MSME Receivable Finance Scheme (RFS)

1. Introduction:

1.1. The erstwhile Direct Discounting Scheme (Components) [DDS(C)], launched in February 1991,was one of the pioneer schemes of the Bank aimed at mitigating the problem of delayed payments to SSI sellers in respect of their credit sales to large purchaser companies. The Scheme provided for discounting of bills arising out of the sale of components/parts/sub-assemblies/accessories /intermediaries by small scale industries to purchaser- users by offering them finance against Bills of Exchange (BoE).

1.2. Initially, the Scheme covered supplies made by SSIs to the purchasers of raw materials, components, etc. Limits were sanctioned to the purchaser corporates after detailed appraisal of their financial statements and taking into account their annual purchases from SSIs. The limits were secured by way of procuring collateral security from the purchaser corporates. The transactions were backed by legal documentation between SIDBI and the purchaser corporates.

1.3. Over the years, keeping in view the market dynamics and customers needs, modifications / simplifications in the scheme have been made to increase the reach to larger number of MSMEs. The Scheme was rechristened as Receivable Finance Scheme (RFS) in October 2003. Later in March 2008, the Scheme was renamed as MSME Receivable Finance Scheme [MSME-RFS] so that the scheme reflects its main objective.

1.4. Major reasons for bringing in certain modifications in the scheme were:

(i) Disinclination of the purchaser Corporate to (a) offer tangible collateral security for the bills discounting limits, (b) provide a separate Board resolution for acceptance of bill discounting limits considered by SIDBI, (c) accept BoE drawn by MSME sellers every time for presentation to SIDBI for discounting.

(ii) Corporates preference for (a) operationally convenient process of e-discounting, (b) Seeking bank finance in form of Line of Credit and

(iii) Coverage of service sector Enterprises under the Scheme.

1.5 The modified Scheme thus, covers discounting of bills/invoices arising out of sale of indigenous components / parts / sub-assemblies /accessories /intermediates manufactured / jobwork done/services provided by MSMEs and eligible service providers to purchaser Corporates.

1.6 Under the Scheme, annual limits are considered by the Bank within which the bills/invoices are discounted and these limits relate to the outstanding face value of bills/invoices discounted (and not aggregate face value of bills/invoices discounted in a year).

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2. MSME RFS - Variants

2. Over the period, SIDBI has introduced certain variants of MSME-RFS based on the changing business environment, feed back received from the customers/operating offices and for increasing the outreach of the Scheme. The MSME RFS variants cover:

a) Consideration of need-based limits to financially sound purchaser companies for covering their purchases of parts / components / sub-assemblies / accessories, etc. from units belonging to MSMEs.

b) The services rendered by eligible service sector enterprises, as defined under MSMED Act, including IT & IT enabled services, advertising, hotel, tourism related activities, etc. to purchaser corporates, As indicated in (i) BPRC circular No. 03/2013-14, dt. July 09, 2013; (ii) Loan Policy for FY 2014 released by RiMV dt. Sept 16, 2013, the Bank shall continue to finance such activities in line with the new business plan, including enterprises eligible under the definition of MSMED Act, both manufacturing and service enterprises and also other service sector projects, as approved by the Bank. Road Transport operators (RTOs) can be considered as Service providers and discounting may be considered, subject to their meeting the elgibility criteria for service providers (project cost not exceeding `25 cr.).

c) Job works up to 50% of the total limits sanctioned.

d) Inclusion of construction industry to facilitate timely payment of SME contractors / service sector units. The eligible transactions shall include activities like sub-contracting, supply of material and such allied work executed by units in the small scale sector for purchaser corporates / construction firms executing projects.

e) In respect of MSMEs who are sanctioned purchaser-wise limits, their entire credit purchases both from MSME and non- MSMEs can be covered under the facility. However, it must be ensured that double financing of receivables of seller units does not take place.

2.1 Broad features of basic scheme and its variants introduced time to time are indicated below:

2.1. Purchaser-wise MSME RFS limit backed by collateral security / (Secured limits):

a. Need-based limits are considered for well performing and financially sound purchaser companies. The purchaser companies shall need to accept the Letter of Intent, furnish Board Resolution, provide tangible/collateral security, introduce sellers and accept Bills of Exchange.

b. The secured limits shall mean and include (i) Limits secured by charge on fixed assets (other than current assets) / any other tangible security with Asset coverage of 1.25:1.Where it is difficult to arrive at FACR, due to corporate specific reasons like banks having charge on all assets etc., overall Asset coverage ratio (ACR) of 1.25 could be

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accepted including current assets. Reasons for accepting ACR to be clearly brought out in the appraisal note and reported separately in PSR. For the purpose of arriving at FACR / ACR while valuation of immovable properties and other fixed assets should be arrived at as per valuation policy guidelines of the Bank, the aggregate liabilities, subject to charge, shall be based on last audited financial statements or latest declared outstandings (as per uptodate information obtained at the time of sanction), whichever is higher. The last audited financial statements in no case should be earlier than 12 months; (ii) Limits backed by Letter of Credits (LC) / Bank Guarantees established by scheduled commercial banks.

c. BPRC has come out with revised DoP framework vide Circular No. 05/2013-2014, dated November 14, 2013, wherein all products are classified based on risk profile of each of them. Benchmarks for sanction (BfS) for each such category have been separately spelt out. Details of the benchmark for sanction (BfS), which includes Entry level filters, Rating norms, ACR/FACR norms and Financial norms applicable under MSME RFS in respect of secured limits / limits backed by collateral security, including limits backed by LC and Bank Guarantee are furnished below:

2.1.A. Benchmarks for sanction (BfS) in respect of limits backed by security:

Sl.No Particulars Desirable norms*

1. Entry level filters: Applicable for sanctions / renewal / enhancement

i) Turnover 3 years growth in Turnover y-on-y, as per audited financial statements of the previous 3 FYs.

ii) Networth No negative networth

iii) Years of existence 5 years

iv) Profit Corporate entity with 3 years of net profits out of the last 4 years* as per audited financial statements, provided there is no cash loss, during all the previous 4 years. *If there is net loss during the last audited / immediately preceding FY, the projections of the purchaser corporate for the next 12 months / next FY, along with a copy of CMA furnished to Working Capital Bankers be obtained, analysed and commented upon in the appraisal note.

v) No arrears/ Default to Banks/ Financial Institutions

There should be no arrears or default to banks / FIs at the time of submission of application. No relaxation.

Repayment Track record - Clients who have completed one year from the date of first discounting of bills - Existing(i) DCS Customers

-Repayment track record with SIDBI should be satisfactory.

- The Account should not have been restructured with SIDBI in the past.

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2.1.A. Benchmarks for sanction (BfS) in respect of limits backed by security:

Vi) Minimum Quantum of limit

Not below `1 cr in respect of new(ii) customers.

Minimum quantum of limit criteria is not applicable in respect of limits backed by LC & BG.

2. Rating (Internal / external)

CR 3(iii)

i) CR2 in respect of Iron & Steel industry & CR3 in respect of Pharma industry

ii) In addition, adequate care may be taken while covering the following sectors: Chemical & Chemical Products, hotel, paper & paper products, wood & wooden products, food & food products, hospitals, textiles, rubber and iron & steel.

3. ACR / FACR Norms(iv)

- ACR 1.25

- FACR 1.25:1

4. Financial norms :

i) TOL/TNW Upto 4:1

ii) Current Ratio/ Quick Ratio

Not below 1.33:1 / Not below 0.5.

iii) Debtor / Creditor days Dr. days - To be examined as prevalent in the industry.

Cr. Days - As prevalent in the industry, wherever available from public domain, Viz. Capitaline, etc.

iv) Net profit margin The corporate should also have a reasonable net profit margin commensurate with the type of activity and the extent of capital expenditure for running the organization. In case of corporate with NPM of less than 3%, suitable justification to be provided for.

v) Cash flows from operations

Should not be Negative during the preceding financial year.

(as per Cash flow statement annexed to financials in the Annual report)

Notes: i) Existing customers refer to those who have completed one year from the

date of first disbursement.

ii) New customers shall mean new customers and those who had dealings with SIDBI in the past but on whom, there is no current exposure.

iii) The eligible investment grade at the time of appraisal based on internal rating, as outlined in LP for FY 2014 by RiMV is between CR1 to CR5. However, as the minimum internal rating as stated above is CR3, the obligor rating eligible for investment, as outlined in CCG circular of Mar.07,2013 upto SIDBI5/ LSME 4/ SME4 can be considered, provided overall internal rating is not below CR3, subject to sector specific rating stipulated separately in 2.1(A)(2) above.

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iv) In respect of L/c / BG backed discounting, ACR can be considered as 1:1 and

can be approved by respective Sanctioning Authority.

* Relaxable norms are not indicated separately. They are proposed to be in line with the extant DoP.

