Embed Size (px)
Citation preview
Page 1 of 47
Appendix – I
LOAN POLICY – FY 2018
PARA
NO.
CONTENTS PAGE
NO.
1 OVERVIEW 3
1.1 PREFACE 3
1.2 FRAMEWORK OF THE LOAN POLICY 3
1.3 OBJECTIVES OF THE LOAN POLICY 4
1.4 OVERVIEW OF LOAN POLICY 4
1.5 VALIDITY/ AUTHORITY OF LOAN POLICY 4
2 CREDIT MANAGEMENT POLICY 5
2.1 THRUST/NICHE BUSINESS AREAS 5
2.2 MICRO, SMALL & MEDIUM ENTERPRISES 6
2.3 PRODUCT MANAGEMENT 6
2.4 PROCESS MANAGEMENT 7
3 EQUITY & RISK CAPITAL ASSISTANCE 9
3.1 INTRODUCTION 9
3.2 PRODUCT PROFILE 10
3.3 DUE DILIGENCE 11
3.4 ASSISTANCE THROUGH FOCUSED EQUITY AND VENTURE DEBT FUNDS (VCFs /
PE FUNDS) 11
4 ASSISTANCE FOR SERVICE SECTOR 12
4.1 INTRODUCTION 12
4.2 THRUST BUSINESS AREAS 12
4.3 APPROACH TO FINANCING SERVICE SECTOR 12
5 ASSISTANCE TO SECTORS UNDER MAKE IN INDIA 13
6 ASSISTANCE FOR SUSTAINABLE DEVELOPMENT 14
6.1 INTRODUCTION 14
6.2 OBJECTIVES 14
6.3 SCHEMES OF ASSISTANCE FOR SUSTAINABLE DEVELOPMENT 14
7 ASSISTANCE FOR RECEIVABLE FINANCE 16
7.1 INTRODUCTION 16
7.2 THRUST BUSINESS AREAS 16
Page 2 of 47
7.3 PRODUCT RATIONALISATION 17
8 INDIRECT LENDING 17
8.1 INTRODUCTION 17
8.2 ASSISTANCE TO STATE FINANCIAL CORPORATIONS (SFCs) 18
8.3 MONITORING OF SFCs 18
8.4 ASSISTANCE TO SCHEDULED COMMERCIAL BANKS 18
8.5 ASSISTANCE TO SCHEDULED COOPERATIVE BANKS (SCBs) & REGIONAL
RURAL BANKS (RRBs) 18
8.6 ASSISTANCE TO SIDCs/SIICs 18
8.7 ASSISTANCE TO NBFCs 19
8.8 ASSISTANCE TO SMALL FINANCE BANKS 19
9 ASSISTANCE FOR INFRASTRUCTURE PROJECTS 19
10 WORKING CAPITAL ASSISTANCE 20
Page 3 of 47
PARA
NO.
CONTENTS PAGE
NO.
11 SIDBI FOUNDATION FOR MICRO CREDIT (SFMC) 20
11.1 INTRODUCTION 20
11.2 MICRO FINANCE SECTOR UPDATE 20
11.3 FOCUS 22
11.4 PRODUCT PROFILE 23
12 CREDIT RISK MANAGEMENT 24
12.1 CREDIT RISK STRATEGY 24
12.2 RISK MEASUREMENT 25
12.3 RISK MITIGATION 25
12.4 EXTERNAL RATINGS 26
12.5 PRICING 26
12.6 RISK CATEGORISATION OF CUSTOMERS FROM AML PERSPECTIVE 26
12.7 MANAGEMENT OF ASSET CONCENTRATION 26
13 CONCLUSION 27
ANNEXURE – I: BENCHMARKS FOR SANCTION 28
ANNEXURE - II: HIGHER INVESTMENT GRADE RATINGS – SELECT SECTORS 31
ANNEXURE – III: EXPOSURE CAPS 32
Page 4 of 47
LOAN POLICY – FY 2018
1. OVERVIEW
1.1 PREFACE
The significant role played by the Micro, Small and Medium Enterprises
[MSMEs] in the Indian Economy is well known. MSMEs make significant
contributions to India’s gross domestic product [GDP], manufacturing output,
exports and employment generation. The MSME sector is the second largest
contributor to country’s GDP. MSMEs also help address geographic disparities
through dispersal of entrepreneurial activities. They are considered to be the
nurseries for entrepreneurship, often driven by individual creativity and
innovation. MSMEs are important for the national objectives of growth with
equity and inclusion.
In order to address the challenges of the MSMEs to scale up their performance
and competitiveness, the Bank has adopted a multi-pronged approach to meet
their requirement of capital, term credit, working capital, receivable finance,
infrastructure (in the cluster), etc., through various instruments/products of
assistance.
1.2 FRAMEWORK OF THE LOAN POLICY
1.2.1 The Policy lays down broad approach, which the Bank adopts in respect of
different credit processes, credit risk management, control and monitoring
and is supplemented by specific circulars, manuals, guidelines issued from
time to time. The policy will be amended from time to time in the light of
changing business and economic environment and will be reviewed
annually. The focus of the Loan Policy 2018 is on quality asset growth
coupled with growth in net income in each segment of business while
maintaining the focus on customer needs.
Page 5 of 47
1.2.2 The Bank would also pursue the ways for generating non-interest / fee
based income. As regards indirect finance business, cautious dispensation of
credit with regard to state level institutions would continue.
1.2.3 The Loan Policy covers rupee as well as forex lending, risk capital and micro
finance operations of the Bank. Operations under Bank’s Treasury are
excluded from the purview of this policy.
1.2.4 The Bank would provide financial assistance to MSMEs for the eligible
activities, irrespective of the nature of constitution of the enterprise.
Accordingly, assistance could be extended by the Bank to an individual,
proprietorship, association of persons, partnership firm, limited liability
partnership, company, society or trust.
1.3 OBJECTIVES OF THE LOAN POLICY
The broad objectives of the Loan Policy of the Bank are outlined hereunder:
(i) To build and sustain a high quality portfolio well diversified in terms of
clients, markets and products with an acceptable risk adjusted yield.
(ii) To establish a comprehensive credit strategy to fulfill the corporate
mandate as per the SIDBI Act, 1989, amended from time to time, and
undertake all such activities, directly or indirectly, that supports the MSME
sector.
(iii) To pursue product innovation by the Bank based on market requirements.
(iv) To promote inclusive growth through micro finance and risk capital.
(v) To strengthen the risk management systems for appropriate pricing of
credit risks and ensure close monitoring of the credit portfolio.
(vi) To build strong alliances with intermediaries for tapping new business
areas.
1.4 OVERVIEW OF LOAN POLICY
Page 6 of 47
The strategy for lending takes into account the Bank’s approach for developing
a healthy credit portfolio, its management and risk mitigation. Accordingly, the
Loan Policy of the Bank broadly covers the following aspects:
Credit Management Policy
Business Policy of Verticals
Credit Risk Management
1.5 VALIDITY/ AUTHORITY OF LOAN POLICY
1.5.1 The Loan Policy is the principal document for the credit operations of the
Bank, duly approved by the Board of Directors and is expected to serve as the
guiding document for lending operations of the Bank.
1.5.2 This Loan Policy shall remain in force till the next revision is carried out and
disseminated, which will be on annual basis.
1.5.3 The Regional Offices (ROs)/ Central Loan Processing Cells (CLPCs)/ Branch
Offices (BOs) including XBOs are authorized to act upon this Policy on its
issuance by Head Office (HO). Clarifications / further guidelines, if needed,
would be issued by Risk Management Vertical (RiMV)/ concerned Business
Vertical.
1.5.4 The Loan Policy guidelines will be applicable to all the facilities extended to
various customers.
1.5.5 The Bank will abide by all the guidelines, directives and advices of Reserve
Bank of India as may be in force from time to time. The product verticals
would align their guidelines/ master circulars relating to the products,
procedural aspects of credit appraisal, processing, sanction, documentation,
etc. with the Loan Policy framework.
