Structured Mechanism for monitoring the credit growth to the MSE sector

RBI / 2012-13/495
RPCD. SME&NFS. BC.No. 74 /06.04.01/2012-13

May 9, 2013

The Chairman/Managing Director/
Chief Executive Officer
All Scheduled Commercial Banks 
(excluding Regional Rural Banks)

Dear Sir / Madam,

Structured Mechanism for monitoring the credit growth to the MSE sector

In view of the concerns emerging from the deceleration in credit growth to the Micro and Small enterprises (MSEs), there is a need for a structured monitoring mechanism to be put in place in banks at every supervisory level (Branch, Region, Zone, Head Office level etc.) for holistic monitoring of all credit related matters pertaining to the MSE sector and for follow-up of action points on a continuous basis. This proposal was placed in the 14th Standing Advisory Committee on MSMEs wherein it was decided to set up an IBA led Sub-Committee of banks (Chairman: Shri K.R.Kamath) to examine the issue. Following the submission of the Report by the Sub-Committee, it was proposed in paragraph 66 of the Monetary Policy 2013-14 that banks need to strengthen their monitoring mechanism and monitor their loan disposal process so as to step up credit flow to the sector and ensure timely rehabilitation of sick MSE units.

2. While banks have their Board approved loan policy for financing of the MSE sector as also their own monitoring system to review the credit flow to the sector, the Sub-Committee has reviewed the current systems being followed by the member banks and made recommendations to make the system of monitoring, at all stages and levels, more effective. The banks are, therefore, advised to implement the following recommendations:

A. Need for a Comprehensive Performance MIS

3. A system-driven comprehensive performance Management Information System (MIS) should be put in place at various supervisory levels in the bank viz. Region, Zone, Bank level etc. The frequency of MIS may also be fixed by each bank, according to their requirements so as to ensure regular monitoring at all levels. The data drawn up through the performance MIS should be critically evaluated and follow up action taken in a time bound manner. Corrective action, if any, required in the under- performing branch / region should be taken to bring it up the curve. The credit flow to the sector may also be reviewed by the Board of the banks at periodic intervals.

B. Credit Proposal Tracking System

4. We reiterate the instructions to banks, vide our circular RPCD.SME & NFS.BC.No.102/06.04.01/2008-09 dated May 4, 2009and circular RPCD.MSME.NFS.BC.No.53/06.02.31/2011-12 dated January 4, 2012, advising banks to put in place a Central Registration of loan applications and use the same technology for online submission of loan applications as also for online tracking of loan applications as recommended by the Working Group on Rehabilitation of sick SME Units (Chairman: Dr. K. C. Chakrabarty). While banks may finalize the operational modalities to be followed by them for online tracking of the credit proposals of their MSE borrowers, the recommendations of the Sub-Committee, as given below, may be taken as a benchmark which can be improved upon by banks, if required. The Credit Proposal Tracking System (CPTS) of the banks may ensure that:

• All MSME applications received by the branch physically with required documents are entered in CPTS.
• CPTS shall automatically generate an acknowledgement of the application, having a unique application serial number.
• This acknowledgement shall be issued by the branch to the applicant.
• Banks should endeavor to make application status available to the customer online using the unique application serial number on a day to day basis.
• The acknowledgement and status of the application to be sent automatically to the applicant
• On submission of set of documents as per check list, the disposal time of the application should also be advised to the applicant, with banks right to demand additional documents / information as it feel necessary.

C. Monitoring the loan application disposal process

5. To facilitate monitoring of the loan disposal system in the bank at all levels, a format for reporting of applications received from MSME customers, sanctioned /rejected is provided in Annex A. The position in this regard may be displayed by the banks on their website from the quarter ending June 2013. The format provides for capturing the details of the applications pending at the end of previous quarter, applications received during the quarter, sanctioned and rejected during the quarter and pending at the end of the quarter. The report generation should be automated centrally. The reporting software should be capable of generating the reports - Branch wise, Region wise, Zone Wise and for the bank as a whole.  Data should also be generated District wise and State wise for use by the bank, Reserve Bank of India, and the Government. Such data may be utilized by the bank to find out the progress made in flow of credit to MSME sector at each level.  The data for the bank as a whole will enable the bank to review its own performance at the end of each month/ quarter and to initiate follow up measures and corrective actions, wherever necessary, for improvement in performance of the sector.

D. Rehabilitation of Sick Units

6. Timely detection of sickness is critical for any enterprise, as any delay may impinge on the revival prospects of sick, but potentially viable units. In order to speed up the process for identification of a unit as sick, and  its  rehabilitation, revised guidelines have been issued by RBI  vide circular No. RPCD.CO.MSME &NFS.BC.40/06.02.31/2012-13 dated November 01, 2012 which are to be followed in letter and spirit. The guidelines emphasize on the speedy process of identification of a unit as sick, early detection of incipient sickness and prescribe a procedure to be adopted by the banks, before declaring a unit as unviable.

7. The banks may evolve a system driven mechanism for monitoring rehabilitation of sick MSE units. Each bank should constitute a MSE Rehabilitation Cell (MRC) at all its Zonal / Circle Head Quarters. The Cell should be responsible for monitoring identification of sick units / incipient sickness, conducting viability study, follow-up action, etc. for timely rehabilitation of viable / potentially viable sick MSE units.   A format for monitoring of the progress in rehabilitation of sick MSE units on a quarterly basis is furnished at Annex – B. The progress in this regard should be available on the website of the banks from the quarter ending June 2013.

E. Sensitizing branch level functionaries

8. Banks need to sensitize their Branch level functionaries of the requirements of the MSE sector and hold training programs to improve the awareness of guidelines pertaining to the sector, at branch level.

9. Please acknowledge receipt and forward an Action Taken Report by June 15, 2013.

Yours faithfully,

(Madhavi Sharma)
Chief General Manager

Encl.: Annex - A and B