July 3, 1993
Aashadha 12, 1915 (Saka)

All Scheduled Commercial Banks

Dear Sir,

Report of the Committee to examine the adequacy of
the institutional credit to the SSI sector and related aspects

     Please refer to our circular RPCD.NO.PLNFS.BC.99/06.02/31/92-93 dated 17 April 1993 on the captioned subject. The decisions taken on some of the other recommendations of the Nayak Committee on small scale industries sector are set out below:

2. RBI have issued, from time to time, guidelines to banks in the matter of financing the working capital requirements of small scale units, rehabilitation of sick small scale units, co-ordination between commercial banks and State Financial Corporations (SFCs) in meeting the credit requirements of these units and other related aspects. There are, however, several representations from the industry had also revealed that the compliance by banks at the field level with these guidelines was deficient in certain respects. Banks should therefore, take immediate steps to ensure full adherence in letter and spirit by all their branches and controlling offices to the RBI guidelines. Further, with a view to ascertaining the position regarding implementation of these guidelines by the branches, banks themselves should carry out special studies on an annual basis on as large a sample of branches as possible. The findings of these study should be reported to us periodically indicating, among others, the steps taken for rectifying the deficiencies, if any, observed in the process.

3. We have reiterated in our circular dated 17 April 1993 referred to above the procedure and time frame laid down for disposal of loan applications received from SSI borrowers should be strictly enforced. In this context, we advise that whenever application for fresh limits/enhancement of existing limits was not considered favourably by the sanctioning official or where the limits applied for are proposed to be curtailed, the same should be referred to the next higher authority with all relevant particulars, to ensure scrutiny by an independent authority and the latter should confirm the decision of the sanctioning official or otherwise dispose of the same, within a time-bound manner. Another alternative which would also help eliminate delays inherent in the consideration of the proposals by the successive tiers in the heirachy and facilitate timely decisions on credit proposals would be for banks to adopt a system of Committee approach, in which decisions and also the authorities at the intervening levels. This system would save considerable time and avoidable correspondence between the various authorities.

4. Problems faced by the SSI sector in regard to bank finance, to a large extent, could be solved if the branch level officials have the right aptitude, skills and orientation. In understanding their role the branch managers/officials at the branches should be made aware of the importance of small scale sector from the point of view of creation of additional employment opportunities, exports, etc. A healthy growth of the sector will facilitate smooth loan recovery in the SSI borrowal accounts. Further, timely assistance will prevent these accounts from becoming sticky. The aforesaid aspects should, therefore, form part of the inputs in the training imparted to the banks’ staff. There should be an interaction between the banks’ staff and the SSI borrowers as part of the training programmes. Banks may also consider awarding trophies to branches for outstanding performance in financing SSI units as a mark of public recognition.

5. One of the complaints frequently voiced by the SSI units pertains to insistence by some banks on compulsory deposit mobilisation as a ‘quid pro quo’ for the sanction of credit facilities to the units. While enlisting the co-operation of banks’ customers for deposit mobilisation cannot be faulted, insisting on deposit mobilisation of stipulated amounts as a precondition to the sanction of credit or otherwise has no justification. You may, therefore, issue appropriate instructions to your controlling offices/branches to desist from such practices.

6. The second All India Census of SSI (1988) carried out by the Development Commissioner (SSI), Government of India has revealed that there were 85 districts in the country each with more than 2000 registered SSI units (units registered with the Industries Department of the State Goverments) and another 110 districts each having between 1000 and 2000 registered SSI units. A list containing the names of these 204 district is enclosed for your information. It has been decided that while State Financial Corporations (SFCs) would act as the principal financing agency for SSIs in 40 out of the 85 districts referred to above, to take care of both term loan and working capital requirements of all new SSI units which can be financed under the Single Window Scheme (SWS) of SIDBI, commercial banks should act as the principal financing agency under the SWS of SIDBI, commercial banks should act as the principal financing agency under the SWS in the remaining 45 districts as well as in the rest of the country. The process of allocating 40 districts to SFCs to act as principal financing agency is in progress and the names of the districts so allocated to SFCs will be furnished to you in due course. It has also been decided that in order to effectively discharge their responsibility commercial banks should open specialised branches to cater to the SSI clientele in the 45 districts where they will be acting as the principal financing agency as also in the 119 districts each having between 1000 and 2000 registered SSI units. Banks should also consider converting such of the branches as have a fairly large number of SSI borrowal accounts into specialised branches. However, pending allocation of districts to SFCs to act as principal financing agency, the process of opening specialised branched in the 119 districts referred to above should be initiated on a priority basis. The concerned lead bank in the district would identify banks, depending upon the number of SSI borrowal accounts serviced by them for opening of specialised branches and keeping in view the guidelines issued by RBI in this regard vide Circular DBOD. No. BL. BC. 132/ 22.01.001/ 92 dated 20 May 1992

7. In our circular RPCD.No.PLNFS.BC.48/SIU.20-87 dated 6 February 1987, we have enumerated the steps to be taken by banks for arresting the sickness among SSI units at the incipient stage itself. RBI has since issued revised instructions to banks on the system of assets classification inter alia, classifying the advances of banks into four categories viz. Standard, Sub-standard, Doubtful and Loss. When any advance to an SSI unit has to be rated down from ‘Standard to Sub-standard’ category the concerned bank branch should go on alert and make a full enquiry into the financial health of the unit, its operations, etc. and report its findings to higher authorities. Such reports should pin-point the factors which have led to default and also indicate whether there are signs of incipient sickness in the unit. The progress of the unit should be kept under close watch and wherever necessary additional finance should be provide if such a course is warranted. As soon as the advance comes under the category ‘doubtful’ the position relating to all the advances granted to the concerned unit should be reveiwed and the unit classified as sick if it satisfies the condition relating to the erosion in net worth. Viability studies/nursing programmes should be taken up within 3 months and 6 months, respectively from the identification of the unit as sick. In all matters relating to decisions on viability of a sick SSI unit there should be a proper system within the banks for review of such decisions on an appeal made by the aggrieved unit.