2. CREDIT MANAGEMENT POLICY
Page 7 of 47
The business development strategy would be supported by a prudent Credit
Management Policy. The market demand to improve products & processes
would be balanced with exercise of sufficient control on the credit delivery
processes so that exercise of prudence is not sacrificed.
2.1 THRUST/NICHE BUSINESS AREAS
The Bank has identified the following to be the thrust/niche business areas:
• Sectors under important missions of the central government such as “Make
in India”, “Zero Defect Zero Effect” and “Digital India” etc.
• Green finance to promote environmental sustainability through energy
efficiency, cleaner technologies and adoption of renewable energy etc.
• Equity and mezzanine products like Risk Capital (including structured debt),
Start-up schemes, Growth Capital, Fund-of-Funds, etc.
• Service sector
• Receivable finance
• Indirect lending viz. refinance to banks/ Financial Institutions (FIs),
assistance to microfinance institutions (MFIs) and non-banking finance
companies (NBFCs), resource support to public financial institutions (PFIs)
and public sector undertakings (PSUs) benefiting MSME sector, etc.
• MSME linked infrastructure finance
• Cluster level interventions
While the Bank will maintain its emphasis on financing niche areas, it shall
continue to provide assistance to all eligible MSMEs to meet their various
fund and non-fund requirements.
Page 8 of 47
2.2 MICRO, SMALL and MEDIUM ENTERPRISES
The definitions adopted for manufacturing and service sector activities under
Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 are as
under:
For manufacturing enterprises, a list of equipments to be excluded for
ascertaining the eligible investment in plant and machinery is already notified
under MSMED Act.
The activities being financed/to be financed by the Bank, would include
enterprises eligible under the definition of MSMED Act, both manufacturing
and service enterprises and also, other service sector projects as approved by
the Bank with focused approach on the MSME linkages of the assisted
projects.
The Bank also extends assistance to MSME units which would graduate out of
the MSME category with the said assistance from the Bank, with appropriate
checks.
2.3 PRODUCT MANAGEMENT
Enterprise
Category
Manufacturing
(Original Investment in P&M)
Services
(Original Investment in
Equipment)
Micro Up to `25 lakh Up to `10 lakh
Small Upto `500 lakh Upto `200 lakh
Medium Upto `1000 lakh Upto `500 lakh
Page 9 of 47
2.3.1 Benchmarks for Sanction:
The benchmarks for sanction [BfS] as applicable to various products of the
Bank are given in Annexure I. Relaxation cap has also been prescribed against
BfS norms. However, in respect of renewals at current level or reduced level,
delegated authority may relax the BfS norms, beyond relaxation caps specified
for the respective Committees, provided suitable risk mitigants are put in
place.
Further, Central Credit and Investment Committee [CCIC] - CGM for proposals
up to the delegation of Regional Credit, Settlement and Investment Committee
[RCSIC], CCIC - DMD for proposals up to the delegation of CCIC-CGM and in
other cases, Executive Committee [EC], can consider relaxations beyond the cap
prescribed in the Policy on the merits of individual credit proposals. However,
it should be ensured that rationale for seeking such relaxations/deviations
together with risk mitigation measures are suitably brought out in the
appraisal memorandum. Further, additional risk premium, if any to be charged
for such relaxations beyond cap, would be decided by the delegated authority.
2.3.2 Facilitation for Product Development /Innovation
2.3.2.1 The Bank has put in place a suitable mechanism to understand the
business needs of the customer and address them swiftly. Accordingly, Product
Innovation and Review Committee (PIRC) at the HO level consider and approve
product innovations and their test marketing. A suitable exposure cap could
also be fixed for such test marketing proposals to be monitored by the
concerned product vertical.
2.3.2.2 Apart from approving products, PIRC also approves structuring of
specific arrangements in a cluster or around a large corporate/ OEM where
several MSMEs are expected to be benefited. Such arrangements could have
different dispensations than those followed for regular credit products.
Page 10 of 47
2.3.2.3 The areas generally expected to be amenable to product innovation are
service sector segments like organized retailing, IT & IT enabled services,
entertainment, cash flow/ rent discounting, cash flow management products
for MSME segment, cluster specific products, etc.
2.3.2.4 The new credit products proposed to be introduced or major changes
in existing products / credit processes would be duly signed off by Risk
Management Vertical.
2.3.3. Coverage under Guarantee schemes
The credit facilities to the eligible MSE customers may be generally covered
under guarantee schemes operated by Credit Guarantee Fund Trust for Micro
and Small Enterprises (CGTMSE), National Credit Guarantee Trustee Company
(NCGTC) etc., as applicable.
2.3.4. Cross-selling with Government Schemes
The products of the Bank would also be dovetailed with the schemes of
Government of India [GoI] and state governments, wherever feasible, to
improve the viability of the assisted projects and growth in overall asset base
of the Bank.
2.4 PROCESS MANAGEMENT
2.4.1 Delegation of Powers
The key tool for managing the internal processes of the Bank is the Delegation
of Powers (DoP) to various committees and the individual functionaries of the
Bank. It also puts in place suitable system of checks and balances in the credit
or investment related decision processes.
2.4.2 Appraisal process
Page 11 of 47
2.4.2.1 The credit proposals for term loan and working capital assistance to
MSMEs would be appraised in Credit Appraisal and Rating Tool (CART).
However, credit proposals falling under commercial real estate (CRE), secured
business loan (SBL), asset light1 and other cash flow based financing
categories. Infrastructure and any other new products may be appraised
outside CART in detailed appraisal note (DAN).
2.4.2.2 In view of relatively high delinquency levels in certain sectors, the Bank
would adopt a cautious/selective approach for financing under these sectors
with better risk mitigation. Currently these sectors are textiles, drugs &
pharmaceuticals, hotels, infrastructure, food & food products, hospitals and
iron & steel. The list may be modified during the year based on review of NPA
performance and other factors.
2.4.2.3 There exists significant opportunities for assistance to Commercial Real
Estate (CRE) projects, particularly keeping in view the significant MSME linkages
of such proposals. In view of risks inherent in such projects, risk mitigants at
project/ proposal specific level would be incorporated with due care while
structuring the assistance.
2.4.2.4 The Bank’s current guidelines on due diligence with regard to obtaining
satisfactory credit reports, undertaking visits, due diligence of suppliers
/contractors etc., checking of CIBIL/Credit Information Companies (CICs)
database for consumer/commercial credit information reports, KYC and AML
norms, checking of RBI defaulters list, and CRILC database, caution advices etc.,
guidelines on connected lending, multiple banking arrangements, NOC from
existing lenders, etc., wherever applicable, shall be followed.
1 Projects in the service sector which do not create substantial tangible fixed assets and invest in light
assets but generate comfortable cash flows.
Page 12 of 47
2.4.2.5 No additional facilities would be granted by the Bank to the wilful
defaulters as identified by it and those appearing in the list as
published/disseminated by RBI/CICs. In addition, such companies/ entities
(including their entrepreneurs / promoters) where the Bank has identified
siphoning / diversion of funds, misrepresentation, falsification of accounts and
fraudulent transactions would be debarred from the Bank’s exposure, for
floating new ventures for a period of 5 years from the date of removal of their
name from the list of wilful defaulters.
2.4.3 Fair Practices Code for lenders/ Code of commitment to Micro and Small
Enterprises [MSEs]:
Fair Practices Code for Lenders, as per RBI guidelines, has been adopted by the
Bank and hosted on Bank’s website. The Code sets out the guidelines for
processing of loan applications, appraisal, disbursement, post-disbursement
supervision, etc. A Grievance Redressal Mechanism has also been put in place
to resolve the disputes arising out of the Fair Practices Code. The Bank has
adopted the Code of commitment to Micro and Small Enterprises (MSEs) of
Banking Codes and Standards Board of India (BCSBI).
BUSINESS POLICY OF VERTICALS [3-11]
3. EQUITY & RISK CAPITAL ASSISTANCE
3.1 INTRODUCTION
3.1.1 MSMEs are largely dependent on the promoters’ resources, borrowings from
friends and relatives and secured loans from banks/financial institutions for
meeting their financial requirements. However, while promoters’ resources are
limited, bank finance is also restricted due to various norms such as asset
Page 13 of 47
coverage ratio, DER, etc., which adversely impact the flow of financial
assistance to MSMEs and in turn constrain their credit absorption capacity and
consequent growth.
