LOAN POLICY FY 2013

PARA NO. 1 1.1 1.2 1.3 1.4 1.5 2 2.1 2.2 3 3.1 3.2 3.3 4 4.1 4.2 4.3 4.4 5 5.1 5.2 5.3 5.4 6 6.1 6.2 6.3 7 7.1 7.2 7.3 7.4 7.5 7.6 7.7 8 9 9.1 9.2 9.3 9.4 CONTENTS OVERVIEW PREFACE FRAMEWORK OF THE LOAN POLICY OBJECTIVES OF THE LOAN POLICY OVERVIEW OF LOAN POLICY VALIDITY/ AUTHORITY OF LOAN POLICY CREDIT MANAGEMENT POLICY PRODUCT MANAGEMENT PROCESS MANAGEMENT EQUITY & RISK CAPITAL ASSISTANCE INTRODUCTION PRODUCT PROFILE DUE DILIGENCE ASSISTANCE FOR SERVICE SECTOR INTRODUCTION THRUST BUSINESS AREAS APPROACH TO FINANCING SERVICE SECTOR WORKING CAPITAL ASSISTANCE ASSISTANCE FOR ENERGY EFFICIENCY INTRODUCTION OBJECTIVES THRUST BUSINESS AREAS : DIRECT FINANCE SUSTAINABLE FINANCE SCHEME ASSISTANCE FOR RECEIVABLE FINANCE INTRODUCTION THRUST BUSINESS AREAS PRODUCT RATIONALISATION INDIRECT LENDING INTRODUCTION ASSISTANCE TO STATE FINANCIAL CORPORATIONS (SFCs) MONITORING OF SFCs ASSISTANCE TO SCHEDULED COMMERCIAL BANKS ASSISTANCE TO SCHEDULED COOPERATIVE BANKS (SCBs) & REGIONAL RURAL BANKS (RRBs) ASSISTANCE TO SIDCs/SIICs ASSISTANCE TO NBFCs ASSISTANCE FOR INFRASTRUCTURE PROJECTS SIDBI FOUNDATION FOR MICRO CREDIT (SFMC) INTRODUCTION FOCUS OF SFMC LOAN POLICY PRODUCT PROFILE ASSESSMENT OF BORROWERS, RATINGS, LOAN TENURES ETC. PAGE NO. 3 3 4 5 5 5 6 6 7 8 8 10 11 12 12 12 14 15 15 15 15 16 16 17 17 18 18 18 18 19 19 19 19 20 20 21 21 21 21 22 22

10 CREDIT RISK MANAGEMENT 10.1 CREDIT RISK STRATEGY 10.2 RISK MEASUREMENT 10.3 RISK MITIGATION 10.4 EXTERNAL RATINGS 10.5 PRICING 10.6 MANAGEMENT OF ASSET CONCENTRATION 11 CONCLUSION ANNEXURE I: BENCHMARK FINANCIAL NORMS & PARAMETERS AS APPLICABLE FOR GENERAL PURPOSE TERM LOANS ANNEXURE II : TERM LOAN TO MFIs & LOAN TO NBFCs FOR ONLENDING TO MICRO ENTERPRISES/MISSING MIDDLE ANNEXURE - III: HIGHER INVESTMENT GRADE RATINGS SELECT SECTORS ANNEXURE IV: EXPOSURE CAPS

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LOAN POLICY FY 2013

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 are considered to be the nurseries for entrepreneurship, often driven by individual creativity and innovation, and make significant contributions to Indias GDP, manufacturing outpu t, exports and employment generation. The MSME sector is the second largest contributor to countrys GDP. The geographic distribution of the MSMEs is also more even. MSMEs are important for the national objectives of growth with equity and inclusion. The Report of the Prime Ministers Task Force on MSME s (January 2010), recommended that all the scheduled commercial banks should achieve a 20% growth in credit year-on-year to micro and small enterprises and 15% in number of micro enterprises accounts. In order to address the challenges of the MSMEs to scale up their performance and competitiveness, the Bank has adopted a multipronged approach to meet their requirement of capital, receivable finance, reduced energy consumption, infrastructure (in the cluster), etc., through various instruments/products of assistance. The new Business Plan of the Bank has identified following activities to be the thrust/niche business areas: Energy efficiency, clean technologies, sustainable financing along with structured debt Equity products like Risk Capital (including structured debt), contribution to funds, etc. Service sector Receivable finance and factoring services Indirect lending viz. refinance to banks/ Financial Institutions (Fis), assistance to non-banking finance companies (NBFCs), resource support to public sector undertakings (PSUs) benefiting MSME sector, etc. Infrastructure finance Loan facilitation and syndication

The business of the Bank has been divided into broad products/ business streams on the above lines. 1.1.1 The Bank has put in place risk assessment tools for credit rating which have enabled it to directly reach out to smaller customers in

the MSME segment by cutting down the appraisal and processing time. Meanwhile, with the advent of global standards for risk management, RBI has suitably adopted need based changes in the risk management practices in the Indian banking system. 1.1.2 Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 The definitions adopted for manufacturing and service sector activities under MSMED Act are as under:
Enterprise Category Manufacturing (Original Investment in P&M) Up to `25 lakh Upto `500 lakh Upto `1000 lakh Services (Original Investment in Equipment) Up to `10 lakh Upto `200 lakh Upto `500 lakh

F uMicro r t Small h eMedium r 1.2 1.2.1

FRAMEWORK OF THE LOAN POLICY 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 2013 is on quality asset growth, coupled with growth in income in each segment of business, maintaining the focus on customer needs. Looking into the increasing competition and the resultant margin pressures, the Bank would also put in place a suitable strategy to rapidly develop and increase the size and scope of its portfolio for generating non-interest / fee based income. As regards indirect finance business, cautious dispensation of credit with regard to state level institutions would continue. The Loan Policy covers rupee as well as forex lending, risk capital and micro finance operations of the Bank. Operations under Banks Treasury are excluded from the purview of this policy, as separate dispensation is required for Treasury operations. 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,

1.2.2

1.2.3

1.2.4

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 credit portfolio well diversified in terms of clients, markets and products with an acceptable risk adjusted yield. 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 support MSME sector. To encourage various functionaries to innovate and evolve competitive products based on market requirements. To promote inclusive growth through micro finance and risk capital. To strengthen the risk management systems for appropriate pricing of credit risks and ensure close monitoring of the credit portfolio so as to prevent fresh slippages into NPAs. To build strong alliances with intermediaries for tapping new business.

