Khadi ISEC Report
Khadi ISEC Report
Khadi ISEC Report
To, /
Shri B. H. Anil Kumar,IAS $E
Joint Secretary,
Ministry of Micro, Small & Medium Enterprises,
Room No. 171, Udyog Bhawan,
Nerv Delhi-110011.
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Subject: Proposal for conducting a study to ascertain an appropriate working capital
formula for Interest Subsidy Eligibility Certificate (ISEC) Scheme for Khadi &
Polyvastra programme of KVIC-reg.
Sir.
Ref'erence is invited to your D.O. No. G.-2701710112016-l(VI dateci 23"r June. 2016
reqLresting this Olfice to conduct a str"rdy regarding working capital formula lor Interest Subsidy
Eligibility Certillcate (ISEC) Scherne for Khadi & Poll,vastra Programme o1'KVIC. Enclosed
please frrld this OfTlce Report No. 8632 dated 2"d February,20l8 on the sLrbject fbr firrther
necessary action in the matter.
Yours faithfull
Encl. as above
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P.K. Aggarnal)
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'n Cop)' to: Chief Executive Officer. Khadi and Village Industries Commission (KVIC).
'Ciramodal'a' 3. IRLA Road. Vile Parle (West), Mumbai, Maharashtr"a 400056, rvith a c,opy of
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a;, CONFIDENTIAL
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F. No. 6(2)tCACl2016
5 Report No. 8632
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$ Study on Working Capital Formula
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Khadi and Village Industries Commission
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t; Contents
'# Cirapter'- I lntroduction
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11 l.
1.1 Background 1
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Table 1 working capital amouni approved by KVIC and finance sancti,r,rcd 4 lr
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by the banks I
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.3 List of Annexure
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"a Annexure-1 Terms of Reference 't.t
5
Annexure-3 Statement of working capital *ss"ss.ffi 27
3 Annexure-4 Assessment of working capital cycle (in Nos. of oayg c,f rt*ai 28
Institutions for tle years from 2013-14 to 2015-l 6
5 Annexure-5 Statement of Position of profitability ancl Liq;i,lity KIs 1.or-ri* 2q
fiorn 201 3- 14 to 201 5-16. "f
3 Annexure-6 statemellt of Actual operating cycle for the vear' rrorl 2013-la 30
L, to 2015-16"
j Annexure-7 Statement of Comparison of Assessment of Working Capitat 31
Requirement for the years from 2013-14 to 2015-16.
3
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17 I.1. Background
's
1.1'f i\{inistry of Micro, Smiill and Mediurn Enterprises (MSME) through Khadi a,cl Village
3 Industries Clornrnission (KVIC) has been implenrerrting a Central Sector Schenre, namely, Interest
Subsid"v Eligibility Cerlificate (ISEC) Scheme since lg77-78 for institutiolal financing
:ry of the
Khadi ancl Village Industries programme. Under the ISEC Scheme, the woriiing capital creclit
is
5 provided to the Khadi Institutions (KIs) as per their requirement assessed by the
banks. The
institutit'rl'ts are to bear the interest liability only at the rate of 4 percerlt per aprlu*
3 u,lrile the
difierence betr'r'een tlre actual Iending rate and 4 percent is borne and paid by ttre
-l
Ce,tral
Government through KVIC to the lending banks and the funcls for this purpose are proviclecl
uncler
.:) the'Khadi Granr'Ilead of KVIC.
3 I'3.1. This Office has already conducted a study and subnritteci its repolt on the issue vicle Report
No. 8349 of January, 201 3 vide this Office's letter No. F.No. 6(4)lCAC:2Ol I dated 24.01 .2013.
3
During discussion with the ofllcials of KVIC, it has been informed that no action has bee, takerr
5 on the recommendations made in that report. However, ttris Office has accepted fi.esh reference
p sent by MSME vide their D.O. letter No.G.-270 1710412016-KVI dated 23.06.2016.
I 1.3.2. The methodology adopted for this str,rdy includes issuance of questionnaire for data
5 coliection lrom (i) KVIC, (ii) KIs, (iii) Reserve Bank of Inclia, and (iv) Bapl<s ipvol'ed i*
disbursing the working capital loans to Khadi sector based on ISEC issuecl bv KVIC: visit and
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til discussion hetd by Officers of this Ofirce rvith few Kls around.laipur/ Daltsa
(before issltance oi'
questiopnaire), study of literature, discussion rvith KVIC Officers, data analysis and interpt'etatiotr
rk
anci firrally made recorlrnendations. In the instant case, questionnaire rvas issued on 31.10.2016
\ vide tiris Office letter No F.No. 6(2)/CAC/2016 dated 3 1 . 10.201 6.
E
1.3.3" KVIC subrnitted partial and incomplete data to this Office in response to the questiottttaire
3: vide their letrer No. DK (BF)/ISEC Study W.C./REC/Varanasi/2016-17 dated 1510312017.
*" Subsequently, this Office issued reminder seeking complete data/infbrmation alorrg rr ith
\
arjditional data/information pertaining to Cotton Khadi, Muslin Khadi, Silk Khadi, Woolen Khadi
$ and Polyvastra like (i) annual buclget guidelines of KVIC, (ii) calculation of rvorliing capital as
per KVIC's metlrod, (iii) Working Capital Cycle: (iv) cost of production/sale; (v) financial clata,
3
inrespectofatleast5l(lsofeachcategory('A+',A,B,C &'D' category)assamplefortheyear
"td.
-f 2013-14,2014-15, 2015-16 r,vitli annual financial accounts vide this Office letter No F.No.
* 6(2)l C ACIZO 1 6 dated 1 6.06.2017 .
3 1.3.4. Again KVIC submitted partial data/inficrmation to this Offrce vide their letter: No.DK
:AB (BFyISEC Study W.C./2017-181274 dared 04.08.2017 against this Olfrce reminder letter F.hio.
6(2)lCACl20l6 dated 16.06.2017. Subsequently this Office held discussions with the Officials ol'
3 KVIC during their visit to this office on 05.09.2017 and 06.09.2A I 7 on the issues pertaining to this
s study and requested to submit complete information.
5 i.3.5. This Olfice also issued second and third reminder letters No.F.No.6 (z)lcA,Clz}l6 dated
5 07.A9.2A17 and 12.10.2017 respectively requesting KVIC to furnish complete data artd
information. KVIC submitted partial data vide their letter No.DK/(BFIISEC StLrdy W.C..lZAl7-
"d?
l8/339 dated 12.09.2A17 under intimation to MSME. KVIC has submitted balance data a'long r,vith
5 annual financial accounts in respect of 20 KIs vide their letter No.DK/(BFyISEC Str-rcl1,
.{{ W.C./2017-181418 dated 17.10.2017 (received on 24.10.2017) regarding 18 KIs locatecl in
Chennai Region (12 KIs) and Kolkata Regiorr (6 KIs) under category of 'A.|', A, B and C tbr the
s year2Al3-14,2.014-15 and 2015-16. Data related to Jaipur: Region was subrnitted vide letter No.
DK(BFyISEC Study W.C.12017-181431 dated 25.10.2017 regarding 2 KIs. KVIC has aiso
s infornred that there is no sucla KIs under "D" category f,or instant case and hence no data submitted
d by them in this regard. Last set of information l-ras been received by this Office an 25.10.201 7 and
U, subsequerrt clarifications vide e-mail dated I 1 .12.2017.
a 1.3.6. Based on the data and intbrmation received from various stakeholders aud tlre cliscussions
3 held, this Report as brought out in the subsequent chapters has been prepared. This reporl consists
'* of five chapters. Chapter 1 provides terms of reference and study metliodology adopted in the
study. Chapter 2 relates to Interest Subsidy Etigibility Certificate Schen,e. Chapter 3 gives anall'sis
5 of working capital requirement. Chapter 4 deals with methodology fbr
t.:ommendations.
assessntetrt ol u,orkin.q
capital.
