RECOMMENDATIONS OF RBI

DECISION

1)

6.01   (i)      Crash training programmes for the staff members of Regional Rural Banks with special emphasis on proper motivation, development of project appraisal skills, monitoring of credit and modern banking procedures etc. should be planned. Availability of adequate funds and human resources should be ensured by sponsoring banks and NABARD.

6.01   (i)

Sponsor banks/SIDBI may provide crash training programmes for the staff of RRBs.

(ii)     RRBs should also be permitted to open specialised branches on the pattern of sponsoring banks where focus could be on services to SSI.

ii)

RRBs may open specialised SSI branches subject to viability and availability of trained staff.

(iii)     Refinance support could also be provided to them by SIDBI for their loans to SSI sector.
(Para 2.04.01)

iii)

This part of the recommendation is under examination in consultation with the SIDBI.

2)

6.13    Branch Managers should be delegated powers to grant ad-hoc facilities to the extent of 20 per cent of the limits sanctioned. The Managers could also draw upon Reconstruction Fund mentioned in Para 2.14.01 to provide margin money to the extent the borrower is not able to provide for the additional facilities made available. If there is a shortfall even after the provision of this additional margin money from the Reconstruction Fund, the banks should permit borrowers to make good the shortfall over a period of time out of the future profits of the units.
(Para2.14.02)

6.13    (i)

Banks may delegate powers to branch managers to grant ad-hoc facilities to the extent of 20% of the limits sanctioned subject to the usual lending discipline.

ii)

Regarding Reconstruction Fund separate instructions would follow.

3)

6.29      Reserve Bank of India should examine the difficulties being experienced by banks in implementation of the recommendations of Nayak Committee. Suitable modifications may be made if deemed appropriate. However, there is need for meticulous compliance of the instructions already issued as a sequel to acceptance of these recommendations and the Seven Point Action Plan. Banks may be advised to carry out special studies periodically to ascertain the position regarding implementation of guidelines issued by RBI in this regard and to introduce measures to ensure compliance.
(Para 3.13)

6.29

Banks may meticulously follow the instruction issued by RBI on the subject. They may also carry out special studies periodically to ascertain the position regarding implementation of guidelines issued by RBI in this regard and to introduce measures to ensure compliance.

4)

6.30      While carrying out inspections, the officials of the banks as well as RBI should insist and ensure that only the prescribed loan application forms are used.
(Para 3.14.02)

6.30

Banks may comply with the recommendation.

5)

6.31      The filled in application forms submitted by the borrowers should always be examined by a bank official having adequate experience in credit operations who should also maintain a check list so that he advises the applicant what additional information is required to be submitted for completion of the application.
(Para 3.14.04)

6.31

Banks may comply with the recommendation.

6)

6.32      The controlling offices of banks should reiterate their instructions directing branch managers/officials to extend necessary help to applicants in filling up the application forms. Adequate number of copies of bank’s instructions/schemes, RBI instructions and literature prepared by SIDBI, NABARD, State and Central Government etc. should be made available at each branch.
(Para 3.14.05 & 3.14.07)

6.32

Bank may prepare a compendium of these instructions and supply them to the branches.

7)

6.33      The loan application forms should be tri-lingual i.e. in Hindi, English and local language.
(Para 3.14.08)

6.33

Banks may introduce loan application forms in tri-lingual.

8)

6.36      The application form prescribed for facilities upto Rs.2 lakh could straightaway be permitted to be used for facilities upto Rs. 10 lakh and that prescribed for facilities upto Rs.15 lakes could be used for such facilities upto Rs.50 lakh. Similarly, the form for limits upto Rs.1 crore could be prescribed for facilities beyond Rs.50.00 lakh and upto Rs.2 core. The fourth category of proforma could be used by any SSI unit requiring facilities beyond Rs.2 crore.
(Para 3.14.10)

6.36

Banks may implement the recommendation.

9)

6.37    i) For the purpose of working out bank finance, in the case of an existing unit, the bank officials and entrepreneur should work out an agreed growth rate and projected turnover based on the past performance, the likely prospects and few other factors.

6.37 i) & ii)

Banks may keep the recommendation in mind while processing loan proposals of SSI borrowers.

    ii)  For those sectors which are recording positive rate of growth and when the individual unit has also recorded positive rate of Growth during the last 2-3 years, it may be permitted growth rate of a minimum of 15 per cent over the current year’s turnover to arrive at the projected turnover and the working capital limits from banks be fixed accordingly.

   iii)  In case of new units, the projections accepted by the term lending institutions, for the first year of operation should normally be accepted unless there are specific reasons for not doing so.
(Para 3.15.02 & 3.15.03)

  iii)

Banks may implement the recommendation.

10)

6.38     The banks should, with the approval of their Boards, lay down some clear guidelines for computing the working capital limits for various sub sectors granted to SSI borrowers, particularly those units where fund based working capital requirements exceed Rs.4 crore.
(Para 3.15.04)

6.38

We commend the recommendation for implementation which may be kept in view while processing loan proposals of SSI borrowers.

11)

6.40     Banks should open more specialised SSI branches or shift/restructure some of their existing branches and convert them into specialised branches for financing the small scale sector. The banking sector within the next two years should ensure collectively that at least one such branch is opened in every district of the country, particularly at those centres where the number of small units is at least 100. These branches should be opened by strong banks only. The Committee is confident that the number of specialised and profit making branches can easily increase by 1,000 within the next three years.
(Para 3.17.01)

6.40

We commend the recommendation to banks for opening of more specialised branches or conversion of the existing branches at the centres having cluster of SSI units (say more than 500) subject to viability. In this connection a reference also invited to our Circular RPCD. PLNFS No. 792/06.02.31/97-98 of 2^nd March 1998.