(ii)

(iii) (iv) (v)

(vi) 1.4

OVERVIEW OF LOAN POLICY The strategy for lending takes into account th e Banks approach for developing a healthy credit portfolio, its management and risk mitigation. Accordingly, the Loan Policy of the Bank broadly covers the following broad aspects: Business Policy of Verticals Credit Management Policy Credit Risk Management

There continues to be demand for indirect credit from the banking sector in general. The strategy would be to raise resources competitively given the Banks unique position as the principal financial institution for the MSME sector and meet the credit demand from the banking sector, to the extent possible. 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 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 authorised 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, HO. 1.5.4 The Loan Policy guidelines will be applicable to all the credit facilities extended to various customers by different verticals. 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 guidelines in this document should be read in conjunction with the operational guidelines on the various products/business lines and the circulars / master circulars / credit manual compiling the procedural aspects of credit appraisal, processing, sanction, documentation, etc.

2.

CREDIT MANAGEMENT POLICY

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

PRODUCT MANAGEMENT

2.1.1 Benchmark Financial Norms: The benchmark financial norms of the Bank applicable to term loans, in general, are given in Annexure I. The parameters of lending viz., debt equity ratio, total outside liabilities/tangible net worth, promoters contribution/margin, debt service coverage ratio, asset coverage ratio, loan repayment period, moratorium, etc., would be varied for different products, to suit the requirement of different sectors/ borrower segments. 2.1.2 Facilitation for Product Development /Innovation The Bank has put in place a suitable mechanism to understand the business needs of the customer and address them swiftly. Accordingly, a Product Innovation and Review Committee (PIRC) at the HO level considers and approves product innovations and their test marketing. A suitable exposure cap could also be fixed for such test marketing proposals to be monitored by the BOs/ROs concerned. 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.

The areas generally expected to be amenable to product innovation are service sector segments like organised retailing, IT & IT enabled services, entertainment, cash flow/ rent discounting, cash flow management products for MSME segment, cluster specific products, etc. 2.1.3. Coverage under CGTMSE The credit facilities up to `100 lakh to the eligible MSE borrowers would be generally covered under CGTMSE Scheme. In case, an eligible proposal is not getting covered under the CGTMSE Scheme, justification may be given in the appraisal note while putting up the proposal to the sanctioning authority (including a comparison of proposed security vis--vis the cover available under CGTMSE Scheme or other reasons, if any). 2.1.4. Cross-selling with Government Schemes The products of the Bank would also be dovetailed with the schemes of Government of India and state governments, wherever feasible, to improve the viability of the assisted projects and growth in overall asset base of the Bank. 2.2 PROCESS MANAGEMENT The key tool for managing the internal processes of the Bank is the Delegation of Powers (DoP) to the Credit Committees and the individual functionaries of the Bank. It also puts in place suitable system of checks and balances in the credit related decision processes. 2.2.2 Appraisal process The existing appraisal process of the Bank would be followed to appraise projects and other assistance. The Credit Appraisal and Rating Tool (CART) is in use in the Bank for rating and appraisal of credit proposals from existing profit making units for assistance up to `200 lakh and appraisal of other credit proposals upto `500 lakh. It has brought standardisation to the credit decision making process and has considerably reduced the turnaround time. Loan applications outside the purview of CART are appraised as per laid down detailed appraisal process of the Bank. The existing standard formats of appraisal are already in place in this regard. Rating of exposures above `200 lakh and those not eligible for rating in CART is undertaken in Risk Assessment Models (RAMs). Appraisal of cash flow based term loan assistance would be strictly carried out in Detailed Appraisal Memorandum with RAM rating. Further, as far as lending to Commercial Real Estate is concerned, considering the relatively higher risk attached to the sector and RBIs stand on financing real estate projects, the Bank

2.2.1 Delegation of Powers

needs to follow a selective approach and utmost care is taken while conceptualising the projects. The Banks current guidelines on due diligence with regard to obtaining satisfactory credit reports, undertaking visits, due diligence of suppliers /contractors etc., checking of CIBIL database for Consumer/ Commercial Credit Information Reports, KYC and AML norms, checking of RBI / CIBIL Defaulters list, Caution Advices etc., guidelines on connected lending, multiple banking arrangements, NOC from existing lenders, etc., wherever applicable, shall be followed. 2.2.3 Fair Practices Code for lenders: Fair Practices Code for Lenders, as per RBI guidelines, has already been adopted by the Bank and hosted on Banks website. The Code sets out the guidelines for processing of loan applications, appraisal, disbursement, post-disbursement supervision, etc. All information relating to charges/ fees for processing would be disclosed in the loan application forms. Further, the customer would be informed of all costs to be borne in sourcing finance from SIDBI. The facility of prepayment of loans would be available and pre-payment interest, calculated as per the extant instructions, would be charged by the Bank for such prepayment from borrowers sanctioned assistance above `5 lakh. A Grievance Re-dressal Mechanism has also been put in place to resolve the disputes arising out of the Fair Practices Code.