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{r avaiiable as per the requiremeltt of tlre l(hadi Irrstitutions. The cliffcrence betu,eerr the aclr-iitl
\\ Ierrding rate and 4Yois paid by the Central Government through KVIC to the lending bani<s. FLrncls
lor this pllrpose are provicied under the Khadi Grant Head to KVIC. The Ilstitutiops r-egisterecJ
:1
u,ith the KVIC/ KVIB can avail of financing under the ISEC Scheme. Initially, the enrire I1VI
-1 sector was covered under the Scherrre. However, with the inrroductior-t of Rural Entployment
Generatiot-t Programme (REGP) for village industries (V.1.) in 1995 and Prime Minister.,s
Employnent Generation Progranlme (PMEGP) in 2008, the Sc|eme now supports onlv the Khacli
.ii
..\ and the Polyvastra sector. Florvever, all village industries units existing as olt Marclr 3 l. 1995. have
been allorved to avail thisfacility lor the amount of bank finance availed as on that date or actlral.
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whichever is less provicled they are lul11,1unc1l.nai anrl lunds forthis purpose are proviclecl Lriicler
i1 the V.l. grant head.
5 2.2.2. After examirtation of data prol'ided by the KVIC,a gap in the range of 55% to 599t, i, thc
_-i actual fund requirement utrder the ISEC Scheme issued by tlie KVIC and actual funds sancrioner-l
by the banks to the KIs has been noticed during the vears fi'om 2013-14 to 2015-16. Details o1,
]
ISECs issued by KVIC attd actual funds sanctioned by,the banks have been gir,,en in Table-1.
:1
Table-l: Working Capital amount approved by KVIC and finance sanctioned by the banks
{ in Crores
Year ISECs Issued Finance Sanctioned by Shortfall Shortfall To
bv KVIC Banks
2013-14 829 7+t 489 59%
2At4-15 865 366 499 58%
20rs-16 9s0 123 527 55%
(Source: KVIC's reply)
2.2-3. In respect of zones. maximunr gap between fund required under the ISEC schenre arrcl
actual funds sanctioned by the banl<s has been noticed in North-East Zone i1 the range oig5ozo ro
100% followed by East Zone (740/ota76%) and North Zone{620/oto 64on) clnripg t6e rears il-onr
2013-14 to 2015-16. State rvise,'zoue u,ise details of rvorl<irrg capital amour.rt approved try l.,VI(
under ISEC vis-a-vis bank flnance sanctiorred b,v the banks for the
1.,ears fi.gp.r 20l3-14 to l0i-\-16
are given in Annexure-2.
2'3.1. KVIC has been issuilrg ISECs acloptingdetailecl procedure as Iisted out irr theirproceclural
guidelines vide letter No.BF/15(i)177-78 (date not mentionecl) approved b1, Goveltrne,t of l,clia
vide tlreir letterNo. 4(47)17S-KVI(1) dated 17.05.1977. As per discussion helcl rvith the officials
of KVIC, it transpires that KVIC has been fixing the targets by enhancing up to Zloh of procjuction
and sales performance for ensuitlg year based upon the infrastructule available u,ith KIs ancl b1,
selecting best sales performance during the last three years. Such targets rvere earlier lrxecl g,it6
the help of State Level Budget Team (SLBT) consisting of Institution's representatives. tlte State
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Director ancl other firnctionaries suoh as Cliiel'E,xecutive Officer o1'State Khacli & VI Boarcl. etc.
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\3, ?.3.::. l'-rom the dala providr-:d by KVt[i. it has been observed that totaI proCuction (e'oilori liha,"ii.
silk riradi. rvoolerr khadi. polyvastra) in terrns of quantitv has been increaseci [rr,5-ozi, clLr-irrc 20]i'
e.
l6 againsf 2Ai4-1.5 (ciuring rvhich it r,vas decreased by 2%5. Prodr-rction and sales values of hharji
5 have been increaseci by 30% and260/o respectively during2015-16 overthe year 2014-15. Detail:,
regarding khadi prodLrclion and sales forthe period fi'om 2013-14 to 20i,5-16 have beerr given in
f irble-1.
5
:r Tabtre-2: Khadi Froduction anrl Sales during 2013-14 to 2015-16
Year Cotton sitk Woollen Polyvastra Total Increase/
5 Khadi Khadi Khadi Decrease
5 {in "h)
3 2.3.3. For fixing targets for the year 2017-18. KVIC has
issued detailed budget guidelines vide
3 tlreir Circular No. KVICiBGT/Budget Guidelines -2017-18 dated 16.01.2017 lor tlnalization ot'
the targets lor the year 2017-18 in respect of production and sales perfbrmance of KIs. Sales &
3
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Production targets are fixed by the State/Divisional Directors/ Irr Charge of KVIC field ofllcers
a instead of SLBT based upon the infrastructure available with KIs.
v 2.3.4. As per bLrdget guidelines of KVIC, State/Divisional Directorsl In Charge of KVIC field
b, officers shall fix the targets forthe year20l7-18 for existing running instilr-rtions by enhancing up
,"3 to20% of the prodirctions and sales performance of the lastyear i.e.2016-17 as reportecl b1,'the
KIs subject to availability of requisite infrastructr-rre. Further" if any o1'these KIs has receivecl
# assistance for additional Charl<ha. I-oorns etc. under Khadi Refbrm and Development Progratrttre
3 (KRDP) / Scheme ol'FLrrrd lirr Regerreration of Traditional lndustries (SFLiR-l'i) r Assistance iirt
rveal< institr-rtiorrs etc" or under au\, 011l.,' schemes suitable target tlal'be fixed bl,enhancing up 1o
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30% ofthe last year perfonrrance.
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\& 2.3"4"1. Fixation of Targets for Nerv Institutions:- The limit of target production of all
varieties olKhadi & Polyvastra has been fixed not exceeding {15.00/- Lakh distributittg the tarset
-* proportionately as per available infi'astructure. Sales target has been distributed betn,eetr retail sales
,.e, of t10.00/- Lakh and ir,hole sale ot'{-5.00i- L.ahh if the KI has its ou,n sales outlets. othenvise.
maximum n,hole sales may be sarrctiorred. fhe State/ Divisionai Director and CEO. KViLI ccrtifi
",ffi that rhe KI has rvorking infi'astrLrctLlre and artisans to rult the prodr-rctittn activities. (Source:
.s detailed br-rdget gr-ridelines o1' KVIC).
"s 2.3"4.2. Standing Finance Conrmittee (SFC) [Khadi] ciecided on 15.07.20i5 that retail sales
target to be fixed at the ntost upto two tlrnes of the procir-rction targets. Florveverr. the KIs iit'e frc.'
3 to execute retails sales beyond tlre above linrit but production target as fixed b1'K\zl(l n'ould lre
,3 considered fcrr calculation of r.r,orkin-q capital eligibilitl'lbr bank flnance. (Source: detailed buclget
guidelines of KVIC).
"s
s 2.4. KVIC's Method of Assessment of Requirement of Wor!<ing Capital
:5
2.4.1. In financial terrns, working capital is determined by reducing the cLlrrent Iiabilities fionr
* current assets. In case of assessment of working capital requirement under ISEC scheme. KVtC
< determined net eligibility of u,orking capital i.e. gross eligibility of working capital so calculated
(based on certain fbrinr-ria) which is reduced by the funds available witli KI.