8. In order to tackle the problem of sickness among the SSI units expeditiously, RBI had advised banks in para 4 of circular DBOD.No.CAS.BC.133/C.446(SIU)-76 dated 26 November 1976 (copy enclosed) that they should set up cells at important regional centres also; besides the cell at Head Office to deal with sick industrial units and provide expert staff, including technical personnel to look into the technical aspects. We shall be glad if you will please take expeditious steps to set up separate cells at all your controlling offices, if not already done, to tackle the problems of sickness among the small scale units.

9. The decision on the remaining recommendations of the Committee will be conveyed in due course. In the meantime, you may take necessary action in regard to the above and keep us apprised of action taken in the matter.

10. Please acknowledge receipt.

Yours faithfully,

Sd/-
(R.K.JALAN)
Chief Officer

Encls : 7

Enclosure

REF.No.DBOD.CAS.BC.133/C.446(SIU)-76

November 26, 1976

All Scheduled Commercial Banks

Dear Sir,

     Please refer to our circular letter No. DBOD.CAS.BC.71/C.446(SIU)-76 dated the 29th June 1976, advising the banks, inter alia, to keep us informed of the progress made in identifying the sick units, etc., as also furnish us with the names of such units enjoying total credit limits of Rs. 1 crore and more from the banking system.

2. In order to enable us to have a broad idea of the extent of sickness in different industries, the reasons for sickness, present position and the task involved in rehabilitation, we shall be glad if you will please furnish us information, in duplicate, as in the proforma enclosed, in respect of all sick units grouped industrywise every calender quarter, so as to reach us within 15 days from the close of the quarter. The data for the quarter ended 30^th September 1976 should reach us by 15^th December 1976.
   
        For the above purpose, a unit may be considered as ‘sick’ if it has incurred cash loss for one year and, in the judgement of the bank, is likely to continue to incur cash losses for the current year a well as the following year and which has an imbalance in its financial structure, such as current ratio of less than 1:1 and worsening debt equity ratio (total outside liabilities to net worth). Such units would invariably have a working capital term loan which they are not in a position to repay. These units will require a comprehensive rehabilitation programme and intensive care over a period and should be distinguished from those units which merely indicate incipient sickness calling for a close watch and preventive remedial action on the part of the banks. The units to be included in the statement as per enclosed proforma are those which are already sick and not those which show signs of incipient sickness.

3. Whatever may be the reasons for sickness in an industrial unit, the symptoms of sickness get reflected in the financial indicators. The banks should, therefore, make every effort to ensure that the information system, introduced, on the recommendations of RBI Study Group, is utilised to monitor the performance of the borrowing units. They should also obtain half-yearly pro-forma balance sheet and profit and loss account from the borrowers, within two months from the end of the half-year, and gear themselves up to take quick remedial action, wherever necessary. For this purpose, we invite your attention to the guidelines, issued by us in terms of our circular letter DBOD.No.CAS.(COD)83/27C-76 dated the 14^th July 1976, for focussing the attention of the operating staff on the major aspects which should not be missed while scrutinising the annual/quarterly statements. Any adverse trend noticed, which would be an alarm signal, may be subjected to a deeper study.

4. To tackle the problem expeditiously, it may be necessary for banks to set up cells at important regional centres also, besides the cell at the Head Office and provide expert staff, including technical personnel to look into technical aspects. May be that in many cases remedial action required to be taken by the banks would not be confined only to financial controls, but also extend to improving/changing the borrowers management and removing deficiencies of various types in the arrangements for purchase, production marketing etc.

5. In all cases of sick units, the banks should assess the situation and come to an early decision about the desirability of rehabilitating them. The discussions with the concerned parties, obtaining the feasibility reports etc., should not take long and a target date should be fixed, as time is of the essence. What the banks should specifically bear in mind is that they should plan a timeframe, of say about two months, within which they should come up with necessary proposals for assistance, once the viability is established. In cases the term-lending institutions are also involved, there should be close co-ordination between banks and such institutions for exchanging information and views in not only determining the viability but also in drawing up the nursing programme and monitoring the performance. If the proposal involves additional financial assistance and the borrower is covered by our Credit Authorisation Scheme, the banks should obtain our authorisation under the Scheme, furnishing full details about the rehabilitation proposal.

6. We need hardly emphasise that identifying units which have already become sick and those which are likely to become sick is of the utmost importance not only from the point of view of the financial banks but also the national economy. Of equal importance is the need for quick nursing programme where a sick unit has potential viability and for preventive remedial action where a unit shows signs of incipient sickness. The banks are, therefore, requested to take up this task in right earnest in spirit of urgency.

Yours faithfully,

Sd/-
(K. BHUCHAR)
Joint Chief Officer

Name of bank :     _____________________________________ Category of Industry
Statement as on : __________________________________________ giving the particualrs
                                                        (Last Friday of the Quarter)
                                                    of sick industrial undertakings financed by the bank and whose total
                                                    credit limits from the banking system amount to Rs. 1 crore and over

Note : The sick industrial units should be grouped industry-wise into Chemicals, Engineering, Textiles, Jute, Cement, Sugar and others and a seperate sheet should be used for each industry group.

