SME Loans policy | TSCAB
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Loans, Savings

SME Loans policy

1

General:

Financial accommodation to the traders in the form of SME loan can be extended for meeting the working capital requirements of the borrower upto a maximum of Rs.10.00 lakhs and a minimum of Rs.50,000/- for all kind of small and petty traders. And as Term Loan for new traders/business man/startups upto Rs.3.00 lakhs. Purpose of loan will have to be specified along with undertaking, that loan will not be utilized for any speculative purpose, including real estate and equity shares.

2

Persons Eligible:

a) All individuals, professionals, self-employed and businessmen and others. For loans above Rs.3.00 lakhs the facility is to be extended to persons who are income tax assesses for the last 3 years.

b) The applicant should be retail trader having a valid and unexpired/latest certificate of registration under the State VAT as on the date of application.

c) The applicant can be a Sole Proprietor / Partnership firm/ Company.
d) The business / trading activity of the applicant should be in the area of operation of the Bank / Branch.

The area of operation of TSCAB branches is limited to HMDA limits.

3

Purpose:

Any trading or business activity approved under the Telangana State General VAT will be eligible for SME loan.

4

Limit Eligibility:

a) The limit will be sanctioned for meeting the working capital requirements of the experienced/new traders/business men.

b) Limit will be assessed based on the following:

  • Last two years sales turnover as reported in the VAT Assessment orders or furnished to statutory tax authorities

  • Projections of trading for the next two years.

  • Profit and Loss account and Balance sheet.

c) For new traders, the working capital is limited to Rs.1.00 lakh.

d) For Term Loan, the amount is limited to Rs.3.00 lakhs.

e) The sum of drawls in the account on a single day should not exceed the limit sanctioned.

f) Minimum SME limit to any individual existing trader will be Rs.50,000/- and Maximum SME Loan limit will be Rs.10.00 lakhs.

For term loan, minimum amount is Rs.50,000/- and maximum is Rs.3.00 lakhs.

5

a) The limit shall be valid for one year only from the date of sanction. Renewal for the next year will be done only for the amount utilized in the preceding sanction.

b) The repayment period of the Term Loan is limited to 36 months. Repayable on EMI basis.

c) Renewal of the limit for subsequent year(s) will be based on the satisfactory performance / operations in the SME loan account during the previous year.

Satisfactory implies the loan remains standard and there should not be more than 1 cheque bounces for want of sufficient balance in a financial year.

d) Renewal application to be obtained one month before the expiry of validity period processed and decision taken in time to ensure continuity in operations.

6

Rate of Interest:

  1. Interest rates are fixed by the Bank from time to time which are currently as below:

  • Upto Rs.3.00 lakhs 14%

  • Above Rs.3.00 lakhs 13.5%(as we have collateral security, so less risk)

  • On monthly compounding basis.

  • For Term Loan, it is 14%

b) Outstanding in the un-renewed SME limit account will be considered as overdue.

c) Over dues will attract penal interest at 2% per annum over and above the normal interest rate from the date of such overdue till the date of regularization of the account (or) repayment of the overdue.

d) Rate of interest charged is subject to revision by the Bank from time to time.

7

Security:

  1. For limit below Rs.1.00 lakh one surety (Only Govt. employee) and hypothecation of stocks/pledge.

  2. For limit above Rs.1.00 lakh and below Rs.3.00 lakhstwo sureties (Only Govt. employees) and hypothecation of stocks/pledge.

  3. For limit above Rs.3.00 lakhs the primary security should also be supplemented with equitable mortgage of urban immovable property. Bank’s interest has to be reflected in E.C.

  4. For new traders (loan amount is limited to Rs.3.00lakhs) requires surety from two government employees and hypothecation of stocks/pledge.

  5. CIBIL score of the Borrower should be recorded and minimum score should be 700. For first time loan takers CIBIL score is not considered.

  6. The borrower should furnish collateral security in the form of urban immovable property (value only of land) / NSCs / FDs / KVPs. Value of collateral should not be less than 150% of the limit sanctioned. For immovable property as collateral security only land value as per SRA value is considered. For flat owners, the undivided share of land is to be considered.