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5 2.4.2. The detailed calcLrlations fbr the u,orking capital requirements of the units are ntade bv tht:
SLBTs, rvhich are based upon a set tbrmula n,hich in-turn is based on tlte productiott cycie lirr
:q khadi products. KVIC assesses $'orkinc capital requirenrent lbr issuance of lSIlCs cotr:;idcrinr:
-[abie-.-l
:3 sales targets fixed by thern fbr ensuing vear as per the formula as givert in the fbllorving
q This forrnula was approved in a rreeting of the represerttatives of KVIC. banks and NABARI-}
under the clrairmanship of Shri D.R. Mehta. the then Dy. Governor of Reserve Bank of lrtdia at
3 Mumbai on 13.12.1993. Further. another Committee headed by Shri S.K. Kalia. N4anaqinLt
'q Director, NABARD also recornmerrded the same formula lbr assessmeut of eligible norl<iltg
v capital.
E Tairie-3: Kv-iC's irleriruti oi,rsscs"nicut uf 'ri'uiliiu6 Capitalli.cqi;;;l;;;c;f
U silk Woolen Pollwastra
Sl. No. Heads Cotton Muslin
EEI Khadi Khadi Khadi Khadi
*1 1 Rar.v-Material 2s% z5% 40% 50% 15%
2 Production 40% 40% 40% 60% 25%
# 3 Processing 8% 8% 8% 25%
A
Retail Sale 40% 4A% 4A% 60% 40%
5 I
5 Wholesale
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2.,1.3. lt nray be seerr lj'orl the above table thal for production ancl sale of t100,,- \\iortir of iiiriri;
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cioth. the rn,orking capitai lecluiremcnt rvorks out Io {138/- fbr cotton kliadi, {195i- l'or u'rtoicl
-i*.
\"$r khadi and t1-5-ii - lbr siil< khadi.
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2.4.1. I(alia Committee report issuecl in 1994 stated'othat the KVIC ancl lranks trre f,olielw'ing
s the diifferent methods of assessing the rvorking capital requirements of the KIs. 'fire ruethorl
& adopted Lr), the KVIC lvas time tested and also appropriate for the purpose. The metlioct
adopterl by the banks was also based on the RBI instructions. Therefore, the Kalia
* Committee did not suggest any change in the methoclology of, assessment or rvorking c:rpita["
* Instead it recommended the fotrlorving measures for helping the KIs in raising adequate
working capital:
3 i) Along.rvith the trSEC, KVIC should furnish the worksheet indicatirag the details of
5 assessment of the u,orhing capital requirement of the KI;
ii) KVIC's assessrnent may be itccepted if it does nnt exceed the assessment nrade [rv til*
* banks b1' more th:rn 10'lo;
\ iii) In case of KVICIs assessment of lvortrring capital exceeds the lran!<s assesslt]cr]t bt rnorir
fhan 10oZo, the quantum of l+'orliing capital may be arriverl bi' the rmartuaI r.ir*log;ur:
5 between the institutions/KVIC and the financing banks."
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q 2.4.5. Iniportanfly. KVIC rvhile fixirrg the targets and of rvorking capital lbr issuinir
assessrnent
ISEC as per the above suggested rrethod does not consider available opening inventorl level o1
1 finished goods and credit facilities extended bythetrade creditors. Opening inventor,v- o{'I'rnished
goods is a helping tool to ease off the stress of achieving sales targets. Further, *'ith ellee t llrnr
3 financial year 20[0-1 l, KVIC' has removed ceiling over the prices of khadi products and aliou,etl
dt Kls for flexible pricing to recover margin over and above production cost to sustain tlreir activitl'.
{ In this scenario, the existing formula for working capital requirement needs to be looked into.
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{s recon-unended the lromrs o1'current assets ancl iilrmula for determiltittion o1'rr'orl<irtg i:a1;iirri
*& requirernent based on Maximunr Pcrniissible Banl< Finance (MPBIT).'fh,; ['onrnrittee.,Li!::,csti:,-i
foIloir'ing titree Irethods fol determining MPBIr:
."# l: x (Total Current Asset - Other CLrrrent [.iabilities)
Method N4PBF:0.75
s (ensuring minimunr current ratio
Method
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2: MPIIF:0.75 x (Total Current Asset)- Otlrer Current Liabilities
*ffi
(ensuring rnininrurn clll'rellt raiio of 1.33:l)
Method 3: N4PBF;:0.75 x ('l-otal Current Asset - Core Current Assets) - Other flulrent Liabiiities
"&
(ensuring further strengthening clrrrent ratio o{' 1.33: 1)
."s
(Core Current Assets (permanent component of u,orking capital))
-s For exampie:
s SI.
No
Particulars l"t Method of Lending 2"d Method of Lending
(MPBF)
.s (t in Lakh) (t in Lakh)
-€ 1 Current Assets r 000 l0()0
2 Current Liability 400 ,100
,,e
(excluding short ternr bank loans)
Working Capital gap (i00
"s _1 ( I -2 t 600
4 Mininrurr Stipr-rlatecl Net Wor'liins 150 t-50
$ Capital 1i5'ri, oi\\rorliing Capital gapt t l-io r, rr l' (. LLrrcnl :\ s..ci s l
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2.6. Guidelines being observed b1' banks for extending credit to KVIC units
€
-€ 2.6.1. This Offlce also requested Reserve Bank of India (RBI) for providing a copr- of repori
:<r issued by RBII its Committee related to financing of lchadi seotor. RBi vide their lettcr'
No.FIDD.MSME" & NFS. No.2205106.02.3112016-17 dated 05.12.2016 has rrot provided anr
.
such repoft. RBI stated that I(VIC sector forms the part of MSME Sector, the guidelines issued [r1,
s way of master circular related to MSME are applicable to khadi sector. RBI also stated that lending
is a commercial decisiort to be taken by individual bank on the merit of each case according to
b, their board approved lendirrg policies. This Office again approached RBI vide email datecl
*:l
05.12.2011 for seekirrg report/information regarding assessment of rvorking capital requirenient
b,
for khadi sector but so far not received any respouse fiorn the RBI in this regard.
d
q 2.6.2. RBI throLrgh its Mastel Circular No. RPCID.MSME&NFS.llCl.No. ir'06.02.i1,':0ll-15
?.* dated 01.07.2014 had acivised fbr granting rvorl<ing capital credit linrits to Small Scale Irrclustrie:,
q,
fnorv Micro and Small Enterprises (MSE)] units computed on the basis olrnininrunt20'tt, of iheii
s estimated annual turnovel rvhose credit lirnit in individual cases is upto t2l- crore (since raised to
{5/-crore vide circular No. RBI/2009-i0/84 UBD.BPD (PCB) N4C. No. -5/13.05.000.12009-10
s dated I .07.2009).
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2.b.-1,. Rl][ vidc its Circirlal No. I;iDD.MSN4E & r.,\[jS.L](1.No.60t06.02.31 2015-i(r ciaii--,
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71.Uii.2{)l-5 had issued gLridelines on $treanilining flor,', of credit to N4icro and Srnall Lntcrprir,,,:;
r1 (N,{Si-rs) lor facilitating tiniely ancl aderluate credit flou'dr-rring their'Lile Cr,'cle' and alloli,ctJ all
'3 scheduied contmercial banks to derternrine r.vori<ing capital requirer-nents according to.borrorvei's
assessment and their credit needs. specifically for meeting the tenrporarv rise in rvorking capital
4t,
requirements arising mainll,' clue to unforeseen/seasonal increase in their demand for 1;roducts
3 produced by thenr.