3.1.2 Focus
SIDBI Foundation for Risk Capital for MSMEs was set up in FY 2008-09 with a
view to addressing the issues related to existing gaps in the funding of
MSMEs. Over the last 8 years, SIDBI has introduced risk capital products for
MSMEs with potential for high growth for various needs like meeting financing
gaps while implementing capex, expenditure on intangibles like R&D,
marketing, product development expenses, etc. and other bonafide financial
requirements for growth. The simple structure of mezzanine instruments has
resulted in acceptance of the product by MSMEs in various geographies across
the country. During the year, the Bank will continue its efforts for creating
awareness of quasi-equity schemes among MSMEs as well as the banking
sector. SIDBI would also carry out policy advocacy for wider acceptance of the
products by the institutional players in the country.
In view of the above, the focus of the Policy for FY 2018 is aimed at improving
the off-take taking into consideration the felt needs of the sector and building
up of quality portfolio.
3.1.3 Direct assistance
The Bank provides risk capital to MSMEs using appropriate quasi-equity
products based on best practices being followed in other parts of the world.
The Bank uses a mix of standardized products and structured products (where
assistance is customized for each customer on a case to case basis) for faster
dispensation of mezzanine debt instruments to eligible MSMEs.
3.2 Product profile
(i) Start-up Assistance Scheme (SAS)
Page 14 of 47
Under the Start-up Assistance Scheme, the Bank considers assistance to early
stage enterprises, preferably in technology and innovation space and where
revenues have commenced with product acceptability by customers. The
product could be structured flexibly to support the early stage operations of
these Start-ups.
Since the assistance is in the form of debt and its timely servicing assumes
significance, under the scheme, those enterprises which have received equity
funding from Venture Capital Funds (VCFs), Angel Network, investors, etc will
be given thrust. Such investors may add value to the start-up enterprises by
helping them to get customers, build teams; provide strategic/operational
guidance besides providing equity support that an early stage enterprise
needs. Considering that start-up enterprises stand high on the fatality scale, in
order to enhance its returns from successful enterprises, the Bank may
negotiate for higher equity kicker while extending assistance under the
scheme.
(ii) Growth Capital and Equity Assistance Scheme for MSMEs
(GEMS)
The objective of the Scheme is to provide growth capital to deserving MSMEs
for:
a Bridging the gap in the means of finance for expansion/ modernization/
scaling up. New businesses/ diversification by entrepreneurs with
established track record can be considered, selectively (along-with direct
finance assistance).
b Intangibles or non-asset creating investments viz. product development,
marketing related expenditure, R&D, etc., besides investments in quality
control/energy efficiency equipment etc.
Page 15 of 47
c Margin money for working capital. While normal working capital [WC]
requirements should generally be met under normal WC arrangement,
need based gap in WC requirements (where the borrower has
arrangements for major part of its WC requirements tied up) could be
considered, selectively, based on merits of the case and with justification.
However, the Bank would not consider funding of working capital as well
as margin for the same under the scheme.
d Any other bona-fide expenditure required for growth of the business
which may not qualify for assistance through normal banking channels.
The scheme provides for faster dispensation of risk capital through various
instruments viz. debt based instruments like Subordinated debt and convertible
instruments viz. Optionally Convertible Subordinated Debt (OCSD), Optionally
Convertible Debt (OCD), Optionally Convertible Debentures (OCDR) and
Optionally Convertible Cumulative Preference Shares (OCCPS) etc., to the
existing customers of the Bank and also to new customers with good past
track record.
3.3 Due diligence
In order to build a quality Risk Capital portfolio, the Bank would generally
carry out an independent due diligence of MSMEs by an external agency viz.
audit firm, law firm etc. to support the investment process under GEMS, for
exposure of `1 crore and above or such other threshold as may be decided
from time to time.
3.4 Assistance through focused equity and venture debt funds (VCFs / PE
Funds)
The Bank provides corpus support to MSME and Startup focused Alternative
Investment Funds (AIFs) managed by Investment Managers with relevant
Page 16 of 47
expertise in equity transactions, monitoring and hand holding of investee
companies. The Bank invests in such funds as per the policy framework
approved by the Board and within the overall guidelines stipulated by RBI from
time to time.
With an objective of making available equity capital to the MSMEs, the Bank
has launched the India Aspiration Fund (IAF), a Fund of Funds in August 2015,
that invests in AIFs predominantly investing in MSMEs.
As part of Startup India Action Plan announced by Hon’ble Prime Minister in
January 2016, the Bank is mandated by Department of Industrial Policy &
Promotion (DIPP), Ministry of Commerce & Industry, Government of India to
manage Fund of Funds for Startups (FFS) with a corpus of `10,000 crore.
Contribution out of FFS would be extended to AIFs which are predominantly
focusing on Startups as per the operational guidelines issued by DIPP from
time to time.
The Bank is also mandated by Ministry of Micro, Small & Medium Enterprises,
Government of India to manage ASPIRE Fund having corpus of `60 Crore.
Contribution under ASPIRE Fund would be extended to AIFs which have focus
on agro-based industries as per the operational guidelines issued by Ministry
of MSMEs from time to time.
To augment the sources of patient capital for the growth of MSMEs of the
country, the Bank has entered into Memorandum of Understanding (MOU)
with Life Insurance Corporation of India (LIC) for contributing to the Corpus of
AIFs which are supported by the Bank under IAF. Such arrangements will not
only facilitate early financial closure of Funds being raised by AIFs but also
bring more institutional investors in the eco system.
4. ASSISTANCE FOR SERVICE SECTOR
4.1 INTRODUCTION
Page 17 of 47
The Policy is aimed at identification of thrust areas for lending under service
sector, charting out a focused business development strategy, encouraging
product innovation suited to the needs of the industry, improving credit
delivery and having in place a pricing policy which supports business growth
and links it to risk.
4.2 THRUST BUSINESS AREAS
While the Bank would consider support to all eligible service sector activities,
the following areas would be accorded due emphasis for faster asset growth
during the year:
(i) Logistics & supply chain management
(ii) Organized retail outlets/ Retail Chains/dealerships
(iii) Restaurants/food chains/Quick Service Restaurants etc.
(iv) Healthcare/Diagnostic Chains/Specialty Clinics etc.
(v) Lifestyle, media & entertainment
(vi) Tourism related services
(vii) IT / IT enabled services
(viii) Franchisee chains of well known brands,
(ix) Warehouse
4.4 APPROACHES TO FINANCING SERVICE SECTOR
For the purpose of this policy, the assistance to service sector has been
broadly divided into three categories viz. (a) asset backed term loan assistance,
(b) term loan assistance to asset light service sector enterprises, (c) assistance
for facilitating payments to MSMEs in Construction Sector (i.e., for CRE
exposure).
(a) Asset backed assistance to service sector enterprises
Asset backed term loan assistance would include assistance towards
projects involving substantial primary and /or collateral security in the form
Page 18 of 47
of fixed assets like immovable properties and equipment, etc. Hotels,
hospitals, warehouses etc., would generally fall under this category.
(b) Term loan assistance to asset light service sector enterprises
Some of the projects in the service sector do not create tangible fixed
assets and invest in light assets and, therefore, may not meet security
related norms of asset backed assistance, but these are found to generate
comfortable cash flows. These segments include IT and other knowledge
based industries, organized retail chains, restaurant chains, diagnostic/
specialty clinics, IT/ BPO services etc. As there is good potential for
considering assistance to these sectors, proposals of deserving customers
could be considered for Bank’s financial support based on merits.
(c) Assistance to CRE/construction entities for facilitating payments to
MSME suppliers/ vendors.
The Bank shall selectively consider assistance to construction sector/ CRE
projects with linkage/support services to MSMEs. The assistance provided
shall be under the purview of CRE guidelines issued by RBI from time to
time.
