SME Study Material

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KEY STUDY POINTS

1. Industries development and regulation act-1951 provided basis frame work for post independence
industrialization strategy.
2. In India 56 Laws, 72 Product Control orders, 165 returns & 60 inspectors encompass the
functioning of SMEs.
3. In India development of SSIs is a state subject but overall policy guidelines provided by Union
Government.
4. In India 2 commissions influencing policies of government both at central as well as state level.
a. National Commission on un organized sector ( Chairman-Dr. Arjun Sen Gupta)
b. National manufacturing competition council (Chairman-Dr. V Krishnamurthy)
5. MSME development act-2006.
6. SIDBI with CIBIL set up SME rating agency (SMERA).
7. The MSME act proposed following.
a. OTS in NPAs.
b. Corporate debt restructuring for SMEs.
c. Public sector banks to attain 20% growth in lending to SMEs.
d. Doubling credit to SME sector by 2009-10.
e. SME s to be credit rated.
f. Commercial bank branches to finance atleast 5 new units per annum in Urban & Semi
urban.
g. Largest share o SSI s in exports in the areas of Hosiery 7 garments (29.0%), Food
products (21.4%) and leather products (15%).
8. SME s classified generally in the basis of 2 ways. A. No of people employed B. Investment in
capital/Fixed assets.
9. In India definition based on investment in plant and machinery which is 10 million.
10. Export oriented unit is one which exports at least 30% of annual production at the end of third year.
11. If a company is considered as controlled by other if equity holder of the other in it exceeds 24% and
when same person is MD of both the countries.
12. Small business comprises of a. Retail trade b. Business Enterprise c. Professional and self
employed person d. Transport operators.
13. In case of transport operators if business is considered as small scale if it is association of 6 or less
person and number of vehicles owned not exceed 10.
14. Minimum no. of partners is 2 and maximum is 20.
15. Companys act 2006 replaces companys act 1956 with amendments.
16. In case of giving loans to companies search should be made within 30 days by banks. Charge to
be created within 30 days of execution of documents and second search after 30 days.
17. In private ltd company minimum number of share holders is 2 and maximum 50. Transfer of shares
limited. It cannot issue debentures/IPO.
18. In case of public ltd company minimum no. is 7 and no maximum number of share holders.
19. Minor can become partner but cannot sign partnership deed.
20. In case of new industries registration to ESIs to be completed prior to commencement of
production.
21. If an enterprise is considered as woman oriented if it is owned by woman entrepreneur with 51%
equity share and atleast 50% of woman employed.
22. Woman generally suffers from two discriminations. A. premarket discrimination like education,
training, experience B. differential wages.
23. In EU SMEs contribute 40% of employment.
24. In Germany 50% of GNP from SMEs.
25. Italy follows cluster approach.
26. Following laws relating to SMEs persistent in US.
a. US small business act.
b. Small business regulatory enforcement fairness act.
c. Regulation flexibility act.
d. Equal access to justice act.
27. Law on business activity & Law on acceptability and monitoring of public assistance to
entrepreneurs persist in Poland.
28. Japan-a. Law of prevention of payment delay to sub contractors b. SME basic law c. General
trading company act.
29. Small and medium industries fundamentals act-Republic of Korea.
30. Magna carta of Small enterprises- Philippines.
31. Dual vocational training system Germany is an example of PPP.
32. PPP is a Response-Demand-led approach.

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33. Karve committee report (1955) recommended protective environment for the growth of small
industries in India.
34. Policy guidelines in India regulate SMEs at the Entry stage, project implementation stage &
operational stage.
35. Policy package for SSI in India announced in 2000.
36. Investment limit in SSI sector in India is Rs. 50 Million. (SSI means-Micro & Small Enterprise)
37. Investment limit for medium enterprise -100 million (10 crores)
38. Exemption in excise duty up to 10 Million. (1 Crore).
39. Composite Loan limit can be sanctioned without security to SSI is 2.5 Million. (25 Lakhs)
40. National equity fund scheme project costs limit 5 Million (50 lakhs).
41. SSBE s upto investment of 1 Million (10 lakh) qualify for priority sector lending.
42. Coverage under credit guarantee scheme- 5 Million (50 lakhs).
43. Integrated infrastructure development scheme cover all areas of country with 50% reservation for
rural areas.
44. For investment in technological sector capital subsidy-12%.
45. For ISO certification 75000 grant from SIDO.
46. One time capital grant of 50 % for testing labs of international standard.
47. Market development assistance (MDA) programme provided by SIDO.
48. MSMED act 2006.
49. National board for MSME head office-Delhi.
50. MSME classification based on size.
Micro Small Medium
Manufacturing 0 lakhs-25 lakhs 25 lakhs-5 Crores 5 crores-10 Crore
Service 0 lakh-10 lakhs 10 lakhs-2 Crores 2 crores-5 crore
51. Limited liability concept originated in US.
52. IN India it is implemented based on Naresh Chawla & Expert committee report.
53. Minimum no of partners for LLP is 2 and no maximum limit.
54. In LLP members should subscribe incorporation document.
55. Expand the following
a. MPI-Manufacturing Planning Implementation.
b. SMART-Small firms Merit Award for Research and Technology.
c. EAP-Entrepreneurship Awareness Programme.
d. PPP-Public Private Participation.
56. Regulation required for SME at Entry stage, implementation Stage & Operational stage.
57. New business plan proposed to SMEs is LLP.
58. SSI industries board-1954.
59. 2 institutions promote SSIs
a. Central Level-Depot of Small industries, Agriculture & rural industries.
b. State Level-Commissioner/Directorate of industries.
60. Ministry of SSI designs policies for SSIs. All policies implemented through SIDO & National Small
Industries Corporation (NSIC).
61. Small Industries Service Institute acts as interface between Center & State govt.
62. NISIET (National Institute of Small Industries Extension & training) Located at Hyderabad.
63. Central footwear testing institute has branches in AGRA, CHENNAI, MUMBAI & CULCUTTA.
64. NIESBUD-National Institute for Entrepreneurship & Small Business Development apex body
oversees activities of various agencies involved in entrepreneurship development.
65. NSIC-national Small Industries corporation-1955.
66. State level-Directorate of Industries. Executive agency at state level.
67. DICs-District industries Centers started in 1980.
68. There are 18 State Financial Corporations in India. They are formed according ato State Financial
Corporation Act-1951.
69. SFCs are refinanced by SIDBI.
70. State Industrial Development Corporation & State Industrial Investment Corporation set up in 1956.
Second act as development Bank.
71. Small Scale industries Development Corporation (SSIDC) established under 1956 companies act.
72. HUDCO(Housing & Urban Development Corporation)-1988.
73. Institute for Design of Electrical Measuring Instruments-1969.Staeted with assistance of UNDP &
UNIDO.
74. Technical Consultancy organization setup by IDBI & SIDBI.
75. Khadi & Village Industries Commission-1957-an autonomous body set up for promotion of Khadi
industry in India.
76. Entrepreneur Development Institute of India located at Ahmadabad.

