October 8, 1985
Asvina 16, 1907(S)

All Scheduled Commercial Banks
(excluding Regional Rural Banks)

Dear Sir

Revision in the Definition of Small Scale
Industries-Advances by scheduled Commercial Banks

   As you are aware, government of India, vide their notification dated 18 March 1985 (copy appended overleaf), have made the following changes in the definition of small scale industries and ancillaries:

1. ‘Small scale units’ will be known as ‘Small Scale Industrial Undertakings’

2. ‘Ancillaries’ will be known as ‘Ancillary Industrial Undertaking’

3. The limit of investment in plant and machinery (original cost) stands increased in the case of (a) Small scale Industrial Undertaking from Rs. 20 lakhs to Rs. 35 lakhs and (b) Ancillary Industrial Undertaking from Rs. 25 lakhs to Rs. 45 lakhs.

4. The notification shall come into force on the date of its publication in the official gazette (i.e. 18 March 1985).

2. Accordingly advances to industrial ventures covered by revised definition should be treated as priority sector advances and various criteria regardings margin, security, rate of interest, etc. as explained in our circular letter RPCD.No.BC.29/PS.22-84 dated 16 March 1984 made applicable to them.

3. Please acknowledge receipt.

Yous faithfully

Sd/-
(M. S. Pai)
Joint Chief Officer

Notification published in Part II Section 3 Sub-Section (ii) of
Gazette of India Extra-ordinary dated 18^th March 1985
Ministry of Industry and Company Affairs
Department of Industrial Development
New Delhi

NOTIFICATION

March 18, 1985

S.O. 202(E) In exercise of the powers conferred by sub-section (1) of section 29 B read with Section 11 B of the Industries (Development and Regulation) Act, 1951(65 of 1951), the Central Government hereby makes the following further amendments to this Ministry’s notification NO.S.O. 98(E)IDRA/298/73/1, dated the 16^th February 1973, namely :

In the said notification,

1. For the heading "Small Scale Units". The heading "Small Scale Industrial Undertakings" shall be substituted and under the heading so substituted in item No.1, for the expression "Rs. 20 lakhs" the expression "Rs.35 lakhs" shall be substituted;

2. For the heading "Ancillaries" the heading "Ancillary Industrial Undertaking" shall be substituted and under the heading so substituted in item No.2 for the expression "Rs.25 lakhs", the expression "Rs. 45 lakhs" shall be substituted.

2. This notification shall come into force on the date of its publication in the official Gazette.

Yours faithfully

Sd/-
(B. Sahay)
Joint Secretary to the Govt. of India.

January 17, 1986
Pausa 27, 1907(S)

All Scheduled Commercial Banks

Dear Sir

Bank Finance to Ship-Breaking Industry

It has been represented to Government that in view of the importance being attached to scrap processing (including ship-breaking/dismantling), such units falling within the definition of small scale industrial undertaking may be included in the priority sector for the purpose of availment of bank credit. The Union Ministry of Industries have stated that generally the units engaged in ship-breaking/dismantling are composite ones which also undertake the processing of scrap thus obtained and hence the entire activity, can be covered under "processing’. In this connection we advise that all small scale industrial units with original cost of plant and machinery not exceeding Rs.35 lakhs and engaged in ship-breaking/dismantling activities may be considered as small scale industrial undertakings. Accordingly, bank advances to such units would qualify for classification under priority sector advances and they would also be eligible for guarantee cover under the Small Loans (SSI) Guarantee Scheme, 1981 of the Deposit Insurance and Credit Guarantee Corporation, provided the terms and conditions of the Scheme are complied with. We shall be glad if you will kindly advise your branches/controlling offices accordingly.

Please acknowledge receipt.

Yours faithfully

Sd/-
(M. S. Pai)
Joint Chief Officer

January 20, 1986
Pausa 30, 1907(S)

All Scheduled Commercial Banks

Dear Sir

Financing of Bought Leaf Factories
For Manufacturing Tea

Reserve Bank of India had set up a Committee on financing of Tea Industry under the Chairmanship of Shri K. B. Chore to examine the problems relating to financing of tea industry. In the light of the recommendations made by the Committee which have been accepted by Government of India, it has been decided to classify bought leaf factories for manufacturing tea as small scale industrial undertakings provided such units satisfy the investment criteria, viz., the investment in plant and machinery (original cost)does not exceed Rs. 35 lakhs. Advances sanctioned to such units may be treated as priority sector advances. We further advise that advances sanctioned by banks to such bought leaf factories for manufacturing tea are eligible for guarantee cover under Small Loans (SSI)- Guarantee Scheme 1981 of the Deposit Insurance and Credit Guarantee Corporation subject to compliance with other terms and conditions of the Scheme.

2. We shall be glad if you will please suitably advise your branches/controlling offices in the matter.

3. Please acknowledge receipt.

Yours faithfully

Sd/-
(M. S. Pai)
Joint Chief Officer

February 6, 1987
Magha 17, 1908(S)

All Scheduled Commercial Banks

Dear Sir

Rehabilitation of Sick Small
Scale Industrial Units

Please refer to circular IECD.NO.IRD.BC.132/SIU-A-85 dated 5 November 1985 addressed by our Industrial and Export credit Department to all Scheduled Commercial Banks advising parameters for provision of reliefs/ concessions by banks under rehabilitation packages evolved for sick industrial units considered as potentially viable.