5. ASSISTANCE TO SECTORS UNDER MAKE-IN INDIA
The Central Government launched an ambitious ‘Make in India’ campaign in
FY 2016 to make India a manufacturing hub and has identified 25 sectors
under the ‘Make in India’ initiative. In order to facilitate MSMEs take part in
the Government’s ‘Make in India’ initiative, the Bank has launched a
Scheme “SIDBI Make in India Loan for Micro, Small & Medium
Enterprises (SMILE)” with a fund corpus of ` 10,000 crore to be met out of
the Budget allocation. The objective of SMILE is to provide soft loan in the
Page 19 of 47
nature of quasi-equity and term loan on relatively soft terms to eligible new
and existing MSMEs in India. Within the corpus of `10,000 crore, a suitable
sub-limit would be fixed on assistance by way of soft loan. The Bank will
focus on making the scheme customer friendly and endeavour maximizing
utilisation of the fund. The Bank is also operating "Make in India fund" of `
1000 cr. out of its own resources to provide concession in the interest rate
working capital scheme to encourage MSMEs take part in the above
initiative of the Government.
6. ASSISTANCE FOR SUSTAINABLE DEVELOPMENT
6.1 INTRODUCTION
The Bank has recognized sustainable developmental of the MSME sector as
one of the high potential areas for strengthening the competitiveness of
MSMEs in India. The Bank has been operating Lines of Credit from various
multilateral/ bilateral agencies viz. Kreditanstalt fur Wiederaufbau (KfW),
Germany, Japan International Cooperation Agency (JICA), Japan, Agence
Francaise de Developpement (AfD), France, for financing energy efficient and
cleaner environment investments in MSMEs.
6.2 OBJECTIVES
(i) To promote the use of energy efficient and cleaner technologies by
MSMEs.
(ii) To reduce energy consumption, enhance energy efficiency, reduce CO2
emissions and improve the profitability of the Indian MSMEs in the long
run.
(iii) To support promotion of renewable energy, energy efficiency and
sustainable development in MSME sector under existing products / by
Page 20 of 47
introducing new products with an element of some concessionality in
interest rates.
(iv) To encourage innovation in technology, products and delivery, particularly
aimed at supporting the supply side.
(v) To support MSMEs towards development, up-scaling, demonstration and
commercialization of innovative technology based project.
(vi) To strengthen MSMEs active on the supply side of clean technologies and
which are engaged in development and adaptation, demonstration,
deployment and commercialization of innovative clean technologies,
products, processes and services including those MSMEs which provide
services like energy service companies (ESCOs) / renewable energy service
companies (RESCOs).
6.3 SCHEMES OF ASSISTANCE FOR SUSTAINABLE DEVELOPMENT
6.3.1 International / Multilateral Lines of Credit for Sustainable Finance:
Recognizing the importance of Energy Efficiency (EE) & Cleaner Production
(CP) in tackling the challenge of climate change and curtailing the demand for
energy from fossil fuels, SIDBI has been operating Lines of Credit from various
multilateral/ bilateral agencies. These EE/CP investments will result in energy
savings and reduction in global Green House Gas (GHG) emissions. Besides, it
also strengthens the competitiveness of MSMEs in India and in global markets.
6.3.2 The 4E (End-to-End Energy Efficiency) -
Solutions and Financing schemes:
The End to End Energy Efficiency Solutions (4E Solutions) launched by SIDBI
provides technical support to its MSMEs to improve their energy savings by
availing the services of Technical Consultant / ESCOs at a reasonable cost with
Page 21 of 47
assurance on the quality of services. This 4E Solution will be implemented by
SIDBI branches in association with India SME Technology Services Limited
(ISTSL), an associate institution of SIDBI utilizing the services of specialized
energy professionals. To facilitate implementation of energy efficiency
measures by the MSMEs after their detailed energy audit under the 4E
Solutions Scheme, a revolving fund has been created with the support of
World Bank (WB)-Global Environment Facility (GEF) to provide loans to MSMEs
at concessional interest rates and soft terms (4E Financing Scheme).
6.3.3 Partial Risk Sharing Facility (PRSF) for Energy Efficiency Project:
The Bank is the Project Executing Agency (PEA) for the World Bank Project, viz.
“Partial Risk Sharing Facility for Energy Efficiency (PRSF)”. The objective of the
project is to support the GoI efforts to transform the energy efficiency (EE)
market in India by promoting increased level of EE investments, particularly
through energy service performance contracting (ESPC) delivered through
ESCOs.
Under the project, SIDBI (PEA) provides partial risk coverage to the extent of
75% of the loans given by Banks / FIs / NBFCs (including SIDBI loans) to ESCOs
and ESCO-implemented projects. Minimum loan size eligible for coverage
under PRSF is `10 lakh and the maximum loan eligible for coverage is `15 crore
per project.
6.3.4 Assistance for Technology Innovation Projects
Need for developing national capabilities to innovate and create business
opportunities in emerging technology areas has been acutely felt as there
continues to be a dearth of early stage funding for commercialization of
innovations by MSMEs due to higher risks of investment in unproven
technologies. Thus, major proportion of the available funding gets invested in
Page 22 of 47
relatively lower risk/proven technologies, thereby limiting innovations to reach
the market. In order to address these constraints, the Bank has joined hands
with Technology Information Forecasting and Assessment Council (TIFAC),
Dept. of Science & Technology, Govt. of India for implementing Technology
Innovation Programme (SRIJAN Scheme) and with Kreditanstalt fur
Wiederaufbau (KfW), Germany for implementing KfW Innovation Finance
Programme. Financial products on soft terms and mechanism has been
developed and being implemented.
7. ASSISTANCE FOR RECEIVABLE FINANCE
7.1 INTRODUCTION:
MSME Receivable Finance Scheme (MSME-RFS) is being operated by the
Bank for more than two decades to mitigate the receivables problem of
MSME sellers and improving their cash flow / liquidity.
RFS covers discounting/purchasing of bills/invoices arising out of sale of
indigenous components/ parts/ sub-assemblies/ accessories/ intermediates
manufactured/ job work done/ services provided by MSMEs and eligible
service providers to Large Purchaser Corporates. The scheme also allows
coverage of bills relating to Small Road Transport Operators (SRTOs), being
service providers.
The Bank has been making need based modifications/ simplifications/
rationalization in the scheme considering inter-alia the changing business
environment, demand of the customers, feedback from the operating
offices and for increasing the reach of the Scheme for the benefit of a large
number of MSMEs.
End-use of funds is verified by undertaking visits to select MSME
beneficiary units and random verification of the purchased/discounted
Page 23 of 47
invoices / bills to ensure utilization of funds as per objectives of the
Scheme.
In order to improve the quality of overall portfolio and to address
inadequacies of existing internal rating system, external rating has been made
mandatory under MSME RFS, where the limits are not backed by collateral
security. Further, residual charge / second charge, would be explored in respect
of such limits not backed by collateral security for customers with external
rating lower than ‘AA’. Wherever possible, personal guarantees of directors
would also be obtained for such facilities. More thrust is given for creating a
portfolio of secured/partially secured limits and limits not backed by collateral
security with external rating of ‘AA’ and above. For existing customers, the
thrust would be on retaining customers with a good track record.
7.2 THRUST BUSINESS AREAS:
i) The scheme basically covers bills raised by MSME units engaged in
manufacturing / job works / service sector. Keeping in view the increasing
share of service sector, business opportunities in these sectors will be
identified. However, In view of the perceived higher risks in financing the
service sector under the scheme, the Bank would adopt a cautious
approach, with improved focus on customer selection and account
monitoring.
ii) Keeping in view the focus on serving MSMEs and improving the quality of
the portfolio, greater thrust is accorded to extend seller-wise receivable
finance [SRFS] limits directly to MSMEs to improve under the cash flow &
liquidity position of MSMEs / Service providers by providing them with
financial assistance against the goods sold and / or services rendered to
purchaser companies with satisfactory market standing. The focus would
also be on extending assistance through purchaser-wise limits or purchaser
Page 24 of 47
wise exposure with seller wise limits/ arrangements to top rated corporates
thereby increasing MSME outreach.
iii) In line with the national agenda for moving to electronic mode across all
financial products, the bank would focus on bringing more business under
direct E-discounting module developed in-house by the Bank.
iv) To help existing customers, the entire credit purchases both from MSMEs
and non-MSMEs, can be covered under Trade Finance Scheme/ Raw
Material Assistance Scheme, after ensuring that there is no double
financing. The scheme is also being extended to new customers with certain
additional criteria.