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3.1

EQUITY & RISK CAPITAL ASSISTANCE

INTRODUCTION

3.1.1 The MSMEs have been 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 coverage ratio, DER, etc., which adversely impact the flow of financial assistance to MSMEs and in turn puts constraints on their credit absorption capacity and consequent growth. To facilitate enhanced flow of credit to this sector, the Government and the Reserve Bank of India have been taking several measures from time to time. 3.1.2 Focus of Equity & Risk Capital Loan Policy 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. However, due to promoters limited

understanding of various issues related to external equity / risk capital investments including the higher return expectation of the investors, feared consequences of dilution of equity, various rights which equity investors demand, higher disclosure and corporate governance issues etc., these products have been slow in making an impression in the market. In view of the above, the focus of the Equity & Risk Capital Loan Policy for FY 2013 is aimed at improving the off-take taking into consideration the felt needs of the sector, building up of quality portfolio and management of the same combined with appropriate risk mitigation measures. 3.1.3 Direct assistance The Bank provides risk capital to MSMEs using appropriate risk capital products based on best practices being followed in other parts of the world for providing risk capital to MSMEs. The Bank uses a mix of standardised products and structured products (where assistance is customised for each customer on a case to case basis) for faster dispensation of risk capital to eligible MSMEs. 3.1.4 Indirect Assistance The Bank will continue to provide risk capital to MSMEs through several state level and national level MSMEs funds. These Funds would also be used as channel partners for bringing structured equity deals, assist in carrying out due diligence and monitoring for the Bank. 3.1.5 Assistance through focused equity funds (VCFs / PE Funds) The assistance to technology and innovation based MSME entities with very high growth potential is normally made through specialised Equity Funds / Venture Capital Funds / Private Equity (PE) Funds having relevant expertise and networking in deal making, monitoring and hand holding of investees. SIDBI could act as an anchor investor in some of these MSME focused funds and could also take equity stake in the Asset Management Company of such funds. 3.1.6 Assistance through Banks/ NBFCs The Risk Capital assistance is also proposed to be routed through select banks and NBFCs to their MSME customers through standardised products (like sub-ordinated debt) with strict customer selection criteria. 3.1.7 Partnerships for startup assistance The major challenge due to which the banking sector is unable to assist small startups is proper mechanism for project validation and the effort/skill required in monitoring the borrowers. Therefore, there is a need to develop a non-banking network of mentor agencies which would help banking sector provide credit

to start up and early stage enterprises. Towards this end, the Bank has signed MoUs with angel networks viz. Indian Angel Network (IAN) and The Indus Entrepreneurs (TiE) for developing a framework for supporting start-up units and would work with other organizations having relevant mandates in line with the Banks Risk Capital strategy. 3.2 PRODUCT PROFILE

3.2.1 Start-up Assistance Scheme (SAS) The projects where revenues have commenced with product acceptability by customers, are normally considered under the Scheme. Assistance of a maximum of `100 lakh is considered (in the form of OCD i.e. optionally convertible debt). Besides, equity (at par) in the company, equivalent to 1-2% of the paid-up capital is also subscribed as part of the assistance. 3.2.2 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, acquisitions, mergers in India or abroad, etc. c Margin money for working capital. Normal working capital requirements should generally be met under normal WC arrangement. However, 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. d Any other bonafide 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, Optionally Convertible Subordinated Debt (OCSD), Optionally Convertible Debt (OCD) and Optionally Convertible Debentures (OCDR), and also equity based instruments like Optionally Convertible Cumulative Preference Shares (OCCPS) etc., to the existing customers of the Bank and also to new customers with good past track record.

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3.2.3 Resource Support to banks under Risk Capital To reach wider segment of MSMEs, efforts are being made to extend resource support to banks under Risk Capital Fund so that they can extend risk capital assistance to their customers. 3.2.4 Resource Support to NBFCs under Risk Capital To enhance the retail reach of risk capital assistance under MSME RCF, Channel Partners (CPs)/ NBFCs are being identified. This would help a large number of good MSME customers to meet their margin and other bonafide growth requirements, including intangible expenditure (viz. marketing, brand building, R&D, hiring professionals, quality control and energy efficiency investments) etc. 3.2.5 Venture Capital Financing The Bank has been acting as a fund of funds and subscribing to the corpus of venture capital funds (VCFs) subject to its contribution being utilized for extending assistance to MSMEs, besides service sector and other infrastructure projects eligible for financing under the Banks guidelines/ policies, issued from time to time. In effect, it has been facilitating channelisation of funds to meet the venture capital requirements of SMEs. The Bank recognises that being a high risk industry, the returns in venture capital financing are quite uncertain while the investments in venture funds are mostly illiquid in nature and locked for a longer tenure. However, keeping in view the potential of private equity and venture capital in stimulating growth, the Bank, as hitherto, would continue to support venture capital funds, asset management companies and trustee companies. 3.3 DUE-DILIGENCE Equity/ Preference share investments, unlike debt-based instruments, are not self-liquidating investments from business cash flows. Thus, these investments entail a different perspective/ dispensation as the preferred exit is either through an IPO or third party sale. This calls for more detailed evaluation of the target entity. This is usually done by undertaking an external Due Diligence Exercise (DDE) through a CA firm/ agency/ auditor/rating agency. The primary purpose of DDE is to identify major weaknesses/ gaps in the target entity (including its corporate governance levels) and issues which require special attention etc. The DDE helps in confirming the material facts of the prospective business opportunity and independent review of financial and non-financial records as considered relevant and material.

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Another purpose of DDE in MSMEs would also be to guide such enterprises and provide a roadmap to correct/ improve the shortcomings in their business operations as also improve their compliances/ disclosures and governance levels.

