Loan Applications Acknowledgement to MSME Borrowers
Banks must acknowledge all loan applications by the P2P lending platform, submitted offline or online, by their MSME borrowers. Also, they must ensure that the application form records the unit as well as the acknowledgment receipt.
Banks are further advised to put in place the following:
- System of Central Registration of Loan Applications
- Submitting the Loan Applications online
- System of e-tracking of MSME Loan Applications
P2P Lending: Collateral for Loans
Lower Limit for Collateral Acceptance
The RBI mandates the Banks not to accept collateral security in the case of loans up to ₹10 lakh extended to units in the MSME sector.
Collateral-free Loans Extention
The RBI advises the Banks to extend collateral-free loans up to 10 lakh to certain units. The Prime Minister Employment Generation Programme (PMEGP) finances these units. The KVIC administers this scheme.
Surge in Collateral Requirement
Banks can increase their collateral limit based on the MSME units’ good track record and financial position. This surge is to dispense the collateral requirement for loans. The upper limit for a Loan is ₹25 lakh, along with the approval of the appropriate authority.
Credit Guarantee Scheme Cover
The RBi advises the Banks to strongly encourage their branch-level functionaries to avail of the Credit Guarantee Scheme cover. This includes making performance a criterion in evaluating their field staff.
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P2P Lending: Composite Loan
Banks can sanction a composite loan limit of ₹1 crore to enable the MSME entrepreneurs. The purpose of such sanctions is to avail of their working capital and term loan requirements through Single Window.
Revised General Credit Card (GCC) Scheme
The general GCC guidelines were revised in 2013 for the following purposes:
- Enhance the coverage of the GCC Scheme
- Ensure greater credit linkage for all productive activities within the overall Priority Sector guidelines
- Capture all credit extended by banks to individuals for non-farm entrepreneurial activity
Streamlining Credit Flow
P2P lending firms must streamline the flow of credit to Micro, Small, and Medium Enterprises (MSMEs) to facilitate timely and adequate credit flow during their Life Cycle.
P2P Lending: RBI Guidelines for Timely Availability of Funds
To provide timely financial support to MSMEs facing financial difficulties during their Life Cycle, the RBI has issued guidelines to Banks. The RBI advises the Banks to review and tune their existing lending policies to the MSME sector by incorporating the following provisions to facilitate timely and adequate availability of credit to viable MSME borrowers:
- Extend standby credit facility in case of term loans
- Provide additional working capital to meet with emergent needs of MSME units
- Conduct a mid-term review of the regular working capital limits, where banks are convinced that changes in the demand pattern of MSME borrowers, above all, require increasing the existing credit limits of the MSMEs every year based on the actual sales of the previous year
- Timelines for Credit Decisions
P2P Lending: MSME’s Debt Restructuring Mechanism
The RBI advises the Banks to follow the instructions on debt restructuring of MSMEs from time to time.
The RBI advises all commercial banks to do the following:
- Banks must put in place loan policies governing the extension of credit facilities
- Restructuring as well as Rehabilitation policy for revival of potentially viable sick units or enterprises and non- discretionary One Time Settlement scheme for recovery of non-performing loans for the MSE sector
- This must be with the approval of the Board of Directors as well as give wide publicity to the One-Time settlement scheme implemented by them by placing it on the bank’s website and through other possible modes of dissemination. They may also allow reasonable time for the borrowers to submit the application and pay the dues to extend the scheme’s benefits to eligible borrowers.
- Implement recommendations about the timely as well as adequate flow of credit to the MSE sector.