Code of Banks Commitment

to Micro and Small Enterprises

August 2015

BANKING CODES AND STANDARDS

BOARD OF INDIA
www.bcsbi.org.in

This is a Code, reflecting the banks positive commitment

to its Micro and Small Enterprise (MSE) customers to provide

easy, speedy and transparent access to banking services for
their day-do-day operations and in times of financial difficulty.
This Code is not only a Charter of Rights of MSE customers
but also their responsibilities vis--vis their bank. The
provisions of the Code of Banks Commitment to
Customers will also be applicable to Micro and Small
Enterprise customers wherever relevant.

Code of Banks Commitment to Micro and Small Enterprises August 2015

TABLE OF CONTENTS
1

INTRODUCTION ...........................................................................

1.1

Objectives of the Code ........................................................................

1.2

Application of Code ............................................................................

KEY COMMITMENTS ....................................................................

2.1

Our key commitments to you .............................................................

2.1.1

To act fairly and reasonably in all our dealings with you ...................

2.1.2

To help you to understand how our financial products

and services work ..............................................................................

2.1.3

To help you use your accounts or service ...........................................

2.1.4

To deal quickly and sympathetically with things that go wrong ..........

2.1.5

To treat all your personal and business information as private

and confidential .................................................................................

2.1.6

To publicise the Code .........................................................................

2.1.7

To adopt and practice a Non - Discrimination Policy ..........................

INFORMATION TRANSPARENCY.................................................

3
3.1

General ..............................................................................................

3.2

Interest rates .....................................................................................

3.3

Tariff Schedule ..................................................................................

3.4

Terms and Conditions ........................................................................

PRIVACY AND CONFIDENTIALITY ................................................

Credit Information Companies ...........................................................

LENDING .....................................................................................

4
4.1
5
5.1

Application ........................................................................................

10

5.2

Credit Assessment .............................................................................

11

5.3

Sanction / Rejection ..........................................................................

13

5.4

Central Registry .................................................................................

14

5.5

Post Disbursement ............................................................................

14

5.6

Non-Fund Based Facilities .................................................................

16

5.7

Insurance ..........................................................................................

16

5.8

Financial Difficulties ..........................................................................

16

5.9

Nursing Sick MSEs and Debt Restructuring .......................................

18

5.10

One Time Settlement .........................................................................

19

5.11

Securitisation of loans / Dues ............................................................

19

COLLECTION OF DUES AND POLICY ON SECURITY

REPOSSESSION ...........................................................................

20

6.1

Collection of Dues ..............................................................................

20

6.2

Policy on Collection of Dues and Security Repossession .....................

20

Annex - Glossary .............................................................................................. 23

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Code of Banks Commitment to Micro and Small Enterprises August 2015

Introduction
This Code sets the minimum standards of banking practices that banks
will follow when they are dealing with Micro and Small Enterprises
(MSEs) as defined in the Micro, Small and Medium Enterprises
Development (MSMED) Act, 2006. It provides protection to you and
explains how banks are expected to deal with you in your day-to-day
operations and in times of financial difficulty.
The Code does not replace or supersede regulatory or supervisory
instructions issued by the Reserve Bank of India (RBI) and we will comply
with such instructions / directions issued by the RBI from time to time.
The provisions of the Code may have set higher standards than those
prescribed in the regulatory or supervisory instructions and such higher
standards will prevail, as the Code represents best practices agreed to
by us as our commitment to you.
In the Code, you denotes the MSE Customer and we, the bank that
you deal with.
1.1 Objectives of the Code
The objectives of the Code are
a.

To give a positive thrust to the MSE sector by providing easy access

to efficient and appropriate banking services.

b. To promote good and fair banking practices by setting minimum

standards for dealings with you.
c.

To increase transparency so that you can have a better understanding

of what you can reasonably expect of the services.

d. To improve our understanding of your business through effective

communication.
e.

To encourage market forces, through competition, to achieve higher

operating standards.

f.

To promote a fair and cordial relationship between you and us.

g.

To ensure timely and quick response to your banking needs.

h. To foster confidence in the banking system.

The standards of the Code are covered by the key commitments in
Section 2.
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Code of Banks Commitment to Micro and Small Enterprises August 2015

1.2 Application of the Code

As defined in the MSMED Act, 2006, MSEs cover Micro and Small
Enterprises engaged in the manufacturing or production or processing
or preservation of goods and those engaged in providing or rendering of
services.
Unless it says otherwise, this Code will apply to all the products and
services listed below, under current regulatory instructions, provided by
our branches, subsidiaries, joint ventures or agents, whether across the
counter, over the phone, by post, through interactive electronic devices,
on the internet or by any other mode. However, all products discussed
here may not be offered by us.
a.

Loans and other credit facilities which include fund based such as
cash credit, overdraft, cheque and bill purchase / discounting
(both inland and foreign), negotiation under reserve of documents
tendered under Letter of Credit (both inland and foreign) and
non-fund based such as establishment of inland and / or foreign
Letter of Credit (D/P or D/A), issuing of Guarantee (both inland
and foreign), inland or foreign bill or cheque for collection, Coacceptance and avalisation of bills, buyers credit, etc.

b. Foreign Exchange Services as permitted under Foreign Exchange

Management Act, 1999 (FEMA) / Reserve Bank of Indias guidelines,
including money changing.
c.

Third party insurance and investment products marketed through

our branches and / or our authorized representatives or agents.

d.

Factoring services.

e.

Merchant Services.

The meanings of words in bold black have been given in the Glossary.