4.
4.1

ASSISTANCE FOR SERVICE SECTOR

INTRODUCTION The service sector contributes more than 60% of the national GDP. The share of the service sector in the Indian economy is continuously increasing. The sector contributes significantly in employment generation and export earnings. There is substantial gap in funding of service sector enterprises offering immense business potential. The Service Sector Business Policy for FY 2013 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. 4.2.1 Focus on Target segments Towards meeting the financial requirements of the sector, the Bank would target select segments in the service sector, especially those where there is a large gap in the availability of financial assistance from banks vis-a-vis the requirement. While a comprehensive list of service sector activities eligible for financing from the Bank has been circulated from time to time, an indicative list of segments proposed to be targeted is given below: (i) (ii) (iii) (iv) (v) (vi) (vii) Logistics Supply chain management Warehousing and cold storage Retail outlets Hotels below 5 star category, especially budget hotels Restaurants Modern health care facilities/ Health clinics/ Hospitals with focus on relatively smaller hospitals (viii) Franchisees / Franchisors (ix) Rent a car operators (x) Scientific or technical consultancy, testing and analysis agency, event management for industry, promotion of industrial growth. (xi) Tourism related activities (xii) Auto workshops / Repairs/ Auto Dealers

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(xiii) IT / IT enabled services (xiv) Telecommunication Services (xv) Advertisement and Promotional Services (xvi) Business Process Outsourcing (BPO), Knowledge Process Outsourcing (KPO) and other knowledge based activities like call centres, technical help desks, medical transcriptions, bioinformatics, contract research, etc. (xvii) Setting up of mobile/radio frequency transmission/receiver towers, cabling, network installation, systems integration, service centres, dealerships, etc. (xviii) Setting up of service stations (petrol and gas filling stations, auto workshops, etc.), health and fitness centres, events management, and establishment of design houses/studios. 4.2.2 Eligible borrowers SIDBI would continue to finance the service sector based on the criterion of activity under section 2(h) of SIDBI Act. 4.2.3 Direct Assistance to existing well performing Service Sector Enterprises Assistance to existing well performing service sector enterprises for their varied business needs would be a thrust area of the Bank. The focus on existing well established entities would facilitate simplified appraisal process, quick credit decision and timely credit delivery and would help in building up sizable quality assets. 4.2.4 Even though some of the projects in the service sector do not create tangible assets and may not meet security related norms, these are found to generate comfortable cash flows. These segments include IT and other knowledge based industries, retailing, franchising, etc. As there is good potential for considering assistance to these sectors, proposals of such kind with borrowers having sound financial position, past performance as reflected in cash flows and management track record could be considered for Banks financial support based on factors like order book position, projected cash flow, etc. The Bank would also consider devising specific products/ schemes suited to the requirements of the specific industries which do not fit into the general norms for such industries under service sector. (i) In respect of standalone IT/telecom services projects, the credit risk aspects should be properly addressed. In this regard, safeguards like tie up with established corporates/ contractors participating under consortium financing, escrow mechanisms and adequate promoters contribution being brought in, should be ensured.

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(ii) Commercial Real Estate The Bank has been adopting a cautious approach in lending to the commercial real estate (CRE) sector. The CRE guidelines issued by RBI in September 2009 are being followed in this regard. (iii) Lending under infrastructure /CRE projects shall be subject to adherence to the National Disaster Management Guidelines for Ensuring Disaster Resilient Construction of Buildings and Infrastructure formulated by the National Disaster Management Authority (NDMA), Government of India to ensure that physical assets created through their financing remain safe and disaster resilient. The guidelines will be applicable to new constructions as well as additions, modifications, extensions or alteration. 4.3 APPROACH TO FINANCING SERVICE SECTOR For the purpose of this policy, the assistance to service sector has been broadly divided into two categories viz. (a) asset backed term loan assistance, and (b) cash flow based term loan assistance. (a) Asset backed enterprises term loan assistance to service sector

Asset backed term loan assistance would include assistance towards projects involving substantial primary and /or collateral security in the form of fixed assets [more particularly in immovable assets like land and building]. Hotels, hospitals, warehouses etc., would generally fall under this category. In service sector, while considering larger loans to hotels, hospitals, nursing homes, multiplexes/ malls, cold storages, warehouses, logistics projects, etc., longer moratorium of say 3 4 years and longer repayment period say of 8 12 years, with ballooning repayment could be considered depending upon realistic assessment of the implementation schedule and future revenue generation. (b) Cash flow based term loan assistance to service sector enterprises Assistance to projects which do not offer adequate primary and /or collateral security in the form of fixed assets to meet the norms for asset backed assistance shall be considered as Cash flow based assistance.

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Cash flow based assistance upto `100 lakh shall be covered CGTMSE. In case, the borrower is not inclined to be covered CGTMSE or the Borrower is not eligible for coverage CGTMSE as per CGTMSEs extant guidelines, the asset applicable for cash flow based term loans shall apply. 4.4. WORKING CAPITAL ASSISTANCE

under under under cover

Working Capital Assistance would be considered selectively to: (i) (ii) existing borrowers who are solely banking with SIDBI (including enhancement); existing borrowers of SIDBI (who are also banking with other banks) and have placed major share of immovable security with SIDBI, for renewal / enhancement;

(iii) existing well performing service sector entities who are new to SIDBI and do not enjoy working capital facility with any other bank; (iv) new entities in service sector where term loan is considered by SIDBI. Takeover of working capital would not generally be encouraged.

5.
5.1

ASSISTANCE FOR ENERGY EFFICIENCY

INTRODUCTION SIDBI has recognized financing for energy efficient and clean technologies in the MSME sector as one of the high potential areas for strengthening the competitiveness of MSMEs in India. SIDBI has in the past contracted 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.

5.2

OBJECTIVES (i) (ii) to promote the use of energy efficient and cleaner technologies by MSMEs. 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 energy efficiency and sustainable development in MSME sector under other products / by introducing new products with an element of some concessionality in interest rates.

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(iv) to encourage innovation in technology, products and delivery, particularly aimed at supporting the supply side. 5.3 THRUST BUSINESS AREAS: DIRECT FINANCE An indicative list of segments in the MSME sector which have high potential for energy saving/ cleaner production, to be targeted for business thrust, is given below: (i) (ii) Engineering & machine tools Auto components

(iii) Electronics and electrical products (iv) Sponge iron plants (v) Foundry & Forgings (vi) Pulp & Paper (vii) Ceramics (viii) Rice Mills (ix) Textiles, in particular, readymade garments and hosiery (x) Drugs and pharmaceuticals (xi) Food processing & agro based industries (xii) Hazardous Waste Treatment (xiii) Common Effluent Treatment plants (xiv) Transport operators using cleaner energy such as LPG/CNG, etc. (xv) Green building in manufacturing as well as service sector (xvi) Units engaged in manufacturing and service of EE/CP products/services (xvii) Any sector- Out phasing of ozone depleting substances 5.4 SUSTAINABLE FINANCE SCHEME SFS There are certain projects which may not meet the eligibility norms set by the international donor agencies but considering the fact that these projects also result in energy efficiency improvements in the MSMEs and result in abatement of Green House Gas (GHG) emissions that harms the environment. A separate scheme, viz. Sustainable Finance Scheme (SFS) has been carved out of existing Direct Finance Scheme (DFS) to finance such projects.