2.2. Purchaser-wise MSME RFS Limit ( not backed by collateral security)

a) This variant of RFS was introduced on September 28, 2001 to cover well performing companies, Public Sector Undertakings (PSUs) and Multinational Companies (MNCs) purchasing components, raw materials from MSME sellers. Under this window ,as the caption indicates, even though the facility is not backed by of collateral security, the purchaser company is required to comply with the requirements, viz. (i) acceptance of the terms of LoI, (ii) providing necessary resolution passed by their Board and (iii) giving due acceptance of the Bills of Exchange raised by MSME sellers. Detailed appraisal of the purchaser corporate is undertaken for consideration of the limits.

b) Proposals backed by, only personal guarantee, corporate guarantee (other than what is indicated under Para Sl.No.2.1 (b) of previous page), demand promissory note, shares of the purchaser company will also be treated as RFS not backed by collateral security. In case the pledge of shares is stipulated as additional comfort, the shares need to be held in demat form and not in physical form.

c) The power to consider limits not backed by collateral security vest with Committees as per DoP prevailing at the time of sanction.

d) Details of the benchmarks for sanction, which includes Entry level filters, Rating norms, ACR/FACR norms and Financial norms applicable under MSME RFS in respect of limits not backed by collateral security are furnished below :

2.2.A. Benchmarks for sanction in respect of limits not backed by collateral security

Particulars Desirable norms

1. Entry level filters:

i) Minimum Turnover and

`500 crore. as per audited financial statements of previous FY. (For sanction/ renewal / enhancement).

ii) Net worth `125 crore. as per audited financial statements of previous FY. (For sanction / renewal /enhancement).

iii) Years of existence i) 7 years of existence by the applicant company.

ii) If (i) is not complied with by the applicant company, following criteria should atleast be met with:

(a) Company demerged from parent entity, provided the parent entity meets the norm of 7 years. OR

(b) promoted by well established Corporates / MNCs,

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2.2.A. Benchmarks for sanction in respect of limits not backed by collateral security

Particulars Desirable norms

provided the Corporate / MNC concerned meets the norm of 7 years.

iii) 5 years of existence can be allowed, provided the applicant Company meets any one of the following criteria:

(a) Company promoted as a Joint Venture by sound Indian Group(s) and a good MNC.

(b) Company promoted by a profitable Indian business group with a group turnover of `1000 crore or more. (except industries with high cost inputs and related turnover in sectors like cement, iron and steel and power where no relaxation would be allowed).

iv) Profit a) 3 years of net profits out of the last 4 years* provided there is no cash loss, in all the 4 years as above.

b) In respect of companies demerged from parent entity, the parent entity should meet the requirement indicated at (a) above.

c) Companies promoted by well-established Corporate / MNCs, provided the Corporate / MNC concerned meets the norm of 3 years profit record.

*If there is net loss in the last audited / immediately preceding FY, the projections of the purchaser corporate for the next 12 months / next FY, along with a copy of CMA furnished to Working Capital Bankers be obtained, analysed and commented upon in the appraisal note.

Reasons for the loss in any of the other years to be clearly brought out in the note, along with steps taken by the company to overcome the same.

v) No arrears/ Default to Banks/ Financial Institutions

There should be no arrears or default to banks / FIs at the time of submission of application. No relaxation.

Repayment Track record -Clients who have completed one year from the date of first discounting of bills - Existing DCS customers

-The repayment track record should be satisfactory.

- Facilities extended to the company by SIDBI should not have been restructured in the past.

vi) Extent of limit Not exceeding `25 crore or 15% of networth or 10% of combined working capital limits, whichever is lowest.

While fixing the exposure, overall working capital limits being enjoyed by the company should also be kept in mind and SIDBIs exposure must be reasonable in relation to the overall working capital limits being enjoyed by the company.

2. Rating (Internal / external)

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2.2.A. Benchmarks for sanction in respect of limits not backed by collateral security

Particulars Desirable norms

i) New Customers Minimum of AA (long term external rating); Relaxation to be considered by a committee higher than the Committee vested with powers to sanction, subject to the rating not being less than A+.

ii) Companies operating in India for more than 5 years as subsidiary of overseas established entity, drawing strength from external rating of such parent Co. from international rating Agency.

International Rating should be comparable to AA and above of domestic rating agencies;

Letter of Comfort to be obtained from the parent company.

In exceptional cases, atleast Letter of Awareness to be obtained.

3. ACR/FACR Norms:

i) ACR/FACR Norms Residual charge with reasonable margin (not less than 25%) to be stipulated in all cases, to ensure SIDBIs position as secured creditor.

4. Financial norms

i) TOL / TNW Upto 4:1

ii) Current Ratio/ Quick Ratio

Not below 1.33:1 / Not below 0.5.

iii) Debtor (Dr.) / Creditor (Cr.) days

Dr. days - To be examined as prevalent in the industry.

Cr. Days - As prevalent in the industry, wherever available from public domain, Viz. Capitaline, etc.

iv Net profit margin Net profit margin to be commensurate with the type of activity and the amount of capital expenditure and should be broadly aligned to industry standards/peer groups as available in public domain. In case NPM is lower than 3%, suitable justification to be provided for.

v) Debtor days To be examined as prevalent in the industry

vi) Creditor days As prevalent in the industry, wherever available from public domain, Viz. Capitaline, etc.

vii) Cash flow from operations

Should not be Negative during the preceding financial year.

(as per Cash flow statement annexed to financials in the Annual report)

viii) Minimum No. of MSME suppliers to be covered

Five within one year

5 Others

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2.2.A. Benchmarks for sanction in respect of limits not backed by collateral security

Particulars Desirable norms

i) Disbursement in respect of new cases within the permitted usance should be restricted to one third of limits sanctioned depending on the usance / credit period. Thus, the operative limit will be restricted to one third of sanction for the first 90 days where the usance period is 90 days. Next one third is to be considered in the next cycle and the balance to be considered based on the previous track record and changes in ratings, if any in the third cycle.

ii) In respect of new cases, Personal Guarantee of promoter Directors for Corporates with external rating below AA. Relaxation to be considered only by a Committee higher than the Committee vested with powers of sanction or by the Executive Committee.

While taking Personal Guarantees(PG), networth statement in the prescribed format is required to be obtained as per extant guidelines. While insisting on PGs from promoter Directors of unlisted corporate, BOs may continue to insist on submission of networth statements; However, RO In-charge and Business Head are delegated to take a view on submission of documents of title in respect of cases falling at lower level delegation and in respect of other cases respectively, based on case-specific realities.

iii) In respect of new cases, Post-dated cheques to be obtained in all cases. Can be considered for relaxation in respect of proposals having rating of Aand above.

iv) Wherever exposure limit is considered and RFS limits are operated under seller-wise arrangement, RiMD guidelines on taking bank-wise credit details can be complied at sellers end, instead of from purchaser corporate.

v) Demand Promissory Note (DPN) to be replenished, after every 3 years. BOs to follow the practice as per the Standard Operating Procedure and ensure that, DPN is renewed within the validity period.

Notes:

i) Existing customers refer to those who have completed one year from the date of first disbursement.

ii) New customers include customers with whom SIDBI had dealings in the past but on whom, there is no current exposure.

iii) Relaxable norms are not indicated separately. They are proposed to be in line with the extant DoP.

iv) In order to ensure development of healthy portfolio, efforts to be made to improve the quality of portfolio. To achieve this objective, it is proposed that an appropriate strategy as relevant for a particular corporate account which is either unrated or carries an external rating of below BBB (i.e. BBB Minus and below) may be adopted, either through increase in discount rate or insistence on additional security or other suitable exit options.

v) Adequate care may be taken while covering the following sectors Chemical & chemical products, hotel, paper & paper products, wood & wooden products, food & food products, hospitals, textiles, rubber and iron & steel.

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2.3. Adhoc limits:

2.3.1 Based on requirement, optimum utilisation of the limit / peak outstanding, adhoc / temporary limits can be considered, by the delegated authority. Sanction of adhoc limit to be in line with extant DoP framework being circulated by BPRC.

2.3.2 The Upfront fee in respect of all fresh sanctions / renewal / enhancement and adhoc limit introduced by RFSV vide Circular of June 18, 2013, with effect from July 01, 2013 as detailed below shall continue to remain in force

I. The Upfront fee of 0.25% of the adhoc limit is to be collected;

II. Further, an increase in the discount rate between 0.25 to 0.50 bps on the adhoc limit sanctioned may be explored.

2.4 MSME RFS Without Bills of Exchange

a) This variant of RFS was introduced on October 08, 2003. Some purchaser corporates express disinclination in agreeing to the acceptance of Bills of Exchange and seek assistance for their suppliers with less paper work. While endeavor should be to obtain BoE in respect of all cases, limit under RFS facility without BoE can be selectively considered in case of well-established purchaser corporates belonging to reputed groups wherever found necessary.

b) The scheme is different from Invoice Discounting Scheme (IDS)/ Modified Invoice Discounting Scheme (MIDS). Under IDS/MIDS, advance against invoice is provided to the supplier and retention margin is kept. However, under MSME RFS, discounted value of invoice is paid to the supplier.

a) The eligibility norms for the Purchaser under MSME RFS without BOE are

same as that under MSME RFS (not backed by collateral security)The facility shall be extended only where purchaser company is willing to accept SIDBIs terms of sanction or against some other appropriate satisfactory arrangement. The concerned office of SIDBI shall, in consultation with the purchaser company, finalize a suitable mechanism to satisfy itself on the basis of documents to be submitted that the relative goods have been received and accepted at the end of the purchaser and clarify and establish the due date for payment by purchaser which may be based on terms indicated on the invoice or the terms of the purchase order. Such period shall not normally exceed 90 days from the date of invoice.

