Sovereign Gold Bond (SGB)?

What is Sovereign Gold Bond (SGB)?

SGBs are government securities denominated in grams of gold. They are substitutes for holding physical gold. Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity. 

Some facts about SGB

Issuer	Reserve Bank of India on behalf of Govt of India
Denomination	grams
Who can invest?	Any person, a resident of India (as per FEMA*)  If the person later becomes NRI, can hold till maturity
Can minor invest?	Yes, through guardian
Joint holding ?	Yes
PAN* required?	Yes, it is mandatory
Min investment	1 (one) gram
Max investment (per financial year)	4 (four) kilograms    4 kgs - Individuals (applies to First holder)    4 kgs - Hindu Undivided Family (HUF)  20 kgs - trusts and similar entities
Interest rate	2.5% p.a. (paid semil-annually)
From where to buy?	Banks : Nationalised, Scheduled Private & Foreign  Designated Post Offices,  Stock Holding Corporation of India Ltd. (SHCIL)  Stock exchanges - directly or through their agents
Any discount?	No discount. But if applied digitally, a concession of  Rs.50/gram can be availed.
How is the issue  price fixed?	Simple average of closing price of gold (999 purity)  published by the India Bullion & Jewelers Assn Ltd,  for the last 3 business days of the week preceding  the subscription period.
What is the tenor?	8 years from the date of isse   Early redemption available after 5 years
Transferable?	Can only be transferred to eligible investor   If held in Demat, can be traded in stock exchange
Tax benefits	Interest is taxable   Capital Gains for individual      - on redemption is tax exempted      - indexation benefits for transfer
Redemption price?	Simple average closing price of gold (999 purity)   of previous 3 business days from the date of repayment,  published by the India Bullion & Jewelers Assn Ltd.
Nomination	Nomination is available

* Abbreviations used

PAN : Permanent Account Number

FEMA : Foreign Exchange Management Act

Benefits

1. No need to hold in physical format
2. No cost of storage (Locker)
3. Gold price appreciation. Redemption linked to prevailing market Gold price
4. Interest @ 2.50% p.a.
5. Tax benefits - no capital gains on redemption
6. Backed by Government guarantee
7. Can buy in lots of 1 gram
8. if digitally bought, Rs.50/gm concession available
9. Can be traded, if in demat format.
10. Nomination facility available

See you in next post on whether to invest in SGB or Gold ETF or Gold itself.

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BEWARE : Phishing attack in the name of CoViD19 testing

The Indian government has issued an advisory to citizens warning them against a large scale phishing campaign which impersonate the Indian government and promises free Covid -19 tests and other resources.

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Stock Ideas - Federal Bank (CMP : 50.95)

Federal Bank Limited is a major Indian commercial bank in the private sector headquartered at Aluva, Kerala having more than thousand branches and ATMs spread across different States in India. The Bank is a pioneer among traditional banks in India in the area of using technology to leverage its operations and was among the first banks in India to computerize all its branches.

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China products - Boycott or make in India?

Off late, I see lot of people suddenly raising their voice to boycott Chinese products and social media is bubbling.

India is a vast country with a huge population & consumer base. In a trading world, we see countries import and export. Not every country is self-reliant on their own. There are dependency on each others. Surplus gets exported.

With so many Chinese products flooding the markets, can we avoid them? can we boycott them? What is the right way to deal with this situation?

With Atmanirbhar Bharat (Self reliant India), how can we capitalize this situation?

Most of the countries flourished after they were devastated. Crisis gives an opportunity to come with more innovative and growth oriented activities.

Coming back to the situation in hand, why not look at creating those products in India itself rather than boycotting some other country's products. Why we buy them is that they are less costlier than our own products.

Can't we make them in India at the same cost? These kind of move will create more job opportunities and lot of industries can get us the products that we so far relied on other countries.

In my view, we should make more in India to creae more job opportunities and bring up industries, especially the MSMEs.

What do you all think?

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Proposed regulatory framework for Housing Finance cos

The Reserve Bank of India has come out with draft regulatory framework for the Housing Finance Companies (HFC).

I feel this may the fallout of the various HFC which more act as an NBFC and fund their group companies.