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An Illustrative list of projects which can be covered under SFS are as under: Renewable energy projects such as solar power plants, wind energy generators, mini hydel power projects, Biomass gassifier power plants, etc. Investments in green, energy efficient buildings. Any kind of potential CP investments including waste management, which do not belong to the listed industrial sectors which are eligible to be assisted under the KfW CPLoC. Energy Efficient / Green / Environment friendly / Pollution reducing, waste minimising equipment / measures in service sector projects like hotels, hospitals, nursing homes, tourism related activities, etc. Green micro finance (micro loans upto `5 lakh to micro enterprises NBFCs. Expenditure on energy audit / environment compliance audit / pollution control & management consultancy services. Expenditure on green rating, BEE star rating of its product, eco-friendly labeling, etc. ISO 50001 / 14000 or other accredited environmental certification. CDM registration related expenditure. for green / energy efficient equipment measures) through various micro finance intermediaries or

6.

ASSISTANCE FOR RECEIVABLE FINANCE

Receivable Finance Scheme (RFS) is being operated by the Bank for nearly two decades to mitigate the receivables problem of MSME sellers and improving their cash flow / liquidity. RFS covers discounting 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

6.1 INTRODUCTION:

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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/ rationalisation 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 select visits to MSME beneficiary units and random verification of the discounted invoices / bills. In order to improve the quality of overall portfolio and to address inadequacies of existing internal rating system, external rating has now been made mandatory, in respect of new customers under MSME RFS, especially where the limits are not backed by collateral security.

6.2 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. Keeping in view the national agenda for moving to electronic mode, efforts would be made to encourage business under ediscounting and enhance operations under NSE Trade

ii)

Receivables Engine for E-discounting in association with SIDBI

(NTREES) platform. iii)

The Bank will facilitate promotion of Factoring services including increasingly extending debt support to factoring companies registered with RBI as per provisions of Factoring Regulation Act. PRODUCT RATIONALISATION: Over a period of time, MSME RFS has been improvised to meet the growing business requirements, as under: o MSME RFS without Bills of Exchange, MSME RFS backed by L/C, Modified Invoice Discounting Scheme & E-discounting under NTREES platform, while Factoring is on the anvil.

6.3

7.
7.1

INDIRECT LENDING
INTRODUCTION

7.1.1 The indirect lending portfolio of the Bank consists predominantly of refinance to Primary Lending Institutions (PLIs), comprising State Financial Corporations (SFCs), State Industrial Development/

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Investment Corporations (SIDCs / SIICs) [collectively referred to as State Level Financial Institutions (SLFIs)], Scheduled Commercial Banks, Scheduled Cooperative Banks, Regional Rural Banks and select financial institutions. In addition, the portfolio also includes resource support/ term loan to Non Banking Financial Companies [NBFCs] and other Public Sector Undertakings benefiting the MSMEs. Term loans for infrastructure projects under consortium arrangements with Banks are also considered provided such projects have linkages to MSMEs. 7.1.2 The business plan of the Bank for FY 2013 for assistance through PLIs would take into account the availability of resources with the Bank. 7.2 ASSISTANCE TO STATE FINANCIAL CORPORATIONS [SFCs] Broadly, the support to SFCs would continue to be based on the overall exposure norms, financial health and coverage under MoU. 7.3 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 Reserve Bank of India. 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. 7.4 ASSISTANCE TO SCHEDULED COMMERCIAL BANKS 7.4.1 The risk profile of scheduled commercial banks as a whole is low. The scheduled commercial banks generally prefer to avail short term refinance assistance. However, looking to the need to create long term assets under the Scheme, creation of such assets through refinance to scheduled commercial banks would continue to be the thrust area for FY 2013. Banks would be encouraged to avail longer term refinance having repayment periods of 5 years and above. Exposure to the scheduled commercial banks by way of refinance during FY 2013 would be encouraged but within the individual counterparty exposure limits fixed by the Bank as given in Annexure IV. The individual bank wise caps are fixed on the basis of category of the bank, its net worth and risk rating. 7.5 ASSISTANCE TO SCHEDULED COOPERATIVE BANKS [SCBs] & REGIONAL RURAL BANKS [RRBs] Over the years, 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 project funding, compete with scheduled
19

commercial banks for fee and commission incomes such as issue of drafts, 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 micro and small enterprise [MSE] portfolio, overall financial health, compliance with regulatory directives, etc. 7.6 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). 7.7 ASSISTANCE TO NBFCs 7.7.1 The NBFCs (both in category A and B) registered with RBI which are engaged in financing enterprises in the micro, small and medium sector [MSME], and in business for the last 5 years, are, prima facie, eligible for resource support from the Bank subject to meeting the prescribed benchmark 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 the Reserve Bank of India from time to time. SIDBI provides term loan and resource support mainly to Asset Finance Companies. However, the assistance could also be extended to Loan Companies, if the loan is given for income generating activities. 7.7.2 During FY 2013, the focus of the Bank shall be on providing resource support to NBFCs for on lending to MSMEs for creation of physical assets/ to micro and small enterprises for income generating activities. 7.7.3 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. 7.7.4 The RBI guidelines issued to banks for NBFCs lending to MSMEs against the security of gold in terms of exposure to single NBFC not exceeding 7.5% of the banks capital funds, and limiting the Loan to Value [LTV] to 60%, would be followed. 7.7.5 The broad eligibility parameters for lending to NBFCs are given below: Registered with RBI In business for 5 years (could be relaxed upto 4 years) Net profit for last 3 years Net owned funds minimum `20 crore CRAR Not less than15% Recovery not less than 90% Gross NPA less than 5%

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Minimum investment grade rating (SEBI approved rating agency) for FD and bonds. Interest rate broadly linked to External Rating / PLR NBFCs to comply with all prudential guidelines laid down by RBI.