2.5 MSME RFS Seller-wise limits

a. Seller-wise limits were introduced on December 06, 1997, as an additional window under MSME RFS to enlarge the scope of the scheme. These limits are considered in cases where (a) purchaser companies disinclined to accept the LoI , provide Board Resolution and / or complete other formalities under the scheme and / or (b) Purchaser companies are disinclined to offer adequate collateral security for the limit but MSME sellers, are agreeable to offer collateral security.

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b. Under RFS (seller-wise arrangement), individual MSMEs, who are

suppliers to large purchaser companies, are allocated sub-limits within overall exposure limit fixed for the purchaser company.

c. Wherever such exposure limit are considered, RiMV guidelines on taking bank-wise credit details may be complied with in respect to seller client, instead of purchaser corporate.

d. Such seller-wise limits could be considered in the form of either secured limits or limits not backed by collateral security and accordingly applicable norms may be compiled with as outlined under Table 2.1.A and 2.2.A in previous pages. Detailed appraisal of purchaser company should be undertaken for sanction of exposure limit as applicable for sanction of purchaser-wise limits. For sanction of individual seller-wise limits at the Branch level, limited appraisal of sellers must be carried out.

e. For MIS purpose, the number of sellers is reckoned as the number of accounts in respect of the seller-wise limits, allocated to sellers, within the overall exposure limit fixed for the purchaser company as full documentation is done with each seller.

2.5.A. Variants of MSME RFS sellerwise limits:

I) Where the purchaser company accepts the terms of LoI and pass necessary resolution, but no collateral is available:

a. Under this category, limit is sanctioned to purchaser corporate by the sanctioning authority depending on extant DOP for sanction of fund based limits and individual sub-limits are sanctioned to sellers as per the extant DOP for sanction of sub limits. The LoI issued to the purchaser would include a specific clause for allocating sub-limits to sellers. Out of the list of the suppliers furnished by the purchaser corporate, sub-limits shall be allocated to the supplier units considered suitable, based on the requests for sub-limits.

b. With regard to the selection of the seller units for allocation of sub-limits, the following criteria is suggested - (a)The unit to be conducting active operations for atleast two years & profit making and / or declared dividends during past two years; (b) Regular in repayment of its dues and not in default to banks / financial institutions, and (c) Sub-limit could be based upon total credit sales of the supplier to the purchaser company during past year with allowance for projected growth in the current / ensuing year.

II) Where the purchaser companies are disinclined to accept the LOI ,submit

Board Resolution and complete other formalities: .

a. Exposure limits are considered by the respective Sanctioning Authority concerned for the purchaser companies without any letter of sanction being issued to the purchaser company. However, a list of authorized signatories from the purchaser company as also a letter undertaking to communicate any change in the list should be obtained. The individual MSME, who are sellers to such purchaser companies are allocated direct Bill Discounting limits (and not sub-limits as indicated above) within the overall exposure limits fixed for the purchaser company. (Annexure 10.d)

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b. Applications for sanction of bill discounting limits would be submitted by

individual MSME sellers/suppliers. The limits so sanctioned to individual MSME sellers as per DOP for sanction of seller wise sublimits, would be considered within the overall purchaser wise exposure limit. The criteria for selection of suppliers would be same as indicated above. It may also be ensured that the supplier has a satisfactory sales relationship with the purchaser for at least past one year.

2.7 . MSME RFS backed by Inland Irrevocable Letters of Credit (LC)

a. The above variant of RFS was introduced on October. 8, 2003 on a pilot

basis. Detailed guidelines on the subject were issued to all offices by RiMD Circular on April 06, 2009.

b. Limits sanctioned against Letter of Credits (LCs) / Bank guarantees (BGs)

are construed as secured limits for the purpose of application of bench mark norms/financial norms, etc. Limited analysis of the purchaser companies may be carried out in line with BfS stipulated for RFS Limits backed by security.

c. Since LCs are required to be opened on individual sellers (opened by the

purchaser corporate), the limits are normally operated as seller wise limits., though the limits can be sanctioned either as Purchaser wise limits (exposure limit) or seller wise Limits( actual sanction), depending on who approaches SIDBI for the purpose.

d. All guidelines on sanction of seller-wise limits with regard to eligibility of

sellers, amount of assistance linked with sale to purchasers, etc. will be followed.

e. The LC opening bank in respect of the proposals under consideration

should be a Scheduled commercial bank which have been sanctioned counter-party exposure by SIDBI. Exposure limits sanctioned to purchaser corporate or aggregation of seller wise limits should be within the above counter party exposure on individual banks by whom LC is established by the purchaser corporate.

f. In addition to applicable interest / discount rate for L/C discounting, penal interest to be calculated as per extant guidelines.

g. Handling charges may be levied as per extant guidelines, as indicated in sanction / renewal process in respect of secured / limits not backed by collateral security in subsequent pages.

h. Personal Guarantee(s) of the promoter(s)/director(s)/ partner(s) may be obtained wherever available. No guarantee fee shall be payable for the guarantee(s) so provided. Demand Promissory Note for the entire limit is also to be obtained. However, relaxations can be considered by the Sanctioning Authority, in case, there is a request received from the seller for the following:

I. To waive the recourse caluse as indicated in LoI;

II. Not to insist on Personal Guarantee(s) of the promoter(s) / director(s) / Partner(s) and Demand Promissory Note for the limit.

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2.8 Receivable Finance With Differential Interest Rates

The above variant was introduced by the Bank in October 2003. Under the present Scheme, the payment is generally received from the purchaser companies though the supplier units are also liable. There is substantial difference between the interest rates paid by the suppliers to their working capital bankers and the interest rates enjoyed by purchaser companies from their banks. Often, the purchaser companies expect the bank offering discounting services to charge interest at rates attractive enough for the sellers (so that they come forward for taking advantage of finance against receivables). On the other hand they expect the bank to charge interest to the purchaser companies at a finer rate. The differential between the discount deducted by the bank from the seller and the interest payable by the purchaser becomes the incentive for the purchaser companies for becoming intermediary under the facility enabling payment to eligible MSME units in respect of their credit sales.

Accordingly, the interest rate charged to the MSMEs receiving the payment against the supplies made and accepted by the purchasers shall be that agreed to between purchasers and sellers and advised to the Bankby the purchaser. On the other hand, the purchaser shall be required to pay to SIDBI on the due date, the amount released to the suppliers together with interest for the period of credit at the rate as fixed by SIDBI for the limit to the purchaser.

The format of the certificate / undertaking to be obtained from the seller may be accordingly modified to provide for SIDBI's right to deduct discount (equivalent to the interest) at such rate as may be determined and advised by the purchaser.

In order to provide incentive to the purchaser to act as intermediary for effective payment to the eligible MSMEs and towards the administrative costs, the difference in the interest rate applicable in respect of any eligible vendor should not normally be more than 2% over the interest rate charged to the purchaser.

The facility will be extended to select purchaser companies. It should however, be ensured that, there is transparent mechanism for passing on this benefit to purchaser corporates for facilitating intermediary services to MSMEs.

2.9 MSME RFS operated against Bank Guarantee:

Under this variant, bills are backed by Bank Guarantees, issued by the Working capital banker, a Scheduled Commericial Bank, of the purchaser / seller. These bills are discounted, after due verification of the authenticity of such Bank Guarantees. The verification should be on the lines of verifying the authenticity of LCs under L/C backed discounting. Basically, any borrower enjoying non-fund based limits with its WC Banker, can approach the Bank for sanction of a suitable limit under MSME RFS for covering its purchases from MSMEs.

The norms applicable for considering a secured limit are applicable for considering assistance under this variant. The operative limit against bank guarantees may be restricted to 90% of the guaranteed amount. In case of default, the bank guarantee may be invoked with the approval of the

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Competent Authority in case the bills overdue in the account beyond 30 days exceed 50% of the operative limit.

The Bank Guarantee Format, as vetted by Legal Vertical is enclosed in the Formats file (Annexure No. 16).

2.10 Seller-wise MSME Receivable Finance Scheme (SRFS)

This variant was introduced on June 24, 2005 to improve the cash flow & liquidity postion 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. Based on feedback from branches, the scheme was modified on December 22, 2008.

As per Loan Policy for FY 2014 issued by RiMV, keeping in view the focus on serving MSMEs, greater thrust is being laid, this year, to extend seller-wise receivable finance [SRFS] limits directly to MSMEs to improve 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.