2. We have since examined the need for separate guidelines in regard to rehabilitation of sick units in the small scale industries (SSI) sector with specific reference to definition of sick SSI unit, viability norms, incipient sickness as also reliefs and concessions from banks/financial institutions for implementation of rehabilitation Packages in the case of potentially viable units. Although sickness in the large, medium and small industrial units exhibit many common features, any approach to sickness in SSI sector has to reckon with the relative weakness of such units to withstand difficulties as also the distinction between the small scale units and tiny sector units and further that between tiny sector units and units in the decentralised sector comprising artisans, village and cottage industries units. The emphasis of the rehabilitation effort in the case of SSI units will, therefore, have to be on adequate and intensive relief measures and their speedy application rather than giving a long span of time to the units for rehabilitation. Accordingly, the following guidelines are issued in the case of rehabilitation of sick units in the SSI Sector.

Incipient Sickness

3. It is of utmost importance to take measures to ensure that sickness is arrested at the incipient stage itself. The managements of the units finance should be advised about their primary responsibility to inform the banks if they face problem which could lead to sickness and to restore the units to normal health. The branch officials, who are in constant contact with them, should develop mutual confidence between the bank and the borrowers. The organisational arrangements at branch level should also be fully geared for early detection of sickness and prompt remedial action. Banks/Financial institutions will have to identify the units showing symptoms of sickness by effective monitoring. An illustrative list of warning signals of incipient sickness that are thrown up during the scrutiny of borrowal accounts and other related records e.g. periodical financial data, stock statements, reports on inspection of factory premises and godowns etc. is given in Annexure-I which will serve as a useful guide to the operating personnel. The branch officials who are familiar with the day-to-day operations in the borrowal accounts should be under obligation to identify the early warning signals and initiate corrective steps promptly. Such steps may include providing timely financial assistance depending on established need, if it is within the powers of the branch manager, and an early reference to the controlling office where the reliefs required are beyond his delegated powers. The branch manager should also help the unit in sorting out difficulties which are non-financial in nature and require assistance from outside agencies like Government department/undertakings, Electricity Boards, etc. He should also keep the term lending institutions informed about the position of the units wherever they are also involved.

Definition of Sick SSI Unit

4. A SSI unit should be considered ‘Sick’ if it has (a) incurred cash loss in the previous accounting year and is likely to continue to incur cash loss in the current accounting year and has an erosion on account cumulative cash losses to the extent of 50 per cent of more of its net worth and/or (b) continuously defaulted in meeting four consecutive quarterly installment of interest or two half-yearly installment of principal on term loans and there are persistent irregularities in the operation of its credit limits with the bank. While both the conditions (a) and (b) should be satisfied in the case of larger SSI units, it would suffice if either alternative (a) or (b) is satisfied in the case of the tiny and decentralised sector units. The above definition may be adopted for the purpose of reporting data from the half-year ending June 1987, while for the purpose of formulating nursing programmes, banks should go by this definition with immediate effect.

Viability of Sick SSI Units

5. A unit may be regarded as potentially viable if it would be in a position, after implementing a relief package spread over a period not exceeding 5 years from the commencement of the package from banks, financial institutions, Government (Central/State) and other concerned agencies, as may be necessary, to continue to service its repayment obligations as agreed upon including those forming part of the package, without the help of the concessions after the aforesaid period. The repayment period for restructured (past) debts should not exceed 7 years from the date of implementation of the package. In the case of tiny/decentralised sector units, the period of reliefs/concessions and repayment period of restructured debts will be 2 years and 3 years respectively. Based on the norms specified above, it will be for the banks/financial institutions to decide whether a sick SSI unit is potentially viable or not. The viability study of the unit should be carried out and decision on rehabilitation or otherwise taken as far as possible within a period of 3 months from the date of receipt of complete information on relevant aspects from the management of the unit.

Reliefs and Concessions for Rehabilitation of Potentially Viable Units

6. It is emphasised that only those units which are considered to be potentially viable should be taken up for rehabilitation. Norms for grant of reliefs and concessions by banks/financial institutions to potentially viable sick SSI units for rehabilitation are furnished in Annexure-II. We may add that the reliefs/concessions to the extent indicated in the Annexure are not intended to be given as a matter of course in all cases of rehabilitation of sick SSI units, it is for the banks/financial institutions to decide on the nature and extent of concessions necessary/warranted within these parameters, depending upon the merits of each case.

Delegation of Powers

7. The delay in the implementation of agreed rehabilitation packages should be reduced. One of the factors contributing to such delay was found to be the time taken for obtaining clearance to the reliefs and concessions. As it is essential to accelerate the process of clearance, the banks and the financial institutions may delegate sufficient powers to senior officers at various levels such as district, divisional, regional, zonal and also at head office to sanction the bank’s or the financial institution’s commitment to its share in the rehabilitation package drawn up in conformity with the prescribed guidelines.

RBI Approval

8. Cases of concessions in interest rates beyond those specified in these guidelines should be referred to us for approval.

9. Please acknowledge receipt and advise us f the action taken by your bank in implementing the above. Your report may please be sent to us before the end of March 1987.

Yours faithfully

Sd/-
(P. K. Parthasarathy)
Chief Officer

ANNEXURE-I

Illustrative list of warning signals of incipient sickness that are thrown up during the Scrutiny of Borrowal Accounts and other Related Records (e.g. Periodical Financial Data, Stock Statements, Report on Inspection of Factory Premises and Godowns etc.)