12)

6.42    Selective specialised branches should be encouraged to innovate and experiment with new products such as factoring services and business credit cards.
(Para 3.17.03)

6.42

The recommendation is commended for implementation.

13)

6.45    The Committee was informed that one field officer in a specialised branch is able to handle about 50 SSI units. The number of field officers should be sufficient to take care of number of accounts entertained by a branch. Properly trained and preferably technically oriented direct recruits in adequate number should be posted in specialised SSI branches.
(Para 3.17.06)

6.45

We commend the recommendation, which may be kept in view for manning the specialised SSI branches.

14)

6.47    Further delegation of sanctioning power should be made in respect of specialised SSI branches in particular and other branches in general of prompt disposal of applications.
(Para 3.17.08)

6.47

We commend the recommendation for implementation. In this connection, a reference is invited to RBI Cricular No. PLNFS.BC. 127/06.02.31/97-98 dated 8^th June 1998 advising the banks that they should delegate enhanced powers to the branch managers of specialised SSI branches so that most of the credit proposals are decided at the branch level.

15)

6.48    Specialised SSI branches should be linked to national and international data bank and information centres including internet to enable them to provide latest information to their clients.
(Para 3.17.09)

6.48

We commend the recommendation implementation.

16)

6.49    Banks and financial institutions are hesitant to deal with SSI enterprises requiring loans of less than Rs.5 lakh. The Public Sector Banks, with resources and expertise available at their disposal, should sanction loans to SSI enterprises requiring loans upto Rs.5.00 lakh in a big way and SIDBI should refinance these on attractive terms.
(Para 3.18.01)

6.49

We commend the recommendation for implementation. Banks have already been advised that out of the total funds allocated by them to SSI sector, at least 40% should go to the units with investment in plant and machinery up to Rs.5 lakh and 20% should go to the units with investment in plant and machinery between Rs.5 lakh and Rs.25 lakh vide our Circular RPCD No. PLNFS. BC.89/06.02.31/97-98.

17)

6.50    The limit of composite loans should be enhanced from Rs.2 lakh to Rs. 5.00 lakh so that the entire requirement of such units is met by single documentation and security and charge creation process. This facility should also be extended to all SSI units requiring loans up to Rs.5.00 lakh irrespective of their location.
(Para 3.18.02)

6.50

We commend the recommendation for implementation.

18)

6.51    i) Only banks should entertain projects both for term loans and working capital of borrowers with loan requirement, up to and inclusive of Rs. 5.00 lakh. Only one organisation, either SFC or a bank may sanction both the term loan and working capital for projects requiring institutional credit for more than Rs.5.00 lakh. and upto and inclusive of Rs.25.00 lakh.

6.51

We commend the recommendation for implementation.

ii)    For Projects having loan requirement in excess of Rs.25 lakh, arrangements should be made by SIDBI with the Public Sector Banks to have an MOU signed between the SFC and selected Public Sector Banks active in different regions of the country for joint financing, whereby both the term loan as well as working Capital should be shared along with sharing of securities on pari passu basis. However, the borrowers in this category who want to avail such facilities from a single agency i.e. bank or SFC, should be allowed to exercise their option.
(Para 3.18.03)

19)

6.56    For ensuring competitiveness of SSI units, it is necessary to set up units with optimum size of operations and capital. There are a number of agencies in public sector engaged in preparing project profiles on economic sized units. Project Profile work can be undertaken by them also for SSIs. We can also depend on technical consultants in respect of hi-tech or new technology projects. The ultimate decision, however, shall have to be taken by the controlling offices of banks which should periodically advise their branch managers accordingly.
(Para 3.23)

6.56

We commend the recommendation for implementation.

20)

6.58    Banks should consider providing ‘SWIFT’ services in specialised SSI branches catering to big clusters of SSI units engaged in export of goods.
(Para 3.24.02)

6.58

We commend the recommendation for consideration, if feasible.

21)

6.59    It is very essential that the loan applications are sanctioned promptly and normally within one month. Banks should be advised to adopt Committee approach for sanction of the applications.
(Para 3.25.01 and 3.25.02)

6.59

Guidelines to this effect (i.e. Committee approach and time schedule) have already been issued to banks. Loan applications for amounts up to Rs.25,000/- should be disposed of within a fortnight and those for amounts above Rs.25,000/-should be disposed of within 8 to 9 weeks. Banks may meticulously follow the guidelines.

22)

6.61    Regarding loans below Rs.10 lakh, the State Government should provide all facilities and assistance for the recovery of these loans. Special revenue courts should be set up in each State to deal with SSI cases. The State Government should also get in touch with the respective High Courts and get a few Civil Courts (one at every district headquarters with proper infrastructure) designated as Recovery of Bank Dues Courts. These courts should deal with loan recovery matters in a summary manner. Government can also examine treating such loans on the pattern of agricultural loans up to rs.10 lakh as Government dues and recover these as arrears of land revenue. The banks should take advantage of the Lok Adalats and arbitration to settle dues up to Rs.10 lakh. The banks should appoint special officers of designate existing officers having aptitude for work relating to recovery, who should exclusively deal with recovery.
(Para 3.26.03 & 3.26.04)

6.61

Banks may implement the recommendation regarding recourse to Lok Adalats and to appoint or designate special officers exclusively for dealing with recovery.

