IIBF MSME flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

MPBF

Maximum Permissible Bank Finance under Tandon Committee norms; first method: 75% of working capital gap; second method: 75% of current assets less current liabilities other than bank borrowings.

Nayak Committee

1993 RBI committee that simplified working capital assessment for MSEs with turnover up to ₹5 crore, allowing MPBF of 20% of projected annual turnover.

Udyam Registration

Online, paperless registration portal for MSMEs launched in 2020; issues a permanent Udyam number used for scheme benefits and priority sector classification.

Composite MSME criteria

Classification based on both investment in plant and machinery and annual turnover; a unit is Micro, Small or Medium only if both thresholds are met.

CGTMSE

Credit Guarantee Fund Trust for Micro and Small Enterprises; provides collateral-free guarantee cover for loans up to ₹5 crore per borrower at prescribed guarantee and service fees.

Debt Service Coverage Ratio

DSCR = (PAT + depreciation + interest on term loan) / (term loan interest + term loan principal). Minimum acceptable is usually 1.5 to 2.0.

Break-even analysis

Determines sales level where total revenue equals total cost. BEP (%) = fixed cost / (sales - variable cost) × 100; indicates margin of safety for the MSME.

Current Ratio

Current assets divided by current liabilities. For MSME appraisal, a minimum of 1.33:1 is usually expected; below 1.0 signals liquidity stress.

TOL/TNW

Total outside liabilities divided by tangible net worth. Measures leverage; most banks cap it at 3:1 to 4:1 for MSME term loans.

Projected turnover method

Nayak method for MSEs: working capital limit = 20% of projected annual turnover, plus 5% for growth if required. Applies to units with turnover up to ₹5 crore.

TEV study

Techno-economic viability study covering market, technical, financial and risk dimensions; mandatory for project finance above bank-defined thresholds.

Promoter margin

Contribution by promoters to project cost, expressed as percentage. Typically 25-33% of project cost; lower under CGTMSE or specific schemes.

Pre-operative expenses

Costs incurred before commercial operations, including legal, registration, trial run and interest during construction; capitalised as part of project cost.

Interest during construction

Interest accrued on term loan before commercial production; capitalised into project cost, not treated as revenue expense.

Moratorium period

Period after disbursement during which principal repayment is deferred; interest usually continues to accrue. Typically 6-12 months for MSME term loans.

Drawing power

Maximum amount a borrower can draw from a cash credit limit, computed from current assets less current liabilities and margin; recalculated monthly from stock statements.

Stock statement

Periodic statement of inventory and receivables submitted by the borrower; basis for drawing power calculation and monitoring of working capital utilisation.

SMA classification

Special Mention Account: SMA-0 (overdue 1-30 days), SMA-1 (31-60 days), SMA-2 (61-90 days). Early warning signals before NPA classification.

NPA classification

Loan becomes NPA when principal or interest is overdue for more than 90 days; sub-standard, doubtful and loss assets follow based on further ageing.

Sub-standard asset

NPA remaining overdue for 12 months or less; provisioning at 15% of secured portion and 25% of unsecured portion (RBI norms).

Doubtful asset

NPA remaining overdue for more than 12 months; classified as doubtful-I, doubtful-II, doubtful-III with increasing provisioning requirements.

Loss asset

Asset identified as loss or uncollectible by auditors or RBI inspection; 100% provisioning required; typically written off after recovery efforts.

Early Warning Signals

Indicators such as frequent cheque returns, delayed stock statements, declining turnover, diversion of funds, or promoter disputes that flag impending stress.

SARFAESI Act

Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; allows secured creditors to enforce security without court intervention after 60-day notice.

DRT

Debt Recovery Tribunal established under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993; handles recovery claims above ₹20 lakh.

Lok Adalat

People's court under Legal Services Authorities Act, 1987; banks can refer small-value MSME NPA accounts for quick settlement; award is final and binding.

One Time Settlement

Negotiated settlement where the bank accepts a lump sum lower than the outstanding dues; typically offered for NPAs in small-value MSME accounts.

MSME restructuring

RBI framework allowing restructuring of MSME advances without downgrading to NPA if the account was standard and restructuring is implemented within prescribed timelines.

Mudra loan

Loan under Pradhan Mantri MUDRA Yojana for non-farm micro enterprises; Shishu (up to ₹50,000), Kishore (₹50,000-₹5 lakh), Tarun (₹5-10 lakh).

Stand-Up India

Scheme providing loans of ₹10 lakh to ₹1 crore to SC/ST and women entrepreneurs for greenfield enterprises in manufacturing, services, trading or agriculture-allied sectors.

Credit monitoring arrangement

Post-sanction monitoring through periodic stock statements, quarterly information systems, inspections, and annual renewal of limits; detects stress early.

Recovery through IBC

Insolvency and Bankruptcy Code, 2016 process; MSME creditors can initiate CIRP against defaulting corporate debtors for claims above ₹1 crore.