LIST - A

List of dominant districts - Statewise accounting
for more than 2000 small scale functioning units.

LIST - B

List of dominant districts statewise accounting for more
than 1000 and upto 1999 small scale functioning units.

22 November 1993
Agrahayana 1915 (Saka)

All Scheduled Commercial Banks

Dear Sir,

Ownership of units - Two or more undertakings
under the same ownership - Status of the unit

     Please refer to para 2 of our circular RPCD.No.PLNFS.BC.88/PS.72/ 91-92 dated 12 February 1992 advising you of the decision of Government of India to keep operation of the instructions on clubbing of investments for determining the status of units referred to in our circular RPCD.No. PLNFS.BC.76/PS.72/88-89 dated 25 February 1989 in abeyance till further orders. Government of India Ministry of Industry have now outlined detailed guidelines in respect of equity participations and the meaning of the terms owned, controlled and subsidiary for the purpose of getting qualified as Small Scale Industries undertakings etc. vide Gazette Notification No. S. O. 2(E) dated 1 January 1993. A copy of the Notification is enclosed. We advice that for the purpose of determining the Small Scale Industries status of the units in term of our circular dated 25 February 1989, you may please follow the guidelines now outlined by Government of India.

2. We shall be glad if you will please issue suitable instructions to your branches/controlling offices.

Yours faithfully,

Sd/-
(AVINASH MISHRA)
Joint Chief Officer

Encls.: 2

Institutional area
(PUBLISHED IN EXTRAORDINARY GAZETTE OF INDIA IN PART II
SECTION 3 SUB-SECTION (ii) DATED 1^st January, 1993)

MINISTRY OF INDUSTRY
(DEPARTMENT OF INDUSTRIAL DEVELOPMENT)
New Delhi

1 st January, 1993

NOTIFICATION

     S.O.2(E) whereas the Central Government considers it necessary with a view to ascertaining which ancillary and small scale industrial undertakings need supportive measures, exemptions or other favourable treatment, under the Industries (Development and Regulation) Act, 1951 for the purposes specified in Section 11-B of the said Act:

     And whereas the draft Notification was laid before each House of Parliament for a period of 30 days as required under Sub-Section (3) of section 11-B of the said Act.

     And whereas no modification in the proposed Notification has been suggested by both Houses of Parliament.

     Now, therefore, in exercise of the powers conferred by Sub-section (1) of Section 11-B and Sub-section (1) of Section 29-B of the said Act, the Central Government for the purpose of further specifing the requirements which shall be complied with by the industrial undertaking to enable them to be makes the following amendments in the Notification of the Government of India in the Ministry of Industry (Department of Industrial Development) No.S.O.232(E) dated the 2^nd April, 1991 namely :-

     In the said Notification, in the Table, in paragraph II the existing note shall be numbered as Note 1 thereof and after Note-1, as so numbered, the following Explanation and Note shall be inserted, namely:

Explanation : For the purposes of this Note -

1. "Owned" shall have the meaning as derived from the definition of the expression "owner" specified in clause (f) of Section 3 of the Industries (Development & Regulation) Act, 1951 (65 of 1951);

2. "Subsidiary" shall have the same meaning as in clause (47) of Section 2, read with Section 4, of the Companies Act, 1956 (1 of 1956);

3. the expression "controlled by any other industrial undertaking" means as under :

   1. where two or more industrial undertakings are set up by the same person as a proprietor, each of such industrial undertakings shall be considered to be controlled by the other industrial undertaking or undertakings.

   2. where two or more industrial undertakings are set up as partnership firms under the Indian Partnership Act, 1932 (1 of 1932) and one or more partners are common partner or partners in such firms, each such undertaking shall be considered to be controlled by the other undertaking or undertakings;

   3. where industrial undertakings are set up by companies under the Companies Act, 1956 (1 of 1956), an industrial undertaking shall be considered to be controlled by other industrial undertaking if:

      1. the equity holding by other industrial undertaking in it exceeds 24% of its total equity; or

      2. the management control of an undertaking is passed on to other industrial undertakings by way of the Managing Director of the first mentioned undertaking being also the Managing Director or Director in the other industrial undertaking or the majority of Directors on the Board of the first mentioned undertaking being the equity holders in the other industrial undertaking in terms of the provisions of (a) and (b) of sub-clause (iv);

   4. The extent of equity participation by other industrial undertaking or undertakings in the undertaking as per sub-clause (iii) above shall be worked out as follows:

      1. the equity participation by other industrial undertaking shall include both foreign and domestic equity;

      2. equity participation by other industrial undertaking shall mean total equity held in an industrial undertaking by other industrial undertakings, whether small scale or otherwise, put together as well as the equity held by persons who are Directors in any other industrial undertaking or undertakings;

      3. equity held by a person, having special technical qualification and experience, appointed as a Director in a small scale industrial undertaking, to the extent of qualification shares, if so provided in the Articles of Association, shall not be counted in computing the equity held by other industrial undertaking or undertakings;

   5. Where an industrial undertaking is a subsidiary of or is owned or controlled by, any other industrial undertaking or undertakings in terms of sub-clauses (i), sub-clause (ii), or sub-clause (iii), and if the total investment in fixed assets in plant and machinery of the first mentioned industrial undertaking and the other industrial undertaking or undertakings clubbed together exceeds the limit of investment specified in paragraph I of II of this Table, as the case may be, none of these industrial undertakings shall be considered to be a small scale or ancillary industrial undertaking.