2. KEY COMMITMENTS
2.1 Our Key Commitments to you
2.1.1 To act fairly and reasonably in all our dealings with you by
a.

Providing banking facilities of receipt and payment of cash / cheques

at the banks counter.

b.

Providing speedy and efficient credit and service delivery.

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Code of Banks Commitment to Micro and Small Enterprises August 2015

c. Meeting the commitments and standards set in this Code, for the
products and services we offer, and in the procedures and practices
we follow.
d. Making sure our products and services meet relevant laws and
regulations in letter and spirit and are appropriate to your needs.
e. Ensuring that our dealings with you rest on ethical principles of
integrity and transparency.
f.

Operating secure and reliable banking and payment and settlement

systems.

g.

Considering cases of financial difficulty sympathetically (see

paragraph 5.8 below).

2.1.2 To help you understand how our Financial Products and

Services work by
a.

Giving you information about our financial products and services in

Hindi, English and the concerned regional language.

b. Ensuring that our advertising and promotional literature is clear

and not misleading.
c. Ensuring that you are given clear and full information about our
products and services, the terms and conditions and the interest
rates / service charges, which apply to them.
d.

Ensuring that there is no mis-selling of our / third party products.

e.

Giving information on the facilities provided to you, how you can

avail of these and whom and how you may contact for addressing
your queries / grievances.

2.1.3 To help you use your Accounts or Service by

a.

Providing you regular appropriate updates.

b.

Keeping you informed about changes in the interest rates, charges

or terms and conditions.

c.

Displaying in our branches for your information:

i.

The services we provide.

ii. Minimum balance requirement for Current Accounts and

charges for non-maintenance thereof.
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Code of Banks Commitment to Micro and Small Enterprises August 2015

iii. Name of the official at the branch whom you may approach if
you have a grievance.
iv. Name and address of the Regional / Zonal Manager / Principal
Nodal Officer (PNO) whom you can approach if your grievance
is not redressed at the branch.
v.

Name, address and contact No. of Chief Vigilance Officer of our

Bank.

vi. Name and contact details of the Banking Ombudsman under

whose jurisdiction the branch falls.
vii. List of policies / documents available in booklet form.
d.

Displaying on our website our policies on :

i. Deposits
ii.

Cheque Collection

iii. Grievance Redressal

iv. Compensation
v.

Collection of Dues and Security Repossession.

2.1.4 To deal quickly and sympathetically when things go wrong by

a.

Correcting mistakes promptly and cancelling any bank charges that

we may have applied by mistake and pay compensation for any
financial loss you may have incurred due to our mistake in terms of
our compensation policy.

b. Acknowledging receipt of your complaint and handling your

complaints promptly.
c.

Telling you how to take your complaint forward if you wish to do so.

d. Providing suitable alternative avenues to alleviate problems arising

out of technological failures of the bank.
2.1.5 To treat all your personal and business information as private
and confidential
We will treat all your personal and business information as private and
confidential subject to matters mentioned in paragraph No. 4 below.
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Code of Banks Commitment to Micro and Small Enterprises August 2015

2.1.6 To publicise the Code

We will:
a.

Provide existing customers with a copy of the Code, free of cost, on

request, over the counter or by electronic communication or mail.

b.

Provide all new customers with a copy of the Code, free of cost,
when credit facilities are granted to them.

c. Make available this Code for perusal at every branch and on our
website.
d. Ensure that our staff are trained to provide relevant information
about the Code and to effectively put the Code into practice.
e.

Take other steps to increase awareness of the customers about the

Code and its provisions.

2.1.7 To adopt and practice a Non-Discrimination Policy By

Not discriminating on the basis of age, race, gender, marital status,
religion or disability, if any, of the promoter / proprietor/ partner/s of
the enterprise.

3. INFORMATION - TRANSPARENCY
You can get information on interest rates, fees and charges through any
one or more of the following:
a.

Contacting our branches or help-lines.

b.

Through our website.

c.

Contacting our designated staff / help desk.

d. Referring to the Tariff Schedule (see paragraph 3.3 below), which

is available at our branches and on our website.
3.1 General
We will:
a.

Give you information on all schemes offered by us specifically for

MSEs.

b. Give you information and explain the key features of our loan and
products, viz. cash credit, term loans, bill discounting / purchase,
guarantees, letters of credit and our fees and charges.
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Code of Banks Commitment to Micro and Small Enterprises August 2015

c.

Endeavour to customize the product and service that you choose, to

suit your needs.

d. Tell you if we offer products and services in more than one way
(for example, through ATMs, on the Internet, over the phone, in
branches and so on) and tell you how to find out more about them.
e.

Tell you what information we need from you to prove your identity
and address, for us to comply with legal, regulatory and internal
policy requirements.

3.2 Interest Rates

We will give you information on:
a.

The interest rates which apply to your deposit and loan accounts.

b. In case of loans at fixed rate of interest, details of interest reset

clause, if any, in the loan agreement and the effective date thereof.
c.

In case of loans at floating rate of interest, the reference rate to

which your floating rate will be linked and the premium or discount
applied to the reference rate for determining the actual rate of
interest on your loan.

d.

Whether you have the option for converting your loan from fixed
rate to floating rate and vice versa and, if so, the charges therefor.

e. Periodicity at which we pay interest on your deposits or charge

interest on your loan accounts.
f.

How we apply interest to your deposit and loan accounts and how
we calculate interest thereon.