8

Associate Membership:

The applicant/ guarantors should be admitted as an Associate Member/ Nominal Member on remittance of Rs.100/- towards nominal share capital and Rs.10/- towards admission fee, each.

9

Verification of borrower / surety / security:

SRA valuation is to be adopted. Legal opinion should be obtained from the Approved Advocate of the Bank and the cost is to be borne by the applicant. Physical verification of property should be done by the designated officer of CLPC. SRA value to be obtained by designated officer of CLPC.

10

Sanctioning Authority:

a) upto Rs.2.00 lakhs : Branch Manager

b) Above Rs.2.00 lakhs : Dy. Gen. Manager (CLPC)

11

Documentation:

  1. Personal information of the borrower and guarantor.

  2. Information/Documents as required for KYC compliance.

  3. Applicant must be an account holder of the Branch.

d) Application for nominal membership

e) Application for SME Loan limit on banks printed application form. The applicant must fulfill all KYC norms.

f) Deed of Hypothecation should be executed by the applicant.

g) Title Deed and other relevant documents relating to collateral securities offered as cover for SME Loan limit.

h) Demand Promissory note for the amount of SME Loan limit sanctioned by the Bank along with the letter of continuity.

i) Original Insurance Policy, covering full value of the stocks in trade in the shop insured against the risks of fire, theft etc., in the joint names of the trading concern and the bank with hypothecation clause in Bank’s favour.

j) Photographs of the borrower and surety

  1. Proof of identification and residential proof of borrower and surety.

  1. Adhar card.

  2. KYC compliance.

l) Legal clearance to be obtained before accepting immoveable property as collateral security along with the willingness to offer the property as collateral security.

m) The borrower and surety should execute the documents in the presence of the DGM(CLPC)/BM at HO/Branch as the case may be for loans sanctioned within HMDA limits.

n) Sale deed and link documents of the property proposed to be lodged with the Bank/Branch.

o) The link documents should be at least for 13 years.

p) Encumbrance Certificate should be obtained for the last 13 years with due entries of the executants and executes

q) Market value of the properties/house/flat as per the SRA valuation.

r) Approved plan of the house / apartment etc. of the concerned municipality and construction done as per approved plan of GHMC.

s) Registration Equitable Mortgage of the property at the cost of the borrower in the concerned SRA so that the Bank’s claim is reflected in EC.

t) The bank / branch should obtain non-encumbrance certificate from the Sub-Registrar’s Office before and after issue of loan and ensure that the Encumbrance is noted in the certificate.

12

Check List:

The Branch Manager should obtain the loan application from the prospective borrower along with all the documents and sanction the loan if it is within his/her sanctioning limit otherwise forward them to DGM (CLPC) for scrutiny, verification and sanctioning.

13

Fees and charges:

A processing fee @ 1% of loan/limit amount will be charged thereof, subject to a maximum of Rs.3000/-. In addition, advocate fee of Rs.1500/- is to be borne by the borrower wherever applicable. At the time of renewal also the service charges @ 0.25% to be recovered from the borrower.

14

Operational Aspects:

A. Procedure:

The application of SME Loan limit should be collected from prospective traders in printed format and the Br. Manager should sanction or forward the same to DGM (CLPC) wherever applicable along with relevant documents/ information, duly recommending the proposal.

i. Application – All columns are to be filled-in properly by the applicant

ii. The BM/Designated officer of CLPC as the case may be should prepare a report on the firm’s business

iii. Certificate of Registration under VAT (copy)

iv. Any other certificates of registrations / permissions (copy)

v. Sole-proprietary declaration / Partnership Deed (copy) and a copy of Certificate of Registration from appropriate authorities should be furnished

vi. A copy of Lease Deed for the current period if the shop is in rented building should be furnished. The period of validity of the deed should cover the loan period.

vii. Actuals for the last 2 years and Projections for the next two years in respect of purchases, sales & profits for existing traders.

Viii. Projections for next 2 years in respect of new traders. Submission of Financial statements/Statutory returns will not be applicable for new traders.

ix. For loan amount above Rs.3.00 lakhs, latest balance sheet and profit and loss account.