3 2,6.4. Further. R.BI ltas issuecl clirections vide Master Direction FIDD.I\4SN4t1 t*-
,3 NI-S.12106.A23112017-18 dated 24.A7.2017 regarding lending to lvlSME Sector. RBI has aclviser-l
to revierv and tune banl<s' existing lending policies to the N4SE, sector bl,incorporating thelein th':
5 iollorving provisiorrs so ils 1tl facilitate timell,and adeqr,rate availabilitl of'credit to viable \Jitii
3 borrorvers especially' rluring the need of firnds in unfbreseen circulnstauces:
"<l
(i) To extenci stanclbt creclit iacilitr in case olterrr loans;
(ii) Additional rvorlting capital to meet u,ith emergent needs of MSE urrits:
\, (iii) Mid-temr revieu' o1'the regular rvorking capital limits, rvhere banks are convincecl that
changes in the denrand pattern of'MSE borrorvers require increasing the existing credit lirlir:;
3 of the MSMEs. every'year based on the actual sales of the previous vear;
11 (iv) Timelines for credit dccisions
2.6.5. Besides, this Office ltas gatltered infbrmation frorn variours banks on the issue of internai
'{
gr-ridelines issued by thern in connection rvith honouring of ISEC issued by KVIC and the
procedures actually follou,ed by them in extending Working Capital loans to KIs. The sllrrmat'),
3
procedures of banks regarding granting of u,orking capital against ISEC sclieme is tabulatecl in
< Table-4.
"a
q Table-4: Banl<s' guidelines regarding Working Capital against ISEC issued liy KVIC
4r!
S. Bank's Reference 1Yo. Internal Guidelines
No. Name
s I Pr-rn.iab & rJo(PS)/tsEC/2n . Punjab & Sind Bank is fbllon,ing fllti
Sind Bank, l6-17 462 dated guidelines fbr financing r,r,orking capitiii
?y
Ne*,Delhi 13. 12.20 r 6. requirement of Khadi & Village Industn,.
EJ . Bank has framed guidelines fbr a separatc
working capital limit upto I5%o over and atroYe
r#
thc regular working capital limit fbr nreetirig
*1
temporart, requ iremeut fbr nraxim um peri ocl ol (){
}
t3
t'
it
{i.
:.-,
tl,
-i3,
Bank, Netv the tumover ivith prornoter's contrihLrlion:' 1,,
59/o
t:*E Delhi MSMEs units (manufar:turing ancl services Sr:'ctor')
wt
uuder Micro Enterprises.
.=* " Besides requirement of Currenl H.atio lui:
treen rclaxed to 1.2-5:l
"*' 3. Oriental Frc)i 1\4sMEl7A16- Oriental Barrk of Commerce accepts the
*S Bank of 17 6 clated
l'f 177 credit assessment for u,orking capital
Comrnerce. 45.12.2016 requirenrent made b1, KVIC, if it does not exceed
#, the assessment rlade b1,the Branches/Offices b1
Curgoan
"s nrore than 107o. In case the dif'ference is rnore
than 10%, then the Branch lras to refer ttre case
"s back to KVIC for a rluluall1 agreeci
con-tputation.
-s
, Brancir should keep in mincl ltlrncr'
"s prodr-rctiot't cycle and fix the repaynrenl period
accordingll,.
€
I(VI InstitLrtions nrai be alionecl collltcrai
:;s iree loarts above t5.00/- i-aiilrs rtncl accr;urrls ir","
to be covered under CGTN{SE promptll'.
,S
{e
All are irrstructed to note the instruction::
t for strict compliance and honr-rr-u'the ISE{- issu.:i.i
bv KVIC.
-q,
4. State Bank ol \,IS\,{Ei \\/EAV.C' . State Barrk of M1'sore has iidvised slt
€, Mysore, ARD/-il dared branches for sanctioning ri,orking capital lirriiir
Bengaluru 12.11.2016 invariabil' to Khadi Sector, based on I5E('s
€ issued by KVIC and irnplernented Weavers'
€ Credit Card Scheme for hassle free sanctioning
of working capital facilities to Khadi/Handk.ronr
s sector.
5 State banl< of letter dated . State Bank o1'Bikaner and Jaipur follons
€ Bikaner ar-rd 0311212016
,
e r0
€f
tl
ri
ri
1l
1i
have to refer the case Lracl< to KVtrC lbl u
1
2.6.6. Based ort the inlbrmation given above by the various banl<s, it appears that banlis arc
a adopting thc recotnrnendation o{' the Nayal< Cornrnittee for extenditrg the rlorking capit:ii
t requirenrent to KIs under i\4SE segn-rent. Fr"rrther, Kalia committee recomlnended that in case oi'
KVIC's ?sSessnrerrt of rvorking capital under ISEC exceeds the banks assessrnent b1'r'nore tharr
5 10%. the quanturn of u,orkiug capital may be arrived b),the mutual dialogr-re betn'cen thr:
5 KIs/KVIC and the flnancins banl<s.
3
5
3
3
5
5
I
I
5
5
3
5
)
)
$
5
e
9
9
Y
t1
3
s
{r
{}
(i
rt CEaapter - 3
ri .4m a X-v s i s o fl \4/ o rfini m g Cap ita I Req'"1 i r e rm e m t
,t
1
3.1. Assessment of \\/orking Cnpitatr by KVIC
'\
3.1"1. This Office hacl recprested K\ilC firr firmishing detailed calculation o1'requirerrient oi
1 rv:orking capital lor cottorr iihirrli. s;ill.: ltiracli" r,r,oollen khadi. polyvastra irr respect of atlea-st 5 lc.i:r
\ uncler each category (i.e. Ar-. A. tl" C anci D) {br the year 2013-14. 2014-15 and 2015-16. in
response, KVIC has furnislrcd details of'requirement of wolking ca;rital calculatecl based or:
_1 existirrg KVICI's method tbr cotton khadi, sitk khadi. woollen khadi, polyvastra in lespect ol5 Ki::
_a (total 20 KIs) under each category (i.c. A*. A, B and C) fbr the year20l3-14.2014-15 and 2015-
16. Based on the clata/inlornration submitteci by KVIC. details of these 20 I(ls rc'gar,Jirrg
a consolidated prociuction value and salcs. working capital, ISECI issued and bank financc availed
3 for the period fronr 20 I 3- I 4 to 20 I 5- 16 have been given in Table-5.
"-1
Table-S: Consolidated Pnoduction ancl Sales Values, Workilrg Capital and Eank Finanec
tt
(in respecf to 2() Kis" { mr [.;-rtrlri
Ycar P rod uction 1'otrr I li ross \\ orliing lirrr:ss of \ct Fund Nrl iSI)( Ii:i:t i. '!u !ir'; .'
I Ii\jlC's
frtrrnultr
(4)
x orliing
clnit:rll
(1i (z) (3) (s) (6) (7) (s-{r) (8) (a-7 t (e) 0{i) { I Ill(}r.:;l
da
2ilti-r4 6.2 t9 60 9,400 20 ,r.976 .1 I 7..14_5 -54 415 48 7.0l0.Urr " ai /-a. ri 5.7118 {rt) r n(R 'l -i.',,,
<t
20t4-li (:,|i70. I0 l0 662 7Q I r,177 56 )) / t+ 7.581 67 i.-i89 sg 6.226 56 : s0r ,+l
<r 20t5-t6 7.278 I 0 I I .556. t,1 1 i.983 r-s 9.0 14 92 522.94 8.491 .98 _1,;19 1 17 6.'161 72 l.i8,l 1l
(Soulce: KVIC's reply) '' as per available ar,rdited balance sheets of KIs which are tu,o l,ears o1d
3"1.2. It can be seen thal the ivorl<ing capitaI loans extended to KIs are not based on ISECs issr-reci
U try KVIC in nia.ioritv of cases. The banhs have follorved their orvn methcidology of assessin-u thc
t eligib le rvorkin g capital.