3.2.1 Changes in Interest Rates

We will inform you of changes in interest rates on our loan products
and changes in the reference rate to which the floating rate of interest is
linked within a fortnight of the decision by any of the following means:
i. Letter
ii. e-mail
iii. SMS
We will also display this information on the Notice Boards in our branches
as also on our website.
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Code of Banks Commitment to Micro and Small Enterprises August 2015

3.3 Tariff Schedule

3.3.1 Fees & Charges
a. We will make known to you all charges applicable to the products
and services chosen by you.
b. We will ensure that our fees and service charges for various services
are approved by the banks Board or any competent authority, duly
authorized by the Board to take decisions in this regard and that
they would be reasonable and non-discriminatory for similar class
of customers.
c.

We will place our Tariff Schedule on our website and make a copy
available at every branch for your perusal.

d.

We will display on our website and in our branches a list of services

which are rendered free of charge.

e.

We will also provide you information about the penalties leviable in

case of non-observance / violation of any of the terms and conditions
governing the product / services chosen by you.

f.

We will not levy any charge on account of the bank / branch

upgrading its technology.

3.3.2 Changes in Fees & Charges

If we increase any fee or charge or introduce a new fee or charge, it will be
notified through statements of accounts / e-mail / SMS alerts / notice
board at branches, one month prior to the revised charges becoming
effective. This information will also be made available on our website.
3.4 Terms and Conditions
a. We will advise you the relevant terms and conditions for the
products/ services you have asked us to provide.
b. All terms and conditions will be fair and will set out respective
rights, liabilities and obligations clearly and as far as possible in
plain and simple language.
3.4.1 Changes to Terms and Conditions
a.

We will tell you of changes in terms and conditions through any one
or more of the following channels one month prior to the revised
terms and conditions becoming effective:
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Code of Banks Commitment to Micro and Small Enterprises August 2015

i. Letter
ii.

Statements of account

iii. SMSs
iv. e-mail

If the change is applicable to customers in general, such information

will also be made available on the Notice Boards in our branches
and our website.

b.

Normally, changes will be made with prospective effect giving notice

of one month.

c.

If we have made any change without notice, we will notify the

change within 30 days. If such change is to your disadvantage, you
may within 60 days of the notice, close your account or switch to
any other eligible account without having to pay revised charge or
interest.

4. PRIVACY AND CONFIDENTIALITY

a.

We will treat all your personal and business information as private

and confidential (even when you are no longer a customer), and shall
be guided by the following principles and policies. We will not reveal
any information or data relating to your accounts, whether provided
by you or otherwise, to anyone, including other companies/ entities
in our group, other than in the following exceptional cases:
i.

If we have to disclose the information as required by law or if

required by the banking regulator.

ii.

If there is a duty towards the public to reveal the information.

iii. If our interests require us to give the information (for example,

to prevent fraud). However, we will not use this as a reason for
giving information about you or your accounts (including your
name and address) to anyone else, including other companies
in our group.
iv. If you authorise us to reveal the information.
b. We will not use your personal and business information for
marketing purposes by anyone including ourselves unless you
specifically authorize us to do so.
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Code of Banks Commitment to Micro and Small Enterprises August 2015

4.1 Credit Information Companies

a.

When you apply for a credit facility, we will explain to you the role of
Credit Information Companies (CICs) as also the checks we may
make with them and the effect that the information they provide
can have on our decision to grant credit facilities to you.

b.

When you avail of a credit facility from us, we will report the loan
details to CIC/s.

c.

Updated information about credit availed from us will be reported

by us to the CIC/s at periodic intervals.

d. Information reported to CIC/s will also include personal debts you

owe us even when:
i.

You have fallen behind in your payments

ii.

The amount owed is in dispute

e.

If your loan account has been in default and thereafter regularised,

we will update this information with the CIC/s in the next report.

f.

We shall keep the CIC/s updated of your account details when your
account becomes standard after a period of being sub-standard
and / or immediately after the account is regularized / closed to our
satisfaction.

g.

We will on request, and on payment of prescribed fee, furnish you a

copy of the credit information obtained by us from the CIC.

h.

We will explain to you the repercussions of adverse credit information

record with CIC and their impact on your ability to get credit in
future from us or other banks, when you make a settlement under
One Time Settlement with us and close your account/s with us.

5. LENDING
a.

Our loan policy will be reflective of the objectives and spirit of the
National Policy and the Regulatory Prescription. We will endeavour
to provide facilities through a Single Window Mechanism.

b. We shall place the Policy relating to Lending to Micro and Small

Enterprises and Rehabilitation on our website and also make it
available to you at the branch for perusal. On request we will make
available a copy at a nominal charge.
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Code of Banks Commitment to Micro and Small Enterprises August 2015

c.

We will inform you, if applicable, about the salient features,

including benefits available and charges payable and terms of
Credit Guarantee Scheme of Credit Guarantee Fund Trust for Micro
and Small Enterprises which is extended by eligible banks and is
popularly known as CGTMSE guarantee scheme for MSEs and
which is available at present to new as well as existing Micro and
Small Enterprises including Service Enterprises with a maximum
credit cap of `100 lakh (Rupees One hundred lakh) per borrower,
excluding retail trade, educational institutions, training institutes
and Self Help Groups (SHGs) as per the said Scheme.

d. Where a loan is eligible to be covered under any other credit

guarantee scheme or any subsidy schemes in force, we will explain
to you the features of such scheme and any requirement you will
need to fulfill.
e.

We will endeavour to conduct programmes to enhance knowledge

on financial management of prospective borrowers.

f.

We shall endeavour to organize meetings of MSE customers at

periodic intervals as a regular channel for exchange of ideas and
suggestions.