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77. Rural Entrepreneurship Development Programme conducted by NABARD.(1980)

78. EXIM bank setup by the act of Parliament.
79. SIDBI-April 02, 1990 setup by the act of parliament and principle financial institution for SMEs.
80. SIDBI has 64 branches. Authorised capital 1000 crores paid up 450 held by 36 financial institutions.
81. SIDBI is nodal agency for implementation of Credit Linked Capital Subsidy Scheme, Technology
Upgradation Fund Scheme (TUFS) for textile industry and Integrated Development of Leather
Sector Scheme.
82. Two major objectives of SIDBI are Enterprise Creation & Strengthening of existing MSMEs.
83. SIDBI Venture Capital Ltd-has 2 funds. National Venture Fund for Software and information
technology & SME growth fund. It follows fund of fund approach.
84. SIDBI started foundation for micro Credit with capital of one billion.
85. Confederation of Indian Industry is an advisory and consultancy body for governments.
86. World association of Small & medium Enterprises located at Delhi.
87. Prudence & Profitability are the 2 pillars on which SMEs should be built.
88. Bank should monitor Borrower instead of Account.
89. Equity is referred as HURT MONEY.
90. Hybrid Capital is combination of DEBT & EQUITY.
91. Venture Capital refers to privately held equity. High risk. Generally tend to exit within 5 to 7 years.
92. For Govt sponsored schemes upto Rs. 2 lakhs bank offers loan without any security.
93. Term loans (>2 yrs), Hire purchase, Mortgage Loans & leasing are general modes of finance
chosen whenever plant and machinery are to be financed.
94. Working Capitals
a. BD
b. Demand loans-upto 36 months for acquisition of assets for period of < 36 months.
c. Cash Credit-Also called inventory loans.
d. OD-< 2 yrs.
95. Factoring- Purchase of Book debts or receivables.
96. Generally a factor with Recourse basis is popular. Means if Bills not collected client need to pay.
97. SBI Factors cover North & West India. CAN Factors cover South India.
98. SIDBI has developed software for CREDIT APPRAISAL & RATING TOOL (CART). Loan proposals
of term loan and working capital upto Rs. 1000 lakhs can be processed through CART method.
99. Risk Factors for SMEs
a. Insolvency risks-Liabilities exceed viable assets plus equity capital.
b. Sovereign( Country) risk-war, civil disorder
c. Systemic/industry risk-Chain reaction of default in FIs.
d. Market risk-Interest rate risk/forex rate risk.
100. Credit risk assessment exercise in banks to be conducted biannually.
Targets to priority sector.
Domestic Banks Foreign Banks.
Total 40% of ANBC. 32% ANBC
Agri 18% ANBC No target
Small Enterprises 10% ANBC
Export credit - 12% ANBC
Weaker Section 10% ANBC -
DRI 1% -
*if indirect lending to agri is > 4.5% of ANBC then it is not included in 18% achievement.
* 40% of DRI advance should go to SC & ST and atleast 2/3 of DRI advances granted to rural 7 Semi
urban areas.
* 40% of total advances to Small enterprise should go to Micro manufacturing sector-investment in P &
m upto 5 lakh & Service Investment in P & M upto 2 lakhs.
* 20% of total advances to Small enterprise should go to Micro manufacturing sector-investment in P &
m above 5 lakh-25 lakh & Service Investment in P & M above 2 lakhs-10 lakhs.
101. SMEs face discriminatory barriers that prevent a level playing field and these are referred
as MARKET FAILURES. It is generally referred in the context of perfect markets.
102. BDS Business Development service providers they help in correcting market failures that occur
during growth phase of SMEs.
103. Sectoral developments provide insight into linking manufacture with services.
104. Few of the examples of BDS include CODISSIA-Coimbatore, TANSTIA-FNF Center-
Chennai, FAPSIA-APSSI Center-Hyderabad, FISME-NEW DELHI, and COSIA-Thane.
105. An innovation which causes little disruptive impact on behavior pattern called continuous
innovation.
106. Technology causes Innovation effect, Substitution effects & Diffusion effect.

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107. Innovation effect-New product not created. Existing product modified to change in
consumption pattern. Ex: Electric tooth brush (For continuous innovation). Ex for
discontinuous innovation is automobiles, TVs & computers.
108. Substitution-New technology replaces existing product. Ex: Black and white TV by Colour
TV.
109. CREDIT LINKED CAPITAL SUBSIDY SCHEME-Providing 15% capital subsidy for
inducing new technology in 44 categories.
110. TIFAC-1988. Identifies viable technologies for implmentations.
111. Project UPTECH-initiated by SBI. Expenditure involved in this case met by 50:50 sharing
by government and industry.
112. Back ended Interest Subsidy scheme-
a. If interest rate below BPLR-Difference b/w exact int rate and BPLR or maximum 3% given as
subsidy.
b. If interest rate above BPLR-Difference b/w exact int rate and BPLR or maximum 2% given as
subsidy.
c. SSIs obtaining loans for technology upgradation, units with investment in P & M < 25 lakhs availing
loan under CGFTS, SSI units financed under national equity fund and Those taking ISO 9000
certification eligible.
113. Credit Guarantee fund trust (CGFTS) set up in may 2000 by govt and SIDBI. It gives
guarantee of 75% of credit risk. The scheme has low cap of 25 lakhs and guarantee cap
of 18.75 lakhs per barrower.

