Every Term Your Bank Uses — Explained

The fee paid annually to CGTMSE by the lending bank (and passed on to the borrower) in exchange for guarantee cover on a collateral-free MSME loan. As of FY 2025–26, the AGF ranges from 0.37% to 1.35% per annum depending on borrower category and loan size. Non-payment of AGF causes the guarantee to lapse — meaning the bank's risk cover disappears while the loan obligation continues.

An internal document prepared by a bank's credit officer summarising the evaluation of a loan proposal. It captures the borrower's profile, project details, financial ratios, risk assessment, and the officer's recommendation for sanction or rejection. The borrower never sees this document — but the quality of your DPR and CMA data directly determines what the appraisal note says about your proposal.

A contractual commitment by a bank to pay a specified sum to a third party (the beneficiary) if the bank's customer fails to fulfil an obligation. MSMEs supplying to government departments or large corporates often require BGs as performance or payment security. BG facilities are sanctioned against a margin (typically 10–25% in cash) and count toward the bank's overall credit exposure to the borrower.

The cash deposit or fixed deposit a borrower must maintain with the bank as security against a Bank Guarantee facility. Typically 10–25% of the BG amount. This ties up working capital — which is why accessing a BG facility against a credit limit (rather than a standalone BG) is more efficient for MSMEs.

Expenditure on long-term assets — land, building, plant and machinery, equipment, vehicles — that create productive capacity for the business. Capex is funded through term loans (not working capital limits) and is depreciated over the asset's useful life. The ratio of capex to revenue growth is a key indicator banks examine when evaluating the productivity of a proposed term loan.

A one-time government grant calculated as a percentage of fixed capital investment, available to eligible MSME units under the Karnataka MSME Policy 2020–25. Rates range from 15% (Zone B) to 35% (HKR Zone) for Micro enterprises, with SC/ST and women entrepreneurs receiving an additional 5%. Applied for through the district DIC within two years of commencement of commercial production.

A revolving working capital facility where the bank sanctions a maximum credit limit against which the borrower can draw and repay repeatedly. Interest is charged only on the amount actually drawn (the outstanding balance), not on the full sanctioned limit. CC limits are secured against current assets — primarily stock (inventory) and book debts (debtors) — assessed through the MPBF calculation.

Credit Guarantee Fund Trust for Micro and Small Enterprises. A joint initiative of the Ministry of MSME and SIDBI that provides credit guarantee cover to banks lending collateral-free to Udyam-registered MSMEs. Coverage is up to ₹5 Crore (FY 2025–26), with the Trust covering 75–85% of the outstanding loan in case of default. The bank pays an Annual Guarantee Fee (AGF) to the Trust in exchange for this cover.

A three-digit credit score (300–900) generated by TransUnion CIBIL based on a borrower's credit history — repayment behaviour, credit utilisation, number of enquiries, and account age. Both the business entity and the promoter have individual CIBIL scores. Most PSU banks require a minimum score of 700+ for MSME loan processing. A CIBIL score below 650 typically results in automatic rejection at the bank's preliminary screening stage.

Credit Linked Capital Subsidy Scheme. A central government scheme providing a 15% upfront capital subsidy on institutional credit for technology upgradation in specified MSME sectors. The subsidy is credited directly to the borrower's loan account, reducing principal outstanding. Administered through the Ministry of MSME through eligible Primary Lending Institutions (PLIs).

Credit Monitoring Arrangement data. A standardised financial statement format prescribed by the RBI for bank credit appraisal. Covers six years: three years of audited actuals and three years of projections. Contains the Operating Statement, Balance Sheet analysis, Current Assets and Liabilities comparison, MPBF calculation, Fund Flow Statement, and ratio analysis (DSCR, TOL/TNW, Current Ratio, FACR). The credit officer's primary quantitative evaluation tool.

Assets pledged by a borrower as secondary security for a loan — in addition to the primary security of the assets created from loan proceeds. For MSME loans, collateral typically means immovable property (land and building) in the borrower's or guarantor's name. CGTMSE-backed loans are specifically structured to be collateral-free, meaning the bank cannot demand collateral as a condition for sanctioning loans covered under the scheme.