5.1 Application
We will:
a.

Make available, free of cost, simple, standardized, easy to

understand, application form(s) for loans.

b.

Provide you with a check list of documents to be submitted

(compliant with legal and regulatory requirements) along with
the loan application form to enable you to submit the application
complete in all respects. If required, we will assist you in filling up
your loan application form.

c.

At the time of making available the application form, provide you

information about the interest rates applicable along with the
annualized rates of interest and the fees / charges, if any, payable
for processing, pre-payment options and charges, if any, and any
other matter such as availability of CGTMSE guarantee, so that
a meaningful comparison with rates / fees of other banks can be
made and an informed decision can be taken by you.
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Code of Banks Commitment to Micro and Small Enterprises August 2015

d.

Acknowledge the receipt of your loan application, whether submitted

manually or online, indicating therein the time frame within which
the application will be disposed off.

e. Normally collect all particulars required for processing the

application for credit facility at the time of application. In case we
need any additional information, we will contact you within seven
working days from receipt of application.
f.

At the time of renewal of an existing loan facility, which has been

satisfactorily conducted, we will endeavour to obtain from you only
such additional information which are already not in our possession.

g.

Give you the Most Important Terms and Conditions (MITC) governing
the loan / credit facility you have sought to avail.

h. Endeavour to enable you to know the status of your application.

i.

Not charge any processing fee for loans up to `5 lakh, whether

sanctioned or not.

j.

Dispose of your application for a credit limit or enhancement in

existing credit limit up to `5 lakh within two weeks; and for credit
limit above `5 lakh and up to `25 lakh within 3 weeks; and for credit
limit above `25 lakh within 6 weeks from the date of receipt, provided
your application is complete in all respects and is accompanied by
documents as per check list provided.

5.2 Credit Assessment

a.

We will:
i)

Verify the details mentioned by you in your application by

contacting you through staff / agencies appointed by us for
this purpose at your business address / residence.

ii) Before lending you any money or increasing your overdraft or

borrowing limit/s, we shall carry out proper assessment of
your loan application undertaking detailed due diligence and
appraisal.
iii) Satisfy ourselves about the reasonableness of the projections
made by you.
iv) While assessing your credit requirement, take into account the
seasonality or cyclicality of your business and, where required,
fix separate peak and non-peak credit limits.
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Code of Banks Commitment to Micro and Small Enterprises August 2015

b. We may require the following information to enable us to make a

fair assessment:
i)

Purpose of borrowing.

ii)

Your business plan.

iii) Your business cash flow, profitability and existing financial

commitments supplemented, if necessary, by account
statements.
iv) Your personal financial commitments.
v)

How you have handled your finances in the past.

vi) Information from Credit Information Companies.

vii) Ratings assigned by reputed credit rating agencies, if any.
viii) Information from others, such as other lenders / creditors.
ix) Market reports.
x)

Wherever Plant & Machinery or immovable property is offered

as security, Valuation report and Legal Scrutiny report on the
same will be required from Engineer / Advocate empanelled by
us.

xi) Whether the customer is agreeable to cover the loan under

CGTMSE guarantee where applicable.
xii) Any other relevant information.
c.

We will:
i)

Not accept collateral security where prescribed for loans up to

`10 lakh or up to the limits specified by the Reserve Bank of
India, from time to time.

ii)

Consider, if applicable, providing collateral free loans up to

`25 lakh if we are satisfied about your track record and financial
position being good and sound.

iii) Seek your consent, if applicable, to cover the credit facilities

sanctioned to you within credit cap of `100 lakh (Rupees One
hundred lakh) under the Credit Guarantee Scheme of Credit
Guarantee Fund Trust for Micro and Small Enterprises and
accordingly will not insist on collateral security and / or
Third party Guarantee for facilities within a maximum limit of
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Code of Banks Commitment to Micro and Small Enterprises August 2015

`100 lakh (Rupees One hundred lakh) if the facility approved

by us is an eligible facility and has been covered under the
CGTMSE scheme and for which you have agreed to.
iv) Provide you (manufacturing units) working capital limits
computed on the basis of a minimum of 20 per cent of your
projected annual turnover.
v)

Consider your request for suitable enhancement in the working

capital limits in cases where the output exceeds the projections
or where the initial assessment of working capital is found
inadequate and you have provided necessary evidence therefor.

d. Guarantees

If you want us to accept a guarantee or other security from someone

else for your liabilities, we will ask you for your permission to give
confidential information about your finances to them or to their
legal adviser. We will also
i.

Encourage them to take independent legal advice to make

sure that they understand their commitment and the possible
consequences of their decision (where appropriate, the
documents we ask them to sign will contain this recommendation
as a clear and obvious notice).

ii. Tell them that by giving the guarantee or other security they
may become liable for the credit facilities availed of by your
firm / you.
iii. Give a copy of the terms and conditions of the loan sanctioned/
loan agreement to the guarantor(s).
iv

Send a copy of the annual statement of account of your term

loans / demand loans to the guarantor(s) of the loan.

5.3 Sanction / Rejection

We will:
a.

Not insist on any deposit as quid pro quo for sanctioning credit
facility/ies.

b.

While offering you an overdraft, or an increase in your existing

overdraft limit tell you if your overdraft is repayable on demand or
otherwise.
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Code of Banks Commitment to Micro and Small Enterprises August 2015

c. Put down in writing the terms and conditions and other caveats
governing credit facilities agreed to and duly certify the same and
give you a copy thereof.
d.