It is proposed to introduce the concept of ‘qualifying assets’ for HFCs as done in case of NBFC-MFIs. The proposed regulations are as under:

Qualifying Assets refer to ‘housing finance’ or ‘providing finance for housing’  subject to the following:

1. Not less than 50% of net assets are in the nature of ‘qualifying assets’ for HFCs
2. 75% of the 50% of net assets should be towards individual housing loans.

“Net assets” shall mean total assets other than cash and bank balances and money market instruments.

The HFC is given 4 years timeframe comply with the requirements.

Timeline	At least 50% of net assets as qualifying assets i.e., towards housing finance	At least 75% of qualifying assets towards housing finance for individuals
March 31, 2022	50%	60%
March 31, 2023	-	70%
March 31, 2024	-	75%

‘Housing Finance” or “providing finance for housing” means:

1. Loans to individuals or group of individuals including co-operative societies for construction/ purchase of new dwelling units.
2. Loans to individuals for purchase of old dwelling units.
3. Loans to individuals for purchasing old/ new dwelling units by mortgaging existing dwelling units.
4. Loans to individuals for purchase of plots for construction of residential dwelling units provided a declaration is obtained from the borrower that he intends to construct a house on the plot within a period of three years from the date of availing of the loan.
5. Loans to individuals for renovation/ reconstruction of existing dwelling units.
6. Lending to public agencies including state housing boards for construction of residential dwelling units.
7. Loans to corporates/ Government agencies (through loans for employee housing).
8. Loans for construction of educational, health, social, cultural or other institutions/centres, which are part of housing project in the same complex and which are necessary for the development of settlements or townships;
9. Loans for construction of houses and related infrastructure within the same area, meant for improving the conditions in slum areas for which credit may be extended directly to the slum-dwellers on the guarantee of the Government, or indirectly to them through the State Governments;
10. Loans given for slum improvement schemes to be implemented by Slum Clearance Boards and other public agencies;
11. Lending to builders for construction of residential dwelling units.

All other loans including those given for furnishing dwelling units, loans given against mortgage of property for any purpose other than buying/ construction of a new dwelling unit/s or renovation of the existing dwelling unit/s, will be treated as non-housing loans.

Loan foreclosure charges

As a measure of customer protection and also in order to bring in uniformity with regard to repayment of various loans by borrowers of banks and NBFCs, no foreclosure charges/pre-payment penalties shall be levied on any floating rate term loan sanctioned for purposes other than business to individual borrowers with or without co-obligants. Since similar regulations are currently not prescribed for HFCs, it is proposed to extend these instructions to HFCs.

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One person company (OPC)

The One Person Company (OPC) was introduced through the Companies Act, 2013. Like partnership firms having an option to be a Limited Liability Partnership, sole proprietorship can look at a OPC.

This will increase better compliance and put OPC in a better position in availing loans/funding. This will bring in the unorganized sector or sole proprietorship into an organized sector. There are many advantages of being an OPC. Let us see them.

Before going into the benefits of being an OPC, let us see what is an  OPC and how one can form it?

Who is eligible to incorporate	A natural person who is an     a. Indian citizen and     b. Indian resident
Who is a nominee?	The memorandum of OPC shall indicate the name of the person, with his prior written consent, to become a member of the OPC when the sole member dies or becomes incapacitated to contract. A nominee can be a nominee in only one OPC. A nominee can be a member in an OPC. Where a member in One Person Company becomes a member in another OPC by virtue of his being a nominee in that OPC, then such person shall meet the eligibility criteria of being a member in only one OPC within a period of 180 days, i.e., he/she shall withdraw his membership from either of the OPCs within one hundred and eighty days
How many such OPC can a person register	A person can register only one OPC
What will be the nature of this OPC	OPC will be treated as a Private Limited Company
What will be the suffix	OPC will be suffixed to differentiate from other types of companies
What are the requirements relating to Director, shareholder	Shareholder   : Min 1  Director         : Min 1 Share Capital : No minimum Share capital / maximum : Rs.50 lakh Director and Shareholder can be the same person
Liability	Limited liability (only to the extent of shareholding)
Status	Enjoys the status of Pvt Ltd Company.