Note 2

1. In calculating the value of plant and machinery for the purposes of this Notification, the original price thereof, irrespective of whether the plant and machinery are new or second hand, shall be taken into account.

2. In calculating the value of plant and machinery, the following shall be excluded, namely:

   1. the cost of equipments such as tools, jigs, dies moulds and spare parts for maintenance and the cost of consumable stores;

   2. the cost of installation of plant & machinery;

   3. the cost of Research and Development (R&D) equipment and pollution control equipment;

   4. the cost of generation sets, extra transformer, etc. installed by the undertaking as per the regulations of the State Electricity Board;

   5. the bank charges and service charges paid to the National Small Industries Corporation or the State Small Industries Corporation;

   6. the cost involved in procurement or installation of cables, wiring, bus bars, electrical control panels (not those mounted on individual machines), oil circuit breakers/miniature circuit breakers, etc., which are necessarily to be used for providing electrical power to the plant and machinery/safety measures;

   7. the cost of gas producer plant;

   8. transportation charges (excluding of taxes e.g. Sales tax, Excise etc.) for indigenous machinery from the place of manufacturing to the site of the factory;

   9. charges paid for technical know-how for erection of plant and machinery;

   10. cost of such storage tanks which store raw-materials finished products only and are not linked with the manufacturing process; and

   11. cost of fire fighting equipments.

3. In the case of imported machinery, the following shall be included in calculating the value, namely;

   1. Import duty (excluding miscellaneous expenses as transportation from the port to the site of the factory, demurrage paid at the port);

   2. The shipping charges;

   3. Customs clearance charges; and

   4. Sales Tax

Yours faithfully,

Sd/-
(S. BEHURA)
Joint Secretary to the Govt. of India

(No.10(5)/91-LP)

D.O.RPCD.No.PLNFS.BC.81/06.02.31/93-94

January 15,1994
Pausha 1915 (Saka)

All Scheduled Commercial Banks

Dear Sir,

     You may please recall that the Governor in the credit policy announced for the half year ended March 1993 has also announced a special package for Small Scale Industries emphasising the need for providing more credit to this sector with a simple formula of giving working capital credit limits to Small Scale Industries computed on the basis of a minimum of 20% of their projected annual turnover (c.f. our circular No.CPC.BC.129/07.01.279/92-93 dated 7 April 1993). However, it is learnt that many banks’ branches are not providing the working capital credit limits to the SSIs based on this formula and they continue to observe their earlier procedure in this regard. You are therefore requested to look into this and advise all such branches not observing these norms immediately to ensure that the SSIs whose credit limit in individual cases does not exceed Rs. 1 crore are sanctioned working capital limits based on the new formula and that they do not suffer for want of credit from the banks.

2. Further the banks were advised to open the special SSI branches or convert those branches which have a fairly large number of SSI borrowal accounts into the specialised branches vide RPCD circular No.RPCD.PLNFS.BC.1/06.02.13/92-93 dated 3 July 1993. Subsequent to that, Governor in his meeting taken with the Chairman of some major public sector banks on 23 September 1993 had indicated that each bank should open some special SSI branches say within a period of six months. The minutes of the meeting were forwarded to the banks vide letter No.RPCD.PLNFS/595/06.02.31/93-94 dated 8 October 1993. I hope that your bank has initiated effective steps to open special SSI branches by now. Kindly let us know the number of branches proposed to be opened by March 1994. In case your bank has already opened special SSI branches I shall be glad to know the number of such branches opened so far.

With kind regards

Yours sincerely,

 Sd/-
(D. R. MEHTA)

February 9, 1994

All Scheduled Commercial Banks

Dear Sir,

Report of the Committee to examine the adequacy of the
Institutional credit to the SSI sector and related aspects

     Please refer to our circular RPCD.No.PLNFS.BC.66/06.02.31/93-94 dated 20 November 1993 enclosing a list of 45 districts earmarked for the commercial banks to act as the principal financing agency for SSI units.

2. It has now been decided that of the remaining 40 districts, in 23 districts as per the list I enclosed SFCs will act as principal financial agency granting the term loans as well as working capital loans under Single Window Scheme. The remaining 17 districts as per list II are allotted to the commercial banks. In the metropolitan city of Calcutta, State Level Convenor Bank will act as the principal financing agency and in the remaining 16 districts, lead banks concerned for the districts.

3. You are requested to take an early action under advice to this office and ensure opening of specialised SSI branches in the allotted districts if no such branch is presently in existence. In this connection your attention is invited to the recent letter D.O.RPCD.No.PLNFS.BC.81/06.02.31/93-94 dated 15 January 1994 from our Deputy Governor (D. R.. Mehta).

Yours faithfully,

 Sd/-
(AVINASH MISRA)
Joint Chief Officer

Encls.: 2

List I - indicating the names of
Districts allotted to State Financial Corporations

List II indicating the names of
Districts allotted to Commercial Banks

3, May 1994
13, Vaisakha 1916 (Saka)

All Scheduled Commercial Banks,

Dear Sir,

Report on the Committee to Examine the adequacy of Institutional credit to the SSI Sector and Related Aspects - Interest on Working Capital Term Loan (WCTL)

     Please refer to our Circular Letter RPCD.No.PLNFS.BC.99/ 06.02.31/92-93 dated 17 April 1993 on the captioned subject. In this connection it is adviced that the paragraph on interest on WCTL (page 4 of the above circular) is amended and the same may be read as under:

2. Interest on WCTL

    In respect of WCTL the rate of interest applicable may be 1.5 to 3.0 percentage points below the prevailing fixed rate/minimum lending rate, wherever applicable, to all the SSI units including the tiny/decentralised sector units.

