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IIBF MSME study materials
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IIBF MSME: MSME Financing: Appraisal, Monitoring & Recovery

IIBF MSME · Work through your exam, one topic at a time.

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MSME Financing: Appraisal, Monitoring & Recovery

Appraisal, Monitoring & Recovery - what the exam tests

This domain tests whether you can appraise an MSME proposal from cash flow and working-capital logic, set a defensible limit, monitor it after disbursement, and choose the correct recovery route. Questions often combine Udyam/GST evidence, CMA data, drawing power, CGTMSE cover and SMA/NPA timelines.

Core rules

  • Appraise the borrower, not only the collateral. Check Udyam registration, GST returns, bank statements, CMA/projected financials, promoter experience, market and technical feasibility.
  • For eligible micro and small enterprises, the turnover method may be used for working capital: assess 25% of projected turnover as WC requirement, with the borrower contributing a 5% margin and the bank financing the balance, subject to scheme eligibility and bank policy. For term loans, test DSCR and break-even.
  • Do not mix the turnover method and MPBF in one proposal; record the chosen method and assumptions in the appraisal note.
  • Sanction is not drawing power. DP is computed from paid stock and book debts after margins and statutory dues; monitor stock statements and ageing.
  • CGTMSE can reduce the collateral requirement for eligible MSE loans, but guarantee cover does not replace appraisal or claim-compliance.
  • Early warning: SMA-0 (1–30 days overdue), SMA-1 (31–60), SMA-2 (61–90), NPA after 90 days.
  • Recovery: recall, SARFAESI (60-day notice for secured assets), RRA 1993, IBC or OTS as policy permits.

Worked example

A manufacturing MSE projects turnover ₹4 crore and seeks a ₹50 lakh CC limit. Turnover method: WC need = ₹1 crore; borrower margin 5% = ₹20 lakh; bank finance 20% = ₹80 lakh. Eligibility is not sanction. If stock/book-debt DP after margins is only ₹42 lakh, the limit may be ₹50 lakh but utilisation is capped at DP. If term-loan DSCR is 1.1, the proposal is weak; require promoter contribution or reduce debt.

Traps

Treating CGTMSE as a substitute for credit appraisal; equating sanction with DP; ignoring GST/bank-statement mismatches; missing SMA dates; using SARFAESI without checking security and notice compliance.