National Equity Fund Scheme

The SIDBI of India has set up the national equity fund scheme which provides the equity type assistance to entrepreneurs for setting up new projects which can be classified as SSI units. In this article, we look at the National Equity Fund Scheme in detail.

Objective of the Scheme

The objective of the national equity scheme is to empower the SSI units and thereby improving their acceptability for team financing by primary lending (PLIs). To afford equity type support to entrepreneurs for setting up projects in small scale sectors for undertaking expansion, modernisation, technology up-gradation and diversification by existing small scale sector and for rehabilitation of viable sick units in the SSI sector.

Eligibility Criteria

The following are the type of projects that can avail the benefits of equity fund scheme.

It is applicable for the new projects in tiny and small sectors for the manufacture, preservation or processing of goods.
It is applicable for the existing tiny and small scale industrial units including those which have already availed NEF assistance, undertaken the expansion, modernisation, technology up-gradation, diversification etc.
It is applicable for all new and existing service enterprises, including those which have availed of NEF assistance (except road transport operators). However, in the case of service enterprises, the support under NEF would be made available only for the acquisition of fixed assets.
It applies to the sick units in the tiny and small scale sectors including service enterprises which are considered potentially.
It applies to the projects which utilise any margin money or special capital assistance under the schemes of state or central government, State financial corporations and banks will not be eligible for assistance.
Availment of refinancing with respect of term loan for the project by SIDBI is a pre-requisite for extending equity type assistance.

Eligible Institutions

The following are the eligible institutions from where the assistance can be obtained.

The State Financial Corporations
The Twin-function industrial development corporations
The Scheduled commercial banks and select urban and
The State co-operative banks.

Project cost

In the case of new projects the project cost including the margin money for working capital which does not exceed Rs.50 lakh. In the case of existing units, the entire expenditure, including the proposed expenditure on expansion /modernisation/technology up-gradation / diversification or rehabilitation should not exceed Rs. 50 lakh.

Nature of Assistance

Equity type of assistance can be availed in the form of the soft loan.

Terms of Assistance

The assistance which are provided under this scheme are explained below:

Soft Loan Assistance

Soft loan assistance is permissible upto 25 % of the project cost subject to the maximum amount of Rs. 10 lakhs per project.

Interest Rate

The rate of interest to be imposed by banks/SFCs for the various project will be as per RBI guidelines. The present rate of interest will be15.5 % per project.

Service Charge

The service charge of 5 % per annum will be imposed on the soft loan component in which PLIs would continue to maintain service charge of 1% p.a., remaining 4% per annum should be passed on to SIDBI.

Repayment Period

The repayment period for the soft loan will be seven years. Whenever borrowers are doing repayments/prepayments of term loan alone, the PLIs may require on repayment of the soft loan and where-ever soft loan repayments are not received, the repayments/prepayment so obtained may be proportionately modified by the PLIs towards term loan and soft loan; payments to SIDBI may correspondingly be made.

Security

No security (including collateral) is required for the soft loan.

Note

The total fund requirement of the project in the form of equity assistance under NEF, term loan and working capital is to be issued by a single agency.
The projects included under the Single Window Scheme (SWS) can also extend the assistance under the NEF Scheme if it satisfies the criteria under both the schemes. In such cases, the NEF assistance would be limited to 25% of the cost of fixed assets.
Credit risk based on the loan assistance out of NEF is shared equally by GoI and SIDBI.
In the cases of loan proposals where the qualified PLIs are fulfilled with the eligibility and need to give NEF support, they may make mandatory provision in this regard ever by redrawing the financing pattern to provide the required component of equity support out of NEF to all deserving small scale units.
Similarly, any other interest/charge, service charge has to be collected from the borrowers by the qualified PLIs and maintained by them. PLIs are not to distribute with recovery proceedings on account of the absence of charge on assets etc. and take related steps for recovery of NEF as in the case of recovery of term loans. SIDBI will entirely bear the legal expenses incurred for the recovery of arrears of NEF assistance. All other terms and conditions applicable to a term loan in this regard are applicable mutatis mutandis to NEF assistance.
In the case of default in the repayment of installments of the soft loan or service charge, or any postponement allowed by SIDBI/Bank/Corporation, such installment(s) unless agreed to by SIDBI, should carry interest at a rate which should not be more than the interest rate applicable to standard loans lent (present rate is 15.5% per annum).
The revised NEF Scheme will apply to the loans sanctioned by Primary Lending Institutions on or after December 21, 2000.

Procedure for Availing Assistance

A separate application is to be furnished for availing assistance under the NEF Scheme. Entrepreneurs while requesting for term loan assistance from the above mentioned eligible institutions can specify the amount of NEF assistance in their financing proposal.
Eligible applicants will submit five copies of the application, duly completed to Zila Sainik Board (ZSBs), along with the project report.
ZSB will maintain four copies of the application form and return one copy to the applicant duly endorsed.
ZSB will transfer one copy to Rajya Sainik Board (RSB) and other three copies of the form along with the project plan to the concerned branch of the banks for the sanction of loan.
Also, the copy of the letter should be transferred by ZSBs to SIDBI and the District Lead Bank Officer, for necessary information. One copy of the application form receipted will be reimbursed by the bank to the ZSB for their record. The borrowers will be intimated by the Secretary, ZSB about the sanction of loans.

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