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SET-1

1. In India following SHG model is most popular

A SHGs promoted by Govt financed by Bank C SHGs promoted by and financed by
NGOs raising bank loans
B SHGs promoted by NGOs financed by MFIs D Urban co-operative Bank model

2. Banks finance SHGs through

A SHG-Bank linkage programme C Consumer Banking programme
B Commercial banking D Poverty alleviation scheme

3. SHG-Bank linkage programme first launched in 1991-92 by

A SIDBI C RBI
B NABARD D Ministry of rural Development

4. Rashtriya mahila Kosh (RMK) is a

A NGO funded and controlled by Department of C State run NGO
woman and child development Central
government
B NGO run by world bank D Government body set up under 5th five
years plan

5. The state in India having highest microfinance exposure

A UP C Andra pradesh
B Karnataka D Haryana

6. Grameen bank model prevails in

A India C Maldives
B Pakistan D Bangladesh

7. The comprehensive approach of creating , maintaining & expanding customer relationships is

termed as
A Consumer Banking C Customer Relation Management
B Customer retention approach D Customer service

8. CRM in banking includes

A Sale & marketing of bank products C Post sales services
B Create and expand relationships D All the above

9. The act provided basis frame work for post independence industrialization strategy.
A Industries development and regulation act- C Industries regulations and control act-
1951 1942
B None of these D All the above

10. In India development of SSIs is a primary objective of

A Ministry of SMEs C State Government
B Directorate of industries D Ministry of commerce

11. In India overall policy guidelines for SMEs provided by

A Ministry of commerce C State Government
B Directorate of industries D Union Government.

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12. In India 2 commissions influencing policies of government both at central as well as state
level are
A National Commission on un organized C National manufacturing competition
sector (Chairman-Dr. Arjun Sen Gupta) council(Chairman-Dr.VKrishnamurthy)
B All the above D None of these

13. MSME development act was passed in the year

A 1956 C 2006
B 2011 D 2001

14. SMERA was constituted by

A RBI & NABARD C NABARD
B SIDBI & CIBIL D CIBIL & ICRA

15. As per the MSME act Public sector banks to attain ___% growth in lending to SMEs.
A 25% C 50%
B 10% D 20%

Answers to Set-1
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
C A B A C D C D A C D B C B D

SET-2
1. As per the MSME act Commercial bank branches to finance atleast ____new units per annum
in Urban & Semi urban.
A 5 C 10
B 15 D 20

2. The MSME act proposes

A OTS in NPAs. C Corporate debt restructuring for SMEs

B Doubling credit to SME sector by 2009-10 D All the above

3. Following industry contributes largest share in export done by SSIs in india

A Hosiery & garments C Rubber
B Leather D Neem based products

4. In India MSME definition based on investment in plant and machinery with highest cap of
A 5 Million C 100 Million
B 8 Million D 15 Million

5. A unit is considered Export oriented unit is the one which exports at least _____%of annual
production.
A 50% C 30%
B 80% D 51%

6. Small business comprises of

A Retail trade C Business Enterprise & Professional and
self employed person
B Transport operators. D All the above

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7. In case of transport operators if business is considered as small scale , number of vehicles

owned should be less than.
A 100 C 10
B 20 D 50

8. In a partnership firm Minimum & maximum number of partners are.

A 2 & 20 C 5 & 20
B 5 & 50 D 7 & 50

9. In case of giving loans to companies Charge to be created within ___ days of execution of
documents. In private ltd company minimum number of share holders is 2 and maximum 50.
Transfer of shares limited. It cannot issue debentures/IPO.
A 60 C 10
B 30 D 45

10. In private ltd company which of the statements are true.

A number of share holders is 2 and C Transfer of shares limited
maximum 50
B It cannot issue debentures/IPO. D All the above

11. In case of public ltd company minimum no. of share holders are
a 5 C 7
b 50 D 100

12. In case of partnership firm which of the statement is false

A Partner ship deed must be registered C Minor can become partner
B Minor can sign partnership deed D Maximum number of partners is 20

13. In case of new industries registration to ESIs to be completed prior to

A Commencement of production. C Registration of the firm

B Constitution of the firm D Registration not compulsory

14. If an enterprise is considered as woman oriented if

A 51% of equity held by woman entrepreneurs C 50% woman employed
B None of these D All the above

15. In Europe SMEs contribution to total employment is

A 40% C 10%
B 7% D 45%

Answers to SET- 2
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
A D A C C D C A B D C B A D A

SET-3
1. Cluster approach for SME development followed in.
A Philippines C India
B USA D Italy

2. Following SME regulation laws persistent in US

A Small business regulatory enforcement C Regulation flexibility act.
fairness act.
B Equal access to justice act. D All the above

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3. Law on business activity & Law on acceptability and monitoring of public assistance to
entrepreneurs persist in
A Poland C Germany
B USA D France

4. 4. Law of prevention of payment delay to sub contractors, SME basic law & General
trading company act present at
A France C USA
B Japan D India

5. Small and medium industries fundamentals act present at

A Republic of Korea C India
B USA D Pakistan

6. Magna carta of Small enterprises act pertains to- Philippines.

A France C Philippines.
B Germany D USA

7. Protective environment for the growth of small industries in India has indicated in.
RBIAM SME report C A G Bhave committee report
B Karve committee report D V S Krishnamurthy Committee
report

8. Policy guidelines in India regulate SMEs at

A the Entry stage C project implementation stage
B operational stage D All of these

9. Investment limit for medium enterprise -100 million (10 crores)

A 10 Million C 100 million
B 50 Million D 150 Million

10. Exemption in excise duty for SMEs is up to Rs.

A 5 Crore C 1 Crore
B 10 crore D 15 Crore

11. Composite Loan limit can be sanctioned without security to SSI is upto
A 25 Lakhs C 50 Lakhs
B 5 lakhs D 10 Lakhs

12. SSBE s upto investment of Rs. _______qualify for priority sector lending.
A 5 lakhs C 10 lakhs
B 12 lakhs D 100 lakhs

13. In India Coverage under credit guarantee scheme for SSIs is available up to
A 10 lakhs C 20 Lakhs
B 50 lakhs D 100 lakhs

14. Integrated infrastructure development scheme has ____% of reservation for rural areas.
A 50% C 100%
B 25% D 33%

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15. For investment in technological sector capital subsidy available is upto.

A 15% C 11%
B 12% D 25%

16. For obtaining ISO certification following grant is available in India

A Rs. 5 Lakhs from SIDBI C Rs. 1 Lakh from MSME Board

B Rs. 75000 from IDBI D Rs. 75000 from SIDO.