1. Continuous irregularities in cash credit/overdraft accounts such as inability to maintain stipulated margin on continuous basis or drawings frequently exceeding sanctioned limits, periodical interest debited remaining unrealised;

2. Outstanding balance in cash credit account remaining continuously at the maximum;

3. Failure to make timely payment of installments of principal and interest on term loans;

4. Complaints from suppliers of raw materials, water, power, etc. about non payment of bills;

5. Non-submission or undue delay in submission or submission of incorrect stock statements and other control statements;

6. Attempts to divert sale proceeds through accounts with other banks;

7. Downward trend in credit summations;

8. Frequent return of cheques or bills;

9. Steep decline in production figures;

10. Downward trends in sales and fall in profits;

11. Rising level of inventories which may include large proportion of slow or non-moving items;

12. larger and longer outstandings in bill accounts;

13. Longer period of credit allowed on sale documents negotiated through the bank and frequent return by the customers of the same as also allowing large discount on sales;

14. Failure to pay statutory liabilities;

15. Utilisation of funds for purposes other than running the units.

ANNEXURE-II

Reliefs and concessions which can be extended by banks/financial institutions to potentially viable sick SSI units under rehabilitation

1. Interest dues on Cash Credit and term loan

   If penal rates of interest or damages have been charged, such charges should be waived from the accounting year of the unit in which it started incurring cash losses continuously. After this is done, the unpaid interest on term loans and cash credit during this period should be segregated from the total liability and funded. No interest may be charged on funded interest and repayment of such funded interest should be made within a period not exceeding 3 years from the date of commencement of implementation of the rehabilitation programme.

2. Unadjusted Interest Dues

   Unadjusted interest dues such as interest charged between the date upto which rehabilitation package was prepared and the date from which actually implemented, may also be funded on the same terms as at (i) above.

3. Term Loans

   The rate of interest one term loans may be reduced, where considered necessary, by not more than three per cent in the case of tiny/decentralised sector units and by not more than two per cent in other cases, the reduced rates in no case being less than the rate of interest charged under Integrated Rural Development Programme (IRDP).

4. Principal Dues

   After the unadjusted interest portion of the cash credit account is segregated as indicated at (i) and (ii) above, the balance representing principal dues may be treated as irregular to the extent it exceeds drawing power. This amount may be funded as Working Capital Term Loan (WCTL) with a repayment schedule not exceeding 5 years. Interest may be charged on this funded loan at 10 per cent per annum.

5. Cash Losses

   Cash losses are likely to be incurred in the initial stages of the rehabilitation programme till the unit reaches the break-even level. Such cash losses excluding interest as may be incurred during the nursing programme may also be financed by the bank or the financial institution, if only one of them is the financier. But if both are involved in the rehabilitation package, the financial institution concerned should finance such cash losses. Interest may be charged on the funded amount at the rates prescribed by IDBI under its scheme for rehabilitation assistance.

6. Working Capital

   Need-based working capital should be sanctioned to the unit to enable it to carry on its operations, with interest at the minimum of the band of the prescribed interest rates during the rehabilitation period. Where the minimum of the band exceeds 15% (as for instance in the case of working capital assistance in excess of Rs. 25 lakhs, where it is 16.5%), the rate may be fixed at 15% p.a.

7. Contingency Loan Assistance

   For meeting escalations in capital expenditure to be incurred under the rehabilitation programme, banks/financial institutions may provide, where considered necessary, appropriate additional financial assistance upto 15 per cent of the estimated cost of rehabilitation by way of contingency loan assistance. Interest on this contingency assistance my be charged at the concessional rate allowed for working capital assistance.

8. Funds for Start-up Expenses and Margin for Working Capital

   There will be need to provide the unit under rehabilitation with funds for start-up expenses, while margin money assistance may either come from IDBI under its Refinance Scheme for Rehabilitation or should be provided by State Government where it is operating a margin money scheme. The term loan from banks will carry the same rates as the existing term loans or as prescribed by IDBI where refinance assistance is obtained from it for the purpose.

9. Promoters’ Contribution

   Promoters’ contribution towards the rehabilitation assistance may be fixed at not less than 5% of the additional long-term requirements under the package in the case of tiny sector units and at 10% of such requirements for other units. In the case of units in the decentralised sector, promoters’ contribution may not be insisted upon for rehabilitation.

10. Guarantee Free

    The guarantee fee payable to Deposit Insurance and Credit Guarantee Corporation (DICGC) in respect of sick SSI units should be borne by the banks/financial institutions during the period of rehabilitation programme.

Yours faithfully

Sd/-
(P. K. Parthasarathy)
Chief Officer

November 3, 1987
Kartika 12, 1909

All Public Sector Banks

Dear Sir,

Bank Credit to State Handloom
Development Corporations

We advise that in view of general sluggishness in demand and consequent build-up of higher inventories due to prevailing drought conditions, there is need for some flexibility in regard to meeting the working capital requirements of National and State Handloom Development Corporations. We shall, therefore, be glad if you will kindly consider sanctioning on merits, additional working capital limits upto 20% of the existing limits to National and State Handloom Development Corporations for holding higher than normal levels of inventories for a temporary period till end-June 1988. Proposals for such enhancements may be considered taking into account actual utilisation of credit limits as also realistic projections covering build-up of inventories. Wherever necessary, suitable application may be made to Industrial and Export Credit Department for prior authorisation under the Credit Authorisation Scheme. You may also impress upon National and Estate Handloom Development Corporations to pay increasing attention to marketing aspects with a view to ensuring satisfactory movement of stocks of all varieties of piece goods and reducing inventory-holding cosis.