A single loan facility combining both a term loan (for capital expenditure) and a working capital limit (for operations) — typically for new businesses that need both simultaneously. Composite loans are common for greenfield MSME projects where funding the plant and machinery without also funding the initial working capital would leave the unit unable to commence operations.

Consignee Receipt and Acceptance Certificate. A document issued by the government buyer on the GeM portal confirming that goods or services have been received and accepted as per specifications. CRAC triggers the payment process — payment must be released to the MSME seller within 10 working days of CRAC issuance under GeM's payment framework.

Capital to Risk-weighted Assets Ratio. A measure of a bank's capital adequacy — the ratio of its capital to its risk-weighted credit exposures. CRAR is a banking metric rather than a borrower metric, but it is relevant to MSMEs because banks with stressed CRAR are typically more conservative in MSME lending, while well-capitalised banks with strong CRAR have more headroom to expand their MSME loan books.

Current Assets divided by Current Liabilities. Measures a business's ability to meet its short-term obligations using short-term assets. RBI norms (Tandon Committee) require a minimum current ratio of 1.33 for MSME working capital credit. A current ratio below 1.33 in your CMA data will attract queries and may result in the CC limit being reduced or conditioned.

The primary interface between the state government and MSMEs at the district level. DIC offices process subsidy applications, issue eligibility certificates, conduct inspections, and coordinate incentive disbursements under the Karnataka MSME Policy. Karnataka has DIC offices in every district headquarter — Bengaluru, Mysuru, Hubli, Belagavi, Mangaluru, and others. Most state scheme applications are filed and tracked through the district DIC.

A comprehensive document presenting a proposed or existing business project to a lending institution. Typically 15–20 sections covering: executive summary, promoter profile, market and industry analysis, technical feasibility, financial projections (P&L, Balance Sheet, Cash Flow), means of finance, DSCR workings, SWOT analysis, and risk mitigation. The DPR provides the qualitative narrative that contextualises the quantitative CMA data.

Net Cash Accrual (Net Profit After Tax + Depreciation + Interest on Term Loan) divided by Debt Service (Principal Repayment + Interest on Term Loan). DSCR measures whether the business generates enough cash to service its debt obligations. Most PSU banks require a minimum average DSCR of 1.25 across the repayment period for MSME term loans, with 1.5 being the preferred threshold. A DSCR below 1.25 in your CMA projections will typically result in rejection.

A government-backed emergency credit scheme launched during COVID-19, providing additional (top-up) credit to existing MSME borrowers with fully guaranteed coverage from NCGTC. ECLGS provided collateral-free loans of up to 20–40% of existing credit exposure to eligible borrowers. Multiple tranches (ECLGS 1.0 through 4.0) were launched targeting different sectors. Some ECLGS accounts may still have outstanding balances relevant to restructuring discussions.

A security deposit required from bidders participating in government tenders, forfeited if the successful bidder withdraws or fails to fulfil obligations. Udyam-registered Micro and Small Enterprises are exempt from EMD in most government tenders — a significant working capital benefit, as EMDs can tie up ₹5–50 Lakh for the duration of the tender process.

A fixed monthly payment comprising both principal repayment and interest, structured so that the loan is fully repaid by the end of the tenure. For MSME term loans, EMI structure follows the Reducing Balance method — each month's interest is calculated on the outstanding principal (which reduces with each repayment), not on the original sanctioned amount.

Net Fixed Assets (after depreciation) divided by the outstanding Term Loan. Measures the extent to which fixed assets created from the term loan cover the outstanding loan balance. Most banks require FACR ≥ 1.5, meaning the value of fixed assets should be at least 1.5 times the outstanding term loan at all points during the repayment period. A declining FACR below 1.0 signals asset deterioration faster than loan repayment.

A financial statement showing the movement of funds (sources and uses) during an accounting period. Included in the CMA data format. The fund flow shows where a business obtained its funds (profits, loans, equity) and where those funds were deployed (fixed assets, working capital, loan repayments). Omitting the fund flow from a CMA submission is a common error that flags incomplete preparation to the credit officer.

India's government procurement portal (gem.gov.in) through which central and state government entities purchase goods and services. Processed ₹4+ Lakh Crore in FY 2024–25. Udyam-registered MSME sellers receive purchase preference (mandatory priority for orders up to ₹25 Lakh) and price preference (up to 15% adjustment). Registration is free and payment is guaranteed within 10 working days of CRAC.