,*
3.1.3. Principallr,. rret norking capital nor.rid be difference olgross nr-rrliirrg capitai less iunri
*\
available. [t has been infbrnretl that l(VIC determines the net eligiiiilitl,o1'u'ot'l<ing co]rital lr',
ignoring negative clif-l'erence i.e. excess olu,orking capital lund avaiiable (riorking firncl a.,ailabl,,,
o minus assessecl gross ivorkirig capitat; in respect o1'firur categor')'of thadi (i.e. 1il'coiton itirari;.
5 silk khadi, rvoollen khadi, polyvastra). Accordingly, KVIC issues rvorl<ing capitaI certillcaies
under ISEC schenle for eligible rvorking capital considering net norl<ing capital plus bani< f-inance.
3
3
5 12
3
trl
li
(;
1l
t\
capitai lrri"lihacli and consi(lered u'ot'kiug ftrnd ignoring excess o1'u,orking flnd lbr clclcrininrrlit, ,
\l o{'nct eligible lvorl<ing capilai lbr issuance of ISEC 1'or ilre l,ear 2013-14 as per detail giverr iri
T'eble 6.
\
I Tabiie-6: Assessnlenf of'Net WorX<img Czrpitan for ISEC for {,tlumralpet San,od;15,p !i1p11g}f ii.,,'
\ 20tr3'-1"6
im n-alik
I Category Gross Working Net Bank TSEC Remaiks
of Khadi Working Fund EligibiliQ Finance lssued by
\ Capital Availed* for Working availed by KVTC
as per Capital Udumalpet
) K\/IC assessed by Sarvodaya
3 KVTC Sangh
(r) {z) (3) (4) Q-3j (s) (6)t4+s) (7)t2-3)
:i (lotton s1.29 108.21 Nil 38.70 .18.70 Since r.i,orking capital ,
assessll1ent.
*t Silk Khadi r 05.65 34.02 71.63 17.68 89.3 r The net lequirenrent ol
ITargets: ivorking capital u,irs {
3 Producti on
:
71.63 lakh aqainst *,hiclr
75 Laklr K\,'lC issued ISEC lor
; Retail Sales {89.31 Lakh.
=61 Lakh (ISEC amourrt ri'as {9l.lj
c Whole Sale Lakh as per reply)
I
= Nirl
\) Woollen 1.70 2.1.1 n-il 0.43 0.43 \\rorkins capit;rl firrtrl
.: l..had i ar'ailable * ith i.-tiLrirtrli-rcr
*\ San,odir),a Sartglr \\ ii:,
ITargets: lllore than gtoss u orhinl
Production capital r:ecluirerncnt.
.i = Nil Hou,ever'. I{VIC haci ,
l-1
E'
{i
iI
t!r
-l-irc
r)l
Pol-r vastla I ..15 16.00 Nil 5.6-l -5.(rl !:i'oss ii r,,r'lir n t clrltitrri
Ai
i& tequirenteni in this ca:,--
ITargets: \\'as t2l .i5 l-rlilr.
s Productiorr u'lrcrelrs rvorkiltg hrrrtl
"l it
t+
3
Qr
{i
it
i5,
Iiethanirr Sarvodaya Sangh (irr 2015-21)16) where net eligible amoLrtrt of ri'orking capitai ivas nii
iF birt l(VIC issLred ISEC firr t9-5.02/- i,akh ancl {30.00i- Lakh respectivell,. (Annexure-3 ref'en's,1.
*, In thcsc two oztses. tltcrre rvas no requirentent of additional rvorl<ing capital and. there[bre. therc
\,vas no necessitv to issue of iSECs. lvloreover. these tu,o I(ls also availed banh finat-rce to the extcnt
.3,
of ISBC att.tot.tttt i.e. for t95.02,'- [.al<h in the case o1'Pulil,ampatti Sarvoday'a San-uh iind lirr
tkr 130.00r- L,akh to Ketlranur Sarvodaya Sangh.
a 3.1.7. Sirrilariy. i1 may be observed fiorn tlre Tabie-5 that KVIC has not considered the exce:;s
s amout.rt of ivorkins iLrrrcl to tlre tune of ?435.-18/- Laktr fbr 2013-14. ibr {337.74.1- Lalih 1br ).Al:,
l5 artcl tbr {522.9,1/- I-akit 1or"20l-5-16 in tlte assessnrent olrvorl<ins capital in respc.ct o1'10 fils.
_a
i(VI':'had issued the ISCIL {br the hiqheL value tbr {5.708.60 L.al<}r against actual iir:i rioi'iiir.i::
5 capital recluirerrrent 1or t2.5i0.621- Lalih ({9.976.161- Lakh less <7.145.54 - Lalth) in 2011-ti.
Similaril,, the same can ber observed in next two years. Besides this. KVIC could have ad.justcr:l,
3 utilized the excess u,orking capital firnd for <435.481- L,akh for 2An-14. for <337.741- l-alil': fr:r.
3 2014-15 and for <522.941- Lakh for 2015-16 while issr-ring the tSEC to tlre 20 I(ls.
;}
3. 1 .8.
It rlay Lre observed fi'orn the above Table-5 that gross anrount o 1'u,orking capita l has bccir
!? increased rvith increasing trer-ld in sales and production but bank flnance has been availed in the
3$ range of 45%-47% over worlcing capital as assessed by KVIC. 'the details of assessed u'orl<ing
capital requirenrent as per the ISECs and the loan actually accessed by some of these 20 I(ls lrave
\, been siven in Annexure-3.
_3
3.1.9. Earlier. KIs rtere not allo*,ed r.r,ith mark up tor.vards profits which left no cushion tou,ards
-* internal generation of surplurs. Higher *,orking capital requirement shou,n by KVIC against
I projected production cost may be the reason for vvhich bank are rrot inclined to plovide r.r,orl<ing
capital to Kls based on ISEC issued by KVIC. Horvever, KVICI has recently adopted fleribi,:
3 pricing policl' b5, rvhich KIs are {r'ee to add margin over and above production cost and tlierelirlc.
3 they can sustain their activitl'to the extent o1'100% of their tul'llover under this chanced scenaiit,.
t c.
d.
Average peliod for which finished goods are in store
Average coliection period of receivables (Sundry Debtors)
q e. Operating Cycle (a+b+c+d)
'-q L Average payment period of payables (Sr"rndry Creditors)
:-1
g. Net Operating Cyclel Cash Cy'cie (e-t)
15
"a
.*\
Xr
(.t
ir
i!,
'.\
tS
3.2.2. 20 KIs have furnished the details oitheir operating cycle (throLrgh KVIC) regarding khircli
aciivities for the period fi'orn 2013-14 to 2015-16. Out of 20 KIs, rno Kls narrelv Ilajasthan Kharii
5 Sangh (Jaipur) and Chaspara Silk Samity (Kolkata) has not sLrbmitted complete details oi'thcii
a operating cycle. ln case of Udyog Mandir (Jaipur), it has provided operating cycle fbr cotton lilratii.
r,voolen and polyvastra separately. In respect of Rajasthan Khadi Sangli arrd Cl.raspara Silk San-ritl'.
e this Office vide emaiI dated 31.i0.2017 and subsequent reurinders vide errrail dated 06.i2.20i7.
s 06.12.2017 and 11.12.2AI7 has requested ibr provicling conrplete detail of their operating cvcie
bul KVIC has not provided the same and hence excluded from lhe calculation.
s
S 3.2.3. Finally. based on the available data of 18 Kls [after excluding Rajasthan Khadi Sansh anil
Chaspara Silk Samity and considerirrg operating cycle of cotton Lhadi as base fbr udy'og l\,{andir
S (Jaipur)], the average operatir,g cycle has beerr compiled and lras beerr given in Table-7.