23)

6.68    The overall interest payable by SSI should remain within the existing parameters fixed by RBI i.e. maximum of PLR plus four per cent. The PLR should take care of the cost of funds incurred by the banks. Additional spreads over the PLR will be used as premium for guaranteeing the repayment of the loan. Naturally, SSI units, with good track record will have to pay lower premium and can derive some advantage out of lower spreads.
(Para 4.01.05)

6.68

We commend the recommendation for implementation.

24)

6.80    It would be appropriate to assess the flow of credit to SSI by using data on disbursement rater than ‘outstanding balances’. The Committee feels that it is possible for banks to achieve a growth rate of 30% p.a. in disbursement terms and accordingly, the banks should be advised to fix their disbursement target along with outstanding balances. Reserve Bank may also advise the banks to pay more attention to the backward States such as Bihar, J & K, M.P. and North Eastern States while fixing the lending targets and seek progress in this behalf separately.
(Para 4.06.07)

6.80

We commend the recommendation for implementation.

25)

6.95    Bankers should publish that it is borrowers’ right to get loans from the bank in case these are merited. The SSI entrepreneurs should also bear in mind that they can get loans only if their projects are viable and they are found to be creditworthy by the banks. Borrowers have also to be clearly told that while it is their right to get the loans, they also have a corresponding duty to earnestly implement their projects and repay the dues of the bank as per the terms agreed to at the time of sanction.
(Para 5.01.01)

6.95

We commend the recommendation for implementation.

26)

6.99    Some special training courses have been designed by Entrepreneurship Development Institute (EDI), Ahmedabad to help bank managers and trainers of bank staff requiring the requisite skills for appraising small projects and the entrepreneurs behind them. RBI may like to advise banks to make use of such training Programmes and incorporate the same in the training courses provided by Bankers Training Institutes.
(Para 5.03.03)

6.99

We commend the recommendation for implementation.

27)

6.109    SSI branches should help their customers in the designing of their bank products and thereby offer a new kind of customised and personalised banking service.
(Para 5.10.01)

6.109

We commend the recommendation for implementation.

28)

6.110    RBI should ask the Public Sector Banks to upgrade skills and training programmes of the bank staff to enable them to deal freely with the appraisal of diverse SSI projects and their credit related needs.
(Para 5.11.01)

6.110

Based on the recommendations of the Nayak Committee, bank have already been issued guidelines in this regard. We commend the recommendation for implementation.

29)

6.111    The aspect of training for the bankers particularly those posted in new SSI branches has to beadequately focussed at the highest level in the bank. The training programmes should attempt to prepare the managers for meeting the challenges involved in dealing with this vital and demanding sector.
(Para 5.11.03)

6.111

Based on the recommendations of the Nayak Committee, banks have already been issued guidelines in this regard. We commend the recommendation for implementation.

30)

6.118    Public and Private Sector Banks should take up schemes in respect of professionals needing financial assistance for meeting their professional requirements including their needs of finance to bankroll their own businesses. One such area where there is requirement for such funds is the computer software business set up by professionals.
(Para 5.13)

6.118

We commend the recommendation for implementation.

31)

6.120    With a view to redress customers grievances, time limits and systems prevalent in banks should be made as transparent as possible and well publicised.
(Para 5.15.11 (1)

6.120

We commend the recommendation for implementation.

32)

6.121   The procedures for making complaints should be simple and as informal as possible.
(Para 5.15.11(2))

6.121

We commend the recommendation for implementation.

33)

6.123    There should be machinery at all Controlling Offices of banks to entertain complaints from the borrowers if the branches do not follow the prescribed guidelines. Regional Offices/Controlling Offices could periodically verify that these guidelines are implemented by branches in actual practice.
(Para 5.15.11(4)

6.123

Banks have already been issued guidelines to set up Grievances Redressal Cell at Controlling Offices vide our Circular RPCD No.PLNFS.186/06.02.28/97-98 of 2^nd August 1998. We commend the recommendation for necessary action.

34)

6.125    Instructions issued by RBI do not percolate to bank branches and these are not meticulously followed by them. For instance, the borrowers availing of credit facilities from a bank find it extremely difficult to shift to another bank. RBI should look into this aspect and ensure compliance by the branches of various instructions/guidelines issused by it in this regard.
(Para 5.16)

6.125

Banks may ensure that the instructions issued by RBI percolate to branches and these are meticulously followed by them.

35)

6.126    It is recommended that the Small Scale Companies who want to have overseas presence should be allowed to invest up to US$ Twenty thousand based on a simple procedure and the banks should assist them for this purpose. This will help SSI units to increase exports and upgrade technology.
(Para 5.17)

6.126

Under the existing arrangement overseas investments by Indians in Joint Ventures are allowed. We commend the recommendation for implementation.

RECOMMENDATIONS

DECISION OF RBI

6.38

The banks should, with the Approval of their Boards, lay down some clear guidelines for computing the working capitallimits for various sub-sectors granted to SSI borrowers, particularly those units where fund based working capital requirements exceed Rs.4 crore.
(Para 3.15.04)

Banks have been advised videcircular RPCD.No.PLNFS.BC. 73/06.02.31/98-99 dated 1.3.99 to provide working capital finance to SSI units having aggregated fund-based working capital limits upto Rs.5 crore computed on the basis of 20% of their projected annual turnover. As regards working capital limits above Rs.5 crores, banks havebeen given freedomto decide their own normsin respect of credit appraisaland assessment of working capital requirements of the borrower vide circular IECD No.23/08.12.01/96-97 dated 15.4.97. Banks may follow the instructions contained in the above two circulars.