17. For setting up of testing labs of international standard one time capital subsidy
available upto
A 12% of capital expenditure C 10% of capital expenditure
B 75% of the capital expenditure D 50% of capital expenditure

18. Market development assistance (MDA) programme is provided.

A Small industries Development C SIDBI
organization(SIDO)
B IDBI D NABARD

19. National board for MSME is having its head office at Delhi.
A Mumbai C New Delhi
B Hyderabad D Chennai

ANSWERS TO SET-3
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19
D D A B A C B D C C A C D A B D D A C

SET 4
1. Limited liability concept has its origin from
A USA C India
B Germany D france

2. Naresh Chawla & Expert committee report mainly focused on introduction of

A PPP C LLP
B Amendment to companies act D All of these

3. Minimum and Maximum number of partners for LLP is

A 2 & no maximum limit. C 5 and 25
B 2 & 20 D 2 & 50

4. SSI industries board was setup in the year

A 1927 C 2001
B 2006 D 1954

5. Following institution promote SSIs in India at Central level is

A Commissioner/Directorate of industries. C Depot of Small industries, Agriculture
& rural industries
B NABARD D SIDBI

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6. Following institution promote SSIs in India at State level is

A Commissioner/Directorate of industries. C Depot of Small industries, Agriculture
& rural industries
B NABARD D SIDBI

7. All policies formulated by central government are implemented through

A SIDO C National Small Industries Corporation
(NSIC).
B MSME Board D Both a & c

8. NISIET (National Institute of Small Industries Extension & training) located at

A Hyderabad C Bangalore
B Culcutta D Delhi

9. Central footwear testing institute is not having branches in

A AGRA C MUMBAI & CULCUTTA.
B CHENNAI D Delhi

10. The apex body which oversees activities of various agencies involved in
entrepreneurship development in India
A SIDBI C NIESBUD-National Institute for Entrepreneurship &
Small Business Development
B NABARD D SIDO

11. NSIC-national Small Industries corporation incorporated in the year

A 1935 C 2006
B 1955 D 1965

12. Number of State Financial Corporations (SFCs) in India are

A 30 C 18
B 27 D 21

13. State Financial Corporation Act was passed in the year

A 1951 C 1956
B 2001 D 1974

14. SFCs are refinanced from

A SIDBI C NABARD
B State Government D RBI

15. HUDCO(Housing & Urban Development Corporation) incorporated from the year
A 1984 C 1988
B 2000 D 1987

ANSWERS TO SET 4
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
A C A D C A D A D C B C A A C

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SET 5
1. Institute for Design of Electrical Measuring Instruments Started with assistance of
UNDP & UNIDO.
A UNDP & UNIDO C ADB & World bank
B NABARD & SIDBI D IDBI & ICICI

2. Autonomous body set up for promotion of Khadi industry in India.

A NABARD C Khadi & Village Industries Commission
B Directorate of Khadi & Village Industries D Khadi Board

3. Entrepreneur Development Institute of India located at

A Hyderabad C Ahmadabad.
B Delhi D Mumbai

4. Rural Entrepreneurship Development Programme is conducted by.

A RBI C IDBI
B NABARD D SIDBI

5. SIDBI- setup by the act of parliament on and principle financial institution for SMEs.
A April 02, 1990 C September 30 1990
B 30th January 1984 D 1st April 2000

6. Principle financial institution for SMEs in India is

A SFCs C NABARD
B IDBI D SIDBI

7. Authorized capital of SIDBI is

A 1000 crores C 500 Crores
B 2500 Crores D 300 Crores

8. Which is the nodal agency for implementation of Credit Linked Capital Subsidy
Scheme, Technology Upgradation Fund Scheme (TUFS) for textile industry and
Integrated Development of Leather Sector Scheme?
A SIDBI C IDBI
B NABARD D SIDO

9. Two major objectives of SIDBI are Enterprise Creation & Strengthening of existing
MSMEs.
A Enterprise Creation C Both a & B
B Strengthening of existing MSMEs. D None of these

10. National Venture Fund for Software and information technology & SME growth fund
are the funds held by
A SIDBI Venture Capital Ltd C ICICI
B IDBI Business capital ltd D NABARD

11. The advisory and consultancy body for government in India on industries.
A DGFT C Confederation of Indian Industry
B MSME Board D SIDO

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12. World association of Small & medium Enterprises located at

A Bangalore C New Delhi.
B Mumbai D Calcutta

13. SME lending is considered profitable for bank because of.

A High Diversity C Government support
B Good Interest margin D All the above

14. Among efficient credit management for prevention of NPAs Bank should
A Monitor customer account regularly C Monitor Borrower instead of Account.
B Monitor business regularly D Monitor fund flow of business

15. Following type of capital generally termed as HURT MONEY.

A Debt C Venture capital
B Equity D All the above

16. Hybrid Capital is refers to the combination of

A DEBT & EQUITY C EQUITY & VENTURE CAPITAL
B None of these D Both a & b

17. The type of capital generally refers to privately held equity with higher risk.
A Equity C Debt
B Debenture D Venture Capital

18. For Govt sponsored schemes upto Rs. ________bank offers loan without any security.
A 2 lakhs C 5 lakhs
B 10 lakhs D 15 lakhs

19. General modes of finance had chosen whenever plant and machinery are to be
financed.
A Term loans C Mortgage Loans & leasing
B Hire purchase D All the above

20. Purchase of Book debts or receivables generally referred as

A Factoring C Forfeiting
B Hire purchase D Lease finance

ANSWERS TO SET 5
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
A C C B A D A A C A C C D C B A D A D A

SET 6
1. Which of the fallowing companies in India generally offers factoring services
A SBI Factors C Both a & b
B CAN Factors D PNB factors

2. Which of the fallowing statement is true regarding factoring services

A SBI Factors covers North & West India C Both a & b
B CAN Factors covers South India D None of these

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3. The type of factoring generally popular

A Factor with Recourse basis C Non recourse factoring
B Partial factoring D All the above

4. CREDIT APPRAISAL & RATING TOOL (CART) developed by

A SBI C ICICI
B IDBI D SIDBI

5. CART software can be used for appraising

A Loan proposals of term loan upto 1000 lakhs C Both a & b
B working capital upto Rs. 1000 lakhs D None of these

6. When Liabilities exceed viable assets plus equity capital then the type of risk termed
A Solvency risk C Insolvency risks
B Sovereign risk D Systemic risks

7. Risk-war, civil disorder within the country arises

A Solvency risk C Insolvency risks
B Sovereign risk D Systemic risks

8. Adverse change in interest rates, foreign exchange rates is

A Market risk C Insolvency risks
B Sovereign risk D Systemic risks

9. Credit risk assessment exercise in banks to be generally conducted

A Quarterly C Biannually.
B Annually D Monthly

10. Market failures in SMEs generally referred with the context of

A Perfect Markets C Imperfect markets
B Abnormal markets D Supernormal markets

11. Those who play major role in correcting market failures that occur during growth phase
of SMEs.
A Banks C BDS Business Development service
providers
B MFIs D SIDBI

12. An innovation which causes little disruptive impact on behavior pattern called
A Continuous innovation. C Modern innovation
B Robust innovation D New Innovation

13. Following are the results of technology causes,

A Innovation effect C Diffusion effect
B Substitution effects D All of these

14. New product not created. Existing product modified to change in consumption pattern is
________ effect of technology.
A Innovation effect C Diffusion effect
B Substitution effects D All of these

15. CREDIT LINKED CAPITAL SUBSIDY SCHEME-Providing ____ capital subsidy for inducing
new technologies.
A 10% C 15%
B 40% D 50%

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16. Project UPTECH-initiated by

A SIDBI C IDBI
B SBI D NABARD

17. Back ended Interest Subsidy scheme-Which of the following statements are true
A If interest rate below BPLR-Difference b/w C Both a & b
exact int rate and BPLR or maximum 3%.
B Interest rate above BPLR-Difference b/w exact D None of these
int rate and BPLR or maximum 2%.