2. Please acknowledge receipt.

Yours faithfully

Sd/-
(P. K. Parthasarathy)
Chief Officer

November 19, 1987
Kartika 28, 1909

All Public Sector Banks

Dear Sir,

Bank Credit to State Handloom
Development Corporations

As you are aware, State Handloom Development Corporations (SHDCs) assist handloom weavers outside the co-operative fold by supplying inputs to them and marketing their output. In terms of our interest rate directive currently in force, advances granted to SHDCs for these purposes by commercial banks are required to be charged interest at the rate of 12.5 per cent per annum as applicable to advances to State Level Corporations for purchase and supply of inputs to artisans, village and cottage industries and/or marketing their output. It has been brought to our notice that some banks are charging interest at rates higher than 12.5 per cent per annum on working capital limits sanctioned to SHDCs for these purposes. Banks concerned may, therefore, review the interest rates being charged by them to SHDCs and adhere to the prescribed rate of 12.5 per cent per annum as provided in our current directive on interest rates on advances.

2. It has also reported that some banks are not reckoning items like credit sales to Government Departments’ and pending rebate claims as certified by Government for the purpose of calculating drawing power under working capital limits of SHDCs. As such items are normally included under ‘receivables’ and ‘other current assets’, they are eligible for being taken into account for arriving at maximum permissible bank finance as also for the purpose of computing drawing power in the relative borrowal accounts of SHDCs.

3. Please acknowledge receipt.

Yours faithfully

Sd/-
(M .S. Pai)
Joint Chief Officer

March 29, 1988
Chaitra 9, 1910

All Scheduled Commercial Banks

Dear Sir,

Bank Finance to our circular letter DBOD.No.BP.BC.75/C.464(A)-81 dated 9 June 1981 regarding institutional credit support to organisations undertaking promotional activities for artisans, village and cottage industries. It has been brought to our notice that implementing agencies of KVIC/State KVI Boards are not treated as eligible organisations for concessional rate of interest of 12.5% per annum applicable to working capital limits sanctioned to State Level Corporations for purchase and supply of inputs to artisans, village and cottage industries and/or marketing their output. In this connection, we clarify that advances sanctioned to implementing agencies of KVIC/State DVI Boards exclusively for the purpose of purchase and supply of inputs to and/or marketing of the outputs of artisans, village and cottage industries and so expressly certified by KVIC/State KVI Boards will also be eligible for the concessional rate of interest of 12.5% per annum. As the advances extended for the above purposes alone would qualify for the concessional interest rate, in case credit limits are sanctioned to these agencies for other trading/manufacturing activities or for building up buffer stocks, it would be necessary for the banks to sanction to separate credit limits in respect of the former category of advances eligible for concessional interest rate of 12.5% per annum.

2. Please acknowledge receipt

Yours faithfully

Sd/-
(M. S. Pai)
Joint Chief Officer

May 5, 1988
Vaisakha 15, 1910

All Public Sector Banks

Dear Sir,

Bank Credit to State Handloom
Development Corporations

Please refer to our circular letter RPCD.No.PL.NFS.BC.57/HL.62/87 date 3 November 1987 wherein we had advised that you may consider sanctioning on merits, additional working capital limits upto 20 per cent of the existing limits to National and State Handloom Development Corporations for holding higher than normal levels of inventories for a temporary period till end-June 1988. The Government of India have since advised us that with a view to giving further relief to drought-affected handloom weavers, they have decided to provide margin money to State Handloom Development Corporations to raise increased working capital for production of handloom cloth thereby generating higher level of employment to handloom wavers in drought-affected areas. However, as the sanction for margin money has become operational from 1 April 1988 to 30 September 1988, it is considered desirable that the enhanced working capital limits referred to in our above circular letter dated 3 November 1987 are allowed to be availed of upto 31 December 1988, as these organisations may have to carry finished stocks for some more time after the drought-relief production is completed by September 1988. We shall, therefore, be glad if you will kindly permit the State Handloom Corporations to avail of additional working capital limits as envisaged in our above circular letter upto 31 December 1988, keeping in view the other guidelines given therein.

2. Please acknowledge receipt.

Yours faithfully

Sd/-
(M. S. Pai)
Chief Officer

12 July 1988
21 Asadha 1910

All Scheduled Commercial Banks

Dear Sir

Bank Credit to Khadi and Village
Industries (KVI) Sector

Please refer to our circular RPCD.No.PS.BC.13/C.464(A)-KVIC-82 dated 13 November 1982 advising banks regarding the steps to be taken to ensure smooth flow of credit to the KVI sector. There has been a significant increase in the activities of the Khadi and Village Industries Sector during the last few years. With the recent enlargement of the scope of village industries that can be assisted by KVIC, the need for a further step up of institutional credit flow to the sector has assumed added urgency. In this context KVIC had brought to out notice the persisting practical problems faced y it in obtaining adequate bank credit for KVI programmes. These issues were discussed at a meeting Governor had with KVIC Chairman on 8 June 1988. In the light of the deliberations of the meeting, it has been decided that banks should take action on the lines indicated below :

1. It was indicated in our circular dated 13 November 1982 referred to above that the assessment of credit requirements of the various KVIBs at the state level and other associate/implementing institutions (societies) by KVIC under its Interest Subsidy Scheme should, by and large, be acceptable to banks. KVIC has informed that in a number of cases, the banks are still not following these instructions and are allowing only limits for much lower amounts. In this connection we are advised that KVIC assesses the credit requirements of its implementing agencies after taking into account various relevant aspects, including the assistance to be provided by KVIC itself. It should, therefore, be feasible for banks to be generally guided by the assessment of KVIC. Cases where banks have a divergent view should be settled expeditiously by mutual consultation.