6.41

The banks should ensure that specialised SSI branches entertain loan proposals from from the tiny sector and village industries units unhesitatingly. Each such brnach may look after upto 200 units, out of which a minimun of 150 should be fromthe tiny sector with loans less than Rs.10.00 lakh. This ratio should preferably be maintained is case the number of such units at a branch is less than 200
(Para 3.17.02)

Banks may take measures to increase the flow of credit to tiny sector to the stipulated level of percentage i.e. 40% of the allocation made to SSI sector.

6.51  i) 

Only banks should entertain projects both for term loans and working capital of borrowers with loan requirement upto and inclusive of Rs.5.00 lakh.

i)  

We commend the recommendation.

ii)  

Only one organisation, either bank may sanction both the termloan and working capital for projects requiring institutional credit for more than Rs.5.00 lakh and upto and inclusive of Rs.25.00 lakh for projects having loan requirement in excess of Rs.25 lakh, arrangemnets should be made by SIDBI with the Public Sector Banks to have an MOU signed between the SFCs and selected public Sector Banks active in different regions of the country for joint financing, whereby both the term laon as well as working capital should be shared alongwith sharing of securities on pari-passu basis. However, the borrowers in this category who want to avail such facilities from a single agency i.e. bank of SFC, should be allowed to exercise their option. (Para 3.18.02)

ii)  

We commend the recommendation for adoption to the extent feasible.

6.62

The definition of sick SSI unit may be changed to read as under:

1. If any one of the borrowal accounts of the unit remains sub-standard for six months i.e. principal or interest in respect of any of its borrowal accounts has remained overdue for a period exceeding one year.

2. There is erosion in the net worth due to accumulated losses tothe extent of minimum 50% of peak net worth during the previous accounting year, and

3. The unit has been in commercial production for at least three years.
   (Para 3.27.02)

It is not considered necessary to modify the existing definition of sick SSI unit. However, as advised earlier, with a view to arresting tendency of sicknes, banks may pick up the early warning signals and detect sickness at the incipient stage itself and initiate corrective steps promptly even before the unit is classified as sick’.

6.100

RBI should update its instructions relating to the software industry which Were issued during 1988
(Para 5.04)

The Instructions in this regard have since been modified vide circular IECD. No.6/08.12.01/98-99 dated 8.8.98. Banks may follow these instructions.

Industrial sickness causes unemployment, non-payment of State and Central Government dues, blocking of institutional finance and non-utilization of productive assets. There are various factors that can be identified as being responsible for causing sickness. These can be broadly categorized into internal and external factors. The internal factors include a) technical causes such as obsolete technology and non-availability of skilled labour, b) financial causes such as poor resource management, diversion of funds and deficiency of working capital and other funds, and c) managerial causes such as lack of entrepreneurship lack of professionalism and marketing problems. The external factors include a) economic causes such as high cost of inputs, uneconomic size of the project, over estimation of edmand and high break even point, and, b)socio-political causes such as government controls and its fiscal policies such as taxation and non-payment of subsidies and incentives in time, and, lack of physical and social infrastructure.

2.0

Industrial sickness is an inherent part of the process of development. However, concerted efforts are to be initiated by the Govt and other concerned agencies for timely detection of sickness at its incipient stage. There is need for a body of experts to expeditiously determine the preventive, ameliorative and remedial measures that need to be put into force for the rehabilitation of viable sick industrial units, and, enforce the measures considered appropriate for the rehabilitation. At the same time, it needs to take active measures for expeditious winding up of non-viable sick industrial units.

3.0

To facilitate the revival of viable sick industrial units as also the winding-up of non-viable sick units, Government of India have set up a statutory board viz. Board for Industrial and Financial Reconstruction (BIFR) under the Sick Industrial Companies (Special Provisions) Act, 1985. Small Scale Industries do not, however, come under the purview of BIFR. Government of Gujarat had, therefore, introduced a Scheme for rehabilitation of SSI and non-BIFR sick industries vide Government of Gujarat IM&ED Resolution No.SIU-1091/3224-CH dated 20^th June 1991. The Scheme has been in operation for nearly seven years. As the impact of the Scheme in tackling the problem of sickness in the SSI sector was not found satisfactory, the State Government have reviewed the Scheme and decided to modify it suitably for effective rehabilitation of Small Scale and non-BIFR Sick Industries.

4.0

In a meeting with the bankers held on 22^nd May 98 by Hon. Chief Minister, the issue of revival and rehabilitation of the SSI units was discussed in detail. The bankers unanimously agreed about the imperative need to initiate proactive measures in this direction and assured the State of their total commitment in view the RBI guidelines. Two important decisions that were arrived at in this meeting were:

5.0

 Title : This Scheme shall be known as "Scheme for Rehabilitation of Small Scale and non-BIFR Sick Viable Industries".

1. Operative Period:This Scheme shall come into operation with effect from the date of issue of this order.

2. Applicability of the Scheme : The Scheme shall be applicable only to Small Scale industrial units/ancillary units in the manufacturing sector whose total investment in plant and machinery exceeds Rs.5 lacs. The Scheme would not be applicable to Small Scale Service/Business Enterprises with investment upto Rs.5 lacs in fixed assest excluding land and building as defined by the Ministry of Industry, Government of India.