Compliance matters

Board meeting	Atleast one board meeting in each half of the calendar year The gap between 2 meetings shall be more than 90 days
Annual or Extraordinary General meeting	Only resolution to be communicated to the meber and minutes to be updated.
Quorum	No quorum required

Mandatory conversion to Private Limited Company

In case the paid up share capital of an OPC exceeds Rs.50 lakh or its average annual turnover of immediately preceding three consecutive financial years exceeds Rs. 2 crore, then the OPC has to mandatorily convert itself into private or public company.

Advantages of an OPC

There are many advantages of being an One Person Company when compared to sole proprietorship. Am not comparing with Partnership, as here the individual wants to be on own and do not want to share the control of his business.

1. Full control of business - faster decision making.
2. Separate legal entity from the person
3. Liability is limited
4. Nominee facility available
5. Having compliance requirement lesser than Private Ltd Co.
6. Being with better compliance, higher chances of getting funding (loan or equity)
7. Being a separate legal entity, can be sold at good valuation, if required.
8. Director's remuneration is allowed as deduction while computing Income Tax
9. Suitable for startups and MSMEs
10. Better chances of being selected as vendor to provide service / good. 

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Decoy effect - marketing technique / consumer preferences

Having studied, Psychology and cognitive behaviors, this is where most of the consumers, especially in supermarkets fall prey.

Have you ever heard about this marketing concept - DECOY EFFECT?

The consumers have a cognitive bias while shopping or buying in which they will tend to have a specific change in preferences between two options when also presented with a third option that is asymmetrically dominated.

This is used mostly in products or services to make sure that the product the seller want to sell is priced in such a way as a third option to make the consumer tend to buy them.

Let me give an example:

Today's world, we depend more on the online meetings and webcasts. We need to choose a better one which suits our requirement and not heavy on our purse.

You go to a service provider, who you feel is good and want to see the options, Your requirement is unlimited time per session, 20 sessions per month. The options available with the service provider are:

Option A : 20 sessions/month and 2 hours max per session - Rs.350

Option B : 30 sessions/month and unlimited hours max per session - Rs.500

Normally, you will go for Option A, as it fits your requirements well. Now, the intention of the service provider is to sell more of Option B. To achieve that, what he will do is, introduce another option, say Option C.

Option A : 20 sessions/month and 2 hours max per session - Rs.350

Option B : 30 sessions/month and unlimited hours max per session - Rs.500

Option C : 20 sessions/month and 3 hours max per session - Rs.450

The consumer will look at the Option B and C. For Rs.50 he is getting a better deal. So, he will go for Option B. Here Option C is the decoy.

Which one will you buy given the following options for soap "Super"?

25 gms - Rs.30

50 gms - Rs.50

75 gms - Rs.60

Please let me know, which is the decoy here? Did you fall in for the decoy recently?😉 

Next time, when you see Buy 2 get 20% off, look for the decoy.

Watch the following video:

Share in the comment, if you have seen any decoy recently.

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Cost inflation index for Financial Year 2020-21

For computing certain long term capital gains, the cost can be adjusted for the inflation and for that purpose, the Central Board of Direct Taxes notifies the cost inflation index every financial year.

On 12-Jun-2020, the cost inflation index for FY2020-21 was notified as 301.

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Will EMI moratorium impacts the credit rating?

Many people ask this question, when the EMI moratorium was extended till 31-Aug-2020 - Whether my credit rating by Credit Information Bureau (India) Limited (CIBIL) will go down due to this?

RBI in their press release under Statement on Developmental and Regulatory Policies dated 22-May-2020 cleared this that the moratorium period between 1-Mar-2020 and 31-Aug-2020 shall not be counted for asset classification by lenders. That means, your non-payment of interest or EMI shall not be adversely affect your credit rating.

What is assert classification, NPA? To know, click HERE (Refer FAQ 3)

The relevant portion of the notification is given below:

(i) As the moratorium/deferment is being provided specifically to enable borrowers to tide over COVID-19 disruptions, the same will not be treated as changes in terms and conditions of loan agreements due to financial difficulty of the borrowers and, consequently, will not result in asset classification downgrade.