7.3 PRODUCT RATIONALISATION:
Over a period of time, MSME RFS has been improvised to meet the growing
business requirements like MSME RFS without Bills of Exchange, MSME RFS
backed by L/C, Seller wise Receivable Finance Scheme [SRFS], Modified Invoice
Discounting Scheme, E-discounting and Trade Finance Scheme/Raw Material
Assistance Scheme. The process of rationalization would continue during the
year as per requirement.
8. INDIRECT LENDING
8.1 INTRODUCTION
The indirect lending portfolio of the Bank consists predominantly of refinance
to Primary Lending Institutions (PLIs), comprising State Financial Corporations
(SFCs), State Industrial Development/ Investment Corporations (SIDCs / SIICs)
[collectively referred to as State Level Financial Institutions (SLFIs)], Scheduled
Commercial Banks, Scheduled Cooperative Banks, Regional Rural Banks, Small
Finance Banks and select financial institutions. In addition, the portfolio also
Page 25 of 47
includes resource support/ term loan to Public Sector Undertakings benefiting
the MSMEs.
8.2 ASSISTANCE TO STATE FINANCIAL CORPORATIONS [SFCs]
Broadly, the support to SFCs would continue to be based on the overall
exposure norms, financial health, compliance of performance parameters as
approved by the Board.
8.3 MONITORING OF SFCs
Given the sizeable exposure of the Bank to the SFCs, the performance of all
the SFCs would continue to be closely monitored both by way of on-site and
off-site mechanisms. Further, with a view to bringing about convergence in
the regulatory framework, vis-a-vis the industry practices, the Bank has been
advising the SFCs to comply with prudential norms prescribed by RBI. SFCs
shall also comply with other regulatory directives such as adoption of accrual
system of accounting, income recognition and asset classification [IRAC] norms,
KYC / AML norms, industry wise exposure norms, valuation of assets, etc.
8.4 ASSISTANCE TO SCHEDULED COMMERCIAL BANKS
The strategy adopted in FY 2017 to create long term assets under the scheme
would continue to be the thrust area for FY 2018 also. Banks would be
encouraged to avail longer term refinance. Exposure to the scheduled
commercial banks by way of refinance during FY 2018 would be encouraged
but within the individual counterparty exposure limits fixed by the Bank. The
individual bank wise caps are fixed on the basis of category of the bank, its
net worth and risk rating.
8.5 ASSISTANCE TO SCHEDULED COOPERATIVE BANKS [SCBs] & REGIONAL
RURAL BANKS [RRBs]
Page 26 of 47
Over the years, Scheduled Co-operative Banks (SCBs) have registered
significant growth in the number, size and volume of business handled. Some
of the RRBs are also now profit driven and, in addition to commercial lending
such as agriculture and MSME's, these banks also compete with scheduled
commercial banks for fee and commission, incomes from remittances, sale of
insurance products and mutual fund schemes. Counterparty exposure limits
to these banks shall be decided on a case to case basis, depending on risk
rating and other factors such as net worth of the bank, eligible MSE portfolio,
overall financial health, compliance with regulatory directives, etc.
8.6 ASSISTANCE TO SIDCs/SIICs
The Bank would continue to make a conscious attempt, as hitherto, to reduce /
exit from the existing exposures to weaker SIDCs / SIICs (including TFIDCs).
8.7 ASSISTANCE TO SFBs:
Refinance from SIDBI, which is exempt from CRR / SLR requirements, is
expected to be one of the major forms of support to SFBs in their initial years,
particularly until they are able to build up a resource base from public
deposits. As per the Scheme for Refinance to SFBs approved by the Board,
counter party exposure to each individual SFB shall be capped based on its
internal rating. As regards pricing, it is expected that interest rate shall be fixed
broadly at a level which is between the prevailing rates offered for refinance to
Private Sector Banks and that applicable for term loan assistance to
NBFCs/NBFC-MFIs. The rates are proposed to be finalized on a case to case
basis based on relevant factors / prevailing market conditions at the time of
sanction.
Page 27 of 47
In addition to the above Scheme for Refinance to SFBs, subject to their
meeting prescribed eligibility criteria, SFBs would also be considered for
refinance under MSME Refinance Fund [as already permitted by RBI] / SIDBI’s
Refinance Scheme for Micro & Small Enterprises on terms and conditions as
applicable for such refinance.
8.8 ASSISTANCE TO NBFCs
8.8.1 The NBFCs (both in the category of Deposit taking and Non Deposit taking)
registered with RBI which are engaged in financing MSMEs and in business for
the last 5 years, are, prima facie, eligible for resource support from the Bank
subject to meeting the prescribed BfS norms relating to net owned funds,
capital adequacy ratio, gross NPA, recovery percentage, minimum investment
grade external rating and compliance with all the prudential guidelines
prescribed by RBI from time to time.
The Bank provides term loan / resource support to Asset Finance Companies.
The assistance is also extended to Loan Companies, if the loan is given for
income generating activities. The assistance could also be extended to
Infrastructure Finance Company (IFC) with the other lenders in financing the
infrastructure projects provided such projects benefit the MSMEs.
8.8.2 The assistance to NBFCs would be secured by, first exclusive charge on the
assets financed / first pari-passu charge with other lenders by way of
hypothecation of book debts of the NBFC with suitable margin, collateral
security etc.
8.8.3 Direct Assignment: Purchase of pool of MSME asset from NBFC will be
considered on a case to case basis in accordance with Bank’s internal norms
and the extant RBI guidelines in this regard.
Page 28 of 47
9. ASSISTANCE FOR INFRASTRUCTURE PROJECTS
Availability of adequate and quality infrastructure facilities is a key component
for speedy growth of the MSME sector. It has positive impact in terms of
creation of employment, efficiency in operations and waterfall effect on the
entire economy. The Bank has been providing assistance for infrastructure
projects in the areas of industrial parks, transportation, etc. after satisfying the
MSME linkages of the assisted projects.
The infrastructure sector provides adequate scope for up-scaling of lending by
the Bank. While assistance for infrastructure projects in other areas would be
extended through consortium/ multiple banking arrangements, assistance to
industrial infrastructure projects could be considered on a standalone basis.
Within infrastructure sector, the projects from tourism, warehousing
infrastructure, cold chain sub-sectors, etc., having linkage with MSMEs, could
be explored. Further, projects of common waste management facilities and
effluent treatment plants at industrial clusters, renewable energy projects, may
be considered for coverage under the scheme after satisfying itself on MSME
linkages and benefits.
10. WORKING CAPITAL ASSISTANCE
Working Capital Assistance would be considered selectively to:
(i) existing customers who are solely banking with the Bank ;
(ii) existing customers of the Bank (who are also banking with other banks)
and have placed major share of immovable security with the Bank;
(iii) existing well performing entities who are new to the Bank and do not
enjoy working capital facility with any other bank;
(iv) New entities where term loan is considered by the Bank.
Page 29 of 47
Takeover of working capital accounts, as a part of term loan take over, may be
considered subject to compliance of take over guidelines.
11. SIDBI FOUNDATION FOR MICRO CREDIT [SFMC]
11.1 INTRODUCTION
The Micro Finance sector is on a growth path after its revival post AP crisis
with regulator viz., RBI and the newly created Self Regulatory Organizations
(SROs), viz., MFIN / Sa-Dhan, ensuring a strong and clear regulatory framework
for MFIs to operate efficiently. The guidelines also entailed the MFI lenders to
assess the MFIs’ performance in terms of sustainability as well as regulatory
compliance. Flow of funds from banks to MFIs has risen substantially enabling
the sector to register impressive growth. SIDBI, being a pioneer financial
institution in the micro finance space, continued to provide financial assistance,
in the form of equity, quasi-equity and term loans, etc., while advocating and
implementing various responsible finance practices, viz., Code of Conduct
Assessment (COCA), etc.