    It is further clarified in this regard that wherever rehabilitation concessions have already been given in nursing programmes, as per our circular dated 17 April 1993, indicated above, such cases need not to be reopened and the concessions may be continued to be provided as mentioned in our Circular dated 17.4.1993.

2. Please acknowledge receipt.

Yours faithfully,

 Sd/-
(AVINASH MISRA)
Jt. Chief Officer

July 28, 1994
Sravana 6, 1916

All Scheduled Commercial Banks

Dear Sir,

Bank Credit to Khadi and Village
Industries (KVI) Sector

     Please refer to our circulars RPCD.No.PLNFS.BC.10/C.464(A)-Spl. KVIC-91/92 dated 17 July 1991 and RPCD.No.PLNFS.BC.84/ 06.06.12/93-94 dated 7 January 1994 advising you regarding the steps to be taken to ensure smooth flow of credit to KVI sector.

2. A meeting of the representatives of KVIC, banks, SIDBI, NABARD was held under the Chairmanship of Shri. D.R.Mehta, Deputy Governor, Reserve Bank of India, on 13 December to review the flow of institutional credit to the KVI sector, whereat it was decided to constitute a Committee (under the Chairmanshipk of Shri. S. K. Kalia, Managing Director, National Bank for Agriculture and Rural Development), to study the working of the KVIC Interest Subsidy Scheme, financing of KVI institutions and related issues and to recommend suitable action. On the basis of the recommendations of the Committee it has been decided as under :

   1. Calculation of credit requirements of Khadi Institutions

      In our circular No.PLNFS.BC.10/C.464(A) Spl. KVIC-91/92 dated 17 July 1991, it was indicated that the KVIC assesses the credit requirements of its implementing agencies after taking into account various relevant aspects including the assistance provided by the Commission itself, and, as such, it should be possible for the banks to be guided by the assessment of the KVIC. While there is no change in the methodology of assessment of the working capital adopted by KVIC and the banks, the following measures should be taken to enable the khadi institutions to raise adequate working capital.

      1. Along with the Interest Subsidy Elegibility Certificate, KVIC will furnish the work sheet indicating the details of assessment of working capital requirements of the units.

      2. KVIC’s assessment may be accepted if it does not exceed the assessment made by the banks by more than 10%,

      3. In case the KVIC’s assessment of working capital exceeds the bank’s assessment by more than 10%, the quantum of working capital may be arrived at by mutual dialogue between the institutions/KVIC and the financing banks.

      4. In case of sharp differences between the peak level and lean season credit requirments, additional credit limits may be sanctioned by the banks; KVIC will indicate such peak level credit requirements also in the Interest Subsidy Eligibility Certificates.

   2. In view of the fact that the KVI sector is playing an important role in creating employment opportunities for poor people in rural areas, it has been decided to do away with the limits prescribed in our circular RPCD.No.PLNFS.BC.84/06.06.12/93-94 dated 7 January 1994, in regard to population, credit requirement and investment in plant and machinery for classifying the advance under the priority sector. Henceforth, all advances to the KVI sector, irrespective of their size of operations and location will be covered under priority sector advances and will also be eligible for consideration under the sub-target (40%) of the SSI segment within the priority sector.

3. We shall be glad if you will please issue instructions in this regard immediately to all your branches and controlling offices under advice to us.

Yours faithfully,

 Sd/-
(AVINASH MISRA)
Jt. Chief Officer

March 30,1995

Chairman/Managing Director
All Public Sector Banks

Dear Sir,

Action plan for improving the flow of credit to SSI sector

     As your aware, the Finance Minister while presenting the Central Government’s budget for 1995-96 has announced a Seven Point Action Plan for improving the flow of credit to the small scale sector. In this connection, we forward herewith a copy of letter F No.2(2)/95-IF .II dated 21 March 1995 received by us from Ministry of Finance, contents of which are self-explanatory.

2. It will be observed from the letter that a key feature of the plan is the setting up to 100 dedicated specialised bank branches during 1995-96 to serve the needs of small scale units in 85 districts with high concentration of SSI units. (62 of these districts have been allotted to commercial banks and remaining 23 to SFCs to function as principal financing agency in their respective allotted districts.)

3. In this connection, we may add that most of the points are covered in our circular RPCD.No.PLNFS.99/06.02.31/92-93 dated 17 April 1993 and subsequent circulars issued on the implementation of Nayak Committe recommendations.

4. In view of the foregoing, we shall be glad if you will please take appropriate action for effective implementation of these points. You are also requested to ensure that progress in the implementation of the plan is placed before the Board of Directors for their review and advice. A copy of the note put up to the Board alongwith their observations may also please be sent to us for our information.

5. Please acknowledge receipt.

Yours faithfully,

 Sd/-
(A.M. KHAN) Joint Chief Officer

Encl.: As above.

F. No.2(2)/1/95-IF.II
MINISTRY OF FINANCE
Department of Economic Affairs
(Banking Division)
"Jeevan Deep"

Parliament Street, New Delhi
March 21, 1995

Dear Ms. Vaz,

     While presenting the Central Government’s Budget for 1995-96 the Finance Minister has announced the following with regard to improving the flow of credit to the SSI Sector.