For below Rs.3.00 lakhs the receipts and payments of the business transactions and the returns furnished to statutory authority for 2 years.

x. Income Tax return (copy) for the last three years.

xi. Details of Collateral Security i.e., building / flat should be furnished

xii. The applicant must be a Current Account holder (if not already a Current Account holder), duly fulfilling the KYC norms.

15 A

a) A copy of sale deed / title deed shall be obtained.

b) A copy of each of the link documents if the sale transaction is recent one.

c) Copies of the Encumbrance Certificates for the last 13 years to be obtained.

d) In case of NSC / KVP, duly noting the lien on the certificate from the post office as in the case of SOD against NSC/KVP and in case of LIC policies quarterly paid up value duly noted by the policy issuing branch about the policy being offered as collateral. The assignment value of the LIC policy shall be ascertained from the LIC office and the policy shall be assigned to the Bank. In case of FDs, a letter of Authorization along with discharge of FD receipt should be obtained.

B

Insurance:

  1. The borrower (Trader) should arrange for insurance cover for the stock-in-trade in his shop/godown against the risks of fire, theft, etc., in the joint names of the bank and the trading concern with bank’s clause, as long as the loan outstanding exists. A copy of the Insurance policy should be lodged with the Bank.

  2. Insurance premium will be debited to the borrowers loan/OD account.

  3. The bank’s name stating that the stocks are hypothecated should be prominently displayed in the shop/godown by the trader

C

Utilization of SME Loan:

a) The SME Loan limit should be utilized only for the purpose for which it is sanctioned.

b) Any diversion or misuse of this SME Loan funds will render the borrower liable to repay the entire dues to the bank immediately and the bank will stop further operations in the SME operational account.

c) The outstanding in SME Loan account should Not exceed the drawing power, or the limit sanctioned whichever is less. The Bank reserves the right to recall the outstanding and may direct the borrower to bring the loan outstanding within the limit.

16

Procedure for Recovery of Overdues:

If the SME Loan account becomes overdue and the borrower does not, despite written demand notices by the bank, regularize the account or repay the entire dues within the stipulated period, the Branch Manager should initiate necessary legal action against the borrower for recovery of dues to the bank after completing the following steps:

i) Issue first demand notice within one week from the date of occurrence of overdue.

ii) If the account is not regularized, issue second demand notice after 15 days from the date of issue of first demand notice.

iii) Even after the second notice if the account is not regularized, then issue a ‘Registered Notice with Acknowledgement Due’ after 15 days from the date of second notice. Even if not responded then initiate legal action.

Duties & Responsibilities of Branches / CLPC

Branches:

  1. Branch Managers have to identify the prospective borrowers and to collect the filled in application with all the details and satisfy himself about the information (as per KYC norms) and process the loan application and sanction the loan as per the specified procedure if it is within the sanctioning limit otherwise forward the application to CLPC for sanction.

  1. Information of Loans sanctioned should be maintained and tracked by Maintenance of Register.

  1. Identification of borrower is the primary responsibility of the Branches.

  1. On Sanction of loan/receipt of sanction letter from HO, the Branch Manager should ensure that, if a Current a/c does not exist in the name of the borrower, duly following KYC norms a new account has to be opened and a SME Loan limit has to be fixed.

CLPC:

  1. On receipt of loan application from branches it is to be entered in inward register and numbered with date.

  1. CIBIL report of the borrower is to be obtained and verified.

  1. Verification of particulars given in application are taken up as per seriatim by the official entrusted with the duties as per the policy guidelines.

  1. On completion of verification, applications are to be scrutinized by the official entrusted with the duties and put up for sanction.

  1. The file will be transferred to Bank’s Legal Advisor for scrutiny of documents. The fee for the scrutiny will have to be borne by the applicant.

  1. Basing on the verification and scrutiny report sanctioning authority will pass the order of sanction /rejection.

  1. For loan amount above Rs.3.00 lakhs entire process is to be completed within 7 working days from the receipt of the application in the section. The same is 3 working days if the loan amount is below Rs.3.00 lakhs. Sanction or rejection letter is to be forwarded to the customer under copy to Branch Manager for follow-up.

  1. On acceptance of the loan, the borrower has to execute the documents before the competent authority as per the policy guidelines. The loan will be sanctioned and communicated accordingly.