Supply, at our cost, authenticated copies of all the loan documents

executed by you, with a copy each of all enclosures quoted in the
loan document and the list thereof.

e.

Convey in writing the reasons for not acceding to your request for a
loan or credit facility.

f.

Follow a rating system, the parameters of which will be shared with

you.

g.

Permit prepayment of fixed rate loans up to `50 lakh without levying

any prepayment penalty.

h. Permit prepayment of floating rate loans without levying any

prepayment penalty.
i.

Ensure disbursal of the loan sanctioned within two working days

from the date of compliance with all terms and conditions governing
such sanction.

j.

Provide you an amortization schedule (schedule of repayment of

principal and interest for the duration of the loan).

k. Ensure periodic review and renewal of facility as per terms and

conditions in the sanction letter given to you.
5.4 Central Registry
When you avail of a loan facility involving immovable property, as primary
or collateral security, we will advise you the functioning of the Central
Registry and the fact that their records will be available for search by
any lender or any other person desirous of dealing with the property.
5.5 Post Disbursement
We will:
a. Refrain from interference into your business affairs except as may
be required in terms of sanction of loan, loan agreement or when
new / adverse information comes to our knowledge.
b. Endeavour to be constructive in our monitoring process and
sympathetically deal with genuine difficulties that you may face in
your dealings with us.
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Code of Banks Commitment to Micro and Small Enterprises August 2015

c.

Require you to inform us of any subsequent credit facility you avail

of from any other lending institution.

d.

Obtain the following information from you on an ongoing basis:

i)

Stock and other statements at periodical intervals.

ii)

A comparison of the forecasts made in your business plan with

the actual results.

iii) Progress on important aspects of your business plan.

iv) Annual accounts such as Balance Sheet and Profit and Loss
Account and other supporting documents.
v) Age-wise break up of your creditors and debtors and the
amounts involved.
e.

Allow drawals against your limits as per usual safeguards.

f.

If your business circumstances change, talk to you about any new

information we will need from you.

g. Convey our consent or otherwise within two weeks of receipt of a

request for transfer of the borrowal account, either from you or
from the bank / financial institution that proposes to take over the
account.
h. Release all securities immediately on repayment of loan and in any
case within fifteen days of the repayment of all dues agreed to or
contracted. If any right to set off is to be exercised for any other
claim, we will give due notice with full particulars about the other
claims and retain the securities / documents/title to mortgaged
property till the relevant claim is settled / paid.
i.

Effect pledges/deliveries on the same day of receiving your request.

j.

Grant you increase in the drawing power, subject to sanctioned

limit, within 24 hours of lodgment of security.

k. In addition to providing periodical statements for operating

accounts, provide you with an annual statement of account of your
term loans / demand loans.
l.

Provide you with the loan statement, more often, if required, at a

cost which will be indicated in the Tariff Schedule.

m. Monitor the progress made by you through any or more of the

following modes:
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Code of Banks Commitment to Micro and Small Enterprises August 2015

i)

Scrutinising periodic statements of stocks you hold.

ii)

Watching the transactions in your account with us.

iii) Visits by either our staff or authorised representative to your

premises for verification of the stocks and / or assets financed.
iv) Obtain wherever necessary market reports on how your
business is going on.
n. If your account is continuously irregular and shows signs of
becoming a Non-performing Asset [NPA], endeavour to send you
timely alerts on not only transaction related but also on other
related critical parameters through letter / mail or SMS including
the status of your account.
o.

Give you notice, sufficiently in advance, if we decide to recall /

accelerate payment or performance under the agreement or seek
additional securities.

5.6 Non-Fund Based Facilities

We may offer non-fund based facilities for purchase of capital equipment
or raw materials / consumables, etc. through issuance, advising,
confirmation of Letters of Credit (LCs) or by issue of Guarantees. Facilities
such as Letters of Credit and Guarantees are governed, besides national
laws, by relevant rules and applicable publications of the International
Chamber of Commerce (ICC) brought out from time to time.
5.7 Insurance
a.

We will inform you if we, as agents of any insurance company, offer

any type of insurance.

b. We will ensure that we have your written consent to avail of these

insurance products.
c.

In case of securities lodged with us for loans availed by you, we will

not insist on your obtaining insurance cover from any particular
provider.

5.8 Financial Difficulties

How we can help

5.8.1 We will consider cases of financial difficulty sympathetically and

positively. You will usually identify problems first and should let us
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Code of Banks Commitment to Micro and Small Enterprises August 2015

know about these as soon as possible. If we become aware of problems,

we will let you know of it in writing. If speedy action is warranted, we
may contact you by phone, fax or e-mail.
5.8.2 The following are a few examples of what will be of concern to us,
particularly when you do not inform us:
a.

Delay in commencement of commercial production and there is cost

overrun etc.

b. Inordinate delays in submission of periodic information like stock

statement, renewal data, audited financial statements, etc.
c. High incidence of cheque returns in your Cash Credit / Current
Accounts.
d.

Exceeding your sanctioned limits frequently.

e.

Large changes in your business turnover without proper clarification

from you.

f.

Any stoppage/ suspension of work for an unreasonably long time.

g.

The business is incurring loss.

h.

Sudden loss of a business partner or copromoter or a key customer

or employee.

i.

Change in the primary activity or sale of a large part of your business.

j.

Use of credit facility/ies for purposes other than those agreed

with us or diversion of the funds for purposes other than intended
business.

k.

Not servicing interest at prescribed intervals.

l.

Failure to adhere to the agreed loan repayment schedule.

m. Bills drawn by you on your customers are returned unpaid

frequently.
n. Not honouring bills drawn on you by your suppliers frequently.
o.