6.0

Definitions

1. Sick Unit : A unit is considered sick when any of its borrowal accounts has become a doubtful advance as defined by Reserve Bank of India i.e. principal or interest in respect of any of its borrowal accounts has remained overdue for a period exceeding two and a half years and there is an erosion in the net worth due to accumulated cash losses to the extent of 50% or more of its peak net worth in the preceding two accounting years.

2. Net Worth : In case of a limited company net worth means the sum total of paid up capital and free reserves. In case of a partnership/proprietary concern net worth means the sum total of partners’/proprietor’s capital and free reserves.

3. Free Reserves : Means all reserves created out of profit and share premium account but dose not include reserves created out of revaluation of assets, written back depreciation under amalgamation provisions.

4. Bank : Means any public sector bank, District Co-operative Bank, Urban Co-operative Bank and any other bank which is a scheduled bank in terms of the second Schedule to the Reserve Bank of India Act.

5. Financial Institution : Means Industrial Development Bank of India, Industrial Finance Corporation of India, Industrial Credit and Investment Corporation of India, Industrial Investment Bank of India, Small Industries Development Banks of India, Gujarat Industrial Development Corporation Gujarat Industrial Investment Corporation Ltd., Gujarat State Financial Corporation or any other institution which is authorized under any law to advanceterm loans to industrial units.

6. Viable Sick Unit : Means a small scale or ancillary unit in the manufacturing sector with investment in plant and machinery over Rs.5 lacs that would be in a position, after the implementation rehabilitation package spread over a period not exceeding five years, to repay the restructure loans and interest fully to the banks/financial institutions as well as the dues of the State Govt Central Govt. and Gujarat Electricity Board/Electricity company etc. within a period of ten year from the date of implementation of the package.

7. Dues Payble: Means amounts outstanding as dues to all statutory authorities like Commission Sales Tax, Collector of Customs and Central Excise, Commissioner of Electricity Duty Commissioner of Income Tax, Regional Provident Fund Commissioner, Gujarat Electricity Board or such other authorities which have legal claims to receive payment from the unit.

8. GITCO: Means Gujarat Industrial and Technical Constancy Organization Ltd.

9. State Government: Means Government of Gujarat.

10. Special Call: Means a cell specially created by the Industries Commissioner for purpose of operation of Scheme.

11. Urban Land Ceiling Act: Means the Urban Land (Ceiling and Regulation) Act, 1976 (Act No 33 of 1976) enacted by the Government of India as amended from time to time.

12. Gujarat Board for Industrial and Financial Reconstruction (GBIFR) : Means the board appointed by the State Government for the implementation of this scheme.

13. Eligible Assets: Means the assets created during the period of two years from the date of sanction of the rehabilitation package subject to limit of additional investment as approved by GBIFR for rehabilitation of the sick unit. No assets acquired, created and/or paid for after the period as mentioned above shall be considered eligible.

14. Eligible Fixed Capital Investment: Means investment in:

    1. Land: The actual price paid for the land to the extent needed for the industrial unit excluding land development chares but including expansion and modernization within the period of and as part of the project for rehabilitation.

    2. New Building: Means additional building constructed to accommodate additional machinery acuired for the purpose of balancing, expansion and modernization within the period of and as part of the project for rehabilitation.

    3. Other Construction: Means other civil work required for installing plant and machinery of required for effluent treatment plant.

    4. Plant and Machinery: Means new plant and machinery and imported second hand mechienry and installation expenditure capitalized for plant and machinery, capital interest during construction cost not exceeding 5% of the total fixed capital investment.

    5. Tecnical Know-how Fee : Technical know-how fees or drawing fees paid in lump sum to foreign suppliers as approved by Govt. of India in acordance with the policy in force from time to time or paid to laboratories recognized by the State Govt. or Central Govt.

    6. The amount spent on rationalization and other dues of workers.

    7. Amount spent on plant for pollution control measures including facility for collection and treatment of effluents and hazardous wates.

    8. Amount spnt on captive power generating sets for the connected load including the connected load for original plant.

    9. Assets acquired under DPG scheme, Hire Purchase Scheme or Instalment System would be considered eligible excluding the cost of interest subject to condition that the industrial unit give a specific legal undertaking that within the eligibility period the unit shall not return the saidassets to the organization from whom it was acquired, failing which the amount of subsidy and sales tax deferment amount becomes refundable and recoverable with penal interst at 24% p.a. within one month from the date of discontinuation of agreement under DPG. Hire Purchase Scheme or Instalment System.

    10. Items specifically excluded: Working capital (whether raised through Bank or otherwise and including working capital margin), goodwill fees, engineering fees, commissioning fees, commissioning expenses, royalties (capitalized or otherwise), pre-operative expenses, expenditure on trucks, cares, vans, trailers, tractors and transport vehicles and catalysts will not be considered as eligible fixed investment for the purpose of this Scheme. Plant and machinery used or installed anywhere in India and shifted purchased, leased, hired, licensed or transferred in any manner will not be considered as fixed capital investment eligible for these incentives.

7.0

Reliefs and Concessions

The State Government has accepted in principle that the parameters applicable to medium and larges-scale units for the purpose of bifr would also apply to small - scale or ancillary sick industrial units while formulating rehabilitation package. Accordingly, the following reliefs and concessions are being made available.