Existing SRFS would be suitably modified, wherever necessary, to extend factoring services, to avail of the benefits available to Factors under the recently enacted Factoring Regulation Act 2012.

2.10. A. The norms applicable for SRFS are indicated below:

A. Norms applicable for SRFS:

Particulars Desirable norms

1. Entry level filters:

i) Seller a) MSME / Eligible Service provider

b)1. New customer - In operation for atleast 5 years;

b)2.Existing DCS customers atleast 3 years of operation

c) Earned net profit in atleast 2 out of the 3 previous FYs (including the immediate preceding FY)

d)1. No arrears / default to Banks /Financial Institutions

d)2. Existing DCS customers - Repayment Track Record should be satisfactory.

ii) Purchaser a) Established / financially sound purchasers are desirable

b) Satisfactory report on the Purchasers from the Credit Information Agency empanelled with the Bank.

c) Should be procuring items from the seller for a period of not less than one year with satisfactory acceptance of goods / payment record.

iii) Quantum of limit a) Minimum `25 lakh

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A. Norms applicable for SRFS:

Particulars Desirable norms

b) Based on units total receivables, W/C cycle / gap, past record of payment of receivables, future order, etc.

2) Internal Rating Minimum Obligor rating of SME 4 is required

3) FACR / ACR a) FACR of atleast 0.75 to be ensured for new customers

b) For existing DCS clients, Asset coverage of 50% of the limit is required, after ensuring ACR of 1.3 for outstanding DCS portfolio,

c) Wherever notice of assignment / payment confirmation from identified purchaser corporate is available, FACR can be relaxed upto 0.25.

d) Wherever notice of assignment / payment confirmation is not available, charge on all assets have to be taken & composite ACR of not less than 1.3 should be made available, subject to minimum FACR of 0.75.

Security SRFS limits can be backed by CGTMSE cover, subject to satisfying terms & conditions of CGTMSE scheme. In such cases ACR can be construed as 0.75 & can be approved by respective Sanctioning Authority, provided the sanctioned limits amount does not exceed `100 lakh.

Personal Guarantee of promoter Directors mandatory Relaxation can be considered only by a Committee higher than the Committee vested with the powers to sanction or by the Executive Committee.

Demand Promissory Note for the entire quantum of limit sanctioned.

Post dated cheques to be obtained in all cases. Can be considered for relaxation in respect of Purchaser/buyer company having rating of A and above.

To ensure compliance under CGTMSE scheme, it may be necessary to obtain valid charge on receivables (book debts) through appropriate hypothecation agreement.

4) Financial norms 1)Backed by BoE, eligible for discounting upto 100% of value of BoE.

2) a) Not backed by BoE, 75% of the invoice value can be considered for upfront payment.

b) Payment upto 90% of the invoice value allowed in respect of companies having rating of AA & above purchaser).

TOL / TNW Not to exceed 5:1

Current Ratio 1:1

Debtor Days Not to exceed 90 days, relaxable upto 180 days

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2.11 Invoice Discounting Scheme (IDS)

The scheme was introduced on February 28, 2000 as an additional scheme to fill the gaps in the credit delivery system and to alleviate the problem of delayed payments faced by MSMEs. The limits sanctioned under the Scheme relate to the outstanding value of the invoices discounted and not to the aggregate value of the invoices discounted during a particular year. Basic operational aspects are similar to other RFS schemes excepting availability of Bills of Exchange. Other operational guidelines are indicated under Table No.5.10.

2.12 Modified Invoice Discounting Scheme(MIDS)

Invoice Discounting Scheme did not pick up on account of insistence on Letter of Disclaimer from the Sellers Bank. In view of the limited success of the scheme, a review of the scheme was undertaken in the year 2008, and approval from Board was taken for the Modified Invoice Discounting Scheme. It may be mentioned here that all the formats prescribed under IDS were re-visited and new formats for application, appraisal, documentation etc have been prescribed under MIDS.

There are similarities in operational aspects under MIDS and MSME RFS (without BOE) as both schemes require sanction of a detailed operational process for sanction of exposure limits. The scheme details and operational guidelines are indicated under Table No.5.10.

2.13 NTREES (Trade Receivable E-discounting Engine)

SIDBI (in collaboration with NSE) has set up an e-discounting platform for discounting the receivables of MSMEs. The platform has been named NTREES (Trade Receivables Engine for E-discounting, Prefix N stands for NSE and Suffix S stands for SIDBI).

Normally, customers / Purchasers meeting the following criteria are eligible for coverage under NTREES / E-discounting:

i) Existing secured MSME RFS limit having satisfactory track record of 5 years and having long term external rating of at least A;

ii) MSME RFS limit not backed by collateral security to a company having satisfactory track record of atleast one year and long term external rating of atleast A.

However, other MSME RFS limits (including new limits) not meeting the above criteria may also be considered, upon merits, as per extant DoP.

Some of the important features/requirements of NTREES are listed below:

1. NTREES platform is an on-line platform which can be accessed by Purchaser, sellers and Financiers from any where. Only requirement is internet connectivity.

2. Log-in ID and passwords are given to the Administrator of each Purchaser who then assigns various roles to its authorised officials. The roles include options such as authority to upload instruments on the platform, offer the

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instrument for discounting, introduction and modification of bank details of the seller etc. This Administrator is authorised by the Board of the Company.

3. Important and relevant reports are available on the platform which can be generated and saved . These reports enable the Purchaser to know the status of each instrument. Reports showing instruments uploaded on the platform, discounted, due for payment, etc. are available.

4. NTREES require Purchaser to introduce sellers on the platform. All KYC formalities of the seller is to be undertaken by Purchaser. Bank mandate of the seller is also required to be collected by the Purchaser based on which bank details are fed by authorised official of the Purchaser on the platform. Thus so far as introduction of seller is concerned, Purchaser has all the responsibility. Purchaser is also required to immediately share the seller documents with SIDBI so that the seller could be introduced in the BFS package.

5.There are two options available on NTREES i) Seller bears the discount ii)Purchaser bears the interest. In the first option , discounted value is paid to seller whereas if option 2 is selected 100% face value is paid to the seller and Purchaser pays face value plus effective interest thereon on due date.

6. The basic process flow is as under :

a. There are two sessions on the platform. Session I from 9 a.m to 1 p.m. and Session II from 1 p.m to 5 p.m. Instruments are required to be uploaded by Purchaser and then offered for discounting on the platform. Instruments offered in Session I are discounted on same date and instruments offered in Session II are discounted on next working day. It may be mentioned here that for instruments offered in Session II, discount calculation is from next working day when the payment is made. It may be mentioned here that NTREES platform provide the option for individual feeding of the invoices as well as bulk uploading of invoices by the purchaser using report generated from any ERP package. NSE team helps in this process initially.

b. At the time of offering of invoices for discounting, a day marked as holiday (based on the holiday calendar fed in the platform in advance) cannot be chosen as due date. This ensures that discount is collected for the period from the day on which payment is made to the seller till the date Purchaser makes payment to SIDBI .

c. Each working day, after 1 p.m, SIDBI officer at RFSV, MHO generates obligation report for the day. This obligation report takes into account all instruments offered by the purchasers for discounting in Session II of the previous working day or Session I of the same day . Based on obligation report, RFSV at HO makes payments to various sellers by RTGS/NEFT.

d. Next working day, a report is received from IDBI Bank giving details of UTR of the payments made the previous working day. These UTR numbers are uploaded on NTREES to enable Purchaser and seller to track the payment. This report is also used for generating a file which enables centralized desk to push details of all instruments discounted on the previous working day to the respective BOs. After this data pushing is complete, BFS package at BO shows instrument details as if the instruments were discounted by BO.

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e. On receipt of payment at BO, BO advises centralized desk (RFSV) about repayment against each instrument and the same is updated on NTREES.

Please also note that random inspection of invoices by SIDBI officers is undertaken at Purchasers premises for ensuring genuineness of the invoices plus visits to MSME sellers as per MSME RFS guidelines are required to be undertaken.

The format of LoI to be issued to a purchaser company in respect of sanction of a new limit under NTREES platform, along with Board Resolution is furnished in Annexure 15(a) in the Formats. The format of LoI to be issued to an existing purchaser company, shifting part operations to NTREES involving modification of LoI, along with Board Resolution is furnished in Annexure 15(b) in the Formats.

In line with the national agenda for moving to electronic mode across all financial products, while efforts would be made to encourage business under e-discounting and enhance operations under NSE Trade Receivables Engine for E-discounting in association with SIDBI (NTREES) platform, the Bank would focus on bringing more business under direct E-discounting module developed in-house by the Bank.