18. Credit Guarantee fund trust (CGFTS) set up in may 2000 by

A IDBI C SBI
B Central Govt & SIDBI D SFCs

19. Credit Guarantee fund trust (CGFTS) gives guarantee of _____of credit risk.
A 75% C 5%
B 50% D 40%

20. Credit Guarantee fund trust (CGFTS) scheme has Credit Guarantee with
A Low cap of 25 lakhs and guarantee cap of C Maximum cap of 100 LKHS
18.75 lakhs per barrower.
B Minimum cap of 10% capital expenditure D Covers 50% of capital expenditure

ANSWERS TO SET 6
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
C B A D C C B A C A C A D A C B C B A A

SET 7
1. When an industry is considered as sick unit
A It is a doubtful asset in bank books C Erosion in networth due to cash
losses to extent of 50%
B Unit which completed one year has last D All the above.
more of its peak networth in proceeding
year

2. As per sound financial management practice

A Short term funds can be put to long term C Long term funds can be put into
uses short term uses
B Building up high current assets D Having high bad debts in books

3. The unit may become sick due to

A Inefficient Management C Inadequate/ delay in bank finance
B Non supportive Government policies D All the above

4. Symptoms of sickness of an unit includes

A Frequent overdrawing C Frequent LC devolvements
B Frequent cheque returns D All of these

5. Following financial indicator may be used as warning symptom for unit is becoming
sick
A Increase in Debt/equity ratio C Decrease in net profit to sales ratio
B External borrowing at higher cost D All of these

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6. Rehabilitation of a sick unit can be taken up if it

A Proves viable after rehabilitation C Repays all loans
B Brings more capital D Improves its current ratio

7. a sick account can be rehabilitated but suitable programme not designed called
A Non profitable account C Viable unit
B Partially sick account D Sick Grey area account

8. Any rehabilitation measure of a sick unit should not be spread over ___ years from
the date of implementation
A 5 Years C 10 years
B 6 Years D 15 Years

9. In case of rehabilitation of a sick unit the repayment period of restructured loans

should not exceed ____ years from the date of package implementation
A 10 Years C 7 Years
B 5 years D 14 years

10. A Sick unit found potentially viable if rehabilitation package is implemented then
the package should be implemented within
A 1 year C 2 year
B 6 months D 15 Months

11. State Level Inter institutional Committee to implement Rehabilitation package for
sick unit is set up by
A SIDBI C RBI
B NABARD D State Government

12. The process may be used to rehabilitate a sick unit include

A Cluster formation C Providing adequate market services
B Exemption of stamp duty and other D All the above
charges

13. The main advantage of compromise settlement of Non performing assets include
A Avoids time consuming legal process C Retains relation customer
B Any action affecting bank image can be D All the above
prevented

14. OTS stands for

A One Time Settlement C Over The counter Settlement
B Over True Solution D Over Trade Settlement

15. RBI guidelines for OTS in loan account issued in September 2005 will not cover
A Willful defaulters C Fraud
B Malfeasance D All the above

16. RBI OTS scheme covers assets with

A Principle O/s of Rs. 10 Crore & below C Complete O/s (Principle+Interest) of
Rs. 10 Crores & below
B O/s of 15 Crores & below D None of these

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17. Those cases cannot be covered under OTS

A Legal suit already filed C DRT cases
B Action under Securitization & D Fraud is detected in KYC
Reconstruction of financial assets act
(SARFAESI)

18. Process of pooling financial assets and issuance and selling of securities termed as
A Securitization C Pool formation of financial assets
B Reconstitution D Centralization

ANSWERS TO SET-7
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
D C D D D A D A C B C D D A D C D A

SET 8
1. Finance to Small scale Business units will qualify for Priority Sector lending upto an
exposure upto
A 10 lakhs C 15 Lakhs
B 1 Crore D 10 Crores

2. 20% of the projected turn over can be financed as Working capital limit as per
A Tandon Committee Method C Nayak Committee method
B Shetty Committee D None of these

3. In case of LLP members should subscribe to a document known as

A LLP deed C Agreement document
B Incorporation document D Liability deed

4. In India SME regulations requires at

A Entry stage C Implementation stage
B Operational stage D All the above

5. A foundation for micro credit in India has been set up by

A NABARD C SIDBI
B RBI D Depot of child developement

6. In credit appraisal means

A Collection of application C Verification of data given by
applicant
B Issue of sanction letter to borrower D Submission of application by unit

7. Working capital finance granted to exporter to procure raw materials for export refers
to
A Pre Shipment Credit C Post Shipment credit
B Bill Discounting D Factoring

8. Working capital finance given to exporter from the time of export to the time of
actual realization of dues refers to
A Pre Shipment Credit C Post Shipment credit
B Bill Discounting D Factoring

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9. Upfront payment of invoices accompanied by delivery of goods and services

mentioned to a mutually agreed level between client and factor refers to
A Bill discounting C Factoring
B Bill finance D Letter of credit

10. CLPC refers to

A Central Loan processing Cell C Central Loan process center
B Central Loan processing & monitoring cell D None of these

11. Demand loans are generally granted for the period less than
A 24 Months C 12 Months
B 18 Months D 36 months

12. The type of advances generally popular as Inventory Loans

A OD C Cash Credit
B Term Loan D Bill Discounting

13. A line of credit which can be drawn on as required up to the limit of sales invoices
accepted by financial institutions refers to
A Bill Discounting C Factoring
B Cash credit D None of these

14. Most common features of Government sponsored loans are

A They are generally having investment cap C They are mainly for weaker section of
of < 2 lakhs society
B They are sanctioned without collaterals D All the above