7.1

Non - Fiscal

1. Relaxation from power cuts vide Govt. Notification: E & PD No. GHH/92/ELC/1492/494(1)/K1 dated 16-10-1992.

2. Grant of permission to mortgage surplus land that has been exempted under Sec. 20 of Urban Land Ceiling Act in favour of banks/financial institutions.

3. State Government shall not insist upon bank guarantees against arrears due to it.

4. Labour Department would take proactive action for amicable settlement of disputes between management and representatives of labour so as to ensure success of the rehabilitation package with the co-operation of the workers.

7.2.0

Fiscal Concessions

Eligible units under the Scheme will be entitled to the following reliefs and concessions from vairous Departments/agencies of the State Govt.

7.2.1

Reliefs in Payment of Sales Tax

1. Deferement of Arrears: Arrears of payment of puchase tax, sales tax and interest towards non-payment of sales tax, shall be deferred for two years from the date of grant of revival package. The amount so deferred will be recovered in four equal half-yearly instalments and will carry interest at 12% p.a. from the date of deferment till the date of final payment of the deferred amount.

2. Sales Tax Deferment: Recovery of sales tax collected by the unit on sale of goods manufactured by it including intermediate products, by-products and scrap generated as incidental to manufacturing activities shall be deferred for a period of two years from the date of santion of the rehabilitation package. This relief/concession may be extended after a review for a further period of two years and for one more year after another review by the GBIFR.

   The amount so deferred will be recovered in six to ten equal half-yearly instalments beginning from the financial year subsequent to the year in which the relevant period expires. This is in line with theguidelines of BIFR for rehabilitation of sick industrial companies under SICA.

   The deferred amount will attract interest at 12% if repaid as per the above schedule. However, in case of default, interest at 24% p.a. will be charged.

   In order to obviate the adverse effects of Section 43-B of the Income Tax Act, (whereby the deferred amount of sales tax is included in the taxable income of the respective unit), the units which are granted deferment of Sales Tax dues shall be eligible for interest free deemed loan in lieu of sales tax deferment, through GIIC or GSFC on the same lines as indicated in Industries & Mines Department G.R.No.INC-1087-143-I dated the 21^st March, 1988 as amended from time to time.

7.2.2

Reliefs from the Energy Department

Electricity duty payable by the unit in respect of energy consumed will be deferred for a period of two years from the date of sanction of the rehabilitation package. This relief/concession may be extended after a review for a further period of two years and for one more year after another review by the GBIFR. The amount so deferred will be recovered in six to ten equal half-yearly instalments beginning from the financial year subsequent to the year in which the relevant period of two years expires. The deferred amount will not attract interest if repaid as per the above schedule. However in case of default, interest at 24% p.a. will be charged.

7.2.3

Reliefs from G.E.B./Electricity Company

1. An eligible unit under the scheme would be granted the following reliefs by GEB/Electricity Company.

2. Minimum charges would be exempted during the closure period. However, there shall not be any refund of minimum charge if the unit has already paid it.

3. In cases where power has been disconnected due to non-payment of bills or the agreement being terminated ex-parte, no fresh security deposit would be insisted upon.

7.2.4

Continuation of Incentives sanctioned earlier

A unit which has been closed due to sickness during the pendency of the Incentive Scheme of the State Government normally faces recovery of the incentives enjoyed by it. However the GBIFR may waive the recovery and consider rehabilitation package under this Scheme provided the unit resume production for at least 5 years and the remaining period of incentives under the Incentive Scheme is built into the rehabilitation package with or without modification:

7.2.5

Additional Concessions

In addition to the above fiscal concessions, the GBIFR may recommend to the concerned authorities for granting of following additional concessions.

1. Deferment of arrears of water charges either by lrrigation Department or Gujarat Water Supply and Sewerage Board. However, the current dues are required to be paid in time as a part of the rehabilitation package.

2. Reduction of interest on delayed payment be Gujarat Electricity Board/Electricity Company to 12% and waiver of extra service charges for reconnection of power supply.

8.0

GUJARAT BOARD FOR INDUSTRIAL AND FINANCIL RECONSTRUCTION (GBIFR)

Government of Gujarat is pleased to constitute the Gujarat Board for Industrial and Financial Reconstruction for rehabilitation of SSI and non-BIFR viable sick units with the following membership :

8.1

The Chairman, GBIFR, may co-opt. additional members as deemed necessary. The GBIFR shall have a minimum quorum of seven members, which shall include the following:

9.0

PROCEDURE

1. Application for Registration

   1. Financial institutions or banks desirous of rehabilitating a sick unit financed by them may apply to the Special Cell in the Industries Commissionerate in the prescribed format for availing of reliefs and concessions.

   2. Any sick non-BIFR/SSI unit can also approach the Special Cell directly by applying in the presribed format.

   Such applications should be accompanied by a proposed rehabilitation scheme that envisages full repayment of loans and interest to the banks/financial institutions as well as dues of the State Govt./GEB/Electricity Company. Further the application should also be accompanied by the audited accounts of the unit for the preceding two years. The auditors’ remarks accompanying the accounts have to be fully dealt and complied with.

