What is SME stands for?

SME stands for Small and Medium Enterprises.

What is the difference between Small Scale Industries (SSI) / Small Enterprises  (SEs) and Medium Enterprises?

The criteria of investment in Plant & Machinery differentiate between SSI/SE and Medium Enterprises. In case of SSI units, the investment in Plant & Machinery is upto Rs. 1.00 crore except for five industries, ie (1).

Where the investment in Plant & Machinery can be upto Rs.5.00 crores. However the investment in Plant & Machinery for Medium Enterprises is above the limit of SSI units and upto Rs. 10.00 crores. In other words, the investment in Plant & Machinery for the classification of SMEs is upto Rs.10.00 crores.

What are the pros & cons of SSI vis-à-vis Medium Enterprises from the Banker’s Point of view?

Our Bank’s norms/guidelines are same for SSI and Medium Enterprises, except that SSI advances are treated under priority sector lending. 

Has the Bank evolved some special schemes for SME sector?

Yes, there are special schemes known as SME credit plus, Car Loans to SME Units, Mortgage Loan, Laghu Udyami Credit Card (LUCC), General-Purpose Term Loan and Credit Linked Capital Subsidy Scheme for technology upgradation. More details are covered subsequently.

What is SME credit plus?

This scheme is mainly meant for existing SME customers whose a/cs are classified as Standard Assets for the preceding two years.

The purpose of credit limit is to meet expenditure such as

·         Repairs to Plant & Machinery.

·         Payment to labour.

·         Tax payments.

·         Additional purchases of raw materials for execution of bulk orders.

Is there any maximum limit for the sanction of loan under SME Credit Plus scheme?

The quantum of loan is limited to 20% of aggregate fund based working capital             limits or a maximum of Rs.25.00 lakhs, whichever is less.

What are the requirements of collateral security for SME Sector advances?

              i]    For loans / credit limits upto Rs.5.00 lakhs, no collateral security is envisaged.

ii]  Also for loans above Rs.5.00 lakhs and upto Rs.25.00 lakhs, no collateral security is required for those SSI units which have good track record.  The criterion for units with good track record is covered subsequently.

iii] No collateral security is needed for loans above Rs.5.00 lakhs and upto Rs.25.00 lakhs for SME sector, which are covered under Credit Guarantee Fund Trust for Small Industries [CGTSI].  More details regarding CGTSI are furnished in the ensuing questions.

What is Credit Guarantee Fund Trust for Small Industries [CGTSI]?

Under this scheme, the loans upto Rs.25.00 lacs for SSI units are sanctioned without collateral security while availing guarantee coverage under CGTSI

Is CGTSI charging any premium / fee etc. from the SSI units for its extension of coverage for collateral security free loans?

Yes, the beneficiary will have to pay a one-time guarantee fee of 1.50% and an annual fee of 0.75 p.a. on the credit limits sanctioned. 

It is evident that CGTSI guarantee coverage is available for collateral free loans upto Rs.25.00 lakhs.  Please clarify as to whether this guarantee coverage upto Rs.25.00 lakhs will also be extended to those SMEs which require more than Rs.25.00 lakhs credit limits?

Yes. The CGTSI coverage will be available upto Rs.25.00 lakhs only, however, in cases where the credit limits sanctioned are more than Rs.25.00 lakhs, it is at the discretion of the Bank to seek collateral security for the non-covered portion i.e. above credit limits of Rs.25.00 lakhs.

What is the procedure for availing CGTSI coverages, whether we have to approach CGTSI office or Bank will take care / arrange for completion of all the formalities with CGTSI?

Bank  will arrange for the completion of all the formalities.

Do we have to submit any additional information / periodical statements to CGTSI?

No, not at all.  Bank will take care of it.

What are the other measures the Bank has undertaken to encourage / boost the growth of SME sector?

i.      We have executed a Memorandum of Undertaking with APSFC for joint   financing of SME sector in Andhra Pradesh.

ii.     We have identified and are encouraging certain clusters of industries in SME sector in         addition to our normal financing approach

What is the criteria / quantum for joint financing with APSFC?

APSFC will finance the entire amount of term loan upto Rs.5.00 crore and in case of bigger projects, term loan will be extended by mutually agreed terms on case by case basis. However, the working capital finance (fund & non-fund based) will be extended by SBH.

Whether we should approach APSFC or the Bank, for availing joint finance?

You can approach either of the two.

Is there any difference between the rates of interest of APSFC and the Bank?

Rates of interest will be charged as applicable to each institution.

What is a cluster based approach?

The concentration of the industrial units pertaining to a particular sector are known as clusters of industrial units and it has its own advantages in the form of availability of raw material, skilled labour, economics of scale, marketing/competitive advantages, etc. We have identified 7 clusters in A.P.

What are the benefits to establish a unit in the industrial clusters?

It enjoys all the benefits mentioned above. In addition to above, it is understood that the various Industrial Associations are demanding more benefits as being considered for Specialized Economic Zones (SEZs).

What is a mortgage loan?

It is an overdraft facility against mortgage of property to sanction hassle free working capital/contingency finance to borrowers in Trade, Services and SSI sector.

What is the maximum quantum of mortgage loan?

The quantum of loan is 50% of the realisable value of property with a ceiling of Rs 10.00 lakhs.

What is a capital subsidy scheme for technology upgradation of SSI units?

SBH provides for a maximum loan of Rs1.00 crore for certain activities/industries under its Technology Upgradation scheme for SSI units  with an objective to improve productivity and quality of products. Such SSI units are also eligible for 15% subsidy of loan amount from the Central Government,subject to the availability of funds with the Government.

What is a general purpose term loan for SSI?

All SSI units with good track record, good credit rating and pre-tax profits for preceding three years are eligible for a maximum loan of Rs 50.00 lakhs to be repaid over a period of 3-5 years. The loan is meant for meeting expenditure such as

·        Shoring up of net working capital.

·        Capital expenditure.

·        Substitution of high cost debt.

·        R & D expenditure.

·        Quality upgradation such as for achieving ISO standards. 

What is a Car Loan to SME Units?

We provide term loan to the promoter / partner of the SME Units having borrowing  arrangements with the Bank or their family members either in their own name or in the Units name for purchase of new or used passenger cars, jeeps, multi-utility vehicles and sports utility vehicles etc.

What is the security to be offered?

Only hypothecation of the vehicle(s) purchased will be taken as security.

What is the quantum of car loan to SME Units?

The maximum loan amount would be 2.5 times the net annual income (i:e. income as per latest  income tax return filed less taxes payable). Regular income from all sources can be considered , provided it is satisfied with the proof of income. The income of spouse can be included provided the spouse guarantees the loan. For new vehicles, there is no ceiling on loan amount. For used vehicles, the ceiling on loan amount is Rs. 15.00 Lakhs. In any case the EMI/NMI  percentage should not exceed 50%.

What is the margin of the borrowers?

          For loans upto Rs.6.00 lakhs – 15%

          For loans above Rs.6.00 lakhs – 30%.

What is the rate of interest?

(i)  Rate of interest varies from 8.75% to 10.25% for new vehicles,

(ii)  8.25% to 8.75% for premium vehicle

(iii) 11.25% to 12.25% for used vehicles depending upon the repayment period & place under floating rate   option.