8.

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, power, telecom, etc., after satisfying the MSME linkages of the assisted projects. The infrastructure sector provides adequate scope for upscaling 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 stand alone basis. Within infrastructure sector, the projects from ports, energy, gas pipelines, telecommunications, tourism, warehousing infrastructure, cold chain sub-sectors, having linkage with MSMEs, could be explored. Further, projects of Common Waste management facilities and effluent treatment plants at industrial clusters, renewable energy projects with MSME linkages, may be considered for coverage under the Schemes after satisfying itself on MSME linkages and benefits.

9.
9.1

SIDBI FOUNDATION FOR MICRO CREDIT

INTRODUCTION Micro finance remains an instrument for the poor to improve livelihoods and reduce financial vulnerabilities by increasing their income and savings. With emphasis on supporting income generation activities under microfinance, SIDBI continues financial assistance to Micro Finance Institutions (MFIs).

9.2

FOCUS OF SFMC LOAN POLICY On asset quality, focus is on risk management through the assessment, monitoring and exposure management. The focus of the Bank is on MFIs with track record of resource mobilization, capital, strong systems, compliances with new regulatory

21

guidelines and responsible lending practices and long term sustainability in terms of financial and operational efficiencies. 9.3. PRODUCT PROFILE SIDBI Foundation for Micro Credit (SFMC) shall continue with term loan to MFIs for on-lending under microfinance, to intermediaries for on-lending to micro enterprises and to marketing service providers. Suitable changes are made in the eligibility criteria and guidelines for these products considering the current scenario. Details of eligibility criteria, etc., for various products are at Annexure II. Following the introduction of Micro Enterprise Loan Direct (MEL-Direct) for loans of `50,000 - `10,00,000 to micro enterprises, SIDBI implemented a project on Financing Micro Enterprises and Capacity Building in SIDBI using Downscaling Techniques to redesign MEL-Direct. Banks equity and related investments in MFIs will be guided by statutory guidelines.

9.4

ASSESSMENT OF BORROWERS, RATINGS, LOAN TENURES, ETC. Banks Fair Practices Code, Grievance Redressal Mechanism and RBIs guidelines to all India F is on connected lending are applicable for assistance under SFMC.

10.

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, corporate, 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 characterised 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. In compliance with the Policy Guidelines on KYC Norms and Anti Money Laundering (AML) Standards, a Scoring Matrix based on ten broad parameters and 3 risk categories for risk categorization of

22

Direct Finance Schemes (DFS) borrowers had been developed and put in place. 10.1 CREDIT RISK STRATEGY In line with the strategy for managing risks in the credit portfolio, following tenets have been incorporated in the Loan Policy : (a) Monitoring exposure to SFCs/ SIDCs as a percentage of total portfolio. (b) Implementation of internal rating models to measure credit risk for majority of the borrower 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 borrowers. (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 Banks portfolio. (e) Installation of an enabling framework capable of grading the risk and eventually linking pricing to internal ratings as suited to the Banks requirements. 10.2 RISK MEASUREMENT The Bank uses CART to process and rate loan proposals covering exposures up to ` 500 lakh, respectively, received from existing units fulfilling certain criteria. For loans outside the purview of CART, Risk Assessment Models (RAMs) are being used for borrower segments indicated below : (a) (b) (c) (d) (e) (f) Small and Medium Enterprises (SMEs); Larger SMEs; Service sector enterprises; Infrastructure Special Purpose Vehicles (SPVs) Road, Power, Telecom and Port; Banks (public/ private sector/ foreign banks, etc.) and financial institutions; State Financial Corporations, State Industrial Development Corporations; Large companies / corporate entities having financial linkages with the MSME sector, State Electricity Boards,

10.2.1 Internal Credit Rating Systems

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other State/Central level specialized Corporations, etc. and for RFS limits. 10.2.2 Investment Grades Proposals with internal risk rating at the time of appraisal between CR1 to CR5 on the combined scale in RAM (CAAA to CA in CART, and C1 to C5 in MSME-RFS) 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 selectivity and credit quality as indicated in Annexure III with minimum internal rating grade specified. Such higher investment grades shall not be applicable for assistance to infrastructure projects/ joint financing proposals [consortium/ multiple banking arrangement], other than power sector projects which will continue to be considered with a minimum rating of CR3 only. 10.3 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 borrower. The Bank has also been working out the portfolio rating of the operating offices on an annual basis for internal purposes. 10.4 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. 10.5 PRICING

10.5.1 In the 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 borrower segments. With a view to remaining competitive in the market, the existing practice of fixing the interest/ discount rate depending upon competitiveness/ demand and such other factors, may continue. As regards assistance sanctioned to infrastructure projects and such other projects under joint finance / consortium
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arrangement, the interest rate stipulated by the lead institution / other banks would normally be followed. 10.5.2 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. 10.6 10.6.1 MANAGEMENT OF ASSET CONCENTRATION

Exposure1 Caps

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. 10.6.1.1

Individual / Group Exposure

(a) In respect of schemes of direct assistance to MSMEs and specialized organizations marketing MSME products, the individual / group exposures shall be as follows:
Particulars For Single Borrowers For Group Exposure Cap 3% of capital funds of SIDBI 6% of capital funds of SIDBI

b) The exposure cap applicable in respect of assistance to NBFCs/ private sector corporations shall be as under:
Particulars For Single Borrowers For Group Exposure Cap 10% of capital funds of SIDBI 15% of capital funds of SIDBI RBI Guidelines 15% of capital funds 40% of capital funds

c) The exposure cap applicable in respect of MSME Receivable Finance Scheme (MSME-RFS), direct resource support and such other forms of bulk lending ( except refinance and BRS) to public and financial institutions shall be as under:
Particulars For Single Borrowers For Group Exposure Cap 15% of capital funds of SIDBI 25% of capital funds of SIDBI RBI Guidelines 15% of capital funds 40% of capital funds

