Foreign Direct Investment

Financial Assistance To SSIs

Chapter – I

INTRODUCTION

1.1 INTRODUCTION

Industrial finance in its broad connotation means, the provision of funds needed by

industry irrespective of the period of which they are made available. A finely tuned

economy has certain base necessities if it has to remain so. A well developed capital

market is one such pre-requisite. The availability of finance in respect of both quantum

and time does have tremendous impact on industrial development.

Until the nationalization of Banks in 1969, the portfolio of commercial bank

advances have largely geared to finance, trade and commerce, starting essentially as an

urban based financial service, real efforts were begun only in 1956 through ‘pilot’ project

scheme by SBI to look into the credit needs of SSIs. Further, since, 1985as per the

directives of the government, commercial banks begun to provide 40per cent of their total

credit to priority sector at concessional rates. This was mandatory because the commercial

banks had neglected the SSI sector hitherto.

In 1951, the state Financial Corporation’s (SFCs) Act was passed in the parliament

empowering the State Governments to set up financial institutions to cater to the needs of

SSIs. Then, in 1969 and in 1980, 20 major commercial banks were nationalised thereby

opening up new horizons for the financial operations of SSIs in particular clearly financial

support holds the key to entrepreneurship development vis-a-vis the development of

industries.

Saraiya committee notes that – “during the pre-nationalization period the SSI

Sector had to rely on the resources of the disorganised money market for its credit

requirement partly because of the rapidly increasing demands for credit from the large and

medium scale industry and partly because of lack of industry and partly because of lack of

experience on the part of the banks and borrowers”.

One of the universal problems that hinders and unhinges the SSIs is the paucity

and non-availability of adequate finance at right time. In India, SSI sector encompasses a

diverse range of industries ranging from handicrafts to ancillaries and their financial

requirements also differ and hence their needs to be met differently. Though many other

Department Of Studies In Commerce, Shivagangothri


elements such as-technology, management, market, etc., are important. Adequate and

timely finance is a necessary pre-condition for the promotion and development of SSIs.

Credit is the lubricant of production, in fact financial assistance is more important than

just the government incentives.

Commercial banks are very important for the promotion of SSIs in the country.

However, the distribution and regional spread of banks were not even and satisfactory.

The initial attempt in financing SSIs was under the State Aid to Industries Act

which provides State Governments to help SSIs in the form of development loan. The next

important attempt was the enactment of the State Financial Corporation’s(SFCs) Act in

September 28, 1951, to facilitate the State Governments to set up SFCs with the object of

providing medium and long-term loans to SSIs. The SBI, the first major public sector

commercial bank, which introduced a liberalized scheme of financial assistance to SSIs in

1956 for the first time. The credit guarantee scheme introduced by the Reserve Bank of

India constituted another milestone in the history of financing of SSIs. The National Small

Industries Corporation (NSIC) introduced a credit guarantee scheme in 1966 to ensure 100

percent finance to SSIs executing Government orders. The introduction of the social

control on commercial banks by the Central Government in 1967 was another important

measure to activate commercial banks in lending to SSIs in an active manner. The

nationalization of 14 major commercial banks in 1969 and 6 major commercial banks in

1980 assured a new era of financing in the country. RBI had stipulated that commercial

banks should provide at least 40 percent of their advances to priority sector, which

included SSIs also, and this was another significant step in financing of SSIs.

The refinance assistance scheme introduced by Industrial Development Bank Of

India (IDBI) together with the credit guarantee scheme provided a favourable climate for

the flow of finance to SSIs. In August, 1987, the Central Government introduced National

Equity Fund (NEF) scheme with the objective of providing support in the form of equity

assistance to SSIs which are engaged in manufacturing activities. The establishment of an

exclusive Apex Bank for small-scale sector known as Small Industries Development Bank

Of India (SIDBI). SIDBI now administrates SIDF, NEF, and other schemes of finance for

SSIs which were hitherto being administered by IDBI.



With the above backdrop, the institutional network for financing SSIs can be

drawn as follows:

1. RBI Apex body controlling, monitoring and regulating

the flow Of finance to this sector.