     Para 18 : "Adequate availability of credit from the banking system is critical for the small scale sector. The Government, in consultation with banks, has formulated a Seven Point Action Plan for improving the flow of credit to this sector. A key feature of the Plan is the setting up of specialized bank branches to serve the needs of small scale units in 85 identified districts, each with more than 2,000 registered small scale units. The public sector banks will ensure that 100 such dedicated branches are operational before the end of 1995-96."

The 7 Point Action Plan consists of the following :

1. The customer service in specialised SSI branches is generally much better as compared to services provided by normal branches, timebound action needs to be taken by banks for setting up of specialised SSI branches in 85 identified districts each with more than 2000 registered SSI units. These branches should have adequate infrastructure and be manned by officials having the necessary background and skills and possessing the right attitude. These branches should generally be headed by Chief Managers. For this purpose, banks should be empowered to create additional posts of Chief Managers, if necessary, with the approval of their respective Boards.

2. With a view to facilities timely sanction of adequate credit facilities to SSI it is essential that branch managers are vested with sufficient discretionary powers so that most of the credit decisions are taken at the branch or the regional level itself. For this purpose banks should reveiw the existing delegation of powers at the branch and regional levels.

3. The banks should undertake sample surveys of their ‘performing’ SSI accounts with a view to find out whether they are getting adequate credit.

4. Steps should be taken to ensure that as far as possible composite lending (covering both term loans for fixed assets and working capital facility simultaneously) are sanctioned by commercial banks to SSI entrepreneurs. In case of loans sanctioned by State Financial Corporations, banks should appraise projects jointly or simultaneously with SFCs.

5. Banks should have regular meetings at zonal and regional levels with the SSIs entrepreneurs in order to understand their problems and provide them counseling and guidance.

6. There is a need to sensitise bank managers and increase their awareness regarding working of the SSI sector. The problem faced by SSI sector in regard to bank finance to a large extent could be solved if branch level officials have the right attitude, skills and orientation. In understanding their role the branch level officials should be made aware of the importance of the SSI sector from the point of view of creation of additional employment opportunities, exports, etc. A healthy growth of this sector will facilities the smooth loan recovery in the SSI borrowal accounts. Further, timely assistance will prevent these accounts from becoming sticky. The aforesaid aspects should therefore from part of the inputs in training imparted to bank staff.

7. The banks should also take steps to review the procedural formalities (including cumbersome and lengthy application forms) with a view to ensuring that procedures are simplified and are reduced to a minimum in the case of SSI entrepreneurs.

     We shall be grateful if necessary directions to banks are issued on the Action Plan announced by the Finance Minister. The implementation of the Action Plan would need to be monitored by the Board of Directors of each public sector bank. RBI may also kindly evolve a system to review the progress periodically under the Plan.

     With regards,

Yours Sincerely,

 Sd/-
(P. BOLINA)
Ms. I. T. Vaz,
ED,RBI,Bombay

18 April, 1995
29 Chaitra, 1917 (Saka)

All Scheduled Commercial Banks

Dear Sir,

Violation of the Policy of Reservation

     As you are aware, one of the measures of support for promoting the Small Scale Industries is the policy of reservation of certain items for exclusive manufacture in the small scale sector. At present 836 items are reserved for this sector. Of late, Ministry of Industry, Government of India have been receiving complaints about the violation of the policy of reservation by the medium and large scale undertakings. These complaints mainly pertain to the manufacture of consumer goods like bread, biscuits, tooth-paste, tooth-powder, ice-cream etc. A number of Parliamentary Questions regarding violation of this policy have also been received by the Government.

2. The basic conditions of reservation policy and the circumstances under which medium/large scale undertakings can manufacture reserved items as advised by the Governments of India, are given in the Annexure. As a measure of check, we advise that while accepting the loan proposals for medium and large industries, please ensure that these units do not violate the reservation policy. A copy of your advice to your controlling offices/branches may please be sent to us for our information.

3. Please acknowledge receipt.

Yours faithfully,

 Sd/-
(A.M. KHAN)
Joint Chief Officer

ANNEXURE

BASIC CONDITIONS OF RESERVATION POLICY AND
THE CIRCUMSTANCES UNDER WHICH MEDIUM/LARGE
SCALE UNDERTAKINGS CAN MANUFACTURE RESERVED ITEMS

     The present policy of encouraging growth of small industries because of their inherent advantages like labour intensity and adaptability to semi-urban and rural environment is based on several promotional measures, one of which is reservation of industries for exclusive manufacture in the small scale sector. This policy was initiated in 1967 with 47 items in the list. Since then there have been additions to and deletions from the list including change in nomenclature. As on date, 836 items are reserved for exclusive manufacture in the small scale sector. The industries (Development and Regulation) Act was amended in March’ 84 empowering the Government to reserve items for small scale sector with statutory backing. With a view to determine the nature of any article or class of article that may be reserved for production by the small scale or ancillary industrial undertakings, Government has constituted an Advisory Committee on Reservation in March, 1984.

2. Circumstances under which medium/large scale units can manufacture reserved items

   1. Where existing medium/large industrial undertakings are manufacturing reserved items, they have to obtain a Carry-on-Business (COB) licence to continue manufacture such reserved items. The capacity in the COB licence is, however, pegged at the best production level achieved by such undertakings in the three years preceding the date of reservation of the item.