Though SIDBI is a refinancing institution, from the prudential perspective and in accordance with RBIs suggestions, suitable internal caps have been put in place for the refinance portfolio.
1

Exposure has been defined as under:

Product Exposure computation

Fund based & Non-fund based facilities

Limit sanctioned whichever is higher.

or

outstanding

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The Bank has in place overall exposure caps for SFCs and SIDCs, which are perceived to be relatively higher risk segment of this portfolio. Keeping in view the RBIs policy on Exposure Norms for Financial Institutions, the exposure, inter alia, has been related to capital funds of SIDBI. 10.6.1.2 Counterparty / Activity / Industry exposure

Internal caps have been laid down in respect of different schemes of direct assistance and for various industrial sectors as summarised in the table at Annexure IV 10.6.2 Restricted industries The extant instructions for a cautious approach in respect of industries such as chemical dyes & dye intermediates, industrial oxygen, distilleries, etc., would continue. Further, keeping in view the NPA level, substantial exposure in certain industries, etc., the list of restricted industries would be reviewed periodically. Assistance to deserving units in the list could be considered if they have an internal rating of CR3 or above. Such proposals could be considered by RCSC or Credit Committees at HO. Industries consuming / producing ozone depleting substances viz. Chlorofluorocarbons (CFCs), Halon Carbon tetrachloride, Methyl chloroform, Hydrobromofluorocarbons (HBFCs), hydrochlorofluorocarbons (HCFCs), Methyl bromide, Bromochloromethane (BCM), etc., would not be assisted at all. 10.6.3 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 authority.

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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 endeavour 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. Strategic alliance entered into with commercial banks would also be utilised for giving better facilities

26

and services to the MSME customers. While the Bank has been making efforts in introducing risk management practices on an ongoing basis, it would also accord due emphasis in initiating a paradigm transition towards an integrated risk management framework.

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Annexure I Benchmark Financial Norms & Parameters as applicable for general purpose term loans (including energy efficiency, cleaner production, direct credit, etc.) Sr. No. A 1 Parameters Benchmark norms [wherever applicable] C 2:1 2:1 1.5:1 33% 25%

B DER (For the company as a whole, including proposed assistance) (a) Micro and small enterprises (b) Medium enterprises 2 Projected DSCR 3 Promoters contribution New Entity2 Existing Entity3 4 Overall asset coverage i. Micro, Small and Medium enterprises (a) New Entity (b) Existing Entity [other than (c) below] (c) Existing Entity with CGMTSE cover

1.4 1.3 1.2

The above benchmark financial norms are not applicable for assistance to infrastructure projects/ joint financing proposals [consortium/ multiple banking arrangement/ under Memorandum of Understandings (MoUs) with banks/Fis]. The norms for such proposals would be in line with the norms of consortium / others banks in the multiple banking arrangement. Similarly, the bench mark norms would not be applicable in respect of test marketing proposals for new products, resource support and structured products or other arrangements approved by the Board/Committees of the Board. Further, good business opportunities exist in modern MSME clusters in terms of financing industrial infrastructure, financing individual MSME units, other income generating activities like earning LC charges, syndication fee, etc. As cluster financing is
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 or insignificant commercial production. 3 An Existing entity is one which has already been established and is engaged in commercial production (with or without SIDBI's financial assistance).
2

28

done usually under consortium arrangement / multiple financing arrangement with other banks, the terms of finance including interest rate arrived on consensus basis could be considered and in case of consortium not being there, competitive terms on par with other lending banks in the cluster could be considered. A flexible approach could also be followed with regard to other norms/issues like promoters contribution, DER, DSCR, security margin/asset coverage, etc. Internal risk rating could in such cases be taken only as a guiding factor. The terms and conditions of sanction could be generally as stipulated by the consortium leader, lead banks/others.

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A. 1.

Annexure II TERM LOAN TO MICRO FINANCE INSTITUTIONS (MFIs) Objective SIDBI extends term loans to MFIs for onlending to the poor individuals or groups of individuals formed as JLGs, SHGs, etc. entities for onlending to MFIs

2. a. b. c.

Eligibility criteria To be eligible for term loan assistance from SIDBI the MFI: should be registered as Society, Trust, Company/Section-25 Company, NBFC-MFI4, Co-operative Society and MACS. registered as any other legal entity may be considered only after BO obtains Legal Departments clearance on its suitability. should have been lending under MF for at least 36 months or should have promoters/senior management having at least 10 years of experience in micro credit/banking/NBFC lending operations. has a minimum outreach of 5,000 loan accounts or 3,000 borrowers targets the poor, especially women and is secular . has audited financial statements (in case of NGO with microfinance as a programme, the NGO should have separate audited financial statements for the MF programme) and has systems, processes and procedures in place required of a financial intermediary like internal accounting, internal audit, risk management, cash management, timely MIS, etc. shall be in compliance with RBI and other statutory guidelines. Others Mainline NBFCs would be considered for assistance under microfinance by SFMC, HO on a case to case basis. MFI may follow any generally practiced MF models like Grameen model, SHG model, JLG model, cooperatives, etc., and any other appropriate model permissible under the law SIDBIs loan to be onlent by MFIs for use by borrowers in: Setting up/running non-farm income generating activities and micro enterprises under MSMED Act and

d. e. f.

g.

h. 3. a. b.

c.

In this document, NBFCs operating as full fledged MFIs prior to introduction of NBFC-MFI category by RBI are considered as NBFC-MFI, pending their re-registration as NBFC-MFIs.

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 d. e.

for construction of new / renovation/ expansion of dwelling units / dwelling unit-cum-work sheds, etc.