(ii) As earlier, the rescheduling of payments on account of the moratorium/deferment will not qualify as a default for the purposes of supervisory reporting and reporting to credit information companies (CICs) by the lending institutions. CICs shall ensure that the actions taken by lending institutions in pursuance of the announcements made today do not adversely impact the credit history of the borrowers.

(iii) In respect of all accounts for which lending institutions decide to grant moratorium/deferment, and which were standard as on March 1, 2020, the 90-day NPA norm shall also exclude the extended moratorium/deferment period. Consequently, there would be an asset classification standstill for all such accounts during the moratorium/deferment period from March 1, 2020 to August 31, 2020. Thereafter, the normal ageing norms shall apply.

(iv) NBFCs, which are required to comply with Indian Accounting Standards (IndAS), may follow the guidelines duly approved by their Boards and advisories of the Institute of Chartered Accountants of India (ICAI) in recognition of impairments. Thus, NBFCs have flexibility under the prescribed accounting standards to consider such relief to their borrowers.

For full notification dated 22-may-2020, CLICK HERE

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Director's salary - liable to GST? Clarified now.

Circular No: 140/10/2020 - GST dated 10-Jun-2020

Finally the government has cleared the air in terms of GST applicability on Directors Remuneration. The contention here is whether the Director is an employee or not. 

Wholetime/Executive Director

A whole time-director under section 2(94) of the Companies Act, 2013 is an inclusive definition, and thus he may be a person who is not an employee of the company.

Independent Director

Any such director should not have been an employee or proprietor or a partner of the said company, in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed in the said company[ Section 149(6) of the Companies Act, 2013, read with Rule 12 of Companies (Share Capital and Debentures) Rules, 2014..

(A) Directors who are employees of the company

Salary is not taxable under GST

It is clarified that the part of Director‟s remuneration which are declared as "Salaries‟ in the books of a company and subjected to TDS under Section 192 of the IT Act, are NOT TAXABLE, being consideration for services by an employee to the employer in the course of or in relation to his employment in terms of Schedule III of the CGST Act, 2017.

Remuneration other than Salary is taxable under GST under reverse charge basis

It is further clarified that the part of employee Director‟s remuneration which is declared separately other than "Salaries‟ in the Company‟s accounts and subjected to TDS under Section 194J of the IT Act as Fees for professional or Technical Services shall be treated as consideration for providing services which are outside the scope of Schedule III of the CGST Act, and is therefore, TAXABLE. Further, in terms of notification No. 13/2017 – Central Tax (Rate) dated 28.06.2017, the recipient of the said services i.e. the Company, is liable to discharge the applicable GST on it on reverse charge basis. 

(B) Directors who are not employees of the Company

In respect of such directors who are not the employees of the said company, the services provided by them to the Company, in lieu of remuneration as the consideration for the said services, are clearly outside the scope of Schedule III of the CGST Act and are therefore TAXABLE. 

Accordingly, remuneration paid to such independent directors, or those directors, by whatever name called, who are not employees of the said company, is taxable in hands of the company, on reverse charge basis

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Sweat Equity by Startups - MCA relaxes rules.

The Ministry of Corporate Affairs (MCA) has amended the Companies (Share Capital and Debentures) Rules, 2014, to allow startups to issue sweat equity shares not exceeding 50% of its paid-up capital upto a period of 10 years from the date of registration. 

What is a sweat equity?

It is part of the Share Capital of the Company which is issued by a company to its directors or employees at a discount or for consideration, other than cash, for providing their know-how or making available rights in the nature of intellectual property rights.

The companies take this route to overcome the initial cashflow challenges.

What is a startup?

An entity is considered as a startup if it meets the following criteria:

Entity	Private Limited Company Partnership firm Limited Liability Partnership (LLP)
Tenure	Upto 10 years from the date of incorporation / registration
Annual Turnover	Less than Rs. 100 crore for any of the financial years since its Incorporation
New entity	The entity should be new one and should not have been formed by splitting up or reconstructing an already existing business
Nature of work	work towards innovation, development or improvement of products/process/services and/or have scalable business model with high potential of employment generation or wealth creation

How this new relaxation help?