11.2 MICRO FINANCE SECTOR UPDATE
The microfinance industry in India has been a strong enabler in including the
financially underserved and unserved in the formal financial ecosystem. The
positive role played by this sector is evident from the awarding of universal
banking and small finance bank licenses to the top MFIs in India. The RBI
constituted Mohanty Committee in its report (December 2015) on “Medium
Page 30 of 47
term Path on Financial Inclusion”, inter-alia states that “Microfinance
institutions (MFIs) fill the niche that is mostly under-served by main stream
financial institutions and to that extent play a critical role in furthering financial
inclusion. The Committee recommends that bank credit to MFI’s should be
encouraged. MFIs have consistently added value to customers’ livelihood
through partnerships with various stakeholders like investors, banks, other
financial institutions, credit bureaus and other emerging agencies. However,
the growth has also been accompanied by challenges such as increase in risks
due to geographical concentration, increase in cash carrying costs, rise in cases
of fraud and high churn in human capital employed by these institutions.
To maintain growth and reduce costs while overcoming the challenges, MFIs
will have to develop a holistic strategy based on several external and internal
factors. Externally, MFIs need to address customer requirements, navigate
lenders and investors, build effective partnerships with financial and
nonfinancial institutes for sales, and cross-sell and adhere to guidelines issued
by regulators and self-regulatory organisations. On the internal front,
operations, technology, risk management and human capital together play an
integral role in all activities undertaken by MFIs. Institutions need to innovate
their operations and develop products to add value to their customers’
economic and social conditions while concentrating on under penetrated
markets in India. Technology needs to be leveraged not just to reduce costs
but also to increase geographical reach and, thus, the top line. MFIs also need
to adopt HRM best practices, thereby providing tools to help individuals
remain highly motivated and contribute to their success.
The MFI sector, in a short time of just over 15 years has effectively contributed
towards providing financial services to the unbanked population of the country
through its deep penetration in the difficult geographical parts with
Page 31 of 47
approximately 150 big and small microfinance institutions. The gross
outstanding loan portfolio of NBFC-MFIs which represents major portion of the
MFI outstanding stood at `54,129 crore as on December 31, 2016, with a client
base of over 3.38 crore across 30 states/union territories of the country with
equitable distribution across all regions having an outreach of 33% in the
south, 27% in North, 24% in West and 16% in the East (as per the MFIN
Micrometer for quarter ended December 2016).
There has also been an increase in new entrants with various banks especially
private sector banks, directly lending to the microfinance segment as well as
lending through Business Correspondents. Further, inspired by the profitability
of the MF market and putting in practice the belief that the poor are an
interesting market, the presence of banks as providers of microfinance is
scaling up. They are integrating microfinance into their mainstream commercial
retail lending, which is evident from the acquisition of certain NBFC-MFIs by
large scheduled commercial banks in India.
The move of giving licenses to small finance banks has been the major step
towards pushing financial inclusion in the country. This put the spotlight on the
microfinance sector as 8 out of the 10 newly licensed small finance banks are
MFIs. The entry of MFIs in SFB segment who are familiar with the nuances of
banking with poor borrowers, by getting access to banking these entities can
tap public deposits which will significantly lower their cost of borrowing and
enable them to bring down rate of interest on loans.
The Reserve Bank of India (RBI) and the Government of India (GoI) have
announced a number of regulations and developments supporting financial
inclusion and thereby created conducive policy and regulatory environment.
The demonetization in November 2016 has impacted the industry severely,
Page 32 of 47
however, the situation seems to be improving and stabilizing. Overall, the
impact of demonetization on the sector is expected to be positive with MFIs
emerging stronger, adopting better risk management practices and bringing
greater focus on cashless operations through digital channels.
With the sector regaining confidence and momentum, the Bank has also
adopted a ‘growth strategy’ approach for the Micro Credit business. It is
proposed to continue the same strategy during FY 2018.
11.3 FOCUS
On asset quality, focus would continue to be on risk management through the
assessment, monitoring and exposure management. Recently, Bank introduced
internal rating module for MFI to bring more objectivity in assessing the risk in
the loan proposals. Bank focuses on MFIs and NBFCs with good track record
of resource mobilization, capital infusion, strong systems, compliances with
regulatory guidelines, adherence to responsible lending practices and long
term sustainability in terms of financial and operational efficiencies. Bank’s Fair
Practices Code, Grievance Redressal Mechanism and RBI’s guidelines to all
India FIs on connected lending are applicable for assistance under SFMC.
From SIDBI’s perspective, the differentiated banking architecture in the form of
SFBs offers opportunities for a greater role for SIDBI as an apex institution for
promotion, financing and development of MSMEs. 9 out of the 10 entities
selected by RBI for SFB Licence at in-principle stage were SIDBI partners. SIDBI
therefore would continue to actively engage with the prospective SFBs as a
natural extension of the existing relationships when they were NBFC / NBFC-
MFIs.
11.4 PRODUCT PROFILE
Page 33 of 47
(a) Support to MFIs and NBFC- MFIs:
SFMC shall continue with term loan, subordinate debt, long tenor loans, to
MFIs for on-lending to micro enterprises and to service providers. Bank’s equity
and related investments in MFIs will be guided by statutory guidelines. In order
to support well performing MFI customers, the Bank had introduced modified
Privileged Customer Scheme for MFIs to provide loan funds on the basis of
simplified application/appraisal process.
The Missing Middle Financing activities of the Bank through PFIs are being
funded by KfW as well as out of the Bank’s funds. Under the product segment,
assistance will continue to be extended to PFIs to enable them to extend loans
in the Missing Middle segment.
(b) India Microfinance Equity Fund (IMEF)
To provide equity and quasi equity support to smaller MFIs to help them
maintain growth and achieve scale and efficiency in their operations, India
Microfinance Equity Fund (IMEF) was launched with funds from GoI. Initially,
the corpus was of `100 crore (subsequently enhanced to `300 crore). Under the
Scheme, assistance in the form of sub-debt, Equity and quasi-equity is
provided to Smaller Socially Oriented Micro Finance Institutions, operating
mostly in underserved / unserved areas of the Country. In order to increase the
outreach / impact, modifications in the scheme guidelines, viz., increase in the
quantum of assistance, norms for eligible borrower, greater flexibility in equity
investment pricing, etc., have been sought from Government of India. The
focus on increasing the overall investments under the scheme to benefit large
number of smaller MFIs would continue.
(c) Support to Small Finance Banks during FY 2017
Page 34 of 47
To support the SFBs during their transformation phase the Bank introduced
facilities to augment resource base through term loan and also provide
assistance by way of domestic equity as under:
Resource Support by way of term loan to NBFC-MFIs / NBFC
transforming into SFBs with a provision to convert the assistance into
Refinance on conversion into SFB; and
Equity Investment for setting up / capitalization of the SFB to help
transforming entities meet initial equity / capital gap, in particular, equity from
domestic sources.
12. CREDIT RISK MANAGEMENT
RBI had issued guidelines that the banks should have a robust Credit Risk
Management (CRM) system which is sensitive and responsive to the credit risks
emanating from its dealings with individuals, corporates, banks, FIs or
sovereign. According to the RBI guidelines, banks have to devise a risk
management framework oriented towards their requirements, dictated by size,
complexity of business, risk philosophy, marketing perception, etc.
The dimensions of credit risk to which the Bank is exposed to fundamentally
emanate from exposure to MSME enterprises/ sector which are characterized
by weaknesses in corporate structure, systems, accounting standards, lack of
availability/ reliability of information and vulnerability to external
developments, risk concentration in exposure to the MSME sector.
12.1 CREDIT RISK STRATEGY
In line with the strategy for managing risks in the credit portfolio, following
tenets have been incorporated in the Loan Policy:
Page 35 of 47
(a) Monitoring exposure to SFCs/ SIDCs as a percentage of total portfolios.