Guarantees issued by us on your behalf are frequently invoked.

p. Increase in book debts / debtors out of consonance with turnover

in your account.
q.

Sale proceeds are not routed through your account.

r.

Non-compliance with conditions set out in the loan agreement.

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Code of Banks Commitment to Micro and Small Enterprises August 2015

s.

The agreed information is not furnished on time.

t.

Any creditor bringing a winding-up petition or other legal action

against your business.

5.8.3 We will do all we can to help you overcome your difficulties. With
your active co-operation, we will develop a plan for dealing with your
financial difficulties and we will tell you, in writing, what we have agreed
to.
5.8.4 We will endeavour to provide you with credit counseling services
so that we can be of help to you in dealing with your financial problems.
5.8.5 a. If you are in difficulties, we will work with your advisers, if you
ask us to. It is important that you act in good faith, keep us
informed about developments, keep to your agreement with us
and are prepared to make necessary changes early enough.

b. We may ask you for more financial information / commitments

to help us work together to understand your problems.

5.9 Nursing Sick MSEs and Debt Restructuring

5.9.1 We will consider a nursing / debt restructuring programme in
case any of your borrowal account remains NPA for three months or
more or there is erosion in the net worth due to accumulated losses to
the extent of 50% of net worth during the previous accounting year.
5.9.2 For considering your request for rehabilitation / debt restructuring
we will:
a. Examine whether your unit / project is viable / potentially viable
and advise you about our view within three months of the unit
becoming sick.
b.

If your unit is found to be viable / potentially viable, initiate timely

corrective action for its revival.

c. In case your unit is potentially viable and is under consortium /

multiple banking arrangement, and if we have maximum share of
outstanding, work out the restructuring package.
d. Work out a rehabilitation package which will also include your
contribution in accordance with RBI stipulations and implement
the same within a maximum period of 60 days from the date of
receipt of your request.
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Code of Banks Commitment to Micro and Small Enterprises August 2015

e.

In case your unit is declared unviable, you will be given an

opportunity to present your case before our next higher authority.

5.9.3 If we do not think that the rehabilitation plan will succeed, we

will explain the reasons why and help you and your advisors consider
other options.
5.9.4 If we cannot reach an agreement, we will make it clear why we feel
unable to continue to support you and tell you when we will withdraw
our financial support.
5.10 One Time Settlement
a.

In case the bank comes out with a One Time Settlement scheme,
wide publicity will be given by placing it on the banks website and
through other possible means of dissemination.

b. In case we offer you a One Time Settlement (OTS) for repayment of

dues, we will explain to you the details of the offer.
c.

We will spell out, in writing, the terms and conditions of the OTS
offered to you.

d.

We shall allow reasonable time to you to submit the application and

make payment of the dues so that you may avail of the benefits of
the scheme.

e.

If the OTS proposal is agreed to, we will explain to you the

implications of such settlement on your credit history maintained
by the Credit Information Companies (CICs).

5.11 Securitisation of Loans / Dues

a.

In case we securitise (sell) your loans / dues to another entity, we will

advise you the name and contact details of such entity along with
the amount of your loan / dues transferred to them. In the normal
course, loans / dues, which are not standard are considered for sale
to an Asset Reconstruction Company (ARC) through assignments.

b.

In such a case, you will be liable to pay the entire amount due to the
entity to which the loan / dues have been transferred.

c. The entity to which the loan / dues have been transferred will
continue to report your credit information to the CICs.
d.

We will endeavour to assist you in case you have a grievance against

the entity to which your loan / dues have been transferred by us.
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Code of Banks Commitment to Micro and Small Enterprises August 2015

6. COLLECTION OF DUES AND POLICY ON

SECURITY REPOSSESSION
6.1 Collection of Dues
a.

Whenever we give loans, we will explain to you the repayment

process viz. amount, tenure and periodicity of repayment. However,
if you do not adhere to repayment schedule, a defined process in
accordance with the laws of the land will be followed for recovery of
dues.

b. We will have a Board approved policy for Collection of Dues and

Security Repossession as also appointment of Recovery Agents.
c.

All relevant laws, regulations, guidelines and conditions of approval,

licensing or registration will be taken into account when appointing
Recovery Agents.

d. We will ensure that our Recovery Agents are properly trained to

handle their responsibilities with care and sensitivity. We will also
ensure that they do not exceed their brief.
e.

The process will involve reminding you by sending you a notice or by

making personal visits before any decision to repossess the security
is taken.

f.

In case of default, we may refer the case to the recovery agent. We

will inform you that recovery proceedings have been initiated.

g.

On initiating recovery proceedings, we will also tell you that in case

you have a complaint to make in this regard you may contact our
helpline number.

h. We will investigate your complaints about unfair practices by our

recovery agents. In the event of receipt of any complaint from
you that the banks representative / recovery agent has engaged
in any improper conduct or acted in violation of the Code, we will
investigate the matter and communicate the findings to you within
one month from the date of receipt of complaint and wherever
justified, compensate you for losses, if any.
6.2 Policy on Collection of Dues and Security Repossession
We will follow the collection of dues and security repossession policy in
consonance with the law. The policy will be displayed on our website and
a copy of the same will be made available at our branches for perusal.
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Code of Banks Commitment to Micro and Small Enterprises August 2015

a.

Our collection policy is built on courtesy, fair treatment and

persuasion. We believe in fostering customer confidence and longterm relationships. As part of our policy i.