Given the business situation due to pandemic  and shortage / preservation of funds, this form of compensation shall be well received by the entrepreneurs. Any Company which is five or more years and less than 10 years of existence can issue sweat equity to its employees to retain them.

CLICK HERE for the notification.

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Borrowing for business : 3. Export funding

The Banks and Financial institutions extend various facilities to the exporters. The intention is to promote and facilitate exporters to do more to get more foreign exchange into India.

The facilities extended can be categorized into Fund based and Non-fund based facilities.

Fund based is more of extending funds to the exporters and non-fund based (as you guessed) is more of extending non-fund base facilities like guarantee or letter of credit etc.,

Fund based

• Pre-shipment facility
• Packing credit
• Basically to fund the procurement to shipment to the importer expenses against an confirmed order / LC.
• For purchase of raw materials, processing, packing, transportation and warehousing of goods meant for export, It has two essential features, viz:
• existence of an export order and / or letter of credit;
• liquidation of the packing credit by submission of export documents within a stipulated period
• It is part of your working capital limits
• Duration depends on the business cycle
• Post-shipment facility
• Discounting export bills
• Part of the sanctioned credit limit
• Bank will pay the exporter the discounted value of the invoice, immediately up on shipment.
• Bank offers this service in rupee as well as foreign currency.
• Advance against export bills sent on collection
• Mostly used when the bills drawn under Letter of Credit has some discrepancies.
• When the bill discounting limit of the exporter is exhausted and bank is not willing to sanction additional limit.
• Bank may finance a part of the total bill amount as advance. A margin of 10%-25% exercised by bank. 
• When the export bill is realized, the advance will be liquidated and the bank will pay the balance to the exporter.
• Rate of interest is same as applicable to post-shipment finance.
• Advance against duty drawback claims
• Duty Drawback Scheme aims to provide the refund/ re-coupment of custom and excise duties paid on inputs or raw materials and service tax paid on the input services used in the manufacture of export goods.
• The bank lends finance against such duty drawback receivable from customs after the exporter submits all the essential export documents with their bank to confirm eligibility.
• The bank will make sure that the drawback amount will be paid directly to them by the customs department, before they extend the advance to the exporter.
• This advance is granted to the exporter, for upto 90 days, by the bank which extends other export finances to the exporter. Other banks shall not extend this benefit.

Non-fund based

• Export Letter of Credit confirmation
• Advising a Letter of Credit is just a verification of the authenticity of the message received. There is no risk to the bank here.
• Confirming export Letter of Credit means that the bank gives the additional guarantee for the money due under the Letter of Credit
• Back to back Letter of credit
• Normally done for intermediaries - those who gets the LC and Order and works with actual supplier and gives the supplier his Letter of Credit.
• Guarantees 
• There are various guarantees are provided to the exporters in the course of the business.

The above are not exhaustive list. This is just an awareness post and you can work with your financial advisors / consultants / banking partners to know more about their offerings.

Remember, when you are importing or exporting, you are exposed to not only the party level risk, but also international / country level risk, Currency risk etc., So, play safe. Google knowledge will not suffice.

All the best.

    

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Borrowing for business : 2. Types of funding available

In the earlier post, we looked at the basic understanding of getting loans. In this post, let us see from where can get loans and the various types of funding available.

Normally, the loans are given by Banks, Financial Institutions and NBFCs

Again the facilities that can be availed are categorized into Fund based and Non-fund based.

What type of funding that we can get from them? The funding are classified in terms of 

• Duration: Short Term funding and Long Term funding.
• Security : Secured loan and Unsecured loan 

Short term funding (loan)

1. Working Capital loan
• As the name suggests, this loan is to fund your working capital requirement. The lender will fund you the 1 or 2 or 3 months of your net working capital, depending on your business nature. This is to tide over your collection time to pay your expenses and creditors.
• This will be a short term loan for 12 months and can be renewed with same limit or higher limit.
• This loan will  be based on your debtors and stock balances.
2. Flexi business loan
• This loan will give a limit to draw to the extent required.
• Normally, these type of loans are taken for seasonal businesses (eg. agro based) or gets irregular orders.
• Only the utilized amount will be charged.