15. SME lending is found profitable and attractive for bankers because
A Diversified portfolio C Prudence & profitability
B Higher interest rate margins & D All the above
government support

16. Domestic banks to finance ______% of their ANBC to priority sector

A 10% C 40%
B 15% D 50%

17. Foreign banks to fund ___% of their ANBC to export sector.

A 40% C 10%
B 12% D 5%

18. Domestic banks to fund ___% of their ANBC to export sector to meet priority sector
obligations
A 5% C 10%
B 40% D No target

19. ___% of total ANBC of Domestic banks should go for Weaker Section
A 10% C 5%
B 20% D 12%

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20. Following SSI units eligible under Back ended Interest Subsidy scheme
A SSI units availing bank loan for C Tiny units with investments in plant
technology upgradation or availing and machinery of < 25 lakhs
finance for ISO certification and R & D availing loan under CGFTS
B SSIs funded under national equity D All the above
scheme

21. TUFS scheme is mainly designed for

A Pharma industry C Textile industry
B Chemical industry D All of these

22. The Geographically bound concentration of Similar or related business with

common opportunities & Threats referred as
A Group C Cluster
B Sector D SEZ

23. A SME cluster characterized with

A Similar product range C Similar Market conditions
B Similar Trade practices D All of these

24. Main advantages of MSME cluster formation is

A Mutual sharing of information & C Solving Common legal practices
technology
B Achieving economies of scale D All of these

25. Arrange the following activities in sequence which are involved in cluster formation
i. Identification of cluster in country
ii. preliminary selection and short listing
iii. final selection and declaration
iv. Formulation of final cluster criteria
v. Creation of country cluster table
A i , v, ii, iv, iii C i , ii, iii, iv, v
B iii, ii, i, vi, v D Vi, v, i, iii, ii

26. Abid Hussain Committee mainly suggested on

A SEZ creation C Sales Circle formation
B Both A & B D Cluster formation in SMEs

ANSWERS TO SET 8
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
A C B D C C A C C A D C A D D C B D A D C

22 23 24 25 26
C D D A D

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Lending to Micro, Small & Medium Enterprises (MSME) Sector

Micro, Small & Medium Enterprises Development (MSMED) Act, 2006

The Government of India has enacted the Micro, Small and Medium Enterprises
Development (MSMED) Act, 2006 on June 16, 2006 which was notified on October 2, 2006.
With the enactment of MSMED Act 2006, the paradigm shift that has taken place is the
inclusion of the services sector in the definition of Micro, Small & Medium enterprises, apart
from extending the scope to medium enterprises. The MSMED Act, 2006 has modified the
definition of micro, small and medium enterprises engaged in manufacturing or production
and providing or rendering of services.

1.1. Definition of Micro, Small and Medium Enterprises

(a) Manufacturing Enterprises i.e. Enterprises engaged in the manufacture or production,

processing or preservation of goods as specified below:

(i) A micro enterprise is an enterprise where investment in plant and machinery does not
exceed Rs. 25 lakh;

(ii) A small enterprise is an enterprise where the investment in plant and machinery is more
than Rs. 25 lakh but does not exceed Rs. 5 crore; and

(iii) A medium enterprise is an enterprise where the investment in plant and machinery is
more than Rs.5 crore but does not exceed Rs.10 crore.

In case of the above enterprises, investment in plant and machinery is the original cost
excluding land and building and the items specified by the Ministry of Small Scale Industries

b) Service Enterprises i.e. Enterprises engaged in providing or rendering of services and

whose investment in equipment (original cost excluding land and building and furniture,
fittings and other items not directly related to the service rendered or as may be notified
under the MSMED Act, 2006) are specified below.

(i) A micro enterprise is an enterprise where the investment in equipment does not exceed
Rs. 10 lakh;

(ii) A small enterprise is an enterprise where the investment in equipment is more than Rs.10
lakh but does not exceed Rs. 2 crore; and

(iii) A medium enterprise is an enterprise where the investment in equipment is more than
Rs. 2 crore but does not exceed Rs. 5 crore.

1.2. Bank Loans to Micro and Small enterprises, both Manufacturing and Service are eligible
to be classified under Priority Sector advance as per the following:

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1.2.1 Direct Finance

1.2.1.1 Manufacturing Enterprises

The Micro and Small enterprises engaged in the manufacture or production of goods to any
industry specified in the first schedule to the Industries (Development and regulation) Act,
1951 and notified by the Government from time to time. The manufacturing enterprises are
defined in terms of investment in plant and machinery.

1.2.1.2. Loans for food and agro processing

Loans for food and agro processing will be classified under Micro and Small Enterprises,
provided the units satisfy investments criteria prescribed for Micro and Small Enterprises, as
provided in MSMED Act, 2006.

1.2.1.3 Service Enterprises

Bank loans up to Rs.5 crore per borrower / unit to Micro and Small Enterprises engaged in
providing or rendering of services and defined in terms of investment in equipment under
MSMED Act, 2006.

1.2.1.4 Export Credit

Export credit to MSE units (both manufacturing and services) for export of goods/services
produced / rendered by them.

1.2.1.5 Khadi and Village Industries Sector (KVI)

All loans sanctioned to units in the KVI sector, irrespective of their size of operations and
location and amount of original investment in plant and machinery. Such loans will be eligible
for classification under the sub-target of 60 percent prescribed for micro enterprises within
the micro and small enterprises segment under priority sector.

1.2.1.6. If the loans under General credit Card (GCC) are sanctioned to Micro and Small
Enterprises, such loans should be classified under respective categories of Micro and Small
Enterprises.

1.2.2 Indirect Finance

(i) Loans to persons involved in assisting the decentralized sector in the supply of inputs to
and marketing of outputs of artisans, village and cottage industries.

(ii) Loans to cooperatives of producers in the decentralized sector viz. artisans village and
cottage industries.

(iii) Loans sanctioned by banks to MFIs for on-lending to MSE sector as per the conditions
specified in extant Master Circular on Priority Sector Lending.

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1.3 Lending by banks to medium enterprises will not be included for the purpose of reckoning
of advances under the priority sector.

1.4 Since the MSMED Act, 2006 does not provide for clubbing of investments of different
enterprises set up by same person / company for the purpose of classification as Micro,
Small and Medium enterprises, the Gazette Notification No. S.O.2 (E) dated January 1, 1993
on clubbing of investments of two or more enterprises under the same ownership for the
purpose of classification of industrial undertakings as SSI has been rescinded vide GOI
Notification No. S.O. 563 (E) dated February 27, 2009.