We will provide you with all the information regarding your

dues and will endeavour to give sufficient notice for payment of
dues.

ii. We will write to you when we initiate recovery proceedings

against you and will inform you the name of the recovery
agency/ agent, to whom your case has been passed on, as also
their address and telephone numbers.
iii. We will post details of the recovery agency firms / companies
engaged by us on our website.
iv. We will also make available, on request, further details about
the recovery agency firms/companies at our branches.
v.

Our staff or any person authorized to represent us in collection

of dues or / and security repossession will identify himself /
herself and display the authority letter issued by us and upon
request display to you his / her identity card issued by us or
under our authority.

vi. We will have a system of checks before passing on a default

case to collection agencies so that you are not harassed on
account of lapses on our part.
b. All the members of the staff or any person authorised to represent
our bank for collection or / and security repossession who would be
subjected to due diligence, will follow the guidelines set out below:
i.

You would be contacted ordinarily at the place of your business/

occupation and, if unavailable thereat, at your residence or
in the absence of any specified place, at the place of your
authorized representatives choice.

ii. Their identity and authority to represent us would be made

known to you.
iii. Your privacy and dignity would be respected.
iv. Interaction with you would be in a civilised manner.
v. Normally our representatives will contact you between 0700
hrs and 1900 hrs, unless the special circumstances of your
business or occupation require otherwise.
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Code of Banks Commitment to Micro and Small Enterprises August 2015

vi. Your requests to avoid calls at a particular time or at a particular

place would be honoured as far as possible.
vii. Time and number of calls and contents of conversation would
be documented.
viii. All assistance would be given to resolve disputes or differences
regarding dues in a mutually acceptable and in an orderly
manner.
ix. During visits to your place for dues collection, decency and
decorum would be maintained. Our officials / agents will not
resort to intimidation or harassment of any kind, either verbal or
physical against any person, including acts intended to humiliate
you or intrude into the privacy of your family members, referees and
friends, making threatening and anonymous calls or making false
and misleading representations.

However, it is your responsibility to keep updating your contact

details. In case the bank is still unable to contact you, the bank
will access information available from public sources and approach
your friends / relatives to trace you.

x.

Inappropriate occasions such as bereavement in the family or other

calamitous occasions would be avoided for making calls / visits to
collect dues.
**********

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Code of Banks Commitment to Micro and Small Enterprises August 2015

Glossary
Avalisation
To add an Aval is the specific endorsement on a Bill of Exchange or Draft
by a bank, which guarantees payment, should the Drawee (the Importer)
default on payment of the bill at maturity.
Bank Guarantee
Bank Guarantee is a promise by a bank on behalf of its customer to a
third party to pay an amount specified in the guarantee deed in case the
customer fails to perform the obligation as stipulated in the deed.
Banking Ombudsman
Banking Ombudsman is an independent dispute resolution authority
set up by the Reserve Bank of India to redress customer complaints
against deficiency in certain banking services.
Bills
Bills are financial negotiable instruments such as Bills of Exchange or
Promissory Notes. Bill of Exchange is issued by a seller to his buyer
directing him to make payment for the goods supplied/ services rendered.
Bill in the form of a promissory note is issued by a buyer to his seller
undertaking to make payment for the goods received/ services rendered.
Bill Purchase / Discounting
Bill purchase / discounting are modes of extending credit to the seller of
goods who has raised demand / usance bill of exchange. Demand bills
are purchased and usance bills are discounted.
Cash Credit / Overdraft
Cash credit/overdraft is a form of credit facility in which a borrower is
sanctioned a pre-arranged limit with the freedom to borrow as much
money as he requires. In case of flow of credit to the account, he can
withdraw afresh subject to the limit sanctioned. As such, the limit works
as a revolving line of credit. Bank charges interest on the outstanding
balances.
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Code of Banks Commitment to Micro and Small Enterprises August 2015

Compensation Policy
Compensation Policy refers to the policy followed by a bank for
compensating its customers for the financial losses incurred by them
(the customers) due to the acts of omission or commission on the part
of the bank.
Credit facilities/ Bank Loan
Credit facilities from the bank may be in the form of a term loan or
in the form of overdraft or cash credit that is extended by a bank to
its customer for a specified period and he is charged interest on the
outstanding balances.
Credit Information Companies (CICs)
Credit Information Companies are companies formed and registered
under the Companies Act, 1956 and which have been granted a
Certificate of Registration by the Reserve Bank. These companies are
empowered to collect data on credit from credit institutions who are its
members and disseminate the same after analysis, to its members and
specified users.
Factoring
Factoring is a financial option for the management of receivables. It is
the conversion of credit sales into cash.
Fixed rate of interest
Fixed Rate of Interest on a loan means that interest rate is fixed for the
entire period of the loan or it may be reset at specified intervals as per
the reset clause stipulated in the terms and conditions of the loan.
Floating rate of interest
Floating Rate of Interest on a loan means that interest rate is not fixed
but is linked to a Reference Rate and would vary with changes in the
latter.
Guarantee
A promise given by a person.
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Code of Banks Commitment to Micro and Small Enterprises August 2015