A new business or manufacturing unit being set up from scratch — with no existing operations, assets, or revenue history. Greenfield projects carry higher credit risk for banks because there is no track record to evaluate. For greenfield MSME proposals, CMA projections must be especially robust, promoter experience must be clearly documented, and CGTMSE coverage is typically the preferred credit enhancement route.

Hyderabad-Karnataka Region — a special development zone covering historically under-developed districts of Karnataka including Kalaburagi, Bidar, Yadgir, Raichur, Koppal, and Ballari. The HKR Zone receives the highest incentive quantum under the Karnataka MSME Policy 2020–25 — 35% capital subsidy for Micro enterprises, 100% stamp duty exemption, and priority in KIADB allotments.

A form of charge on movable assets (stock, debtors, vehicles, machinery) where the asset remains in the borrower's possession while being pledged as security to the bank. Banks take a hypothecation charge on current assets (for CC limits) and on equipment (for equipment loans). Unlike pledge, the borrower retains physical custody of hypothecated assets and can use them in business — but the bank has a legal claim in case of default.

The Insolvency and Bankruptcy Code 2016, which provides a time-bound process for resolving insolvency of companies, partnerships, and individuals. Relevant to MSMEs in two ways: a promoter with active IBC proceedings against them cannot obtain CGTMSE-backed loans; and MSME creditors can initiate IBC proceedings against corporate defaulters as an alternative to MSME Samadhaan for larger, complex recoveries.

A government-funded reduction in the interest rate on loans to eligible borrowers. The Ministry of MSME's Interest Subvention Scheme provides 2% subvention on fresh or incremental term loans and working capital up to ₹1 Crore for Udyam-registered MSMEs. The subvention is credited directly to the loan account — effectively reducing the borrower's EMI or outstanding balance.

The Karnataka government body responsible for developing and allotting industrial land in designated industrial areas across the state. KIADB estates in Karnataka include Peenya (Bengaluru), Bommasandra, Jigani, Dabaspet, Harohalli, and major estates in Mysuru, Hubli, Belagavi, Mangaluru, and Kalaburagi. MSME units receive priority allotment at notified rates typically 20–40% below market price.

A state-level financial institution providing term loans and equipment finance to MSMEs in Karnataka at concessional rates — typically 1–2% below commercial bank rates. KSFC is particularly relevant for businesses that do not meet PSU bank collateral norms or operate in sectors where bank appetite is limited. KSFC loans are compatible with CGTMSE guarantee cover for eligible applicants.

A bank instrument guaranteeing that a seller (beneficiary) will receive payment from the buyer, provided the seller presents documents conforming to the LC terms. Used primarily in domestic and export trade to reduce payment risk. For Karnataka exporters and businesses supplying to large domestic buyers, LC facilities are sanctioned as part of a broader credit limit. LC exposure counts toward the bank's overall credit to the borrower.

A grace period at the beginning of a term loan during which the borrower pays only interest — with no principal repayment obligation. Moratorium periods of 6–24 months are typically provided for projects that need time to construct, commission, and ramp up to revenue-generating capacity. During moratorium, the EMI in DSCR calculations should include the interest obligation — a detail often missed in CMA data preparation.

The maximum working capital credit a bank may extend to a borrower, calculated per the Tandon Committee norms. MPBF = (25% of Projected Current Assets minus Current Liabilities other than Bank Borrowings). Under Method II of Tandon norms (most commonly applied), the borrower must fund at least 25% of current assets from owned funds (Net Working Capital). The bank finances the remaining 75% of current assets minus other current liabilities.

A statutory body constituted by each state under Section 20 of the MSMED Act 2006. The MSEFC has jurisdiction over delayed payment disputes between Udyam-registered MSMEs and their buyers. Karnataka's MSEFC operates under the Department of Industries and Commerce in Bengaluru. It first attempts conciliation and, if unsuccessful, refers cases to arbitration under the Arbitration and Conciliation Act 1996.