Long term funding (loan)

1. Term Loan
• Normally for longer projects or for buying machines or building a facility.
• Term loan will be for more than a year (infr projects will have much more longer tenure)
• The term loan sanction will take more time, as there will more diligence exercised by the lender.
• These loans will be secured mostly against the purpose for which it is taken.
• There will be a repayment schedule agreed.
2. Asset financing (lease finance and asset finance)
• Banks and NBFC does this.
• SIDBI gives at better rate under SMILE Equipment Plan (SEP)

The above are generic and there are other ways of getting loan like personal business loan, which is unsecured and upto 25 lakh like a term loan. This will carry an interest around 14%-18% depending on your credit rating.

For all the above loans, the business and the promoters shall maintain a good credit rating in Credit Information Bureau India Limited (CIBIL). This calls for a separate posting on how maintaining helps in getting loans, how to maintain good score etc.,

This posting is more for awareness of business community. The requirement, nature of funding has to be assessed case by case. Please consult your financial consultant.

Any questions, please ask in the comments. I will answer them.

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NSE EMERGE : MSME can tap public for funding

Do you know that Micro, Small and Medium Enterprises (MSME) can tap the public through stock market?

Yes, you are reading it right. MSME can get their shares listed through National Stock Exchange of India (NSE).

NSE has created a platform called EMERGE for the SMEs to enable them to list their shares in their trading platform. Once the MSME exhausted the initial promoter capital, borrowings from friends/relatives and loans from banks and poised to grow big, they need more capital. At this stage, it is advisable to tap the equity market.

There are 2 levels. SME board and main board

Who are all eligible?

(a) Paid up Capital

	SME Board	Main Board	Remarks
Issuer's post issue paid up capital	Less than Rs.10 crore	Rs.10 crore to Rs.25 crore	It is the face value of the Capital

(b) 3 years operational history

(c) 2 years of cash accruals (operational profits)

(d) Positive networth

(e) good credit standing of company and promoters

Framework

(a) For Initial Public Offering (IPO) on NSE EMERGE

• Minimum allottee : 50
• Public shareholding : Minimum 25% 
• Grading requirement : Nil
• Underwriting : 100% of the IPO
• Draft Red herring Prospectus (DRHP) : Regular IPO format. NSE clearance enough for SME Board with observations
• Market making : mandatory 3 years (see below)

(b) Post listing compliance

• Half yearly audited accounts (quarterly for main board)
• Corporate governance : same as main board

(c) Migration to main board from SME board

• Allowed subject to meeting the criteria

(d) Investors

• Minimum application amount : Rs. 1 lakh
• Minimum trading lot : Rs. 1 lakh
• PE funds, QIBs can support  underwriting and market making

What is the listing process

IPO open days : Minimum 3 days and Maximum 10 days

Listing time : It may take a minimum 6 working days

Benefits of listing

• Higher visibility of the company
• Easy access to raise further capital
• Ease of valuation
• Since there are governance control, credibility will increase
• ESOPs can be issued to employees to retain them

Market maker

Any  member  of  the  Exchange  would  be  eligible  to  act  as  Market  Maker  provided the criteria laid down by the exchange are met. 

The member brokers desirous of acting as Market Maker in this exchange shall apply to the concerned stock exchange for registration as Market Makers unless already registered as a Market Maker. 

The obligations and responsibilities of Market Makers

The  Market  Maker shall fulfill the following conditions to provide depth and continuity on this SME exchange:  

(a)   The Market Maker shall be required to provide a 2-way quote for 75% of the time in a day. The same shall be monitored by the stock exchange. Further, the Market Maker shall inform the  exchange  in  advance  for each and every black out period when the quotes are not being offered by the Market Maker. 

(b) The minimum depth of the quote shall be Rs.1,00,000/-. However, the investors with holdings of value less than Rs 1,00,000 shall be allowed to offer their holding to the Market Maker in that scrip provided that he sells his entire holding in that scrip in one lot along with a declaration  to  the  effect to the selling broker.  