2.14: RFS (Privilege):

This scheme was introduced on pilot basis in FY 2013. As PSUs / purchaser corporates are generally found to be highly rate sensitive clients, with large no. of MSME suppliers / sellers, utilization of the sanctioned limits by them, therefore, primarily rests on the rate competitiveness in line with money market movements. Hence, large PSUs with Maharatna, Navaratna and Miniratna status and large listed corporate in private sector enjoying external rating of AA+ and above (without downgrade in rating for last 3 years] from RBI accredited rating agencies with last 3 years record of net profit were considered for assistance under RFS Privilege Scheme. While the limit would be determined in relation to approximate quantum of purchases / services, outstanding at any given point of time would not be more than `500 crore per large PSU and `100 crore per corporate (subject to overall exposure). The limit to be valid for a period of 6 months tobe reviewed thereafter. The rate of interest for the facility to be negotiated and would be aligned with short term Commercial Paper (CP) rates with a minimum margin of 50 bps over 3M prevailing CP rates. The interest rates would be re-set each time of drawal / roll over, linked to the prevailing CP rate. Brief operational aspects of the scheme are furnished in Anneuxre 17.

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2.15. Trade Finance Scheme / Raw Material Assistance Scheme:

The Scheme was introduced on pilot basisduring FY 2013, for purchase of raw materials from PSUs / major corporate by MSMEs. The scheme was introduced to existing DCS clients by obtaining extension charge on existing securities (overall asset coverage 1.3:1) or under CGTMSE cover. The facility was allowed in line with RiMV guidelines of January 2004, whereby, in respect of MSMEs who are sanctioned purchaser-wise RFS limits, the entire credit purchases both from MSMEs and non-MSMEs, could be covered under the RFS facility, after ensuring that there is no double financing. Brief operational aspects of the scheme are furnished in Annexure 18. ROs/BOs may make a formal reference for extending similar assistance to eligible units which will be taken up for approval through Product Innovation & Review Committee (PIRC). Presently, the scheme is operated through Non-computerized scheme module.

2.16. Direct Discounting Scheme (Equipments) [DDS(E)]:

1. DDS(E) is being operated by the Bank to enable the manufacturers of indigenous machinery/ capital equipment in the MSME sector to optimise their sales by providing deferred payment facility to the prospective purchaser / users and realise their sale proceeds immediately, by discounting the BoE with SIDBI. Originally, the scheme was covering the small machinery manufacturing units. Thereafter, service sector activities and construction industry was included in the purview of the scheme. For classification of the eligible units under service sector, a CA Certificate confirming that the total project cost is within a ceiling of `25 crore, including the cost of existing P&M was stipulated.

2. Units in construction industry should be considered as a part of service sector and the eligibility norms prescribed for service sector units for coverage under RFS, may be applied for coverage of units in the construction industry under the scheme.

3. The applicable norms are as under:

2.16.A. Norms applicable for Direct Discounting Scheme (Equipments) [DDS(E)]:

Particulars Desirable norms

1) Entry level filters:

i) Seller Either Purchaser / Seller can belong to MSME sector ii) Purchaser

iii) Banker Purchasers Banker issuing Guarantee or giving Co-acceptance should be a Scheduled Commercial Bank, with latest internal rating upto CR4.

iv) Eligible Transactions i) Capital equipment / Machinery purchased by MSMEs / sold directly by MSMEs or through Selling Agent.

ii) M/c covered under the arrangement should not have been financed under any other scheme of SIDBI or any other Institution / bank.

v) Quantum of Limit Limit can be sanctioned to either the Seller or the

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2.16.A. Norms applicable for Direct Discounting Scheme (Equipments) [DDS(E)]:

Particulars Desirable norms

Purchaser.

Quantum of limit is based on firm enquiries in hand as also projected sales, in respect of Sellers; And in respect of Purchasers, based on a specific requirement for implementation of a new project or for expansion.

vi) Usance Usance ranges upto 5 years, which can be allowed upto 7 years.

2) Internal Rating i) CR4 for Purchasers Banker, extending co-acceptance or Bank Guarantee

ii) CR3, if alternate security is provided.

3) FACR / ACR i) In respect of limits backed by Bank Guarantee or Co-acceptance of bills, ACR can be construed as 1:1;

ii) In respect of facility backed by alternate security, charges on movable / immovable assets with ACR / FACR of 1.25 is required. However, charge on movables alone will not be acceptable. In addition, second charge on current assets shall not be construed as acceptable security.

4) Financial norms Financial norms as applicable for extending assistance under DCS would be applicable in respect of facility backed by alternate security.

2.16.B. Operational process:

4. Either the seller or purchaser of machinery is sanctioned a suitable limit. After sanction of limit, at the time of lodgement of bills for discounting at any office of SIDBI, along with Resolution/ Declaration, Certificates from machinery supplier & purchaser, Letter from purchasers banker, Reconciliation statement and BoE as per prescribed formats.

5. The BoE has to be co-accepted by a Scheduled Commercial bank, for payment on due dates. The proposals under DDS(E) with co-acceptance by a Scheduled Commercial Bank (SCB) can be taken up on the strength of the co-accepting SCB, subject to latest internal rating of such bank being upto CR4. Internal ratings of banks can be obtained from IFV, MHO.

6. The total usance of the bills generally ranges between 5 years, which can be allowed upto 7 years.

7. The applicable stamp duty on the BoE, exceeding 3 months / 90 days is as under:

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Bill of Exchange / Promissory Note For every additional Rs. 1000 or part thereof in excess of Rs. 1000

Where payable more than 3 months but not more than 6 months after date or sight, if the amount of bill or note exceeds Rs. 1000

Twenty four paise

Where payable more than 6 months but not more than 9 months after date or sight, if the amount of bill or note exceeds Rs. 1000

Thirty six paise

Where payable more than 9 months but not more than 1 year after date or sight, if the amount of bill or note exceeds Rs. 1000

Fifty paise

Where payable more than 1 year after date or sight, if the amount of bill or note exceeds Rs. 1000

One rupee

8. The bills are discounted, after verifying the specimen signatures of the co-accepting bankers, with a local branch and payment is released to the m/c supplier.

9. Demand advice is sent to the co-accepting banker, with copy to Purchaser/ Seller. On due dates, the repayment is honoured by the co-accepting banker.

10. Physical verification of the bills is to be carried out on June 30 / December 31 every year which should reconcile / tally with the balance outstanding.The paid bills may be discharged by marking Received Payment and returned to the concerned drawees by post within six months of payment of the last bill of the set of Bills of Exchange (including penal interest, if any). All set related papers are to be preserved for a minimum period of two years from the date payment of the last bill (including penal interest, if any) of the set of BoE. All records in respect of sets where penal interest is due and not paid / disputed cases may be duly preserved.

3. DoP for sanction of limits (both fund-based & non-fund based):

The delegation of sanction shall be as per extant guidelines in force. In respect of cases under the delegation of all HO Committees, as per extant guidelines of BPRC:

(i) CLPC shall prepare an Executive Summary (as per format enclosed to BPRC circular No. 13 A/2012-13, dt. Feb.11, 2013), before submission to sanctioning committee.

(ii) CLPC shall make presentation through video/ tele-conferencing to the Committee members. During the meeting the RH, BO Head can also join as per their availability.

Upon sanction of limits by the concerned Sanctioning Committees, as per prevailing DoP, Post-sanction reporting is to be made to the concerned PSR Authority.

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4. Upfront Fee & Handling Charges:

4.1. The Upfront fee as applicable with effect from July 01, 2013 is detailed below:

Scheme Name Upfront fee @

Remarks

1) MSME RFS Purchaser - wise

Scheme:

0.25% If, however, any enhancement is considered at a later date, before the due date for renewal of the existing limit, the fee is to be charged only on the enhanced portion of the limit, provided the fee on the pre-enhanced portion has already been collected at the time of previous renewal.

A) Secured Limits:

Fresh sanction / renewal / Enhance-ment

B) Limits not backed by security:

In respect of Purchasers with external rating of AA & above, while it is not made mandatory, efforts may be made by ROs/BOs wherever possible, to levy the fee. As regards others, the following norms are applicable:

i) Sanction of fresh limit@@

0.50%

ii) Renewal of limit 0.25%

iii) Enhancement of Limit

0.50% If, however, any enhancement is considered at a later date, before the due date for renewal of the existing limit, the fee is to be charged only on the enhanced portion of the limit, provided the fee on the pre-enhanced portion has already been collected at the time of previous renewal.

@ Relaxation, if any, can be considered by CCC-CGM in respect of cases falling under extant delegation upto CCC-CGM Committee and by CCC-DMD in respect of other cases. @@Wherever individual limits are considered for sanction under seller-wise arrangement within overall exposure limit to Purchasers, fee may be collected from such sellers.

The applicable service Tax and education cess are to be collected on the Upfront fee levied.

4.2. Handling charges were introduced vide Credit Department Circular of August 24, 2011. The details of the same are as under:

Bill / Invoice Amount Handling Charges*

Rs. 5 lakh but Rs. 10 lakh Rs.1000

*in case Bill of Exchange is available, then handling charges would be levied based on face value of the bill and not based on value of underlying invoice(s)

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The above mentioned handling charges are however, presently not being levied for discounting transactions on NTREES.

5. Sanction / Renewal /Documentation & Other Operational Process:

All the formats are furnished in separate file, as listed out in Index.