Loans under the Pradhan Mantri Mudra Yojana (PMMY) scheme, categorised into three tiers: Shishu (up to ₹50,000), Kishore (₹50,000 to ₹5 Lakh), and Tarun (₹5 Lakh to ₹10 Lakh). Provided by banks, MFIs, and NBFCs for non-farm income-generating activities. Mudra loans are collateral-free and target early-stage micro enterprises and self-employed individuals.

A standardised classification code for economic activities in India, based on ISIC (International Standard Industrial Classification). Used in Udyam Registration to identify the primary business activity. The NIC code determines sector-specific scheme eligibility, CGTMSE coverage norms, and priority sector classification. An incorrect NIC code on your Udyam certificate can affect eligibility for specific government schemes.

A loan or advance where interest or principal has not been serviced for 90 days or more. Classification: Substandard (NPA for less than 12 months), Doubtful (NPA for 12–36 months), and Loss (NPA for over 36 months). An NPA classification against the borrower or any promoter automatically disqualifies the entity from CGTMSE-backed lending and most PSU bank credit products. Banks verify NPA status through CIBIL and the RBI's CRILC database.

A government enterprise under the Ministry of MSME that provides marketing assistance, technology support, and credit facilitation to MSMEs. NSIC's Single Point Registration Scheme (SPRS) enables registered MSMEs to participate in government PSU tenders without EMD and with benefits similar to GeM MSME preferences. Particularly relevant for Karnataka manufacturers supplying to defence, railways, and central PSUs.

A digital arbitration mechanism for MSME delayed payment cases that fail conciliation before the MSEFC. ODR proceedings are conducted entirely online through the Samadhaan portal — hearing notices, submissions, arguments, and awards are all delivered digitally. For Karnataka MSMEs, ODR has reduced resolution timelines from 18–24 months (court-based) to approximately 6–9 months.

On the GeM portal, OEM refers to a seller who manufactures the products they list, as opposed to resellers or traders. OEM status is critical on GeM because many government buyers restrict bids to OEMs or their authorised sellers. OEMs also set the reference price benchmark. Karnataka manufacturers must document OEM status through factory registration certificates, Udyam certificates showing manufacturing activity, and in some categories, third-party test reports.

The central government's payment and accounting platform through which all government payments are routed, including GeM procurement payments. GeM sellers receive payment directly to their registered bank accounts via PFMS within 10 working days of CRAC. PFMS integration means no manual cheque or RTGS process — payments are systematic and auditable.

Prime Minister's Employment Generation Programme. A central government credit-linked subsidy scheme providing 15–35% margin money subsidy for setting up new micro enterprises in manufacturing and service sectors, with a project cost ceiling of ₹50 Lakh (manufacturing) and ₹20 Lakh (services). Implemented through DIC offices in Karnataka in collaboration with banks and KVIC. Beneficiaries must undergo EDP (Entrepreneurship Development Programme) training.

An RBI directive requiring banks to lend specified percentages of their Adjusted Net Bank Credit (ANBC) to priority sectors including agriculture, MSME, education, housing, and export credit. For MSME lending, PSL classification means banks have an institutional quota-driven incentive to lend to Udyam-registered businesses. A bank behind on its PSL targets at quarter-end is more motivated to process and sanction MSME proposals quickly.

The equity or owned funds brought in by the business promoter toward the total project cost. Banks require promoters to contribute 10–25% of total project cost from own sources (not borrowed funds) as a condition of term loan sanction. Adequate promoter contribution demonstrates commitment and reduces bank risk. For CGTMSE proposals, the promoter contribution must be documented and confirmed before the bank forwards the case to the Trust.

Remission of Duties and Taxes on Exported Products. A WTO-compliant export promotion scheme replacing MEIS, providing exporters duty remission on embedded taxes and levies not refunded through other mechanisms. Karnataka MSMEs in textiles, engineering goods, electronics, and food processing that export can claim RoDTEP credits, which are issued as electronic scrips tradeable on government portals.

India's apex development finance institution for MSME promotion and development. SIDBI co-promotes CGTMSE, refinances MSME loans through banks and NBFCs, operates direct lending schemes (such as SIDBI Scheme for Working Capital Financing), and manages several MSME credit guarantee and equity support programmes. Karnataka MSMEs can access SIDBI products directly or through SIDBI-refinanced bank schemes.