   2. When small scale industrial undertakings graduate into medium/large scale undertakings, such undertakings have also to obtain a COB licence to enable them to continue manufacturing of reserved items. In such cases also, their capacity is pegged with respect to the date on which it became incumbent on the undertaking to apply for and obtain a COB licence.

   3. In case large industrial undertakings wish to take up manufacture of items reserved for small scale sector their applications can be considered if they undertake an export obligation of a minimum of 75% of new or additional production to be achieved with in a maximum period of three years.

   4. Where an industrial licence has already been issued to medium/large scale undertakings to manufacture items prior to the date of reservation, such undertakings can continue to manufacture the reserved items upto the licensed capacity endorsed on the licences.

3. Marketing of Reserved items by medium/large scale units. Marketing of products reserved for exclusive manufacture in the small scale sector by large scale units does not constitute violation of the reservation policy.

6 June, 1995
16 Jyestha 1915 (Saka)

All Commercial Banks

Dear Sir,

Scheme for Financing Primary Weavers’
Co-operative Societies by Commercial Banks

     In his budget speech on March 15, 1995 the Finance Minister referred to the proposal to extend concessional refinance from NABARD to the Primary Weavers’ Co-operative Societies (PWCs) through the commercial banks, besided the present system of routing the same through the co-operative banks. In para 14(k) of Governor’s circular No.CPC.BC.144/07.01.279/94-95 dated April 17, 1995 while announcing the scheme it was indicated that operating instructions are being issued separately.

2. In pursuance of the above, we give below the outline of the modalities for financing PWCs by commercial banks :

   1. Coverage
      Refinance by NABARD to commercial banks will be available for financing the Primary Weavers’ Co-operative Societies for production-cum-marketing activities.

   2. Selection of Primary Weavers’ Co-operative Societies
      The list of societies to be financed by the commercial banks will be identified by the Directorate of Handlooms in each of the States with the approval of the concerned Registrars of Co-operative Societies. At this district level, a committee will be constituted consisting of representatives of NABARD, District Central Co-operative Bank and Lead Bank who will be on the basis of their respective Service Area obligations. The implementation of the Scheme will be monitored by the District Level Consultative Committee (DLCC).

   3. Criteria for selection
      

      1. The scheme of financing PWCS for their production and marketing activities will be confined to areas where District Central Co-operative Banks are weak and have not been able to provide adequate credit support to such societies.

      2. The societies to be financed will be required to have a satisfactory working record, reasonable level of financial strength and managerial efficiency together with the capacity to provide margin for their borrowings.

      3. The societies should be viable or potentially viable and should have paid manages.

      4. The audit classification of the society should be atleast ‘B’

      5. The societies should not be indebted to the DCCB.

   4. Norms for financing
      The norms for financing on the basis of cash credit against hypothecation of stocks will be similar to those prescribed for the financing by the co-operative banks.

   5. Margin
      The commercial banks may maintain a margin of 10 per cent for their lendings.

   6. Interest Rate on Refinance/Advances
      The scheme could be operated under the condition that the State Government provides a subsidy of 2.5 per cent. Where such a subsidy is available, NABARD will make available a line of credit to commercial banks at 9.5 per cent per annum and the commercial banks will onland to handloom co-operatives at the same rate i.e. 9.5 per cent.

   7. Refinance
      Refinance may be drawn by the commercial banks from NABARD through their designated branches on a quarterly basis as in the case of co-operative banks. Each drawal from the limit will be allowed for a period of 12 months and the commercial banks will have to maintain non-overdue cover in respect thereof.

3. We are advising NABARD to forward to you detailed instructions including the refinance facility available.

4. Please acknowledge receipt.

Yours faithfully,

 Sd/-
(A.M. KHAN)
General Manager

17 June,1995
27 Jyestha 1915 (Saka)

All Commercial Banks

Dear Sir,

Financing of Handloom Sector

     As you are aware, handloom sector is one of the most decentralised industrial sectors of the country providing employment to millions of people. It is estimated that there are about 38.9 lakh handlooms in the country. However, of the total number of full-time weavers only 20 per cent have been brought under the fold of co-operatives. With a view to increasing the coverage of weavers under the co-operatives fold to 50 per cent and provide continuous employment to them the Government of India has recently launched an ambitious programme of setting up of 3000 Handloom Development Centres and 500 modern dyeing units in various States during the VIII Five Year Plan. This indicates that there will be growing demand for institutional credit from the handloom sector.

2. Commercial banks, ordinarily cover the non-members of the weavers’ co-operative societies who work individually or under master weavers and extend finance mainly for purchase of loom, construction of workshed and for meeting the working capital requirements. Commercial banks are also assisting handloom weavers through poverty alleviation and employment generation schemes like IRDP, DRI, SUME, etc.

3. The Rajya Sabha has set up a Committee on petitions praying for improvement in the living conditions of the handloom weavers and for protection and promotion of handloom industry. The Committee had discussions with the representatives of State Governments, NABARD and banks on financing the handloom weavers during their visit to Andhra Pradesh, Karnataka, Tamil Nadu and Uttar Pradesh. Thereafter on 28 February 1995 the Committee had oral evidence of the Finance Secretary, Government of India on this subject. During the evidence, the Committee had mentioned about the plight of weavers’ community in the above States and felt that the credit support for the banking system did not reach them to the desired extent. It was, therefore, suggested in the meeting to impress upon the commercial banks to ensure that adequate financial assistance is provided to the individual weavers. In the areas where there was concentration of weavers, banks should make special efforts to cover them.