2. IDBI/SIDBI providing support to major financial institutions like

– SFCs and Banks through refinance.

3. Banks 20 Nationalized Commercial Banks, scheduled

Banks, Co-operative Banks and RRBs mainly

providing working capital.

4. SFCs KSFC in case of Karnataka.

5. State Small Industries

Development Corporation KSSIDC in case of Karnataka provides industrial

sheds and supplies raw material.

Industrial Finance

Structure and Perspective

During the British regime, industrialisation was financed by British investments, it

Was claimed by Vera Anstey and others: The results of the British connection have been

instrumental in providing the economy management cover. The incorrectness of this

notion is quite evident. It was emphasised that ‘capital is never taken from England to

India: it is made there and remitted home.’

The British capital invested in India was in reality first realised in India. That

original British investment in India coming from Britain specifically for this purpose was

very small.

Why Required?

Under the Five-Year plans, India has taken to real-time industrial development. To

achieve this, apart from modern technology and management, adequate capital and

financial cover on easy terms became necessary. This is the age of institutional finance,

along with economies of scale in expanding large and medium scale industrialisation.

In today’s context, supply of financial resources is required to meet a number of

requirements.



1. To start a new project or a new undertaking, or for the expansion of an undertaking, a

capital base is required right at the take-off stage, for construction of buildings and

installations; acquisition of machinery and equipment: guaranteed availability of

production inputs including raw materials: and to finance warehousing and marketing

services, a sales force and publicity network. The base-capital in fact represents the

installed capacity of the undertaking. Its soundness gives an undertaking the requisite

resilience.

2. In order to function smoothly, with drive and flexibility, the company requires working

capital from one year to the next, to provide for the factors of production, for repair,

maintenance and depreciation, renewal and replacement, warehousing, transport,

advertising and marketing.

3. A promising undertaking should have a competent and thriving apparatus for research

and development in order to keep in tune with the latest developments in science,

technology and management. There should be an adequate R&D budget to update and

update its technology, management practices, financial and budgetary control procedures.

Varieties

The term-lending requires for industrial finance can be of three varieties:

1. Long-term finance is required mainly for the provision of the capital-base or funded

capital to set up an undertaking, or to enable the undertaking to enter a new field or a

market or to set up a new installation, new machinery or a new structure.

The importance of long-term finance in funding the company’s base capital is

clear. The funded capital represents the strength and soundness of the financial structure

and installed capacity and also outlook for progress and advancement.

2. The tenure of medium-term loan is generally for a year or two. Such loans are usually

raised for acquisition of smaller machines and equipments, for repairs and maintenance

and for miscellaneous working capital requirements of intermediate quanta. A company

which lives from hand to mouth cannot prosper and cannot demonstrate vision, foresight,

boldness or imagination. The need for prompt, easy and foresight availability of working

capital is appreciated. It should be adequate and readily available on easy and flexible

terms.



Over a period of time, a proportion of the annual working capital should be built

into the co firmament by means of deposits and investments, and other funding

arrangements from its own surplus and resources.

3. Needed for odd and instantaneous requirements, repayable within a year or two, short-

term finance is raised for regular working expenses. Such short-term finance is also

required to stockpile inventory. As a company grows and prospers, such requirements

should be financed by the company itself.

An inadequacy of resources is a positive deterrent to growth, as it makes the

undertaking to resort to conservative and different measures.

The importance of organising a sound and resilient network of institutional finance

cannot be over emphasised. Without this, industrialisation would be slow and stunted.

The circumstances unique to India are the following:

1. To provide adequate and diversified finance

The net workings of commercial banks of sorts, supplemented by ubiquitous

money-lenders before independence, were neither suitable nor adequate, nor did they

sponsor and activate network industrial development. These institutions could not be

expected to grapple with the comprehensive requirements of a fast growing

industrialisation.

The need, therefore, arose for a capital market, to raise share and equity capital, to

buy and sell shares, scrip’s and equities and debentures, and a money market, to undertake

term-lending loans and advances through banks, co-operative and financial institutions.

2. To provide developmental finance

Pioneering ventures were required in virgin areas and fields not yet exploited.