A forum of all commercial banks operating in a state, chaired by the lead bank and convened quarterly, at which bank credit policy, PSL achievement, government scheme implementation, and state-specific credit initiatives are discussed and coordinated. Karnataka's SLBC is chaired by Canara Bank. SLBC Karnataka meetings set the context for MSME credit priorities across the state's PSU bank branches.

A monthly return submitted by CC limit holders to their bank, detailing the value of stock (raw material, WIP, finished goods) and book debts (outstanding receivables) as of the last day of the month. The bank uses the stock statement to monitor the Drawing Power — the actual amount available for drawing from the CC limit. Chronic delays in submitting stock statements are a significant account management red flag that affects renewal of working capital limits.

Working capital assessment norms recommended by the Prakash Tandon Committee (1975) and adopted by RBI as the standard for PSU bank lending. The norms prescribe three methods of working capital assessment, with Method II being most widely used: the bank finances up to 75% of current assets, and the borrower must fund at least 25% from Net Working Capital (owned funds). The MPBF is derived from this calculation.

An independent technical and commercial assessment of a proposed project, required by some banks for term loans above a threshold (typically ₹2 Crore at SBI, ₹5 Crore at other banks). The TEV is conducted by an empanelled technical consultant and covers manufacturing process, installed capacity, raw material availability, technology choice, and commercial viability. The cost (typically ₹25,000–₹1 Lakh) is borne by the borrower.

A loan disbursed for a specified purpose (capital expenditure) repayable over a fixed tenure through structured instalments. Term loans finance fixed assets — land, building, plant and machinery — and are repaid from the cash flows generated by those assets. Distinguished from working capital (CC limits) by purpose, tenure (typically 5–10 years), and repayment structure (amortising instalments vs. revolving facility).

Total Outside Liabilities divided by Tangible Net Worth. A leverage ratio measuring the extent to which a business is funded by debt (external liabilities) versus equity (owned funds). Most PSU banks require TOL/TNW ≤ 3:1 for MSME proposals — meaning total external borrowings should not exceed three times the owner's equity. A TOL/TNW above 4:1 typically results in the bank requesting additional equity infusion or collateral.

The statutory MSME registration under the MSMED Act 2006, issued by the Ministry of MSME through the Udyam portal (udyamregistration.gov.in). Free, paperless, and permanent. Based on Aadhaar and PAN linkage with auto-pull of ITR and GST data. The foundational registration for accessing CGTMSE, priority sector lending, interest subvention, MSME Samadhaan, GeM preferences, and all Karnataka state scheme benefits.

Karnataka's single-window clearance and facilitation portal for businesses (udyogmitra.karnataka.gov.in). Hosts online applications for various state approvals, incentive claims under the Karnataka MSME Policy, and the Invest Karnataka platform. DIC-routed incentive applications can be initiated and tracked through Udyog Mitra, though physical DIC follow-up remains necessary for inspection coordination and disbursement.

The book value of an asset after accounting for accumulated depreciation. For Udyam Registration, the investment in plant and machinery is calculated at WDV (not at original purchase price) — meaning the longer a machine has been in service, the lower its contribution to the investment threshold. Correctly computing WDV for existing machinery is important for accurate Micro/Small classification on Udyam.

Funds used to finance day-to-day operations — purchasing raw materials, paying wages, and financing receivables before customer payments are collected. Working Capital = Current Assets minus Current Liabilities. Banks provide working capital through Cash Credit limits, Overdraft facilities, and Bill Discounting. The MPBF calculation determines the maximum bank finance available for working capital.

The time taken for a business to convert raw material (or cash) into finished goods, sell those goods, and collect the resulting receivable — completing the cycle back to cash. A longer working capital cycle means more capital is tied up in operations and a higher CC limit may be required. Industries like construction and export have long cycles (90–180 days); retail and food service have short cycles (7–30 days).

Zero Defect Zero Effect certification — a quality and environmental certification scheme under the Ministry of MSME for manufacturing enterprises. ZED-certified MSMEs receive enhanced CGTMSE coverage (85% regardless of category), priority in government procurement through GeM, and additional capital subsidy under state schemes. Karnataka MSMEs in engineering, food processing, textiles, and electronics are increasingly ZED-eligible sectors.