2. Preliminary Scrutiny

   The Special Cell at the Industries Commissionerate will carry out a preliminary scrutiny mainly on the following aspects:

   1. Is the applicant unit eligible for grant of reliefs under this Scheme in terms of
      para 5 (ii)?

   2. Is the application unit actually sick as defined in Para 6 (i) herein?

   3. Is the application accompanied by a proposed rehabilitation scheme?

   4. Is the application accompanied by the unit’s audited accounts for proceeding two years?

   5. Are the auditor’s remarks dealt and complied with fully and satisfactorily?

   The answers to the above questions are in the affirmative, the Special Cell shall register the application and give a registration number. Such a scrutiny will have to be completed within a period of three working days.

3. Whether a deserving case

   After registering the unit’s application, details thereof shall be circulated amongst the concerned members of the GBIFR who will be requested to give their views, within a period of fifteen days, mainly on the following aspects.

   1. Whether in their opinion, the unit deserves nursing assistance?

   2. If not, what are the concrete reasons for having such a view, say siphoning off of funds by the promoter, mismanagement and so on.

   3. In case of sickness due to mismanagement, does the concerned member have any alternative management inmind?

   The views of the concerned members as well as other relevant issues should be discussed in the subsequent meeting of GBIFR following the date of registration.

4. Reference to GITCO/Other Consultants

   If the financing bank and/or financial institution and the various State Government agencies agree that the unit deserves to be given reliefs and concessions with or without any change in management, the case would be referred to GITCO or to other consultants in the Directory of Industrial Consultants published by I.D.B.I.to:

   1. study if the unit in question is a ‘viable sick unit’ as defined in para 6(v), and

   2. If Yes, prepare a rehabilitation package for the unit under broad parameters, which should be decided upon by GBIFR. The package should also incorporate the reliefs and concessions to be granted by the various agencies and sacrifices to be borne by each of them, which should also be quantified.

   GITCO/consultant should complete its study within sixty days and submit its report to the Special Cell. While half of the cost of the study shall be paid in advance by the unit, the rest will be borne by the State Govt. through special budgetary provisions.

5. Circulation amongst the members of GBIFR

   The Special Cell would examine the report of GITCO to ensure that it conforms to the guidelines laid down by the GBIFR. Thereafter the report would be circulated amongst its members.

6. Sanctions by the concerned agencies

   After receipt of the report from the Special cell, the concerned agencies (other than the Departments of the State Govt. and its agencies) shall grant their consent for the reliefs and concessions/sacrifices as envisaged, within a period of thirty days. In case they are not in a position to grant their consent within this time period, they should advise GBIFR accordingly, giving cogent reasons for non-grant of the reliefs and concessions as envisaged.

   Decisions of GBIFR would be binding on all the Departments of the State Government. If however any Department wishes to get any decision reconsidered, a proposal to that effect must be moved for the consideration of the State Government through the Industries & Mines Department.

   In case the financing bank and/or financial institution are not agreeable to sanction rehabilitation assistance to the unit, they shall have to state cogent reasons for the consideration of GBIFR.

7. Sanction by GBIFR.

   At the end of the aforesaid period of thirty days, GBIFR shall discuss the unit’s case in a meeting where a final decision on the GBIFR package would be taken.

8. Time frame for issuance of order

   The respective Departments of the State Government or its agencies participating in the rehabilitation programme of sick unit shall sanction the reliefs as decided by the GBIFR under the provisions of the respective Act/Rules, policy or provisions. They shall issue final orders sanctioning reliefs/concessions to the unit within one week of the receipt of the minutes of the meeting of the GBIFR wherein the decision to grant relief to the concerned sick unit has been taken, failing which these shall be deemed to have been given.

10.0

QUANTUM OF FINANCIAL SACRIFICE

While working out the rehabilitation package, it should be ensured that the amount of financial sacrifice to be borne by the State Govt./GEB/Electricity Company DOES NOT exceed the sacrifices envisaged from the banks/financial institutions. This condition shall not apply in case of a unit that has not availed of any finance from any bank/financial institution on the date it approaches the State Government for assistance under the present package. The amount of financial sacrifice shall be computed as follows.

1. A unit that has been granted reliefs/instalments in the payments of arrears of State Government dues with 12% rate of interest. The State Government normally recovers arrears with a penal rate of interest at 24% p.a. The difference in the rates of interest between the two i.e. interest at 12% p.a. will therefore be considered as the financial sacrifice from the State Government.

2. A unit that has been granted deferment of current dues of State Government, if paid during the stipulated period of the rehabilitation package. In such cases, the amount of concession in the interest recovered on the deferred amount 15% p.a. less 12% p.a. on the deferred dues from the date of deferment till the stipulated date of final payment may be considered as the amount of financial sacrifice from the State Government.

3. Reliefs and concessions from GEB/Electricity Company may be in the form of exemption from payment of

   1. Fresh security deposit in case power has been disconnected due to non-payment of bills or due to ex-parte termination of agreement by the energy supplier and

   2. Minimum charges during closure period

   In such cases the amount of security deposit/minimum charges so exempted together with interest at 15% p.a. from the stipulated date of payment of the deposit till the date of termination of the rehabilitation package may be considered as the amount of sacrifice.

11.0

TERMS AND CONDITIONS FOR GRANT OF RELIEFS

1. GBIFR should carry out periodical reviews, apart from annual review of the performance of the unit under rehabilitation. During the period of rehabilitation the unit shall arrange for auditing of its accounts by a firm of chartered accountants as approved by GBIFR.

2. The unit which avails of reliefs under this Scheme shall neither declare dividend or nor pay interest on the deposits put up by the promoters during the currency of the rehabilitation package.