5.1. Secured limits & limits not backed by Security:

a) Purchaser corporate has to apply for the required limit in a prescribed application form, along with supporting documents, as indicated in the Application form. On the basis of application form, other related documents, market feed back, external rating (if available), peer comparison, etc., appraisal is carried out by the concerned BOs / CLPCs.

b) The authenticity of the financial statements / CA certificates may be verified by interacting with the auditors / CAs who have certified the financial statements. Thus, the veracity of the balance sheet / financial statement is to be verified independently with the Chartered Accountants firm, before considering the proposal for assistance, as outlined by CCG vide its circular No. 21/2012-13, dt. March 05, 2013. Though this may not be necessarily be applicable in respect of listed corporate/ purchaser companies, where information is available in public domain, the same would be applicable in respect of other cases.

c) The format of detailed appraisal in respect of new sanctions and proposals to be circulated to CCC-CGM, and above are provided in the formats file (Annexure 2A). It may be added that, in the appraisal format, the Status of the Borrower may be indicated as Purchaser of raw materials, components, etc. from MSME vendors and the Purpose of the loan would be Payment of short term bills of MSME Vendors.

d) As regards renewal / enhancement of existing limits, a simplified appraisal format is in place. BOs can fill up Part A of Annexure 2B (Basic input format) where details of the existing limit, operative limit, validity, extension granted, if any, compliance to eligibility criteria, past external / internal ratings vis-a-vis current ratings, security and status of its creation, main promoters / group, WC facilities enjoyed from other lenders, MSME beneficiaries, quantum of purchases from MSME, repayment track record, due diligence, KYC compliance, applicability of connected lending provisions, etc. are to be indicated. BO recommendation should invariably be furnished in Part A. However, it may be noted that, the above simplified appraisal format cannot be used in respect of proposals for renewal / enhancement to be sent to HO Committees, starting from CCC-CGM, for which, detailed appraisal format (as per Annexure 2A), along with suitable comments on past track record, etc. may be furnished.

e) Part B of Annexure 2B relates to the appraisal process to be completed by CLPC. It, interalia, contains analytical inputs such as Performance of companys shares on stock exchange, if listed, utilisation of limit/repayment record generated from Citrix and inferences drawn there from, analysis of balance sheet and

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comments thereon, compliance to exposure norms, Industry/company prospects/outlook, Loan Policy restrictions on industry, if any, Internal Rating done by CLPC, etc.

f) In respect of limits for sanction, renewal, enhancement by CCC-CGM, and above Committees, standard appraisal format circulated by RFSV earlier, with further suitable modifications made afresh may be followed (Annexure 2A).

g) The balance sheet and Profit & loss analysis and other ratios are worked out as per an excel format provided in the Format file by the concerned CLPCs (Annexure 2C).

h) CLPCs will do an internal rating of the proposals in Risk Assessment Module (RAM) under appropriate model, Viz. Large Corporate Model, larger SME, SME, SEM Service model, etc.

i) As regards the rate of discount, latest guidelines issued by RMV/ RiMV on the pricing may be quoted. The discount rates are mapped to the external rating in respect of limits not backed by collateral security, while in respect of secured limits, the pricing is based on the internal rating. Relaxation / discretion if any, may be suitably brought out in the appraisal, by giving proper justification in support of such relaxation. A comparative status may be furnished in the note to the effect of the rates charged by the existing working capital bankers.

j) Appraisal note may include details/comments on upfront fee / Handling charges.

5.2. Issue of Letter of Intent (LoI)

a) After sanction of assistance and compliance to Pre-LoI conditions, if any, receipt of upfront fee, if any, LoI conveying the sanction terms and conditions is to be issued to the purchaser company in duplicate, as per format provided in the formats file.

b) It may be noted that, LoI is issued only in respect of fresh sanction or enhancement of the existing limit or there is any change in the security. In respect of renewal of the existing limits, with no change in the quantum of limit or security, no LoI is issued. In case of change in the discount rate, if any, the same is communicated to the purchaser company by way of a letter, modifying the relevant clause indicated in the LoI issued earlier at the time of sanction of the limit.

a) While the LoI may, in general, include all the sanction terms, the clause relating to furnishing of Post-dated cheques may not be included in the LoI and the same may be communicated by way of a separate letter to the purchaser/ seller, wherever applicable, indicating the requirement of lodging post-dated cheques at the time of discounting.

5.3. LoI Acceptance & Board Resolution extracts:

(i) Sanction / enhancement of the limit under the scheme is communicated to the purchaser by means of a letter in duplicate, with the instruction that the duplicate copy thereof alongwith the endorsement on a non-judicial stamp paper (of requisite value for an Agreement) by the authorized person of the company is

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returned to the Bank, conveying acceptance of terms and conditions.

(ii) The LoI is to be accepted by the Borrower in the duplicate copy and also in a stamp paper, with the following wordings - The terms and conditions of the attached letter no. ___________/ dated ______ received from SIDBI are hereby accepted.

(iii) Since such acceptance forms the legal Agreement between the Bank and the company for the facility extended, it needs to be ensured that, it is properly stamped and kept in safe custody, along with the acceptance on the duplicate copy of LoI. Further, it needs to be ensured that the acceptance duly indicates the date and place of execution.

(iv) In respect of proprietorship / partnership firms, the LoI acceptance should be signed by the Proprietor / all the partners. In respect of company, the LoI has to be accepted by the person(s) authorized by the companys Board and the LoI acceptance is to be furnished along with a certified copy of the Board Resolution passed by the Board of Directors of the company. Formats of Board Resolution to be passed by the company are provided in the enclosed formats file.

5.4. Specimen signature cards:

(i) The specimen signatures of authorized officials of the company / Proprietor of the firm / all the partners of the partnership firm, duly attested by their existing WC bankers should be obtained as per specimen signature card format provided by SIDBI.

(ii) The verification of signatures of the authorised officials of the purchasers / sellers / others with the specimen signatures available on record with the Bank, is a vital requirement for operations under the Bills Schemes.

(iii) Signature verification software has been integrated with the Bills Finance Software (BFS) and it provides the facility for maintenance of list of authorized users and their passwords, audit trails / logging facility as also encryption facility. The following are the guidelines for creating and updating the signature database:

a) Creating /updating the database may be done by an Officer not below the rank of Grade C.

b) While scanning, the name of the company and the signatory, the expiry date of the limit and other remarks/comments, if any, may be associated with the scanned signature. In case of joint operation(s) by two or more signatories, the respective signatures may be scanned together and stored as one image and a Joint Signature Required remark may be added to the image using the annotation function.

c) After the process is completed, a stamp indicating the details of the Officer(s) who have scanned and verified the data, along with their signature(s) and name(s) be written at the backside of the specimen signature card and kept in safe custody.

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d) In case of any doubt, like distortions in the scanned image,

etc. the dealing officer(s) may confirm the authenticity of the signatures from the actual specimen signature cards already on record.

5.5. Security creation:

(i) Purchaser company arranges to create the stipulated security. Security would be generally first / second / pari passu charge on the Fixed assets, Personal Guarantee of the promoters / third party guarantors, Demand Promissory Note, Corporate Guarantee of the parent / associate company, as may be applicable in terms of sanction.

(ii) The guidelines on security / collaterals, as outlined in the Policy for Security and Collateral Management issued by RiMV vide circular No. 01/2013-14, dt. April 01, 2013 may be perused for further details on acceptable security / collaterals and creation of charge thereto. Further, Master circular on investigation of title and creation of mortgage security and formalities as outlined by Legal Vertical vide Circular No. 06/2012-13, dt.Mar.01, 2013 may be followed.

(iii) Mortgage particulars created on immovable properties may be registered with CERSAI in the CERSAI portal, as per extant guidelines.

(iv) In respect of charge on movable fixed assets, Deed of Hypothecation is executed and in respect of creation of charge on immovable property, Declaration & Undertaking is executed and Memorandum of Entry is recorded the next day, if SIDBI is the sole / first charge holder. In respect of paripassu charge / second charge, letter ceding charge is obtained from the other charge holders and the stipulated security is created by way of constructive delivery and entry is recorded in the office of the First charge holder which is holding the title deeds and a certified copy of the said entry is obtained and kept on record.

(v) In case of Company, Form 8 is filed with Registrar of Companies to register Banks charge on the assets.

5.6. Requirement of other one time documents from the Purchaser entity

Certificate from the Purchaser / Introduction letter by the purchaser to be submitted while introducing each seller. The format is provided in Annexure 5.a.

5.7. Requirement of other one time documents from the Seller:

(i) MSME Entrepreneurs Certificate / CA Certificate confirming the status of the unit as belonging to MSE, in respect of unregistered units / CA Certificate certifying the eligibility status of the service provider, including SRTOs.

(ii) In case of sub-contractors / SRTOs, a letter from the seller confirming that, it is not a subsidiary or an associate concern of the purchaser and that it has only business relations with the purchaser is obtained.

