As you are aware, the Reserve Bank of India has, from time to time, issued a number of guidelines/instructions/directives to banks in the matters relating to lending to Micro, Small & Medium Enterprises Sector. To enable the banks to have current instructions at one place, a Master Circular incorporating the existing guidelines/instructions/directives on the subject has been prepared and is appended. This Master Circular consolidates the instructions issued by the RBI up to June 30, 2011, which are listed in the Appendix, to the extent they deal with the MSME sector lending by commercial banks.
External Commercial Borrowings and Trade Credits availed of by residents are governed by clause (d) of sub-section (3) of section 6 of the Foreign Exchange Management Act, 1999 read with Notification No. FEMA 3/2000-RB viz. Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000, dated May 3, 2000, as amended from time to time. This Master Circular consolidates the existing instructions on the subject of ‘External Commercial Borrowings and Trade Credits’ at one place. The list of underlying circulars/notifications, consolidated in this Master Circular, is furnished in the Appendix.
I am directed to invite your attention to Notification No. 51/2011-Cus dated 22.06.2011 which amends Notification No. 97/2009-Cus dated 11.09.2009, whereby the validity of Notification No. 97/2009-Cus [which governs imports under the Duty Entitlement Pass Book (DEPB) scheme] has been extended. Circular No. 26 /2011-Cus. -The amending notification 51/2011-Cus stipulates that the notification will be valid for DEPB scrips issued by the Licensing Authority against exports having ‘Let Export Order’ up to and inclusive of the 30th day of September, 2011. The term ‘Let Export Order’ has also been explained in the amending notification as an order which permits clearance and loading of the goods for exportation by the proper officer in accordance with section 51 of the Customs Act, 1962.
As you are aware, in order to have all current instructions on the subject at one place, the Reserve Bank of India issues updated circulars/notifications. The instructions contained in the Notification No. DNBS.2/CGM(CSM)-2003, dated April 23, 2003 updated as on June 30, 2011 are reproduced below (Annexures). The updated Notification has also been placed on the RBI web-site (http://www.rbi.org.in).
With a view to adopting the Basle Committee on Banking Supervision (BCBS) framework on capital adequacy which takes into account the elements of credit risk in various types of assets in the balance sheet as well as off-balance sheet business and also to strengthen the capital base of banks, Reserve Bank of India decided in April 1992 to introduce a risk asset ratio system for banks (including foreign banks) in India as a capital adequacy measure. Essentially, under the above system the balance sheet assets, non-funded items and other off-balance sheet exposures are assigned prescribed risk weights and banks have to maintain unimpaired minimum capital funds equivalent to the prescribed ratio on the aggregate of the risk weighted assets and other exposures on an ongoing basis. Reserve Bank has issued guidelines to banks in June 2004 on maintenance of capital charge for market risks on the lines of ‘Amendment to the Capital Accord to incorporate market risks’ issued by the BCBS in 1996.
The Reserve Bank today allowed domestic companies to issue shares against import of capital goods and machineries, making it easier for them to expand. However, companies will have to get prior approval of the government to trade equities for imports.
It has been observed that quite often the internal inspection machinery in banks has failed to highlight and pinpoint the existence of gross and serious irregularities such as improper credit appraisal, disbursement without observing the terms of sanction, failure to exercise proper post-disbursement supervision, even suppression of information relating to unauthorised excess drawals allowed, kite flying in bills and cheques, etc.
Please refer to the Master Circular DBOD.No.Dir.BC.9/13.03.00/2010-11 dated July 1, 2010 consolidating instructions/ guidelines issued to banks till June 30, 2010 on matters relating to Interest Rates on Advances. The Master Circular has been suitably updated by incorporating instructions issued up to June 30, 2011 and has also been placed on the RBI website (http://www.rbi.org.in). A copy of the Master Circular is enclosed.
Please refer to the Master Circular No. DBOD.No.BP.BC. 21/21.04.048/2010-11 dated July 1, 2010 consolidating instructions/guidelines issued to banks till June 30, 2010 on matters relating to prudential norms on income recognition, asset classification and provisioning pertaining to advances. The Master Circular has now been suitably updated by incorporating instructions issued up to June 30, 2011 and is attached. It has also been placed on the RBI web-site (http://www.rbi.org.in). We advise that this revised Master Circular consolidates the instructions contained in the circulars listed in the Annex 9.
The Reserve Bank of India (RBI) provides export credit refinance facility to banks under section 17(3A) of the Reserve Bank of India Act, 1934. This facility is given on the basis of banks’ eligible outstanding rupee export credit both at the pre-shipment and post-shipment stages. The quantum of refinance is fixed from time to time based on the stance of monetary policy of the RBI.