4. As regards primary weavers’ co-operative societies, the commercial banks have so far not financed their production-cum-marketing activities. Recently we have taken a decision to allow the commercial banks also to provide working capital requirements to the primary weavers’ co-operative societies and a detailed circular No.RPCD.PLNFS.BC.No.165/06.03.01/94-95 dated 6 June 1995 on the subject has already been issued.

5. In view of the foregoing, we shall be glad if you will please take suitable action to increase the flow of credit to the individual weavers as also identify the PWCS for extending necessary credit support at the earliest. For this purpose please ensure that the programme finalised by the handloom sector gets dovetailed in the Annual Action Plan in each district and the progress of implementation of the Annual Action Plan is regularly monitored at the district level meetings where the representatives of handloom sector also participate.

6. Please acknowledge receipt.

Yours faithfully

 Sd/-
(A.M. KHAN)
General Manager

October 13, 1995

All Public Sector Banks

Dear Sir,

Review by Prime Minister of Seven Point Action Plan

     Please refer to our circular letter RPCD.PLNFS.BC.No. 1531/06.02.31/94-95 dated 30 March 1995 advising you about the Seven Point Action Plan for improving the flow of credit to the small scale sector announced by the Finance Minister while presenting the Central Government’s Budget for 1995-96. You were also advised to take appropriate action for effective implementation of these points.

1. You have been keeping us informed of the progress by submitting to us copies of your notes on the progress in implementation of these points placed before the Board of Directors for their review and advice, besides reporting to us every month the progress in operationalisation of specialised SSI branches.

2. We have now been advised by the Ministry of Industry, Government of India that Industry Ministry will be reviewing the progress on 10^th every month and will be apprising the Prime Minister of the position. In addition, Prime Minister will also be reviewing himself the progress on regular basis. In this connection, Ministry of Industry has devised a proforma which should reach them latest by 5^th of every month covering latest information/status up to the end of preceding month. A copy of the proforma is enclosed and you are requested to ensure that the duly completed latest details in the prescribed format are forwarded to us on an ongoing basis well in time to reach us on the 3^rd of every month. First such return for the month of October should reach us not later than 3.11.1995.

3. It is observed from the particulars furnished by the banks that by the end of September 1995 only 48 branches have been operationalised during the current year of which 35 were in 30 identified districts. List of 85 identified districts has already been forwarded to you in Annexure-II to our circular letter RPCD.No.PLNFS.373/06.02.31(i)/95-96 dated 19 September 1995. You are advised to ensure that in each of these 85 districts for which your bank is the lead bank atleast one specialised SSI branch is set up. If no other bank comes forward to set up such branch in any particular district then it would be lead bank’s responsibility to set up a specialised branch. In this connection, our Governor in his letter No.CPC.BC.145/07.01.279/95-96 dated 29 September 1995 while outlining the Monetary and Credit policy has already urged the banks to bestow their special attention to ensure that 100 specialised branches are set up in 85 identified districts to meet the requirements of small scale industries.

4. Please acknowledge receipt.

Yours faithfully,

 Sd/-
(AVINASH MISHRA)
General Manager

Encls.: As above

PROFORMA

Review by Prime Minister of the Seven Point Action Plan for
Improving the flow of credit to SSI sector

Name of the bank .........................
Progress for the month of ................

13 February, 1996
24 Magha, 1917 (Saka)

All Scheduled Commercial Banks

Dear Sir,

Rehabilitation of Sick Small Scale Industrial Units

     Please refer to our circular RPCD.No.PLNFS.BC.48/SIU-20-87 dated 6 February 1987, RPCD.No.PLNFS.BC.122/SIU-20/88-89 dated 8 June 1989 and PLNFS.BC.134/06.02.31/93-94 dated 3 May, 1994 prescribing parameter for the grant of reliefs/concessions by banks as per the packages evolved for rehabilitation of potentially viable sick small scale industrial units.

2. With the abolition of the minimum lending rates, banks are free to fix their lending rates individually, for credit limits over Rs. 2.00 lakhs. Accordingly, it has become necessary to revise the parameters by linking the different concessive rates of interest for sick industries to the revised lending rates. The interest rates under rehabilitation packages that will be applicable in the Annexure.

3. The stages of applicability of interest rates under rehabilitation packages, will be as under:

   	Stages of Scheme	Applicability of interest rates
   a)	Where sanctioned packages are already under implementation	Interest rates as committed in the package may continue subject to annual review.
   b)	Where sanctioned packages are yet to be implemented.
   c)	Where packages are yet to be prepared.	Revised RBI parameters on interest Rates may be made applicable subject to annual review.

   All interest rate concessions would be subject to annual review depending on the performance of the units.

4. All other operative instructions/guidelines on rehabilitation of sick SSI units mentioned in our circulars indicated in paragraph 1 (of this circular) above, including those for interest dues on cash credit and term loan, unadjusted interest dues, principal dues, cash losses, promoters’ contribution, guarantee fee etc., remain unchanged.

5. Please acknowledge receipt.

Yours faithfully,

Sd/-
(AVINASH MISRA)
General Manager

Encl.: Annexure

Reliefs/Concessions under the revised interest rates
which can be extended by banks to potentially viable
Sick SSI units under rehabilitaion

1. Term Loans
   The rate of interest on term laon may be reduced, where considered necessary, by not more than 3% in the case of tiny/decentralised sector units and not more than 2% for other SSI units, below the document rate.

2. Working Capital Term Loan (WCTL)