(b) Use of internal rating models to measure credit risk for majority of the
customer categories. Use of internal/external ratings in the decision
making process for lending would eventually lead to improvement in the
overall credit quality and better risk management of the Bank’s portfolio.
(c) Risk control, inter alia, through implementation of exposure limit
framework for different segments of customers.
(d) Implementation of processes to ensure that initiative to increase lending
by innovation in products, target clients, etc., does not lead to
deterioration of the asset quality of the Bank’s portfolio.
(e) Installation of an enabling framework capable of grading the risk and
eventually linking pricing to internal ratings as suited to the Bank’s
requirements.
12.2 RISK MEASUREMENT
12.2.1 Internal Credit Rating Systems
The Bank uses Credit Appraisal and Rating Tool [CART] to process loan
proposals (Greenfield and existing units) and rating of loan proposals
received from existing units fulfilling certain criteria.
For loans outside the purview of rating in CART, Risk Assessment Models
(RAMs) are being used
12.2.2 Investment Grades
Proposals with internal obligor risk rating at the time of appraisal between S1
to S8 in RAM (equivalent grade in CART) are considered as ‘investment
grade’ i.e. suitable for extending credit facility. However, in respect of certain
sectors, higher investment grade ratings have been stipulated for greater
Page 36 of 47
selectivity and credit quality as indicated in Annexure – II with minimum
internal rating grade specified. Changes to this list may be made from time
to time based on internal review.
12.3 RISK MITIGATION
The present credit risk mitigation strategies in vogue would be continued
which are primarily being applied at two levels. At the project specific level
[transaction level], efforts are made to identify critical risk factors and suitable
mitigation measures are explored and stipulated, wherever possible. Risk rating
would be used for objective grading of risk. At the portfolio level, the Bank has
been following a strategy of exposure management and prudential caps on
credit exposures under various activity/ industry /type of customer. The Bank
has also been working out the portfolio rating of the operating offices on an
annual basis for internal purposes. In order to build a strong portfolio, the
Bank would adopt a rating grade wise exposure.
12.4 EXTERNAL RATINGS
In respect of MSME-RFS limits without collateral security and resource support
to NBFCs, external rating (Long term rating) by RBI accredited rating agencies
is considered for the purpose of eligibility and pricing with minimum specified
external rating grade.
12.5 PRICING
12.5.1 In the existing scenario of dynamic interest rates, competition and the need
for the Bank to expand the direct finance portfolio with addition of quality
assets, a dynamic pricing strategy has become sine qua non. The pricing of
loans is carried out as per the gradation of risk determined by the internal
ratings for various customer segments. With a view to remaining competitive
in the market, the existing practice of fixing the interest/ discount rate
depending upon competitiveness/ demand, asset cover and such other
Page 37 of 47
factors, may continue. As regards assistance sanctioned to infrastructure
projects and such other projects under joint finance / consortium
arrangement, the interest rate stipulated by the lead institution / other banks
would normally be followed.
12.5.2 In case of projects involving multiple/joint/consortium financing, interest rate
reset clauses would be in line with the practice obtaining with other banks /
institutions.
12.6 RISK CATEGORISATION OF CUSTOMERS FROM AML PERSPECTIVE
In compliance with the Policy Guidelines on KYC Norms and Anti Money
Laundering (AML) Standards, the process of risk categorization of customers
has been put in place depending upon their activity, location, constitution, etc.
12.7 MANAGEMENT OF ASSET CONCENTRATION
12.7.1 Exposure Caps and Counterparty/Activity/Industry exposure
Asset concentration is being managed by the Bank by way of various
exposure caps/ norms for credit deployment which have been fixed, as under,
taking into account the norms prescribed by RBI. Internal caps have been laid
down in respect of different schemes of direct assistance and for various
industrial sectors as summarized in the table at Annexure – III.
12.7.2 Policy on Group Lending
The Bank considers assistance to large groups only under select schemes such
as MSME-RFS, NBFC and Infrastructure Scheme. Decisions on sanction/
continuation of exposure on a concern whose group/ associate concern(s) has
defaulted to the Bank and / or to other banks/ FIs are being taken on case
specific merits. The practice would be continued and a final view on such cases
would be taken by the delegated sanctioning authorities.
12.7.3 Restricted industries
Page 38 of 47
The extant instructions for a cautious approach in respect of industries such as
chemical dyes & dye intermediates, industrial oxygen, distilleries, etc., would
continue. Assistance to deserving units in the list could be considered if they
have an internal obligor risk rating of S7 or above. Industries consuming /
producing ozone depleting substances viz. Chlorofluorocarbons (CFCs), Halon,
Carbon tetrachloride, Methyl chloroform, Hydro bromo-fluorocarbons (HBFCs),
hydrochloro-fluorocarbons (HCFCs), Methyl bromide, Bromochloromethane
(BCM), etc., would not be assisted at all.
13. CONCLUSION
Efficient credit delivery is the key to quality portfolio build up and customer
retention. The Loan Policy gives adequate flexibility to develop viable business
proposals. The Policy has also put in place a suitable structure for approval /
clearance of new products. Hence, any business proposition considered to be
viable and bankable should not be lost on account of non-availability of a
suitable scheme/product. It will also be the endeavor of the Bank to further
simplify and streamline procedures/processes to expedite the credit delivery
besides making efficient use of IT for internal credit monitoring.
Page 39 of 47
Annexure - I
Benchmarks for Sanction (BfS)
A. Term Loan
Sl. No. Parameters BfS Norm Relaxation Cap
1 Prudential Rating S8 No relaxation
2 Debt-equity Ratio (DER)2 3:13 No relaxation
3 Promoters’ contribution4
New entity5 33% 25%
Existing entity6 25% 20%
4 Projected DSCR7 1.50 1.25
5 Fixed asset coverage Ratio (FACR)
New entity 1.00
0.908
Existing entity
Asset light & Cash-flow based 0.50 0.40
6 Asset coverage Ratio (ACR)
New entity 1.40 1.30
Existing entity 1.30 1.20
Asset light & Cash-flow based 1.30 1.00
B. Working Capital
Sl. No. Parameters BfS Norm Relaxation Cap
1 Prudential Rating S8 No relaxation
2 Interest coverage ratio (ICR)9
New entity 1.50 No relaxation
2 For the company/entity as a whole after considering sub-debt [SD] and interest-free unsecured loans [IFUSL] as
quasi equity
3 4:1 for Fleets/Vehicles under logistics (Service Sector)
4 (a) Not applicable for secured business loan (SBL) & privileged customer scheme (PCS) and (b) 15% for
proposals under SMILE
5 A “New entity” is an entity newly set up/proposed to be set up. This would also include entities established in
the past but with nil/ insignificant commercial production.
6 An “Existing entity” is one which has already been established and is engaged in commercial production (with or
without SIDBI's financial assistance) for minimum one year and audited accounts thereof are available.
7 1.25 for service sector with no relaxation
8 Applicable for customers having top 2 valid SME Credit rating/Bank loan rating of BBB+ & above
9 ICR = Earnings before Depreciation, Interest & Tax [EBDIT] / Interest expenses
Page 40 of 47
Existing entity10 1.25 1.10
3 Fixed asset coverage Ratio (FACR)
New entity 0.75 No
Existing entity 0.65
4 Asset coverage Ratio (ACR)
New entity 1.40 1.30
Existing entity 1.30 1.20
5 Current ratio
New entity 1.25 1.10
Existing entity 1.25 0.90
6 TOL to TNW ratio
New entity 4:1 5:1
Existing entity 4:1 6:1
7 Margin on stocks of raw materials, receivables/book debts etc.
New entity 30% 25%
Existing entity 30% 20%
C. Commercial Real Estate (CRE)
Sl. No. Parameters BfS Norm Relaxation Cap
1 Prudential Rating S8 No relaxation
2 Debt-equity Ratio (DER) 3:1 No relaxation
3 Promoters’ contribution
New entity 25% No relaxation
Existing entity
4 Projected DSCR 1.50 1.25
5 Fixed asset coverage Ratio (FACR)
New entity 1.50 No
Existing entity 1.35
6 Asset coverage Ratio (ACR)
New entity 2.00 1.80
Existing entity 1.75 1.60
D. MSME – Receivable Finance
10 Based on last audited accounts
Page 41 of 47
Sl.