(c) Execution of the order at the quoted price and quantity must be guaranteed by the Market Maker, for the quotes given by him.  

(d) There  would  not  be  more  than  five  Market  Makers  for  a  scrip.

Please share your questions in the comments, below.

  

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Borrowing for business : 1. Basics to understand

There are many entrepreneurs who have ideas and passion for pursuing their dreams. Many are successful, few struggle and few create history.

What are the challenges they face in their starting stage?

• Getting finance
• How to convert their ideas to a marketable product or service
• Marketing their product or service

I have worked all through my life starting as finance head, borrowing funds for my organization or for my company's clients. With that experience, I am lining out few tips to those who are looking to get finance from Banks, Financial Institutions or Non Banking Financial Companies (NBFC).

As a person, all we know is that we need money - in any form to start the business, run the business etc., That is the focus and that should be the focus.

At this juncture, the entrepreneur overlooks certain things and end up focusing on running after lenders and meeting regulatory compliance. I will cover the regulatory compliance separately.

Let us look at a situation. You are a successful entrepreneur and running a successful profitable business in consumer durable. I am a rank holder in my MBA from a decent business school and started my trading business in consumer durable.

I approach you and request you to give me your products, which I can sell in market and pay you after 30 days. I show all my educational credentials and prizes that I have won in marketing competitions. 

Would you:

1. Encourage me by giving your products to me on credit for 30 days; OR
2. Ask me to get a surety or cash down to take the products.

Friends, this is exactly the banks and others also do. We need to understand that they are not NGOs and they also run the business for profits. Each banks way of functioning will be slightly different, though they are governed by RBI and Banking Regulations Act.

That said, there are ways to get seed capital, personal loans that one can take to run the initial set up. If you do not have security to offer, you can look at some financial partner to start with, giving an exit option.

Some of the entrepreneurs experience on their firs 3 years of operations;

• Start with smaller operations with tight finance
• Borrow money by pledging idle assets like gold
• Work for few years to gain experience and save money - during this time do the groundwork for the dream project
• Crowd funding
• Financial partner with loan / equity option after 3 years
• Equipment financing
• Equipment leasing

There are many ways one can get funding, if you have a good viable business proposal. Remember, no one will ignore an opportunity where they can earn more.

In this series, next I will be writing on what type of lenders and what type of financing available, the tips to get loans - what the bankers look for.

Happy weekend.

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MSME Series: 1. ATMANITBHAR BHARAT ABHIYAAN - ECLGS

Prime Minister Shri Narendra Modi on 13-May-2020 announced various measures under the umbrella Atmanirbhar Bharat Abhiyaan. That means a self reliant India movement.There are lot of presentations on this Rs. 20 Lakh crore package. I am going to write in my MSME series, each schemes in a nutshell.
The Atmanirbhar Bharat Abhiyaan has 5 pillars  
  (1) Economy : That can take a quantum leap
  (2) Infrastructure : World class one with Indian identity
  (3) System ; More technology driven arrangements
  (4) Vibrant Demography : The energy source for a self-reliant India 
  (5) Demand :  Utilizing fully the strength of our demand and supply chain
I was looking for an acronym for the 5 pillars. Finally, managed to get VIBRANT DESI (Demand, Economy, System and Infrastructure). Happy to get interesting acronym in the comments.

Emergency Credit Line Guarantee Scheme.
In the first of this MSME series, I am going to give a snapshot of the Rs.3 lakh crores Emergency Credit Line Guarantee Scheme.

Objective 
Additional funding without any collateral to MSMEs who is trying to mitigate the economic distress due to the pandemic situaion.
Amount available under the scheme
Rs.3 lakh crores by way of Guarantee from the governement
Period this Scheme is available
Can be availed till 31-Oct-220 OR till the Rs.3 lakh crore santioned, whichever is earlier
Who can avail this benefit? Please see the FAQ
All MSME borrowers with combined outstanding loans of up to Rs 25 crore as on February 29, 2020, and annual turnover of up to Rs 100 crore in FY 2019-20. Pradhan Mantri Mudra Yojana (PMMY) borrowers are eligible. 
What is the tenor for this additional loan
4 years with a moratorium of 12 months on principal repayment.
What is the additional security, collateral or guarantee required?
No additional security, collateral or guarantee required for this additional loan
What is the interest rate?
For Banks and Financial Institution, RBI prescribed external benchmark linked rates +1%, subject to a maximum of 9.25% pa.
For NBFCs, the interest rate shall not exceed 14% pa
What is the form of this additional loan?
Banks or FIs : Working Capital Loan 
NBFCs          : Term Loan 