2. It is also reported that there is undue delay in sanctioning credit limits by banks to the KVIC’s units and very often the applications for credit limits take upto 9 months or even more for disposal. Banks are advised to ensure that credit proposals from the KVIBs and other associate/implementing agencies KVIC are disposed of within 8-9 weeks in any case.

3. KVIC has complained that banks insist that the borrowing units under KVI sector should deposit the original title deeds of their properties as security. It was explained by the KIVIC officials that these documents are deposited by the implementing agencies with KVIC which is willing to execute a "letter of disclaimer of prior rights" and that such a letter is tantamount to conceding first charge on the properties. They also stated that some of the banks have accepted such letters of disclaimer in lieu of deposit of original title deeds. We advise that other banks may also examine the matter and accept the letter of disclaimer if they are satisfied after looking into the legal aspects.

2. We shall be glad if you will please issue necessary instruction in this regard to your controlling offices and branches urgently.

3. Please acknowledge receipt.

Yours faithfully

Sd/-
(P. K. Parthasarathy)
Chief Officer

July 30, 1988
Sravana 8, 1910

All Scheduled Commercial Banks

Dear Sir

Credit Assistance to Small Scale
Industries (SSI) Sector

As you are aware, there has been progressive increase in banks assistance to SSI sector over the years. However, reports continue to flow regarding delay in sanction/inadequacy of working capital, lack of effective co-ordination between commercial banks and State Financial Corporations, etc. The Chairmen/Chief Executives of banks are requested to pay special attention to the credit requirements of small scale industries and take immediate action on the following aspects in particular.

2. Timely Sanction of Working Capital limits

   With a view to facilitating timely sanction of adequate credit facilities, it is essential that branch managers are vested with sufficient discretionary powers so that most of the credit decisions are taken at the branch level itself. For this purpose, banks may review the existing delegation of powers at branch and regional levels and also ensure that officers with requisite background and adequate delegated powers are posted to branches located in areas having potential for growth and development of small scale industries or with concentration of small scale units. It is necessary to enforce strict time discipline in dealing with all priority sector credit proposals, including those received from SSI sector. The practice of issuing an acknowledgement with date of receipt for all loan applications received should be enforced in all branches. After the receipt of the application, a definite date may be indicated to the applicant for discussion, clarifications, etc. if considered necessary. The banks’ decision regarding credit assistance should be communicated to the applicant within the prescribed period (8-9 weeks) from the date of receipt of the application, as per guidelines already issued. For monitoring the timely disposal of cases, banks should introduce an appropriate system. The Regional Managers should review the cases every month. Further, credit proposals of small scale units not decided within three months from the date of receipt should be reported on a quarterly basis to the Boards of Directors for review and effective follow up action. It should be ensured that all branches maintain the prescribed registers for recording the dates of receipt and disposal of loan applications, with full details in proper manner.

3. Adequacy of Working Capital Sanctioned by Banks

   It is reported that often the branch officials reduce the working capital levels, presumably on the ground that the new unit will require full credit limits only when it begins operating at its full capacity. However, undue delays are reported in subsequently enhancing the credit limits to support the increasing level of operations, causing avoidable hardship to the units. Banks are, therefore, advised that the full working capital limits determined on the basis of "need" related to the rated capacity of the unit, may be sanctioned at the commencement itself, adding a contingency provision of say 10 per cent to take care of unforeseen circumstances due to operational bottlenecks etc. The branches should be flexible and realistic in permitting operations on the limits sanctioned. As drawals on working capital limits are ordinarily related to drawing power based on value of stocks/receivables, etc. it should be possible for branches to regulate the operations in the accounts consistent with the actual requirements and the contingencies which may arise Within the limits sanctioned, drawals should be allowed automatically to match the increasing levels of operations, if the conduct of account is satisfactory. Requests for increase in limits should be considered expeditiously and decisions taken promptly, and in any case, within 6 weeks.

   Banks are aware that Reserve Bank has prescribed simplified formats for application to be filled in by intending borrowers as also interview-cum-appraisal forms for assessing term loan and working capital needs of small scale units, tiny units etc. The functionaries at the branch level may be advised to extend necessary assistance to the intending borrowers in completing the forms and related aspects.

   To ensure that rejections or reduction of limits are done after due consideration, the following procedure should be adhered to:

   1. rejection of applications for fresh limits/enhancement of existing limits should not be done without the approval of the next higher authority.

   2. Sanction of reduced limits should be reported to the next higher authority immediately with full details for review and confirmation.

4. Co-ordination Between Commercial Banks and State Financial Corporations (SFCs)

   Reserve Bank of India has issued detailed guidelines regarding joint/simultaneous appraisal of projects by commercial banks and State Financial Corporations, or acceptance of the SFCs’ appraisal by the commercial banks wherever joint appraisal has not been possible. The guidelines also require that working capital assistance should be sanctioned by banks at least 4 months before a unit goes on stream. In this connection, we refer to Governor’s D.O. letter No.DBOD.MC.52/C.808/88 dated 15 March 1988 addressed to the Chairmen of all public sector banks and DBOD Chief Officer’s D.O. letter No.DBOD.MC.55/C.808/88 dated 19 March 1988 addressed to Chairmen of all private sector banks and advise that banks are required to formulate effective monitoring system for ensuring that projects approved by State level financial institutions are sanctioned the needed working capital finance well in time. All the banks are required to incorporate the systems devised by them for this purpose in their Annual Action Plans. In the guidelines issued in IECD circular letter No.PMS.150/c.446(PL)-86/87 dated 8 December 1986 banks have been advised that they should establish necessary rapport with the State level financial institutions and associate themselves with the meetings convened by the latter to resolve the cases of delay in sanction of working capital.

