Notifications

RPCD/PLNFS/ BC.No. 61 /06.02.28(i)/2001-02

1 February, 2002

The Chairman / MD
All Scheduled Commercial Banks

Dear Sir,

During the deliberations at the meeting of the Standing Advisory Committee on SSI to review the flow of credit to SSI sector held on 26 April 2001 at Mumbai, there was a general feeling that SSI units have not been getting adequate credit and that the commercial bank branches are reluctant to compute working capital requirements of SSI units based on the norm of 20% of the projected annual turnover of the units up to a borrowal limit of Rs.5 crores. This issue was also raised in the meeting, the Department Related Standing Parliamentary Committee on Industry had with banks and financial institutions on 15 June 2001 at Mumbai. The study of specialised SSI branches conducted by our Regional offices however revealed that the banks had made satisfactory progress in this regard. Therefore a decision was taken to conduct a sample study in this regard in a few selected general branches.

2. Accordingly a study of 198 selected general branches where sizable advances have been extended to SSIs was conducted by us on the lines of similar study conducted for specialised SSI branches. The consolidated study report is enclosed for your perusal and for taking measures for improving the effectiveness of your branches in complying with the above norms after reviewing the position.

3. It may be observed from the report that the branches of commercial banks are generally following the turnover method suggested by the Nayak Committee for computation of working capital, extending adequate finance to performing SSI units, adhering to the prescribed time schedule for disposal of loan applications etc. However in many other areas as indicated below deficiencies have been observed.

1. Vesting adequate discretionary powers to branch managers for sanction of credit facilities.
2. Use of simplified loan application forms.
3. Maintenance of loan application registers in comprehensive manner.
4. Issuing acknowledgement for the loan proposals received.
5. Providing credit to tiny sector.
6. Preparation of annual budget.
7. Insistence of compulsory deposits.
8. Referring proposals liable for rejection / curtailment in the amount of finance to next higher authority.
9. Survey of performing accounts by controlling offices.

4. Necessary steps may please be initiated to rectify the deficiencies and improve the situation in the above areas.

5. Please acknowledge receipt.

Yours faithfully,

(Varughese John)
General Manager

1. Introduction

As a follow-up action to the decision taken at the meeting of Standing Advisory Committee on SSI held on 26th April 2001, it was decided to carry out a study in a few general branches where sizable advances have been extended to SSI to assess their general performance in extending credit to this Sector vis-a-vis the extention of adequate credit computed on the basis of annual turnover method recommended by the Nayak Committee. Accordingly studies were conducted in 198 commercial bank branches covering 10-15 branches in each region by our Regional Offices. The branches were selected in such a way that adequate coverage was given for rural, semi urban, urban and metropolitan areas, the break up of which is as under :

2. Major findings

The major findings of the study are given below :

2.1 Discretionary powers

155 branches ( 78.3%) had adequate discretionary powers for sanction of credit facilities to SSI units.

2.2 Maintenance of loan application registers

79 branches (39.9%) maintained loan Application Registers in a comprehensive manner and 83 branches ( 41.9%) maintained only for sponsored schemes. Out of the remaining 36 branches 7 branches (3.6%) maintained the register but not in a comprehensive manner and 29 branches ( 14.6%) did not maintain the register.

2.3 Issue of Acknowledgements for proposals

Only 42 branches ( 21.2%) had a system of issuing acknowledgement for the loan proposals received while 156 branches ( 78.8%) did not have the system.

2.4 Adequacy of credit to performing SSI units

184 branches ( 92.9%) provided adequate credit to SSI units while in respect of 14 branches ( 7%) inadequacy of credit was observed. Performance appears to be satisfactory.

2.5 Adherence to time schedule for disposal
of loan applications

165 branches ( 83.3%) were found to be adhering to the prescribed time schedule for disposal of loan applications. Performance satisfactory.

2.6 Advances to SSI Sector

The position in regard to the advances granted by the branches to SSI, tiny etc. units is indicated below.

It will be observed from the above data that while the advances of these general branches to SSI sector constituted around 28% of the total advances, their advances to tiny and cottage industry etc. also constituted 28% of the total SSI advances as at the end of March 2001. As regards advances granted under Single Window Scheme (SWS) it may be observed that out of the outstanding advances to SSI sector advances under SWS constituted 35.6% as at the end of March 2001.

2.7 Computation of Working Capital on the
Basis of projected annual turnover

Out of 7760 proposals received by these branches during the last three years 1999,2000 and 2001, in the case of 6144 (79.2%) proposals working capital requirement was assessed on the basis of 20% of projected annual turnover as recommended by the Nayak Committee. The position in regard to sanction of working capital is indicated below:

The total sanction of working capital by these branches formed 96 to 97 per cent of the working capital computed on the turnover method as per Nayak Committee. The performance level at 79.2% and 96% to 97% for number of applications and actual sanctioned amounts respectively seems to be satisfactory. However, the banks have to gear up their machinery to compute 100% of the applications received for working capital requirement as per Nayak Committee norms and suitable reasons should be adduced for those considered otherwise.

2.8 (A). Complicance in respect of the other
Important instructions/RBI circulars

a) Preparation of Annual Budget

Only 71 branches ( 35.9%) were found to have been doing the exercise.

b) Classification of units as sick
as per RBI definition

73 branches ( 36.9) have been following the instructions.

c) Awareness of staff of importance of
SSI Sector and training

The instructions have been complied at 148 branches ( 74.7%).

d) Insistence of Compulsory Deposit

20 branches ( 10.1%) were found to be insisting on compulsory deposit as 'quid pro- quo' for sanction of credit facilities.

e) Proposals liable for rejection/curtailment to be
referred to next higher authority

These instructions were being followed in 96 branches ( 48.4%).

f) Introduction of simplified application forms

Simplified application forms were introduced in 138 branches (69.7%).

g) Committee Approach

Committee approach to facilitate timely decision was being followed at only 66 branches ( 33.3%).

h) Advances under Doubtful Category
to be reviewed and units classified
as sick units as per prescribed definition

This was being followed only at 89 branches ( 44.9%).

i) Survey of performing accounts by
controlling offices

This was being followed only in respect of 100 branches (50.5%).