(iii) Certified true copy of Memorandum & Articles of Association / Partnership Deed. Resolution passed by the seller company / Declaration signed by all the Partners / Proprietor of the firm;

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(iv) Sellers Certificate as per proforma provided in formats file;

(v) Specimen signature card of the person(s) authorized to sign the BoE on behalf of the seller company / firm, as nominated by the Board vide its Resolution / as declared by the Proprietorship firm / Partnership firm in the Declaration form (Annexure 5.d).

(vi) Bank Mandate form duly filled up by the Seller and attested by their Banker, for registering with SIDBI for payment through RTGS / NEFT(Annexure 5.e).

5.8. MSME RFS sellerwise limits:

I) Where the purchaser company accepts the terms of LoI (as per 5.2 above) and pass necessary resolution, but no collateral is available:

(i) A letter allocating the sub-limit (LoI) (Annexure 10.b) is issued to each of the seller which would also contain terms for availing of the discounting facility. The seller company would accept LoI, pass necessary Board resolution (Annexure 10.c) for the purpose, wherever applicable. The Seller companies/firms/concerns shall also provide personal guarantee of promoters/directors/partners/proprietor and offer additional collateral security as stipulated.

(ii) In the event of discounted bills not being retired on due date by the purchaser corporate, recourse to the sellers would be resorted to.

II)Where the purchaser companies are disinclined to accept the LOI ( as per 5.2 above), submit Board Resolution and complete other formalities:

(i) A letter sanctioning the limit to the seller would be issued, upon approval of the proposal in reference. The seller company/firm/ proprietory concern would accept LoI, pass necessary Board resolution(in the case of company), furnish personal guarantee of promoters/directors/partners/proprietor and offer additional collateral as stipulated by sanctioning authority.

(ii) Rest of the requirement such as recourse to sellers and monitoring of limits would be same as in case of seller wise sub-limit. As regards collection of penal interest in case of delay in retirement of bills, the same would be recovered from the seller company who, in turn, may follow up with purchaser company independently for collection of such charges.

(iii) Renewal of the seller wise limits shall be done by the respective sanctioning authority as per extant DOP for sanction of seller wise sublimit, subject to the purchaser wise exposure limits being valid and available (viz. appropriate renewal carried out on exposure limit by the competent authority)

(iv) Wherever such sub limits are operated by various BOs, the monitoring of the exposure limit within various allocations amongst BOs and timely renewal of exposure limits is required to be taken care of the parent BO with which the exposure limit was originally considered/sanctioned.

Other operational aspects shall be the same as listed above.

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5.9. RFS backed by Inland Irrevocable Letters of Credit (LC)

(i) Application as per Banks format is to be submitted by the Borrower (Annexue 8.a).

(ii) We may have following two kinds of scenarios under LC backed RFS facility:

a. Scenario I : A purchaser Corporate approaching SIDBI for this facility for its sellers.

b. Scenario II : A vendor/seller approaching SIDBI for sanction of facility for covering its sales to various purchasers.

In both the scenarios, limit would be sanctioned to sellers. In scenario I, overall facility exposure could be fixed for the sellers of the Purchaser and within the same, seller-wise limits would be fixed for sellers. Provision for capturing the same would be built-in the package.

Purchaser-wise limits to large purchaser corporate can also be considered under the arrangement.

(iii) Limits to sellers would be sanctioned as per extant DoP for sanction of seller wise limits.

(iv) After sanction of limit, LoI is issued. The duplicate copy shall be duly signed by the authorised official(s) of the Borrower as a token of acceptance thereof and returned to SIDBI. The format of LOI is provided in Annexure 8.b.

(v) The Borrower shall pass a Resolution/Board Resolution (in prescribed format) and execute personal guarantee documents and other documents related to creation of stipulated securities. (similar to other limits as outlined in para 5.3 above)

(vi) Working Capital banker(s) of the seller units would be kept informed about the sanction of the facility.

(vii) Specimen signature of the official(s) of the seller units authorised to sign the bill of exchange, invoice and other related documents shall be obtained in the form of signature cards on the lines of MSME RFS for verification of signatures(similar to other limits as outlined in para 5.4 above).

(viii) Operating office shall invariably seek authentication of LC from the issuing banker before negotiating the same. The authentication of L/C is to be confirmed from the supervising authority of the Branch which has issued the L/C

(a) authority of the officers who issued the L/c and (b) on the amount upto which authorized to issue LCs / Guarantees by the officer concerned.

(ix) The Format of authentication to be obtained from Issuing Bank is furnished in Annexure 8.c. & Annexure 8.d. (with appropriate selection of the Operating Office).

(x) The seller would provide goods/render services and submit the documents stipulated under the LC to SIDBI (Negotiating Bank ) along with a draft (Bill of Exchange) drawn on the Purchaser. The LC shall be accompanied by documentary proof of shipment of consignment such as

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accepted invoice, bill of exchange, transporters bill, etc. (as stipulated in the LC).

(xi) Bill of Exchange drawn under the LC should not have without recourse clause.

(xii) Bills of Exchange with usance of more than 90 days could also be discounted under the Scheme subject to proper stamping.

(xiii) While bills are negotiated under LC, it should be confirmed that documents are free from any discrepancy. SIDBI would forward the documents to LC Opening Bank seeking confirmation of the LC and retirement of BOE(s) on due date(s), as per the format of the letter indicated above.

(xiv) On receipt of confirmation, SIDBI may discount the BOEs (within the unavailed counter party exposure for the LC opening bank) and disburse the discounted amount to the sellers working capital account. Stipulated handling charges would be collected at the time of discounting.

(xv) On due date, LC Opening Bank would make full payment to SIDBI.

(xvi) Further, based on merits, SIDBI may consider providing pre-delivery loan to individual sellers having satisfactory financial position and working results for the last 2/3 years against LCs opened by their buyers, which would be converted into receivable finance after negotiation of LCs. Sanction and other aspects may be followed as applicable for sanction of working capital limits.

5.10. Seller-wise MSME Receivable Finance Scheme (SRFS), IDS & MIDS

A brief of the sanction process and other operational aspects involved under the above schemes are given in the below table, for ready reference. For detailed guidelines on SRFS and IDS, please refer to Credit Dept. and Bills Dept. Circulars of Dec. 22, 2008 and February 28, 2000 respectively.

S.No. Particulars SRFS IDS/MIDS

1 Quantum of limit

Minimum `25 lakh Not to exceed 33% of the aggregate annual net sales to the approved purchaser. To review the quntum with relevance to the sales made by the seller during the last 2 years to the approved purchaser.

2 Sanction process

Sanction of limit directly to the individual sellers as per simplified appraisal format given in Formats file (Annexure 9b).

i) Sanction of exposure limit to @@purchaser Co. with good financial track record, market standing and satisfactory record of making payments to suppliers within the agreed credit period. Purchaser Co. to meet the BfS relating to limit not backed by collateral security (Refer appraisal format given in Annexure 2A);

@@Operational process to be approved under MIDS by the Sanctioning Authority; Different operational process based on market requirement is allowed

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S.No. Particulars SRFS IDS/MIDS

by making a reference to RFSV, who would examine the same & put up to a Committee constituted for considering the operational process on case-to-case basis.

ii) Sanction of IDS limit to sellers within the exposure limit to the approved purchaser.(Refer Formats file - Annexures 7a, 7b for application / appraisal formats).

Seller Public /Pvt. Ltd.$$ Co. in existence for atleast 3 years; earned profits / declared dividends in last 2 years; no default to Banks; Rating of seller is not mandatory.

$$Well-run Partnership firms can also be covered.

3 Desirable Norms / BfS

Norms applicable for SRFS as indicated under BfS (Table No. 2.10.A) in previous pages are applicable.

Seller

i) Current ratio above 1.20

ii)DER not exceeding 2:1

iii)Min. Interest coverage of 1.5 (Interest charges should not exceed profit before tax during the preceding year)

iv) % of bad debts , disputes or rejections not more thatn 5% for individual purchasers and not more than 3% of total sales for previous year. Total amount of bad debts, gross cash accruals also to be indicated;

v) Low Incidence of credit notes/ minimum level of rejections.

4 Rate of Interest

As per prevailing interest rate structure for applicable rating

5 Upfront Fee 0.5% 1. As applicable for limits not backed by collateral security, as indicated in RFSV circular of June 18, 2013 6 Renewal Fee 0.25%

7 Handling Charges

As indicated in para 4.2 above.

8

Credit Period Based on credit period / payment terms allowed by seller to the

90 days

Longer usance allowed, subject to approval by Sanctioning authority

120 days.

Can be extended upto 180 days, based on merits

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S.No. Particulars SRFS IDS/MIDS

Purchaser as per Purchase Order(s)

9 Validity 12 months from the date of sanction. To be renewed annually.

12 months from the date of sanction. Both exposure limit & limit to the seller are subject to annual review.