   We further advise that the State Level Inter-Institutional Committees (SLIICs) which are required to meet once in 3 months, should also include as a regular item on the agenda, the particulars of cases where SFC-assisted units are not able to get working capital finance from commercial banks. SFCs are also being advised in this regard. The concerned banks whose cases will be taken up for discussion would be invited to attend the meetings of the SLIICs even if they are not regular members of the forrm.

5. Rehabilitation of Sick SSI Units

   It is of the utmost importance to monitor closely the working of tiny and small-scale units and to take timely remedial action when signs of incipient sickness are found (vide paragraph 3 of our circular letter RPCD.No.PLNFS.BC.48/SIU.20-87 dated 6 February 1987). Banks are advised that in respect of all SSI units classified as sick as on 30 June 1988, viability studies should be completed before 31 October 1988 and in the case of all units considered as potentially viable, nursing programmes should be formulated and implemented before 31 December 1988. The banks should submit brief reports in this regard to Rural Planning and Credit Department, Central office before 30 November 1988 regarding the completion of viability studies, and before 31 January 1989 in respect of initiating nursing programmes for potentially viable units. These brief progress reports are not intended to replace the half-yearly returns prescribed for monitoring the progress of rehabilitation of sick SSI units (State-wise and Industry-wise).

6. Periodical Reports to the Boards of Banks with Respect to Credit Assistance to SSI Sector

   Under the current guidelines, banks are required to apprise their Boards of Directors of the position of credit assistance to priority sector at least on a half-yearly basis. Banks are now advised that they should, in addition, put up separate half-yearly reports to the Boards reviewing the position of application for financial assistance from the SSI sector, assistance granted to the SSI sector, comprehensively covering, among others, overall progress, State-wise and industry-wise details, position of sick units and follow-up action taken, complaints and grievances redresal, delays in sanction, etc.

7. You will agree that it is a matter of serious concern that complaints are continuously being received from important quarters regarding non-observance and non-compliance, at the field level, of the various guidelines issued. It should be made the responsibility of the controlling offices (Zonal/Regional Offices) to ensure compliance with the guidelines by the offices in their jurisdiction. The non-observance of the guidelines/instructions at the field level should be seriously viewed and appropriate action taken in cases of dereliction. We look to the Chairmen/Chief Executives of the banks to ensure effective compliance with directives and guidelines issued in this behalf.

8. Please acknowledge receipt of this letter to the Chief Officer, Rural Planning & Credit Department at the address given above.

Yours faithfully

Sd/-
(P. D. Ojha)
Deputy Governor

September 12, 1988
Bhadra 21, 1910

All Scheduled Commercial Banks

Dear Sir

Rehabilitation of Sick Small Scale Industrial (SSI)
Units-Eligibility of Retrenchment Compensation

Please refer to our circular RPCD.No.PLNFS.BC.48/SIU.20-87 dated 6 February 1987 advising guidelines in regard to rehabilitation of sick SSI units. It has been brought to our notice that banks are receiving requests from sick SSI units for inclusion of retrenchment compensation also as an eligible component of rehabilitation loan to sick SSI units. We advise that retrenchment compensation where such payment becomes a statutory liability can be included as an eligible item forming part of the rehabilitation packages of sick SSI units. However, this is subject to the viability norms stipulated in paragraph 5 of our circular referred to above. Assistance for this purpose may be shared by all the lending banks/financial institutions prorata to their outstanding assistance to the unit.

Yours faithfully

Sd/-
(B. A. Prabhu)
Joint Chief Officer

November 15, 1988
Kartika 24, 1910

All Public Sector Banks

(Excluding Associate Banks
of State Bank of India)

Dear Sir

National Equity Fund Scheme

Please refer to circular letter No.111/SIDF.NEF(1) dated 11 August 1987on the above subject addressed to you by Industrial Development Bank of India. The operations under the National Equity Fund (NEF) Schemes were reviewed recently by the Ministry of Finance, Government of India and it was observed that the availment of assistance under the Scheme by industrial units was not to the expected level. Following this, certain modifications to the Scheme have been made with a view to making it more helpful to entrepreneurs and these have been advised to you vide Industrial Development Bank of India’s D.O. letter No.154/SIDF.NEF(1) dated 14 July 1988.

2. We would like the banks to make earnest efforts to ensure that the limits allocated to them by Industrial Development Bank of India under the Scheme are fully utilised. For this purpose you may please impress upon your field level offices especially those in whose area there is a concentration of SSI units, the need to popularise the National Equity Fund Scheme. They may be advised to give priority to financing units seeking assistance from the National Equity Fund. You may also consider fixing sub-targets for the major branches or circles/zones in such areas for providing assistance under the Scheme.

3. The action taken by you in this regard may be reported to us by 31 December 1988.

4. Please acknowledge receipt.

Yours faithfully

Sd/-
(P. K. Parthasarathy)
Chief Officer

December 9, 1988
Agrahayana, 18, 1910

All Scheduled Commercial Banks

Dear Sir

Inclusion of Salt Industry Under Priority Sector

The question whether manufacture of common salt can be considered as an industrial activity came up for our consideration recently. The matter has been examined by us in consultation with Industrial Development Bank of India and Deposit Insurance and Credit Guarantee Corporation and it is clarified that manufacture of common salt through any process including manual operation (involving solar evaporation) ma be considered as an "industrial" activity. Accordingly, credit provided by banks to units engaged in the manufacture of common salt which satisfy the norms for small scale industrial unit as laid down by the government of India may be classified under "Advances to small scale industry" and reported as part of priority sector lending of banks. Such advances are eligible for guarantee cover under the Small loans (Small Scale Industries) Guarantee Scheme, 1981 of Deposit Insurance and Credit Guarantee Corporation.