Loan to an MFI will be on annual/need basis with minimum loan of `0.50 crore to an MFI. NBFC-MFI to submit a certificate from a C.A regarding compliance with RBI norms for NBFC-MFIs and all other MFIs to submit a C.A certificate regarding compliance with RBIs norms on eligibility of bank loans to MFIs under priority sector Availability of a valid external rating. Primary security shall bookdebts/receivables. comprise hypothecation of

f. g. h.

Suitable collateral security like deposit of FDs, personal guarantee, pledge of shares, guarantee by multilateral donors and other forms of collateral security may be considered on a case to case basis. LOANS TO NBFCS FOR ONLENDING TO MICRO ENTERPRISES / MISSING MIDDLE Approach The Bank shall extend term loan to NBFCs for onlending to micro enterprises loans in the range of `50,000 10,00,000 per enterprise/borrower. Eligibility Criteria Following are the eligible criteria for such NBFCs:
a. NBFCs with experience in lending to micro enterprises/MSME b. Minimal BBB+ group rating by CRISIL or its equivalent grade of rating by other rating agencies whose ratings are accepted by SIDBI

B. 1.

2.

3.

Others a. Lending will be based on in-house appraisal along with credit rating by an independent rating agency as in vogue in SFMC. b. For existing MFI borrowers, loan may be considered based on the valid rating reports and their borrower profile. c. Security shall comprise Hypothecation of assets created out of the loan and collateral security on case to case basis. d. Exposure norms and rate of interest shall be as per guidelines from time to time. Securitisation/Acquisition by way of Direct assignment of cash flows The Bank had earlier introduced a partnership scheme for purchase of portfolio from MFIs. However, it is proposed to dispense with the same given the banks exposure to MFIs through loans. However, purchase of Micro Enterprise / Missing Middle loans by way of securitization and direct assignment of cash flows will be considered on a case to case basis in accordance with the extant RBI guidelines in the regard.

C.

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Annexure III Higher investment grade ratings Select Sectors Sr. No. 1 2 3 Particulars of industry/facility/borrower groups Chemical & chemical products including drugs and pharmaceuticals Commercial Real Estate Deserving units in the restricted list of industries such as chemical dyes & dye intermediates, industrial oxygen, distilleries, etc. Electronic equipment Food & food products including food processing sector Hotels, hospitals / nursing homes, cold storages, industrial or ware house spaces, etc Industries covered under Red Categories by Pollution Control Board (PCB) of the concerned state Iron & steel industry Leather & leather products Marble industry Minimum internal rating CR4 CR3 CR3

4 5 6 7 8 9 10 11

CR4 CR4 CR4 CR3

CR3 CR4 CR4 CR4 CR4 CR3

Power sector projects 12 Textiles (including jute)/ readymade garments/ hosiery) / powerloom 13 Wind mill projects (stand alone5)

Minimum rating of windmill projects taken up by existing companies primarily for depreciation benefit/ captive use/ sale to SEB would be CR5.

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Exposure Caps
S. No. Activity / Industry Exposure cap

Annexure IV

1 (a) 2 (a) (b) 3 4

Bills Finance MSME-RFS without collateral Infrastructure activities/projects Total portfolio6 Power sector including generation, transmission and distribution. NBFCs (overall exposure of the Bank) Resource Support 10% of o/s portfolio of SIDBI 7.5 % of o/s portfolio of SIDBI 20 % of o/s portfolio of SIDBI 12.5 % of o/s portfolio of SIDBI 15% of o/s portfolio of SIDBI

5 (a) 6 (a) (b) (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (xi) (xii)
7

Services Sector Exposure in service sector projects Industry Exposure Cap on exposure to a particular industry other than those at (b) below Transport Equipment (including Auto and auto components) Textiles / ready made garments and hosiery Food processing industry Engineering industry Drugs and pharmaceuticals Electronics and electrical products Agro based industries Commercial Real Estate Iron & Steel Petroleum & Petroleum Products Direct Assignment business 5 % of o/s portfolio of SIDBI 10 % of o/s portfolio of SIDBI 10 % of o/s portfolio of SIDBI 10 % of o/s portfolio of SIDBI 10 % of o/s portfolio of SIDBI 10 % of o/s portfolio of SIDBI 10 % of o/s portfolio of SIDBI 10 % of o/s portfolio of SIDBI 8.5 % of o/s portfolio of SIDBI 5 % of o/s portfolio of SIDBI 10 % of o/s portfolio of SIDBI 5 % of o/s portfolio of SIDBI 15 % of o/s portfolio of SIDBI

Includes exposure to activities in various sub-sectors under infrastructure.

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S. No.

Activity / Industry

Exposure cap

Ceiling on Exposure in unsecured advances 30% of o/s portfolio of SIDBI [including MSME-RFS without collateral at 1(a) above] 9 Primary Lending Institutions (Individual PLI limits) Refinance/Co-accepted [per institution] Bills/ BRS/LOCFC Individual bank-wise limit as approved by the Board. 15% of capital funds of SIDBI 1% of capital funds of SIDBI 0.5% of capital funds of SIDBI 7.5 % of capital funds of SIDBI `5300 crore 5 % of capital funds of SIDBI

(a) (b) (c) (d) (e) (f) 10 (a) (b) 11 (a) (b) (c) (d) (e)

State Bank / its Associate Banks/ Nationalised Banks/ Financial Institutions Private sector banks/ foreign banks SFCs [per institution] SIDCs including TFIDCs [per institution] SSIDCs [per institution] Scheduled Co-operative banks/ Regional Rural Banks [per institution] Aggregate exposure to State Level Institutions All SFCs (Aggregate) All SIDCs including TFIDCs (Aggregate) Aggregate exposure to All Nationalised Banks (aggregate) All State Bank and its Associate Banks (aggregate) All FIs (aggregate) Private Sector Banks (aggregate) Foreign Banks (aggregate)

300% of capital funds of SIDBI 200% of capital funds of SIDBI 100 % of capital funds of SIDBI 200 % of capital funds of SIDBI 100 % of capital funds of SIDBI

**********

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