Scheme of Small Enterprises Financial Centres (SEFCs):

As per announcement made by the Governor in the Annual Policy Statement 2005-06, a
scheme for strategic alliance between branches of banks and SIDBI located in clusters,
named as Small Enterprises Financial Centers has been formulated in consultation with the
Ministry of SSI and Banking Division, Ministry of Finance, Government of India, SIDBI, IBA
and select banks and circulated to all scheduled commercial banks on May 20, 2005 for
implementation. SIDBI has so far executed MoU with 15 banks (Bank of India, UCO Bank,
YES Bank, Bank of Baroda, Oriental Bank of Commerce, Punjab National Bank, Dena Bank,
Andhra Bank, Indian Bank, Corporation Bank, IDBI Bank, Indian Overseas Bank, Union Bank
of India, State Bank of India and Federal Bank).

Targets for lending to Micro and Small enterprises (MSE) sector by Domestic
Commercial Banks and Foreign Banks operating in India

1. Advances to micro and small enterprises (MSE) sector shall be reckoned in

computing achievement under the overall Priority Sector target of 40 percent (32
percent for Foreign Banks operating in India with less than 20 branches) of Adjusted
Net Bank Credit (ANBC) or credit equivalent amount of Off-Balance Sheet Exposure,
whichever is higher.
2. Bank loans above Rs.5 crore per borrower / unit to Micro and Small Enterprises
engaged in providing or rendering of services and defined in terms of investment in
equipment under MSMED Act, 2006, shall not be reckoned in computing
achievement under the overall above Priority Sector targets. However, such loans
would be taken into account while assessing the performance of the banks with
regard to their achievement of targets prescribed by the Prime Ministers Task Force
on MSMEs for lending to MSE sector.
3. In terms of the recommendations of the Prime Ministers Task Force on MSMEs,
banks are advised to achieve a 20 per cent year-on-year growth in credit to micro and
small enterprises and a 10 per cent annual growth in the number of micro enterprise
accounts.
4. In order to ensure that sufficient credit is available to micro enterprises within the
MSE sector, banks should ensure that:

(a) 40 per cent of the total advances to MSE sector should go to micro (manufacturing)
enterprises having investment in plant and machinery up to Rs. 10 lakh and micro (service)
enterprises having investment in equipment up to Rs. 4 lakh;

(b) 20 per cent of the total advances to MSE sector should go to micro (manufacturing)
enterprises with investment in plant and machinery above Rs. 10 lakh and up to Rs. 25 lakh,

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and micro (service) enterprises with investment in equipment above Rs. 4 lakh and up to Rs.
10 lakh. Thus, 60 per cent of MSE advances should go to the micro enterprises.

(c) While banks are advised to achieve the 60% target as above, in terms of the
recommendations of the Prime Ministers Task Force, the allocation of 60% of the MSE
advances to the micro enterprises is to be achieved in stages viz. 50% in the year 2010-11,
55% in the year 2011-12 and 60% in the year 2012-13.

5. The target for lending to Micro Enterprises within the MSE sector (i.e. 60% of total
lending to MSE sector should go to Micro enterprises) will be computed with reference to
the outstanding credit to MSE sector as on preceding March 31st.

Common Guidelines / Instructions for Lending to MSME Sector

1. Issue of Acknowledgement of Loan Applications to MSME borrowers:

Banks have been advised to mandatorily acknowledge all loan applications, submitted
manually or online, by their MSME borrowers and ensure that a running serial number is
recorded on the application form as well as on the acknowledgement receipt. Banks are
further encouraged to start Central Registration of loan applications. The same technology
may be used for online submission of loan applications as also for online tracking of loan
applications.

2. Collateral: Banks are mandated not to accept collateral security in the case of loans upto
Rs.10 lakh extended to units in the MSE sector. Banks are also advised to extend collateral-
free loans upto Rs. 10 lakh to all units financed under the Prime Minister Employment
Generation Programme of KVIC.

Banks may, on the basis of good track record and financial position of the MSE units,
increase the limit of dispensation of collateral requirement for loans up to Rs.25 lakh (with the
approval of the appropriate authority).

Banks are advised to strongly encourage their branch level functionaries to avail of the Credit
Guarantee Scheme cover, including making performance in this regard a criterion in the
evaluation of their field staff.

3. Composite loan

A composite loan limit of Rs.1 crore can be sanctioned by banks to enable the MSE
entrepreneurs to avail of their working capital and term loan requirement through Single
Window.

4. Specialized MSME branches

Public sector banks have been advised to open at least one specialized branch in each
district. Further, banks have been permitted to categories their MSME general banking
branches having 60% or more of their advances to MSME sector in order to encourage them
to open more specialized MSME branches for providing better service to this sector as a
whole. As per the policy package announced by the Government of India for stepping up

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credit to MSME sector, the public sector banks will ensure specialized MSME branches in
identified clusters/centres with preponderance of small enterprises to enable the
entrepreneurs to have easy access to the bank credit and to equip bank personnel to
develop requisite expertise. The existing specialised SSI branches may also be redesignated
as MSME branches. Though their core competence will be utilized for extending finance and
other services to MSME sector, they will have operational flexibility to extend finance/render
other services to other sectors/borrowers.

5. Delayed Payment

Under the Amendment Act, 1998 of Interest on Delayed Payment to Small Scale and
Ancillary Industrial Undertakings, penal provisions have been incorporated to take care of
delayed payments to MSME units. After the enactment of the Micro, Small and Medium
Enterprises Development (MSMED), Act 2006, the existing provisions of the Interest on
Delayed Payment Act, 1998 to Small Scale and Ancillary Industrial Undertakings, have been
strengthened as under:

(i) In case the buyer to make payment on or before the date agreed on between him and the
supplier in writing or, in case of no agreement before the appointed day. The agreement
between seller and buyer shall not exceed more than 45 days.

(ii) In case the buyer fails to make payment of the amount to the supplier, he shall be liable to
pay compound interest with monthly rests to the supplier on the amount from the appointed
day or, on the date agreed on, at three times of the Bank Rate notified by Reserve Bank.

(iii) For any goods supplied or services rendered by the supplier, the buyer shall be liable to
pay the interest as advised at (ii) above.

(iv) In case of dispute with regard to any amount due, a reference shall be made to the Micro
and Small Enterprises Facilitation Council, constituted by the respective State Government.

Further, banks have been advised to fix sub-limits within the overall working capital limits to
the large borrowers specifically for meeting the payment obligation in respect of purchases
from MSMEs.