Yours faithfully

Sd/-
(S. Sankar)
Deputy Chief Officer

January 11, 1989
Pausa 21, 1910

All Scheduled Commercial Banks

Dear Sir

IDBI’s Single Window Scheme for Financing of Fixed Assets and Working Capital to Tiny and SSI Units Through SFCs and Twin Function SIDCs

The Industrial Development Bank of India in consultation with Reserve Bank of India has introduced, in May 1988, a "Single Window Scheme" for providing term loan and working capital to tiny and SSI units. A copy of the relevant circular letter No.F1.27/87 dated 13 may 1988 addressed by IDBI to the Manging Director of SFCs/twin function Small industrial Development Corporations (SIDCs) is enclosed for your information and guidance.

1. This Scheme is intended to overcome the difficulties and delays experienced by tiny and small scale industrial units assisted by SFCs/twin function SIDCs in securing timely and adequate working capital finance from banks. It would enable SFCs and twin function SIDCs to provide, through a single window, both term loan for acquisition of fixed assets and working capital for inventory to new tiny and small scale units, whose project cost does not exceed Rs. 5 lakhs and total working capital requirement at the normal level of operations is upto Rs. 2.5 lakhs. The facility would enable SSI units to start commercial production expeditiously. Besides providing term loan for acquiring fixed assets, SFCs/SIDCs will also now simultaneously provide working capital facility upot Rs. 2.5 lakhs in such cases.

2. Item 15 of the Annexure to the IDBI circular explains the mechanism through which the Single window Scheme is to be operated by SFCs/SIDCs. It has been envisaged that the assisted units would open a current account with a designated bank branch to which the proceeds of the working capital loan would be credited as and when disbursed by SFC/SIDC. In this connection commercial banks may please follow the under noted guidelines:

   1. The designated branch will maintain the current account of the unit and forward a copy of the monthly statement of account to the borrower as also to the SFC/SIDC concerned. The responsibility for monitoring the value of stocks, scrutiny of stock statements, inspection, recoveries, etc. would rest with the concerned SFC/SIDC. The banks could recover their usual charges from the borrower for maintaining the current account and related items of work.

   2. The borrower under the Scheme has the option to approach the designated bank for meeting the existing and/or additional working capital requirement at any time after availing of the initial working capital assistance under Single Window Scheme. In case the bank agrees to the proposal, it will have to meet the unit’s entire working capital needs including the working capital assistance provided by SFC under the Single Window Scheme which will be immediately extinguished out of the assistance so provided by the bank. To enable the bank to consider the unit’s request for assistance, the SFCs/SIDCs have already been advised by IDBI to send a copy of their appraisal note to the designated bank as soon as possible, after sanction of assistance by them. We advise that the commercial banks may sanction, on merits, need-based working capital assistance to such units in consultation with and with the consent of the concerned SFC/SIDC.

   3. Units availing both term loan and working capital finance under the Single Window Scheme from SFCs/SIDCs may also require facilities like opening of Letters of Credit, Bills/Cheques discounting, etc. which are normally not provided by SFCs/SIDCs. Hence these units may approach banks for such facilities. Banks may consider such requests for these types of facilities, as and when received from units and/or SFCs/SIDCs, taking such precautions and security as they think necessary in each case, subject to the existing guidelines for priority sector advances. In this connection, we are advised by IDBI that the SFC/SIDC concerned would have no objection to the borrowing units creating a charge on the book debts or the current assets financed under such facilities in favour of the commercial banks and that the security envisaged for the working capital loan by the SFC/SIDC already excludes book debts from its charge.

Yours faithfully

Sd/-
(P. K. Parthasarathy)
Chief Officer

May 13, 1988

No. 10510/DFID.REF(1)
MDs of SFCs and Twin function SIDCs
Circular No. Fl.27/87-88

Dear Sir

Single Window Scheme for Financing of Fixed
Assets and Working Capital to Tiny and SSI Units

As you are aware, the Hon’ble Union Minister for Finance while presenting the budget for 1988-89 had, inter alia, announced the introduction of a Single Window Scheme for grant of term loan and working capital to new tiny and small sale units whose requirements of working capital are upto Rs.2.5 lakhs and whose project cost does not exceed Rs. 5 lakhs. In pursuance of the above announcement, IDBI has finalised the Single Window Scheme as per particulars given in the Annexure. The Scheme comes into force with immediate effect.

2. The salient features of the Scheme are as follows:

   1. New tiny and small units whose cost of project (excluding working capital margin) does not exceed Rs. 5 lakhs and total working capital requirement at the normal level of operations is upto Rs. 2.5 lakhs would be eligible for assistance under the Scheme, provided the unit has been sanctioned term loan for fixed assets and loan for working capital by the same SFC/twin function SIDC.

   2. The repayment period of the working capital loan would be upto 10 years including initial moratorium upto 3 years.

   3. IDBI would provide 100% refinance in respect of such loans under ARS, and outside the annual BPRF limits.

   4. The spread available to SFCs/twin function SIDCs in respect of such loans would be higher at 4.5%.

3. The Scheme, which has been finalised in consultation with RBI, is intended to overcome the difficulties and delays presently experienced by tiny and small scale units assisted by SFCs/twin function SIDCs in securing timely and adequate working capital finance from banks. As SFCs/twin function SIDCs themselves can, under the Single Window Scheme, Now also provide working capital assistance to the eligible units, it is expected that such units would be able to start commercial production on a viable basis expeditiously.