3. The industrial unit availing of the incentives under this Scheme shall instal and effectively operate and maintain pollution control measures as per standards prescribed and approved by competent authority is this regard.

4. The industrial unit shall have to remain in production continuously, at least, till the expiry of the rehabilitation period granted by GBIFR.

5. The industrial unit shall furnish details regarding production, employment or any other information which the State Government and GBIFR may require from time to time.

6. The unit that avails of incentives under the Scheme shall have to employ local persons to the extent of 85% of all employees. The unit will be required to produce to the competent authorities a list of persons recruited for satisfying the consition of employment of local persons. The above mentioned employment percentages shall have to be maintained by the industrial unit during the period of availment of such incentives. In case the unit fals to fulfill this condition, the amount of incentives will be liable to be recovered as arrears of land revenue.

7. Units opting for sales tax deferment shall be required to furnish secruity to sales tax authorities against the deferred amount of sales tax by way of pari passu charge, second charge or personal guarantee in the form of security bond as perscribed under this Department’s GR No.INC/1087/2138/I dated 1^st August 1990.

This issues with the conceurrence of

1. Finance Department dated 19.7.98

2. Rvenue Department dated 22.6.98

3. Energy & Petrochemicals Department dated 14.8.98

4. Labouar & Employment Department dated 6.6.98

Recommendation

Comments

1.

6.39    Where the banks have a first charge over fixed assets, they should not ask for cash margins from SSI borrowers on non-fund based facilities, provided there is adequate surplus of security to cover their exposure.
(Para 3.16)

6.39

Banks may take appropriate decisions based on the merits of the case where adequate surplus of security is available after following the usual norms in this regard.

2.

6.46    Banks should undertake research activities on credit related policies in relation to specific sectors of SSI for a consistent medium term policy formulation purposes
(Para 3.17.07)

6.46

There is no machinery or organisation which undertakes research on credit related policies in relation to specific sectors of SSI. The opening of specialised branches has offered a forum to the banks to take up such activities on their own and use such information to devise new products and norms for different sub-sectors of the SSI. The banks may use this opportunity to start some research projects and studies on the subject.

3.

6.54    Special term loans for meeting per-operative expenses, technical fee, collaboration costs, marketing expenses and investment in research and development facilities, where no tangible primary security is being created, may be permitted to be extended by banks/SFCs on liberal terms of margin and repayment period provided existing securities are adequate to cover such term loans also.
(Para 3.21)

6.54

Bank may take appropriate decisions based on the merits of the case.

4.

6.75   i.    A revised floor level of Rs. 2.00 lakh for exemption of borrowal accounts for obtention of collateral securities is recommended as against the existing level of Rs.25000/-. In respect of other accounts, the collateral security including third party guarantee should be in relation to the risk undertaken.

6.75   (i)

The exemption limit of borrowal accounts for obtention of collateral security/third party guarantee is raised to Rs.1 lakh from the present level of Rs.25,000/-. Other policy guidelines on the subject i.e. wherever feasible, equitable mortgage instead of registered mortgage should be taken, all viable proposals should be considered on merits even though no collateral secuity by way of immovable properties or third party guarantee is offered in cases where primary security is inadequate of for other valid reasons and proposals otherwise viable should not be turned down merely for want of such collaterals, may continue to be obseved.

ii.   The Committee also suggests that for loans upto Rs. 10.00 lakh, the value of collateral security of the net means of third party guarantee should not be more than 50% of the fund and non-fund based exposure of the bank/financing institution.

ii & iii

It has been left to the commercial judgement of banks.

iii.   Beyond loans of Rs. 10.00 lakh, the banks may exercise their commercial judgement in determining the level of collateral or third party guarantee. However, in no case a bank should obtain a collateral security or third party guarantee which is in excess of the loan ammount.

iv.   Reserve Bank of India may also prescribe that at least 10% of the SSI loans sanctioned by a bank branch should be without collateral guarantees.
(Para 4.05.03)

iv

It is not considered necessary to prescribe any limit in this regard.

5.

6.96    Banks should develop a set of written loan policies. Scuh policies should, inter alia, specify explicitly customer and group exposure limits, standards for documentation, sectoral exposure limits and delegation of powers. The smallest customer should expect and receive the courtesy and sevice reserved today for the biggest company. The prescribed comprehensive code of Banking Practices should be drawn up expeditiously outlining standards for disclosure of information about the bank’s services and available products and the rights and obligations of its customers.
(Para 5.11.08)

6.96

The recommendation may be implemented.

6.

6.114    While fixing accountability a line should be drawn to separate malafide decisions from normal bonafide credit decisions in order to keep the morale of the staff high.
(Para 5.11.08)

6.114

The recommendation may be implemented.

7.

6.115    To instill confidence in the staff and encourage them to make decision including some bonafide mistakes, there is a need to evolve in Public Sector Banks a sysem of maintainging a Balanced Score Card for assessing of performance of each officer in taking credit decisions.
(Para 5.11.09)

6.115

The recommendation may be implemented.

8.

6.117    Computerised information and monitoring system should be developed by banks for SSI units. There should also be a provision for inputs from the individual industrial units themselves either directly or through the SSI association. SIDBI should be the nodal institution for this task of furnishing client input for inclusion in the information system.
(Para 5.12)

6.117

Banks may take necessary action in regard to development of computerised information and monitoring system for SSI units.