Letter of Credit
A letter of credit is a document issued by a bank, which usually
provides an irrevocable undertaking for payment to a beneficiary against
submission of documents as stated in the Letter of Credit.
Micro and Small Enterprises
Micro and Small Enterprises are those enterprises engaged in
manufacturing or rendering services.
A micro enterprise is defined as:
An enterprise engaged in the manufacture or production of goods
pertaining to any industry where the investment in plant and machinery
does not exceed `25 lakh
or
An enterprise engaged in rendering services where investment in
equipment does not exceed `10 lakh.
A small enterprise is defined as :
An enterprise engaged in manufacture or production of goods pertaining
to any industry where the investment in plant and machinery is more
than `25 lakh but does not exceed `5 crore
or
An enterprise engaged in rendering services where investment in
equipment is more than `10 lakh but does not exceed `2 crore.
Net worth
Net worth means sum of Capital and free reserves minus accumulated
losses and intangible assets.
Non-Fund based facility
Non-fund based facilities are such facilities extended by banks which
do not involve outgo of funds from the bank when the customer avails
the facilities but may at a later date crystallise into financial liability if
the customer fails to honour the commitment made by availing these
facilities. Non-fund based facilities are generally extended in the form of
Bank Guarantees, Acceptances and Letters of Credit.
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Code of Banks Commitment to Micro and Small Enterprises August 2015

Non Performing Asset

A Non Performing Asset (NPA) is a loan or an advance where
i)

interest and/ or installment of principal remain overdue for a

period of more than 90 days in respect of a term loan.

ii)

the account remains out of order in respect of an Overdraft/Cash

Credit (OD/CC).

iii) the bill remains overdue for a period of more than 90 days in the
case of bills purchased or discounted.
Out of Order status
An account should be treated as out of order if the outstanding balance
remains continuously in excess of the sanctioned limit/drawing power.
In cases where the outstanding balance in the principal operating
account is less than the sanctioned limit/drawing power, but there are
no credits continuously for 90 days as on the date of Balance Sheet or
credits are not enough to cover the interest debited during the same
period, these accounts should be treated as out of order.
Overdue
Any amount due to the bank under any credit facility is overdue if it is
not paid on the due date fixed by the bank.
Payment and Settlement System
Payment and Settlement System means financial system creating the
means for transferring money between suppliers and user of funds
usually by exchanging debits or credits among financial institutions.
PIN
A confidential number, use of which along with a card allows customers
to pay for articles / services, withdraw cash and use other electronic
services offered by the bank.
Reasonable
Governed by or being in accordance with reason and sound thinking;
being within the bounds of common sense; not excessive or extreme.
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Code of Banks Commitment to Micro and Small Enterprises August 2015

Reference rate
It is the benchmark rate of interest of a bank to which interest on loans
sanctioned under floating rate of interest is linked. The Reference rate
of interest is determined / modified by individual banks in accordance
with their policies.
Repossession
Repossession is the process by which a creditor with a loan secured on
house or goods (e.g. car) takes possession of the security, if the debtor
does not repay as per the terms of the loan agreement.
Rehabilitation Package
Rehabilitation package is the package drawn for the rehabilitation of
a sick unit. The package has to be drawn in accordance with the RBI
stipulations and it usually consists of
i)

Working Capital with relaxation in the rate of interest in terms of

regulatory guidelines

ii)

Funded Interest Term Loan

iii) Working Capital Term Loan

iv) Term Loan
v)

Contingency Loan Assistance

Security
Represents assets used as support for a loan or other liability. In the
event of the borrower defaulting on the loan, the lender bank can claim
these assets in lieu of the sum owed.
Primary security is the asset created out of the credit facility extended
to the borrower and / or which is directly associated with the business/
project of the borrower for which the credit facility has been extended.
Collateral security is any other security offered for the said credit facility.
For example, hypothecation of jewellery, mortgage of house, etc.
Services
i)

In respect of small and micro service enterprises, services refer

to small road and water transport operators, small business,
professional and self-employed persons, and all other service
enterprises.
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Code of Banks Commitment to Micro and Small Enterprises August 2015

ii) Services rendered by the banks include various facilities like

remittance (issue of DDs, MTs, TTs, etc.), receipt and payment of
cash, exchange of notes and foreign exchange etc. provided by the
banks to the customers.
Sick Unit
Sick unit refers to a unit whose borrowal account remains NPA for
three months or more or there has been erosion in net worth due to
accumulated losses to the extent of 50% of the net worth during the
previous accounting year.
Tariff Schedule
The schedule containing charges levied by a bank on the products and
services offered by it to its customers.
**********

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Code of Banks Commitment to Micro and Small Enterprises August 2015

NOTES

29

Code of Banks Commitment to Micro and Small Enterprises August 2015

NOTES

30

The Code has been evolved by the Banking Codes and

Standards Board of India (BCSBI) in consultation with the
Reserve Bank of India, Indian Banks Association and Member
Banks. The central objective of the Code is to promote good
and fair banking practices, set minimum standards, increasing
transparency, achieving higher operating standards and above
all, promoting cordial banker-customer relationship which would
foster confidence of the common man in the banking system.
BCSBI was set up in February 2006 as an autonomous institution
to monitor and ensure that the Banking Codes and Standards
adopted by the banks are adhered to in true spirit while delivering
their services. BCSBI has evolved two sets of Codes Code of
Banks Commitment to Customers and the Code of Banks
Commitment to Micro and Small Enterprises. These Codes
have been adopted by member banks of BCSBI which include
scheduled commercial banks, urban cooperative banks and
regional rural banks. BCSBI by its design and mandate is not a
grievance redressal forum. However, BCSBI looks at complaints
with a view to identifying systemic deficiencies, if any, in terms
of gaps in policies, procedures and practices at the banks and
initiates action for their rectification.
For further information about BCSBI please log on to the website
www.bcsbi.org.in

Banking Codes and Standards Board of India

C-7, 4th Floor, Reserve Bank of India Building, Bandra Kurla Complex, Mumbai - 400 051.