!
s Table-7: Operating C1'cle for the period from 2013-14 to 2015-tr6 (based on 18 KIs)
(Figures in no. of days)
* Year Procurem Conversion/ Average Average Operatin Average Net
ent of raw process tinre of collection g Cycle paymer 0perating
4$
material time (WIP) holding period t period Cvcle
of (Dcbtors (Crcditors
L, Realisation) Paynrcnt)
finished
3 goods
,,
7(5-6)
s 1 J 4 5
fi+2+3+4\
6 i
s 20r3-14
2014-1 5
28
27
11
70
86
81
158
147
343
331
- 145
-152
i98
l7L)
a 2015-16 2'7 13 86 147 133 136 19i
{a Average 27 7l 86 151 336 -144 Lq2
(Source: Kls'replies)
3
;) 3.2.4. It may be seen that average operating cycle comes out to 336 days (alntost one )/ear olt atl
average of three years). Bt-tt, net operating cycle comes out to 192 da1,s after adjlrstment ol averase
*
credit period allowed by the trade creditors. If profrt element is excluded from the sales price fbr
) the purpose of determination of net operating cycle, this net operating cycle of 192 dai,'s u,ould
ty further come down. Details of operating cycle of these l8 KIs have been given in Annexure--f.
3.3.1. Lending banks analyse the llnancial and liquidity position o1'KIs along riitir other criterir,
* such as seasonal sale. demand" rrarket position. inventory position" clebtors. bills receivablr:s at tir':
3 time of loan processing. In this line, this Ofllce has also anall,sed the profitabilitl,ancl liqLriditr
"rt position by using ratio analysis in respect of tlrese 20 KIs based on their auclited flr-rancial accor-urts
a t6
'.t
{i
ir
i!.
i! iir tire perioci lL'oii-i lr{)i3-14 to 201-5-16. Net profit ratio. currenl ratio. quicl< ratio altci r,orliinir
r:apital turnovcr l'atio itave heerr applieci fbr anal-vzing profitabilitl,and liLluitiitl,position oithc:;,,1
t3 KIs.Avcrage'netprolitt'ltiio"cut'retttratio.quickratioarrcl tl,orl<ingcapitaltun.loverratititlrsedrir
'l'able-8 (Lrnit
* tiresc 20 lils ita'.,e heerr given in rvise given at Annexure-S). Since. Ktrs arc prt:scrtl.
prepaiiitg ilteir Prolir & Loss Account and Balance Sheet irr rrspect o{'lcxliir:s anci licir-ti:rrtil:r
4,,
segtttcnt on consclidated basis rvhile Manufacturing/I'rading Account is being prepared scrntcr,
% u,ise i.e. textiies and ttott-textiles segnrent basis. Therefore. net profit ratio has beeli u,olliccl oLil
based on textile activities including l<hadi activities while current ratio. c1r-rick ratio arrci riorliinr:
<*
' crpiial tLtrnorier ratio have been calculated based on consolidated balance sheet of Kls.
'fable-8: Prcfitatrilitl,antl l-iquidifv t{atio
3
S Year Net Profit Ratio Current Quick Working Capital
(textilc opcration onll,) Ratio* Ratio* Turnover Ratio
s 2073-14 8% 1.43 4.66 2.34
:l 2474-1s 8% 1.45 0.69 2.30
2015-16 8a/,' t.4i 0.74 111 I
-,4
;) (Calculated by O/o CAC) *based o,', Uit,i,t." rt.,""t of fls
"o,.,solidat"a
:i 3.3.2. It can be observed fl'ont the above table that net profit for textiles sesment renrains 8,/o for
4$ the period from 2013-i4 to 2015-16. Current ratio remains in the range of 1.41-1.45 u,hile eLrici,
ratiocomesdou,n intlterangeof 0.66-0,T4duringthesameperiodonaccountol'holciiirgul'hurr:
I
invetttor.v leveI of f-inished goods. In case of rvorhin-e capital turrrover ratio rviriclr is ;troi'e tilin
S clouble of rvorking capital inclicates that KIs are utilizing its l,r,orking capitatr tt'i sr"rplrr-,r',, a srri;'r
3 level of sales (i.e. a high turnot,er ratio indicates about extrenrely efficienr use of liril's shor"r.
term assets and liabilities to support sales. Conversell,. a lou,ratio indicates that a business;r,
S investing in too many accourtts receivable and inventory assets to support its sales). It appears
3$ that the rvorking capital during the vear 2013-14 to 2015-16 rvorking capital turnecl svL,l' l.li)
5-
tinres to 2.47 tirries.
{f
1
v
I/
v
a
a
3
3
-{
j t7
*
'qi
il
{r
r:,
ii Chapter- 4
rF
Methodonogy flor Assessment of Worfi<ireg Capi'raI
3
rid',
" 4.1. Working Ctrpitatr Assessment Methocls
&
4.1.1. Mainly barrlts adopt one or trvo nrethocl out the belorv rrethods fbr assessnient ot'rr,6riiilil.
o
<h
capitai of any particr-rlarorigination lbllow,ing instructions/directions issued by RBI in this resar.ci.
* l) Pro.iected Balance Sheet l\4ethod (Current Assets rninus Current i.iabiiities)
f, 4.1.3. Orr the basis of anltual accolttrts o1'20 Kls. it has been obsen,ed that all I."ls ar"e 1'rr.:r.;riilr,
nrenaring their Consolidated Profit & Loss Account and Balance Slieet in respect ollexiiles airLi
t
L' ttolt-textiles segment. Whiie Manufacturing/Trading Accor-rr-rt is being prepared segment u,ise lirr
S textiles and non-textiles separately. Further. it has been observed in nran,v cases that the tbrrrat ol
these balance sheet is such lil<e that it does not disclose the ilifbnration o1'cLrrrent ancl non-currerli
q
assets and liabilities r.r'hich is '"'c'i'1, rnuch reciuired fbr deternrination o1'u,orliine capital. l-his ol'f rr:r:
3 has rvorked out rvorking capital based on consolidatecl balance sheet of these 20 KIs for the perigri
-.r
+'
of 2013-14 to 2015-16 biltrrcatittg assets and liabilities into current and non-current assiets and
liabitities to the exteltt possible. The balance sheet method (current assets ntipr-rs currelt liabiiities)
5 will give results of requirentent of overall r.r,orking capital covering khacli arrd non-l<ltacii aclir,ities.
3 4J.4. For more specific to khacli operation, this Office has macle an attel-npt fbr assessple6t ()i
S worl<ing capital of 20 KIs Lrased orr'"Operating Cycle Methoci" for overall khadi operation basecJ
on tl.reir audited financial accounts fbr three years fronr 2013-14 to 201 .-5- 1 6.
;
3 4.2. Actual Operating Cycle Perioctr (basecl orr Financial Accounts)
av 4.2.1. An atternpthas beelt ntade fbru,orkingoutactual operatirrgcl'cle (in c1ai,s) in rcsJrr--ri Lrl''Jt!
G KIs baseclon thedataavailable fionr theirfinancial accc'runts lorthe period fiorn l0l3-14;o.l(il:
v.t l6 considering 365 rvorl<ing days. In the absence of specific data rclated to u,ork-in-prourcss ii,
financial accounts, u,ork-in-pr'()qress lrolding periocl has been consiclered based on KIs'replic:.