4. We may further add that with the introduction of the above Scheme, the existing Integrated Term Loan Scheme stands withdrawn. At the same time the Composite Loan Scheme, presently being operated through SFCs/SIDCs and banks under which loans upto Rs. 50,000 are provided to units in the tiny and decentralised sectors covering their needs of fixed assets and/or working capital will continue to remain in force.

5. Looking to the liberal facilities provided under the Single Window Scheme, we are sure that SFCs/twin function SIDCs would take maximum advantage of the Scheme in the interest of healthy and viable growth of tiny and small industries.

Yours faithfully

Sd/-
(R. S. Agrawal)
General Manger

ANNEXURE

Refinance Scheme for Working Capital Loan under Single Window
To Tiny and SSI Units by SFCs/twin-Function IDCs

February 25, 1989
Phalguna 6, 1910

All Scheduled Commercial Banks

Dear Sir

Ownership of Units – Two or more Undertakings

Under the Same Ownership-Status of the Unit

As you are aware, the criterion for classifying an industrial unit under small scale category is its investment in plant and machinery. Government of India, Ministry of Industry has now advised that if an industrial undertaking/proprietor/partner sets up two or more units within the same State or outside, whether manufacturing similar or different items, the fixed investment in plant and machinery of all such units is to be clubbed together for determining the SSI status of the units. It has also been clarified by Government, that investment of the industrial undertaking as a whole is to be clubbed and not to the extent of the share of a partner. We, therefore, advise that where the aggregate investment in plant and machinery of such "related" units exceeds the prescribed limit they should not be treated as small scale industrial undertakings.

2. We also invite a reference to our circular RPCD.No.PS.BC.37/C.464(A)-83 dated 16 June 1983 wherein banks were advised that industrial units which are subsidiaries of or owned or controlled by medium and large scale undertakings have been taken out of the purview of the definition of small scale and ancillary industries. Such units also will not be considered as small scale units for the purposes of bank credit. Consequently, advances granted to the units in two categories referred to above should be immediately taken out of the purview of SSI sector. They will also not be eligible to be classified as priority sector advances.

3. The guidelines for priority sector including margins, rates of interest and norms for rehabilitation of sick SSI units will not be applicable to these units.

4. We shall be glad if you will please take steps to implement the above instructions with immediate effect.

Yours faithfully

Sd/-
(S. Sankar)
Deputy Chief Officer

March 13, 1989
Phalguna 22, 1910

All associate Banks of State Banks of India

Dear Sir

National Equity Fund Scheme

Please refer to circular letter D.O.No. 131/SIDF.NEF(1) dated 11 January 1989* on the above subject addressed to you by Industrial Development Bank of India extending the above scheme to your bank. A copy of circular letter RPCD.No.PLNFS.BC.44/SSI.70-88/89 dated 15 November 1988@ addressed by us to all public sector banks (excluding the Associate Banks of State Bank of India) referred to in the above letter is enclosed for your ready reference.

2. In this connection, we invite your attention to paragraph 2 of our circular dated 15 November 1988 ibid and advise you to take action on the lines indicated therein to ensure maximum and expeditious utilization of the facilities under the National Equity Fund Scheme extended to you by the Industrial Development Bank of India.

3. The action taken by you in this regard may be reported to us by 31 March 1989.

4. Please acknowledge receipt.

Yours faithfully

Sd/-
(S. Sankar)
Deputy Chief Officer

* This Circular is reproduced on page 66.

D.O.No. 131/SIDF.NEF(1)

January 11, 1989

Managing Directors of Associate Banks of SBI

National Equity Fund Scheme (NEF)

As you may be aware, IDBI, in association with the Government of India, had constituted National Equity Fund for providing equity type assistance to small entrepreneurs for setting up manufacturing units as also for rehabilitation of potentially viable sick units. The benefits under the Scheme will be available to small and tiny units with projects costing not more than Rs. 5 lakhs and located at places with population not exceeding 5 lakhs (15 lakhs in rehabilitation cases). A copy of the Scheme is enclosed.

2. The coverage of the Scheme, which was originally operated through the agency of nationalised banks, was extended in July 1988 to State Banks, was extended in July 1988 to State Bank of India and specified State Financial Corporations (SFCs)/State Industrial Development Corporations (SIDCs) in the North Eastern Region and Hilly States of Jammu & Kashmir and Himachal Pradesh. In this connection. I enclose a copy of letter No.RPCD.PLNFS.BC.44/SSI-70-88/89 dated November 15, 1988 addressed by Reserve Bank of India to all public sector banks. In consultation with the Government of India, we have since decided to extend the Scheme to Associate Banks of SBI as well. They would be functioning as operating agency under the Scheme. A copy of the format for execution of the agency agreement with IDBI is enclosed. I would request your bank to kindly approach the nearest Regional/Branch office of IDBI of this purpose.

3. It is envisaged under the Scheme that the banks while providing assistance form out of NEF should simultaneously sanction requisite term loan and working capital facilities so as to ensure that the entire financial requirements of the borrowers are met from a single source. You may bring this aspect specifically to the notice of the Offices which would be operating the Scheme at the regional/branch level. We are allocating an annual limit of Rs. 50 lakhs (Rs. Fifty lakhs) from out of NEF for your bank.

4. I shall be grateful if you will please issue necessary instructions in this regard to your regional/branch offices at your earliest.

With warm regards,

Yours sincerely

Sd/
(K. U. Mada)