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Margin Backed by Bill of Exchangeii) Backed by Invoice

Nil ii) 75%*

* Upto 90% allowed in respect of Purchaser company with rating of AA & above.

i) N.A.

ii) 75% & 90% of the effective invoice value (net of rejections) in respect of IDS & MIDS

Balance amount out of retention margin will be released after deducting finance and other charges, on receipt of payment from the purchaser

11 Documents accompanying Invoice**

Proof of despatch / delivery and receipt of goods /services

1. Proof of despatch / delivery and receipt of goods /services.

2. Invoice(s) to be made as per the terms of Purchase order.

**Purchasers acceptance on each invoice or one time acceptance for making payment to SIDBI within the credit period notified in the invoice is required.

12 Minimum Invoice value / Face value of BoE

`10,000/- `10,000/-

13 Security As indicated under BfS in Para 2.10.A above.

i) FACR of 0.75 in respect of IDS;

ii) DPN for the entire limit sanctioned from seller;

iii) PG of promoters of seller unit;

iv)$$ Letter of disclaimer from Banker;

v) Assignment of receivables discounted;

vi)Extension of charge on assets already charged to the Bank in respect of existing customers. $$Letter of disclaimer wherever possible, can be obtained under MIDS

14 Purchaser- Seller (PS) Combination

PS combinations already covered under MSME RFS to be allowed, subject to

PS combinations already covered under MSME RFS to be allowed, subject to approval by Competent Authority as per

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S.No. Particulars SRFS IDS/MIDS

approval by Competent Authority as per extant DoP.

extant DoP.

15 With Recourse to Sellers

To ensure recourse to seller, an Undertaking to be obtained indicating that, the seller shall be liable to pay the dues, along with interest, penal interest and other charges, in the event of non-payment of dues by the Purchaser.

Since limits are operated as seller-wise, with documents like DPN and PG, recourse to sellers are available.

16 Intimation about sanction of limit

The Working capital banker(s) of Sellers to be intimated by SIDBI about the facility.

17 Documen- tation by Seller

Acceptance of LoI, Extracts of Board Resolution, DPN along with covering letter, Power of Attorney to collect payment from the Purchaser (in r/o. SRFS not backed by BoE), Sellers letter to purchaser, Personal Guarantee, etc. as indicated in the Formats File (Refer Annexure 9C & 9D).

Acceptance of LoI, Extracts of Board Resolution, Irrevocable Power of Attorney to SIDBI to collect payment directly from the approved purchaser, Invoice Discounting Agreement, letter to purchaser informing about Power of Attorney, seller undertaking for not availing similar facility from any other Bank and other documents as indicated in the Formats file. (Refer Annexures 6 & 7).

18 Specimen Signature

Specimen signature of the authorised officials of the Seller and purchaser to be obtained

Specimen signature of the authorised officials of the Seller for signing the Invoice and other documents authenticated by their existing banker; Under MIDS, if the Purchasers specimen signature are not available, some other mechanism to confirm the authorized officials signature may be explored.

To collect a copy of the reconciliation statement(s)[in respect of Purchaser submitting/accepting details of receivables to the sellers] from the seller and tally with the Invoices discounted.

19 Software i) SRFS backed by Bills of Exchange can

Extant IDS Software available in BFS

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S.No. Particulars SRFS IDS/MIDS

be considered for discounting in BFS, using the SRFS Module rolled out during FY 2014 by RFSV in association with ITV; and

ii) Extant IDS module may continue to be used, in respect of SRFS limits supported by Invoices.

5.11. MSME RFS without Bills of Exchange

(i) Sanction process is as applicable for sanction of limits under RFS not backed by collateral security.

(ii) The concerned office of SIDBI shall, in consultation with the purchaser company, finalize a suitable mechanism to satisfy itself on the basis of documents to be submitted that the relative goods have been received and accepted at the end of the purchaser and clarify and establish the due date for payment by purchaser which may be based on terms indicated on the invoice or the terms of the purchase order. Such period shall not normally exceed 90 days from the date of invoice.

(iii) The operational mechanism (as above and or as finalized) should be clearly brought out in the sanction proposal and incorporated in the Letter of Intent to the purchaser company which shall, inter alia include a clause for payment on due date(s).

5.11.1. Documents to be submitted:

a) Purchaser Company to furnish list of its authorized signatories and their specimen signatures duly attested by a commercial bank.(as applicable for other limits as outlined in para 5.4 above)

b) A board resolution specifically accepting SIDBIs terms of sanction may be obtained. ( as applicable for other limits outlined in para 5.3 above)

c) In the event of non-availability of BOE, in order to ensure recourse to the seller units, the units concerned shall be required to furnish an undertaking to SIDBI that in the event of purchaser company failing to pay the dues to SIDBI on due dates, seller company shall be liable to pay the same to the Bank with interest, penal interest and other charges as may be applicable. A demand promissory note should be obtained from the seller in this regard.

d) Wherever possible, demand promissory note may be obtained from the purchaser company also to the extent of limit sanctioned.

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5.11.2. Broad Mechanism:

Individual original invoices carrying acceptance by the purchaser company of goods/services received by them shall have to be submitted by the purchaser / seller along with a covering letter from the purchaser to SIDBI with request for disbursement to the suppliers.

Where e-discounting is proposed and discounting is based on report generated from system (SAP), the purchaser company may be advised to hold the invoice / copy of invoice in trust on behalf of SIDBI and SIDBI shall undertake visit to inspect such invoices and other related records as may be required.

5.12. Other operational aspects:

(i) On completion of documentation by the purchaser company and after receipt of all one time documents from the respective purchaser / seller, approval is obtained from the delegated authority as per prevailing DoP for acceptance of documentation and approval of new seller as and when introduced.

(ii) Credit Audit has been introduced to mitigate the risk involved in lending, by assessing the shortcomings / deficiencies pertaining to pre-disbursement stage requirements and assist in rectifying the same as may be required, at the earliest. The credit audit reviews the sanction process and compliance thereof. It is an independent review of credit risk assessment.

(iii) In respect of RFS cases for sanction above `3 crore, credit audit / concurrent audit is mandatory. Apart from this, operational / management audits are in place. In respect of assistance above `5 crore, the documents to be executed may be vetted by the Legal Deparment / Legal Officer. However, wherever the Legal Officer is deputed as a team member of the Credit Audit Team, no separate vetting of legal documents shall be necessary as required presently for loan over `5 crore. Based on directives from RBI, CCG vide Circular No. 13 / 2013-14, dated Sept.13, 2013 has advised that, title deeds and other documents in respect of credit exposures of `5 crore and above are subject to legal audit.

(iv) On compliance of the above and obtaining approval from the Competent Authority for commencement of discounting, discounting commences.

6. MSME RFS Post-sanction formalities:

A detailed checklist has been furnished at Annexure 13.b. Brief

summary highlighting important aspects is given below:

a) Commencement of discounting:

The discounting of bills/invoices under various schemes of RFS could

commence, in any of the following 2 scenarios:

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i) After completion of all the documentation formalities and creation of

stipulated security;

ii) Pending acceptance of LoI by furnishing the Board Resolution and without creation of the stipulated security;

In the first scenario, approval from the delegated authority is obtained to commence first time discounting of bills. The approval from the Competent Authority for commencement of discounting, is also required to be obtained after each renewal as well as while releasing additional / adhoc limit. In respect of seller-wise limits too, similar approval may be obtained after each renewal / enhancement. In the second scenario, wherever purchaser corporate are sanctioned purchaser-wise limits, extension of time upto 5 months or timeframe as indicated in the extant DoP, for acceptance of LOI in respect of sanction / enhancement of the limit, and passing of board resolution and extension of security shall be granted based on merits of the case. A letter from the company undertaking to complete the formalities within the stipulated time as also to furnish a copy of board resolution ratifying the bills discounted in the interregnum, should be obtained before commencement of discounting. Such letter should be signed by the authorised person(s). Based on the approval from competent Authority as per DoP, discounting of bills can commence. Both the purchaser and sellers bankers are advised about sanction of the limit under all schemes, except SRFS and seller-wise limits, where, only sellers banker is advised. The Purchasers banker is to be advised on an ongoing basis at the time of sanction / renewal / enhancement of the limit, while the sellers banker is to be advised while introducing a new seller.

b) Lodgement of Bill of Exchange (BoE)

i) If Bills are drawn by the sellers and accepted by the Purchaser company. Bills of Micro & small enterprises is required to be drawn and discounted within 45 days from the actual delivery of goods or rendering of services or removing of objection, if any. In respect of other enterprises, the drawal of bill of BoE is to be ensured within a reasonable period from the actual delivery of goods or rendering of services or removing of objection and in any case not later than 60 days. Thus, the tenor of a bill may go beyond 120 days. However, the unexpired usance (i.e. period between the date of despatch and the maturity date of the bills) should atleast be 15 days.

ii) The maximum usance allowed without stamp duty is 90 days, while higher usance period above 90 days upto 180 days is also allowed, if requirement for above 90 days are spelt out in the appraisal note.

iii) If a number of invoices have been covered in the bill, the date of despatch has to be taken as the earliest date on which despatch of goods covered under individual invoices has been made

i) The BoE should be as per the fo