ONICRA, SMERA etc. The discounts/subsidies
available from Ministry of SSI /NSIC in respect of SSI Credit rating and
address and contact persons of approved rating agencies are available with all
branches of the bank.
2. MEDIUM ENTERPRISES BORROWERS RATING : All MEDIUM
ENTERPRISES borrowers, except consortium cases, where it will be the
responsibility of Lead Bank to get the account rated with aggregate
funded/non funded exposure of Rs.50 lacs and above from our bank, to
obtain credit rating from any of the approved agency such as CRISIL,
ONICRA and SMERA etc. The fee would be paid upfront by the borrower to
the rating agency.

3. Borrower would get his account rated on time of its expiry of validity on
continuous basis and that his rating should remain valid at the time of
renewal/enhancement of any SME borrower.
4. The proposals would continue to be priced, sanctioned/reviewed on the basis
of existing internal rating model of the Bank.
I) PRICING & RATE OF INTT. : These loans would be priced in terms of the rating
of borrower entity as per the applicable internal rating model of the Bank. For
lending below PLR, they would be considered by Head office of the Bank, in terms of
Loan policy of the bank. To make it further lucrative as desired by RBI, ROI
prescribed for SSI would be applicable to SME also.

j) NATURE AND TYPE OF LOAN : Loan be allowed in the shape of TL for tenors
ranging up to 10 years and demand loans in the shape of WC, which would be
renewed every year.

K) COMPUTATION OF WORKING CAPITAL : The WC requirements be worked

out on the basis of Naik Committee recommendations upto working capital limit upto
Rs.5 crores from the banking system, on the basis of minimum of 20% of their
projected annual turnover for new as well as existing units, beyond which WC be
computed on the basis of WC cycle, after fixing proper margins as stipulated in
paragraph “F” Margins, on each component of the WC. In case of borrowers desiring
facilities under Naik Committee recommendations and having a WC cycle of more
than 3 months in a year, the wC requirements will be funded after assessing his
requirements on the basis of his WC cycle, after fixing proper margins.

L) PROCESSING CHARGES : Processing Charges would be as applicable in term of

HO guidelines/amended from time to time. The waiver of processing charges fully or
partially could be considered depending upon the profitability of the proposal in case
of group advance in a particular cluster under structural scheme for such group.

M) NURSING THE SICK UNITS BACK TO HEALTH - DEBT RESTRUCTURING :

Bank’s Law Deptt. at Head office has already issued the guidelines, which are
available with all the branches of the Bank.

N) INDISPENSABLE REQUIREMENTS (IRs): In addition to existing guidelines

for indispensable requirements, in respect of EM of property, the bank would insist
for the following in case of exposure above Rs.10 lacs :-

- Marking of bank lien in the office of registrar.

- Execution of documents and creation of EM in the presence of legal counsel of
the Bank.

Other relevant IRs shall be applicable in terms of Indispensable requirements

guidelines of the Bank which are available with all branches of the bank.

O) DISPOSAL OF APPLICATIONS :

- Branch would issue acknowledgement of loan application.

- Applications upto Rs.1 lacs to be disposed of within 2 weeks and beyond Rs.1
lacs within 4 weeks, provided the loan applications are complete in all
respects.
- If the borrower get his account rated by an outside rating agency, as per
paragrah “H” above, then disposal of the application should be completed in
20 days.
P) PROMOTION OF THE SCHEME : All branches have been advised to display the
scheme in the Branch premises and have an interaction with the prospective
borrowers and bring prospective new SME quality clients in their fold.

This SMEs policy of the Bank is being displayed for making use of this information
and also to facilitate the users to send their queries/suggestion on e-mail at
HOADV@VSNL.NET on the following format:

1. Name of the user :

2. E-Mail/Mobile/land line contact no.

and correspondence Address :

3. Nature of business of the user with brief

particulars of product/Business turnover etc. :

4.Constitution of the Establishment. :

5. Business Address :

6.Suggestions /queries sought :

The Bank solicits the valuable suggestions of the viewers so as to make necessary
policy improvements to make it more customer friendly and thereby more customer
satisfaction.

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