Revised Guidelines for Rehabilitation of Sick Micro and Small Enterprises

In view of the recommendations of Working Group on rehabilitation of potentially viable sick

units (Chairman: Dr. K. C. Chakrabarty), regarding changing the definition of sickness and
the procedure for assessing the viability of sick MSE units, a Committee was set up by the
Ministry of MSME to look into the issue. Based on the recommendation of the Committee,
revised guidelines for rehabilitation of sick units in the MSE sector have been issued by RBI

The objective of the revised guidelines is to hasten the process of identification of a unit as
sick, early detection of incipient sickness, and to lay down a procedure to be adopted by
banks before declaring a unit as unviable.

As per the new guidelines, a Micro or Small Enterprise (as defined in the MSMED Act 2006)
may be said to have become Sick, if (a) any of the borrowal account of the enterprise

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remains NPA for three months or more OR (b) there is erosion in the net worth due to
accumulated losses to the extent of 50% of its net worth during the previous accounting year.

The revised guidelines also provide the procedures to be adopted by the banks before
declaring any unit as unviable. Banks have been advised that the decision on viability of the
unit should be taken at the earliest but not later than 3 months of becoming sick under any
circumstances and the rehabilitation package should be fully implemented within six months
from the date the unit is declared as 'potentially viable' / 'viable'.

Micro and Small Enterprises Sector The imperative of Financial Literacy and
consultancy support

Keeping in view the high extent of financial exclusion (92 per cent) in the MSME sector, it is
imperative for banks that the excluded units are brought within the fold of the formal banking
sector. The lack of financial literacy, operational skills, including accounting and finance,
business planning etc. represent formidable challenge for MSE borrowers underscoring the
need for facilitation by banks in these critical financial areas. Moreover, MSE enterprises are
further handicapped in this regard by absence of scale and size. To effectively and decisively
address these handicaps, Scheduled commercial banks have been advised that the banks
could either separately set up special cells at their branches, or vertically integrate this
function in the Financial Literacy Centres (FLCs) set up by them, as per their comparative
advantage. The bank staff should also be trained through customized training programs to
meet the specific needs of the sector.

Structured Mechanism for monitoring the credit growth to the MSE sector

n view of the concerns emerging from the deceleration in credit growth to the MSE sector, an
Indian Banks Association (IBA)-led Sub-Committee (Chairman: Shri K.R. Kamath) was set
up to suggest a structured mechanism to be put in place by banks to monitor the entire
gamut of credit related issues pertaining to the sector. Based on the recommendations of the
Committee, banks have been advised to:

strengthen their existing systems of monitoring credit growth to the sector and put in
place a system-driven comprehensive performance management information system
(MIS) at every supervisory level (branch, region, zone, head office) which should be
critically evaluated on a regular basis;
put in place a system of e-tracking of MSE loan applications and monitor the loan
application disposal process in banks, giving branch-wise, region-wise, zone-wise
and State-wise positions. The position in this regard is to be displayed by banks on
their websites; and
monitor timely rehabilitation of sick MSE units. The progress in rehabilitation of sick
MSE units is to be made available on the website of banks.

State Level Inter Institutional Committee

In order to deal with the problems of co-ordination for rehabilitation of sick micro and small
units, State Level Inter-Institutional Committees (SLIICs) have been set up in all the States.
The meetings of these Committees are convened by Regional Offices of RBI and presided
over by the Secretary, Industry of the concerned State Government. It provides a useful
forum for adequate interfacing between the State Government Officials and State Level

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Institutions on the one side and the term lending institutions and banks on the other. It
closely monitors timely sanction of working capital to units which have been provided term
loans by SFCs, implementation of special schemes such as Margin Money Scheme of State
Government and reviews general problems faced by industries and sickness in MSE sector
based on the data furnished by banks. Among others, the representatives of the local state
level MSE associations are invited to the meetings of SLIIC which are held quarterly. A sub-
committee of SLIIC looks into the problems of individual sick MSE unit and submits its
recommendations to the forum of SLIIC for consideration.

Empowered Committee on MSMEs

As part of the announcement made by the Union Finance Minister, at the Regional Offices of
Reserve Bank of India, Empowered Committees on MSMEs have been constituted under the
Chairmanship of the Regional Directors with the representatives of SLBC Convenor, senior
level officers from two banks having predominant share in MSME financing in the state,
representative of SIDBI Regional Office, the Director of Industries of the State Government,
one or two senior level representatives from the MSME/SSI Associations in the state, and a
senior level officer from SFC/SIDC as members. The Committee will meet periodically and
review the progress in MSME financing as also rehabilitation of sick Micro, Small and
Medium units. It will also coordinate with other banks/financial institutions and the state
government in removing bottlenecks, if any, to ensure smooth flow of credit to the sector.
The committees may decide the need to have similar committees at cluster/district levels.

Cluster Approach

(i) 60 clusters have been identified by the Ministry of Micro, Small and Medium Enterprises,
Government of India for focused development of Small Enterprises sector. All SLBC
Convenor banks have been advised to incorporate in their Annual Credit Plans, the credit
requirement in the clusters identified by the Ministry of Micro, Small and Medium Enterprises,
Government of India.

As per Ganguly Committee recommendations banks have been advised that a full-service
approach to cater to the diverse needs of the MSE sector may be achieved through
extending banking services to recognized MSE clusters by adopting a 4-C approach namely,
Customer focus, Cost control, Cross sell and Contain risk. A cluster based approach to
lending may be more beneficial:

a. in dealing with well-defined and recognized groups;

b. availability of appropriate information for risk assessment and
c. Monitoring by the lending institutions.

Clusters may be identified based on factors such as trade record, competitiveness and
growth prospects and/or other cluster specific data.

Credit Linked Capital Subsidy Scheme (CLSS)

Government of India, Ministry of Micro, Small and Medium Enterprises has conveyed their
approval for continuation of the Credit Linked Capital Subsidy Scheme (CLSS) for

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Technology Upgradation of Micro and Small Enterprises from X Plan to XI Plan (2007-12)
subject to the following terms and conditions:

(i) Ceiling on the loan under the scheme is Rs.1 crore.

(ii) The rate of subsidy is 15% for all units of micro and small enterprises up to loan ceiling at
Sr. No. (i) above.

(iii) Calculation of admissible subsidy will be done with reference to the purchase price of
plant and machinery instead of term loan disbursed to the beneficiary unit.

(iv) SIDBI and NABARD will continue to be implementing agencies of the scheme.

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