3 exceptChaspara Silk Samity. Natra.j Khadi Silpa Sanrity and Daulatabacl Silli Khadi O (iranr Seiir
Sangh. In these three cases. rr,orl<-in-progless holding period is abnctrrnallv ver\,,hish i.e. li5 cfuri,
S
a t8
5
1t
{i
t!
rl lbr'li)i-l-i-i.lti() da.vs li.rrll0i4-i5 i.rnci .l8i clals 1or2015-1(r coltrparecl io 7i ciar.s lirr-li)l r; l i.',
Ca1's lbr 20lJ-15 anci 73 cJa-t's lbr 101-i-16 as obselvecJ in1'able-7 (Anne-xure-ir refers). il;.i.,,cti l,
\:q
tire attalYsis cil'tltesc l7 KIs. acl.iirsted operatirrg cycle has been given in l"able-9. Fror tlic psr-p(.):iil
* of calcLrlation oloperating cvcle, finislted goods inventorl,. sale and purchase iri r.espect o1.te.riii,.:
sLrgnrelrl and creditors (as per balance sheet) have been considerecl.
4,
T'able-9: Actuai Oprerating Period (on an average) forthe perioctr f'nom 201S-X4 to Zili5,l,r
Cl1,ctr*
3 4.2.2. It can be observed fi'ortt the above table that the average operating cvcle is nrore than a I L..rr.
3 i.e' it covet's the periocl ranging between 4A4-423 days (412 days on an average) lbr the per.ic,ii
2013-i4 to 2015-16. The net operating cvcle period (operating cvcle nrinus average cre,lit pillprcpi
5 peLiod) comes in the ratlge of'179-2A4 da1,s (189 days on an average) fbr the same pei.ioct.
Ir i:
3 observed tlrat creditrlr5/payables contribute substantial credit period bl,nrore than 200 r.lar,
3 4.2.3' Ott compat'isotr o{'o;reralinu crcle sivot in Table-7 (as per I{ls) tnd 'l'al-rlc-9 iris pr,
5 Financial Accounts). conrponeltt t,r,ise ltolcliug peliocl slron,s u,ide f'luctLratiolts ip respcc,L oi'1i..
materials. conversiotr tirne. holciiltg periocl of finished goods. collection 6{'ciebt6rs anr,i ir.i.iilr,;
o paymettts. Horvever, net operating cycle in respect of both the tables shoq,s rrore or lcss sair,:
\,1 result i.e. 192 days in Table-7 and 189 days in Tabte-9.
Y 4.3. Conrparison of A.ssessed \4/orliing Capital (KVIC V/s Net Oper:rting C.vcle period)
!
1.3. I .
It lias been observecl h'orrt lhe comparison of working capital assessec'l i:y KV IC "s rr rcti rrr, r
G and rvorkitrg capital assessed by operating cycle rnethod gives rrrix results. Assessmeltt of g,orkilrl
5 capital as per operating c1,cle rnethod comes out on lorver side conrparing to work.ing capitr;
j assessed by KVIC in man,v cases during 2015- I 6. For example, in case of Tricltilap;ralli Sarl oclar a
Sangh,,eross norking capital requirement based on KVIC's nlethod is {1.032.79l- Lalth uhilc
It
j 19
'j
!,
1t
It
(1.
3 4.3.2. KVIC u'orliing capital fbr u'nsuirr6l year based on lrest higher sale/proclur:tion i a]ur:
assesses
3 anlong last three years b;- etiitrncius 209'i, ther'eon as targel.'fttis target is taken ils i',as;e lgr'
detertrination ol u,orkitrg capital [rasr.:rl on the irrrnrula t'ecor-irr]tencled b1, Shri Il.R. )i,lclti.i
%
Contntittee and Slrri S.f.. Kalia Conrntiltee. fhis formula does not consirtrer fhe openatiug r:-r'ck.
3 of KI. As sales ligure inclucles profit element u,hich is not part of operationatr cost ulricir i:-
countecl in eristing mefhod. Most inrportantly, the existing KVIC's method does not consicler
3 the available inr''entorv level of finishecl goods rvhich is readilS,available to nreet out tlte salcs
3 targets amcX cnedit;reriod frrr trade pa1'ahles n'hich is one of tlte source of financing lr,eirkipg
J capital.
:+ 1.3.3. Net operating cvclc rrretlrocl cr)vers the aspects of inrrentor),. creclit preriocl arrrl crl:l
q elemettt-s rvlrich eives fair results tou,irrcls irssesslrelrt oirvorking capitai ii hich reqLrire iir sper.aiirir
cycle. A colttparison olass;essecl u,orking capital under KVIC's metl'lod altri nr:l opeiuiinl r,r..,cll
J method in respect of 20 KIs iras been gii,en in Annexure-7.
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rI Chapter- 5
ti Itecommendations
t
e- 5.1. Working Cailital Assessment &{ethod
.+
e 5.1.1. As iit para 3.1. KVIC. determines the eligibilitl,'of norl<ine capitai b.t,iepor.iirr
ex1:lair,er.l
s negati\,'e clif-ference i.e. excess olu,orlting capital fund arrd issues norking capital cerlillcates L1t(irji.
*p ISE('sohente aggregiiting o1'net rvorl<ing capital plus arnount of banl< fipalce rvhrch res,*its i6tr,
superfltlotts assessment nf rvorl,iing capital requirement in iStrC scheme. The exces:l i].iil(!trlr:'
s of, rvorking funcl is parf of n'orking ca;lital anc! should he cossiriercd for irsse:,ilirlretrr{ i,f
lr ul'l;,irr g cre 6rii;r I rcr-tr u i rr.nr t.
S e-n
q luken into considerotion. The net operating c1,cle mult be menlioner! in lhe ISEC issucri
prominentllt.for the infornration of the banks.
\J
5 5.2.1. Preselttlr'. all KIs are preparing their Consolidatecl Protlt & L,oss Account ancl Llaia,c,:
,E Sheet in respect o1'textiles ancl tton-textiles operational sesrnent rvhile Marrufacturipg/ Tradir;r
Account is being prepared separately for textiles and non-textiles segment. Since balanc:e slreet i:;
5 being prepared by colrsolidating textiles rtnd non-textiles operational segnrents. / woulrf he ntot.,,
3 opproprinte if the frinctnciul Acc'ourrts i.e. Manu,frtcturing/ Troding ,4cc6unt, pra./it o[ .f-r.,;,
Accortnl und Bolonce Sheet is prepured.for texliles anrl non-texliles seguteNtts sef){tt.{ttr:{.r,,rt,!.0,
3 tlte bi.furcafion of koltdi ond non*khutli operaliort ulong witlt t,ott:,^otidutod ct'1euii,, "fittoti(irtf
3 .for assessnrent of working capitul uncler ISEC Scheme.
J 5.2.2. Fttrther,presetttformatofBalanceSheetol'KIs(olteratinginRa.jasthan) tJoesrrprrlisci.:r,:
) the infornlation about ctlrrent ancl non-current assets and tiabilities l,lriclr is rrr ir;it.rt,l,
<r reclrtirenient for assesstnent of u'Orl<ing capital. T'herefore, it is also suggested thut Ki;!{ *utt
Y
devise a new common formul o.f /inuncial occount, specifiatil.t,frtr bulance slteet spec.i.{.yirl:
5 cLtrrant utrcl non-currenl ossets and lisbilitiesforfoir ossessment of working capital under.Ltga
a Schetne. :
3
].,
l!
)
:
:.
,l oll thc iirl"ilrLll.,
.r,alue rlurirrg the last three l,eiirs b1,enhancirry20% thereon and lrxes targct trasecl
J -i.5.1. Kalia Committee suggested that in case K\ilC's assessmeltt of rvoriiing capital exccei,is 1i..,-
banl<s assessmeut by more thau l0%. the quanilnrl o1'u'orlting capital nral bc: at'rived b1' 11.,. iriLitttrti
3 clialogLre between the Institutions/KVIC and the fitiattcing banks. l'his issue mat' be taltett Llll l-,''
3 KVIC witlr their lssociate bartlis.
5 5.5.2. In case assessment o1'rvorking capital bi,KVICl rraterially differs fi'onr the assesstrellt r-rl'
3 rvorl<ing capital nrade b1, the banks, the issue uray be taken r-rp by KVICI rvith Indiarl LJanli:i
Associatiol (lBA) as u,ellas n,itlr RBI. and the area of differences call be reconciled/resoli'ccl.