Frequently asked questions on ECLGS

(1) Who are all eligible?
All MSME borrowers with

1. combined outstanding loans across all lending institutions of upto Rs 25 crore as on 29-Feb-2020
2. annual turnover for 2019-20 was up to Rs 100 crore
3. GST registration or not required to register under GST 
4. constitution as 
• MSME which are constituted as Proprietorships, Partnerships, Registered Companies, Trusts and Limited Liability Partnerships (LLPs), 
• Loans provided in individual capacity will not be covered under the Scheme
• loans under PMMY extended on or before February 29, 2020, and reported on the MUDRA portal shall be covered under the Scheme

(2) What are the other conditions to be met?

• The borrower should be an existing customers and who have availed the credit facility as on 29-Feb-2020
• Borrower accounts should be classified as regular, SMA-0 or SMA-1 as on February 29, 2020. Accounts classified as NPA or SMA-2 as on February 29, 2020 will not be eligible under the Scheme
• The MSME borrower must be GST registered in all cases where such registration is mandatory. This condition will not apply to MSMEs that are not required to obtain GST registration

(3) What are SMA-0, SMA-1, SMA2 & NPA
These are the categories that RBI created to have an early warning signals of a stressed account with Banks, Financial Institutions and NBFCs. 
SMA stands for Special Mention Accounts.

SMA Sub-categories	Basis for classification – Principal or interest payment or any other amount wholly or partly overdue between
SMA-0	1-30 days
SMA-1	31-60 days
SMA-2	61-90 days

NPA : a loan account which has remain overdue for 90 days or more is classified as a NPA or Non-Performance Assets.

(4) The accounts are not audited yet. What to do?
In case accounts for FY 2019-20 are yet to be audited/finalized, the lender may rely upon the borrower’s declaration of turnover.

It is better to get an audited financial done to avoid any rejection.

(5) Will MSME get 20% of the outstanding as of 29-Feb-2020 as loan?
The scheme says upto 20%. So, if the bank decides, basis your track record, can give less than 20% also.
The banks were asked to exercise diligence in extending the loan. So, it is not the automatic 20% extended. 

(6) MSME have multiple lenders, who will provide loan?
If the combined borrowing is less than Rs.25 crores, each lender can provide proportionately.
If the combined  borrowing is more than Rs.25 crores, you are not eligible.
If the other lenders give no objection certificate (NOC), one lender can give the additional 20% (but the quantum cannot exceed 20% of the combined loan balance as of 29-Feb-2020 with all lenders)

(7) Can MSME get more than 20% of outstanding as of 29-Feb-2020?
YES & NO
Yes, if you have multiple lenders and other banks give NOC to one lender, the lender will give more than 20% of his loan balance.
No, as in any case it cannot exceed your combined loan outstanding as of 29-Feb-2020

(8) Is MSME registration / Udyog Aadhar required?
Nowhere it talked about this condition. So, MSME registration or Udyog aadhar is not a must to avail this additional loan.

(9) Are there any processing fee
Since this is an extension of existing loan, no processing fee shall be charged.

(10) Is all loans and facilities covered?
No. Only fund based loans are covered. Non fund based, off-balance sheet facilities are not covered.

(11) What are the repayment terms?
After the 12 months moratorium for principal amount, the amount can be repaid in 36 equal monthly instalments

(12) Can I repay the amount earlier in part or full?
Yes, you can. There will not be any pre-payment penalty charges for this.

These are my understanding on reading the scheme. Please check with your banker, consultant for your eligibility.


Please rush, if you need the credit, as it is first come first served. Though the scheme is open till 31-Oct-2020, if the Rs.3 lakh crores sanctioned earlier, you may miss the bus.

Good luck !

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