No.
Parameters Secured Clean/
not backed by collateral
BfS
Norm
Relaxation
Cap
BfS
Norm
Relaxation
Cap
1 Prudential Rating S8 No AA A-
2 Fixed asset coverage Ratio (FACR)11
New customer 0.75 No Not applicable
Existing customer 0.65
3 Asset coverage Ratio (ACR)12
New customer 1.25
No Not applicable
Existing customer 1.10
4 Current ratio
New customer 1.25 1.05 1.25 1.10
Existing customer 0.85 0.90
5 Quick Ratio
New customer 0.50
0.40 0.50
0.40
Existing customer
6 TOL to TNW ratio
New customer 4:1
5:1 4:1
5:1
Existing customer 6:1 6:1
E. Equity & Risk Capital
Sl. No. Parameters BfS Norm Relaxation Cap
1 Prudential Rating S8 No relaxation
2 Debt-equity Ratio (DER) 3:1 No relaxation
3 Projected DSCR 1.50 1.25
11 Not applicable in respect of proposals backed by LC / BG / Co-acceptance / 100% FD
12 1.00 for exposure backed by LC/BG/Co-acceptance / 100% FD
Page 42 of 47
F. Resource support to NBFCs
Sl. No. Parameters BfS Norm Relaxation Cap
1 Prudential Rating S7/BBB+ BBB-13
2 Recovery Performance 95% 90%
3 Gross NPA <5% < or = 6%
4 CRAR >or =15% No relaxation
G. Micro Credit – Resource support to MFIs
Sl. No. Parameters BfS Norm Relaxation Cap
1 Prudential Rating MfR5 No relaxation
2 Debt-equity ratio (DER) 10:114 No relaxation
3 CRAR15 >or =15% No relaxation
4 Portfolio at Risk >90 days <5% <7%
5 Operational self sufficiency (OSS) 100% 90%
Note:
a. The product verticals would align their operational guidelines with the Loan Policy framework.
b. Relaxation of BfS norms within the cap may be considered for maximum 3 [three] parameters.
Additional risk premium, if any, to be charged for such relaxations, will be decided by the
delegated authority.
c. In respect of renewals at current level or reduced level, the delegated authority may relax the
BfS norms suitably provided proper risk mitigants are put in place. The exit strategy, if any,
would be decided by the delegated authority.
13 Applicable for existing customers with satisfactory financials and repayment track record
14 15:1 for Section 8 companies and Societies/Trusts
15 Applicable for NBFC-MFIs
Page 43 of 47
Annexure – II
Higher investment grade ratings – Select Sectors
Sr. No. Particulars of industry Minimum
obligor rating
1 Iron & steel industry
S7
2 Textiles*
3 Drugs & Pharmaceuticals
4 Hotels
5 Hospitals
6 Food & Food Products
7 Leather & Leather Products
8 Power sector projects
9 Wind mill projects (stand alone16)
10 Deserving units in the restricted list of
Industries such as Chemical dyes & dye
intermediates, industrial oxygen, distilleries
etc.
* Except knitting cluster at Tirupur.
16 Minimum obligor rating of windmill projects taken up by existing companies primarily for depreciation
benefit/captive use/sale to SEB would be S8
Page 44 of 47
Annexure – III
Exposure Caps
17 Exposure has been defined as under:
Product Exposure computation
Fund based & Non-fund based
facilities
Limit sanctioned or outstanding
whichever is higher.
18 Includes exposure from MUDRA Ltd. (a wholly owned subsidiary of the Bank)
S. No. Activity / Industry Exposure cap
1 Individual / Group Exposure17
(a) Direct assistance to MSMEs & specialized organizations marketing MSME products
(i) Single borrower 1% of capital funds of the Bank
(ii) Proprietorship entities `10 crore
(iii) Group exposure 3% of capital funds of the Bank
(b) NBFCs & private sector corporations
(i) Single borrower 15% of capital funds of the Bank – Asset
Finance Companies (AFCs)
10% of capital funds of the Bank –
others
(ii) Group exposure 40% of capital funds of the Bank
(c) MSME Receivable Finance Scheme (MSME-RFS), direct resource support & such other
form of bulk lending (except refinance and BRS) to public financial institutions, public
sector undertakings and corporates
(i) Single borrower 15% of capital funds of the Bank
(ii) Group exposure 25% of capital funds of the Bank
(d) MFIs18
(i) Single borrower 10% of capital funds of the Bank – NBFC-MFIs
3% of capital funds of the Bank – other MFIs
(ii) Group exposure 15% of capital funds of the Bank – NBFC-MFIs
Page 45 of 47
19Includes exposure to activities in various sub-sectors under infrastructure
20 Subject to compliance with capital market exposure limit
21 Excluding NBFCs
5% of capital funds of the Bank – other MFIs
2 Bills Finance
MSME-RFS without collateral 30% of capital funds of the Bank
3 Infrastructure activities/projects
(a) Total portfolio19 10% of capital funds of the Bank
(b) Power sector including generation,
transmission and distribution.
15 % of capital funds of the Bank
S. No. Activity / Industry Exposure cap
4 NBFCs
(a) Exposure cap: BBB and BBB- rated `100 crore
(b) Exposure cap: NBFC-MFIs 30 % of capital funds of the Bank
(c) Overall Exposure cap 75 % of capital funds of the Bank
5 Contribution to Venture Capital Funds20 40 % of capital funds of the Bank
6 Resource Support21 50 % of capital funds of the Bank
7 Services Sector
Exposure cap in service sector projects 40 % of capital funds of the Bank
8 Industry Exposure
(a) Cap on exposure to a particular industry
other than those at (b) below
10 % of capital funds of the Bank
(b)
(i) Transport Equipment (including Auto and
auto components)
30 % of capital funds of the Bank
(ii) Textiles / readymade garments and hosiery 30 % of capital funds of the Bank
(iii) Engineering industry 30 % of capital funds of the Bank
(iv) Electronics and electrical products 30 % of capital funds of the Bank
(v) Agro based industries 30 % of capital funds of the Bank
Page 46 of 47
(vi) Commercial Real Estate 25 % of capital funds of the Bank
(vii) Petroleum & Petroleum Products 30 % of capital funds of the Bank
9 Direct Assignment business 10 % of capital funds of the Bank
10 Ceiling on Exposure in unsecured advances
[including MSME-RFS without collateral at
1(a) above]
100% of capital funds of the Bank
11 Individual bank/institution wise limit
Refinance/Co-accepted Bills/
BRS/LOCFC/Resource Support [per institution]
(a) State Bank of India and Nationalized Banks Individual bank/FI-wise limit as approved
by the Board.
(b) Private sector banks/ foreign banks
(c) SFCs [per institution] 15% of capital funds of the Bank
(d) SIDCs including TFIDCs [per institution] 1% of capital funds of the Bank
(e) SSIDCs [per institution] 0.5% of capital funds of the Bank
(f) Scheduled Co-operative banks 5 % of capital funds of the Bank
(g) Regional Rural Banks [per institution] 2.5% of capital funds of the Bank
Page 47 of 47
**********
22 Excluding SFCs and SIDCs
S. No. Activity / Industry Exposure cap
(h) Small Finance Banks 15% of capital funds of the Bank
11 Aggregate exposure to
(a) All SFCs (Aggregate) `2000 crore
(b) All SIDCs including TFIDCs (Aggregate) 5 % of capital funds of the Bank
(c) State Bank of India and all Nationalized Banks
(aggregate)
500% of capital funds of the Bank
(d) All FIs (aggregate)22 100 % of capital funds of the Bank
(e) Private Sector Banks (aggregate) 500% of capital funds of the Bank
(f) Foreign Banks (aggregate) 100 % of capital funds of the Bank
(g) Scheduled Co-operative banks (aggregate) 10 % of capital funds of the Bank
(h) Regional Rural Banks (aggregate) 5% of capital funds of the Bank
(i) Small Finance Banks (aggregate) 40% of capital funds of the Bank