I
I 5.-5.3. Though various iltstrLrctiorrs have been issued to bauks regarding sanctity of I'"'i'l(
assesslrept olrvorl<ing capitai requirerrent of Khadi units. the sante \\/as not llLtncl to bc billilirrg
5 on the banks. It r,r.,as suggested tliiLt irr ci]se an), dillicultf is faced bv tranlts itt sauctionitrg llli: lorrt',
-, as per ISECIs issnecj, banlis shttulci lefcr the matter to KVIC so thitt ihc tlill'ercnccs I'oLrlti i-"
resolyecl through discussions. This is ruore t'il less ignored b-r.- the banks ils Per tiic ittlirt'irlrtii,i:
3
gathered.
{f
Y
3 5.5.4. I(VIC issues ISECs tror net requirement of r,vorking capital atier settirlg o1l tir,: liitr,-i::
provicled by l(VIC ancl under Consorlium Banl< Credit (CBCI). In has beett obsen'ed itt stltlc cas,:,,
that I{VIC issuecl ISECs 111:5111111. Ils rr,here there rvas no lvorking capital reclitirenre-tlt liittl lli:il
!J
3 ISECs tilr Irigher arlloLurt against thc assessed rvorking capital. trt is recorumenrled ttrat K\il('
shoulrl assess the u,orking capital requil-enrent of I(Is properly'and restrict the alllotlrlt lcl-
3 issuance of ISEC on a case to case basis after proper analysis of rvorking ca;ritti
-* requirements.
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:,i.:).-). l lrc:;toci<s ol'lr-hadi [-lrtits tniry be monitored at eaclt stagL'()f productioti to avoid erccssi', r:
\ i'
blocl<iige o1'f irncjs. 1\u)' accunrulation ol'stocks at intermecliaie stages such as tt'crtiittu rrtl'i
\F vastragar etc. rra1,'L:e regLrlarl_"- urotritr--,red through proper MIS so as 1o avoid sttch blockauc'r,;
3 -rvorl..ing carriiai.
3
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L.' S{udv Reference
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,ia],*l Sectslal y
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srnq .raa -i-$ {}--d}- 1 10 6 j
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1
At il lr .\ GOVrRtaJtlE&lr cF tNDtn
qA MINJSTRY OT
-r.L--- r..-
b\1\' MtcRo. st{tAtt. "qNat MEDtt,M Er.ll ERPRlsES
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i
uoYo{; BHAWAN. r*EW OELHl.lrf S11
*
$ 23 Jrrne 2016r
D.O. No.
q_ ;*11 r,
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Xt**'t> e{*{ca ti'\
*it,*' iw,culd lrke to inforrn you that Khadi and Village lndustries Comrnission (t<Vlc:l has
.-,
imptemenring the Ccntral Sector pian schemc viz. lfiterest Subsidy EliCibilitY Certiflcate
in
since 1977.78, Under the ISEC scheme the vrorking capil.al as well a5 c.apital
i15ECi scheme
cxpe .tditure credit is provided to the Khadi and Polyvastra producing institutions as per thL'i{
'3
&-} r-i*.J rcquiremeni
:.::"::ll}li: iiT'. llilii':'::::::: :::i"-::::.1l':i'.:i'l:tj':::.:i:"-1I
C_..l,1!)Al: o;;;,,"r; whiie the diifu.en betvreen the actual lending rete and 47o't.o"ltl: and pa;cl
-,L,i)..r+
: t\**- InC central
O\, the
by tJOVt'rnmPllI throuBh
LPnIral covernme,rt Inr" KVIC 10 rhe lending banks and funds {or lhis purpost
\ l.yt b' J ,Ut ' - a je orovided undrr the scheme
''!r
-y t**-';
'. ii, 2. ltisobservedthatgerrr:rallybar-rksdonotsanciioncredittotheextertof th€Eligibte
3 &*Y"' amounl as'e5sed by KVIC, Sifl(e , ttre finance under ISEC scheme is the only sourcr o{ credit
for inlplementation o{ incremental portion of khadi programme, the Khadi lnstitutions (Kls)
h*"
& ;iri';i': ll:;i:cur fc::hc i:rsuilicicni fina::e they rcleivc frr:n: tlre banki:rg ch:nnc!. Ths:
, ^"1""i""ttt\ situation has aggrav:rtcd a5 KVIC has drawn up plans for doubling khadi production in the 1 ."i,
&.
qr'r,,*,, ';;;;*
:t t '
3, Th€ Kls are generally well capitalised. These institutions nrortgag€ th€ir protlerties in
", favour cf KVIC and KVIC in turn releases first charge to banks under inler-se agr€emenl. as
_,\i; serulty to the bank The Khad! institutions are open to .haree 25Yv3Oy" margin and
.:, ,,lli,.tllii)ll ' i-rccnrly that has been macle flcxible w-ith market llnked pricing for Klradi prod.r.ts. Khadi
i)ll-?l'i I t i inst;rurrons eirher suppbrt the whole cycle end to end or 5upporl only parr of thc cycle, say,
' *'l'i /t t t t
either manufacture the goods and supply to othe, insl:tutions for sale, andlor sell goods
s r\
\\Y---\P,
manufatturt'd bY others.
ui ,^ 4. Keeping in view the lonB production cycle of Khadi, the seasonality of lhe raw,
,r'*).' rnatErial 6nd the sales, it was felt that for the instatutions which followeC end to end cycle
their targ€t of Production and Sales should be fixed for the year. 1OO% of production target
? . . f.
.,-,[5)}J'v-
*"y be considereri by banks for their working capital requirement However, r1 is observed
that, rn most of th{] cases, the general tend€ncy of t[re, bankers is to follor,,r thc Na,k
- Committe€ reconlmendations instead of the Khadi Sector specific working capital
,1
3 W
. lY{n) requirements recomn:ended by the Kalia Committee.
9 \r7'.r-
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5 (\il\ $
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3 rel
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.S'1 11 ?-3O€!543,
Rmm No.
fax
171, Udyog Bhswan New D6lhi-11OO11
+91-11-23OS2858, (-mari : ,s.ari@nic.in. Vdebsrte: ffi rrsrlle qov rn
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.9 5. ttecently, KVla hn5 acjopted flexible prie!nB prlliLy by which khadi ir'istit!,tiont are {ree
to add margin over a,ld above production cosl and there'fore, they can sustain th€ir sctlvity
q to the ex!enl o{ 1o0?i oi ttreir turncver under this scenario. Larlier a55e55rnnn1 had rvnrked i
+ out higher vvo.kinE capital thaa the production cost and because of vr'hich bank: are i
r€luctant to provide working capital to khadi institutions. The tendency o{ the bankers to
*
i* adop! Naik Comrnittee recommendalions needs to be restrained and justificatic'ns to b€
devised facililatinE extension o{ support to Kls, as suggested abave, if not lolallY on the
q rrctur$rrlend3tion of Xalia Comar!ittee.
\r
<tD. 6. yoit are there{ore, rcquested to institute a stlrdy in the requirefilert of the r.vorking
*f capital by CAB.
e}.
J \ryith regards,
Yours sincerelY,
s
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A
L ,. {""
(umar
I B.H" Anil
.- ]
J Principal Adviser
Department of Expenditure
I Ministry of Finance
North Block
New Delhi - 110 001.
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