These involved considerable risk-taking and perspicacity, need therefore arose for

institutional finance.

On the emergence of economic planning, particularly from the Third plan, the

programme of national industrialisation took off to a flying start, and a support structure of

banking, money market, stock exchange and institutional finance was also launched and

developed.



3. To mobilise indigenous savings

It was essential to organise an institutional network of financial organisation that

could not only mop up and mobilise savings, but could also canalise the same for further

plough-back and investment as industrial finance.

4. To provide sound and growth-oriented investment

In India, even commercial banks were prone to invest in real estates, hotels,

cinema houses and trade ventures, not to speak of private investors. A psychology and

culture for investment into industrial ventures is, therefore, required. This was necessary

to siphon black money, by inducting into investment.

This not only should take shape in share and equity or debenture capital, but also

an investment encouraged by special drives, schemes and programmes.

Small and Medium Sector

These undertakings also do require loans and advances, as well as funded and

working capital, for short, medium and long-terms. The variance is mainly in respect of

quantum.

1. The share and equity markets are prone to finance larger undertakings. The Small and

medium undertakings are compelled to draw mainly from private sources. These,

therefore, have to make to do with comparatively more rigid terms and conditions. Such

rigidity is manifest in the quantum of the loan or advance or financial accommodation, as

also in the terms and conditions.

2. Again, their creditworthiness in terms of collaterals they can offer is limited: Thus for a

Tata Or a Birla or a Hindustan Lever Concern, apart from other tangible collaterals, very

often their goodwill or the marketability of their products are by themselves considered

sufficient collateral, when this is not so, a loan or advance is often accommodated through

overdrafts or promissory notes or against very easy collaterals.

3. The loan applications of small and medium undertakings get a lower priority in the

money and banking markets: These undertakings get a relatively raw deal in priorities

even though their requirements are urgent and vital. Their requests are frequently side-

tracked or written down, and preference given to large-scale undertakings.



The usual sources of supply for the small and medium level industries are the

following:

1. Money lenders offer loans and advances freely, but normally on mortgage or

hypothecation of fixed assets, sometimes of the undertaking itself. The rates of interest

charged are high, and often compound. During adverse circumstances the company is

sometimes ruined by loans and liabilities, often resulting even in transfer of ownership.

2. Latterly, commercial banks, comprising the nationalised bank and State Bank network,

have started to finance the small and medium sectors on relatively reasonable terms,

interest and collaterals, with a number of promotional schemes. The SBI providing the

request thrust, such liberalisation started crystallising during late 1960s and early 1970s.

A Credit Guarantee Scheme came in Mid-1960, but was substituted in Mid-1980s

by the Deposit Insurance and Credit Guarantee Scheme.

The beneficial effects of these schemes, properly implemented, are obvious. These

encourage small-range industrial promotion. The government should organise the schemes

on a wider and more viable pattern. The steps so far actually taken are rather tentative and

desultory.

3. A National Small Industries corporation and Small Industries Corporations in certain

states have come such corporations attend to commercial bank loan through appropriate

supports and guarantees, and also to warehousing, transport, marketing, machinery and

equipment and consultancy and management cover. They have also lately started taking a

promotional interest.

Large Scale Sector

The financial needs of large scale sector undertaking are substantial and pervasive

not only for funded capital, but also working capital and also rehabilitation and

development finance.

These requirements are discussed hereafter.

1. Fixed or block or funded capital generally represents installed capacity and is required

for buildings and structures. Machinery and equipment and extensions and

replacements. Once installed or acquired, these represent fixed assets.



For large companies such requirements are substantial, and are normally drawn from

sources outside the company. Institutional financial needs are normally met by floating

shares, scrip’s, equities and debentures.

2. Working capital requirement is also largely raised through outside finance, except for

depreciation rehabilitation, renewal, replacement and marginal expansion. Working

capital is required to finance the payroll, contributions to provident, pension,

compensation and depreciation funds, organise procurement o raw materials, stores

and inventories, purchase small equipment, tools and implements, and defray current

expenses.

3. A solvent undertaking shall make adequate provisions for depreciation and

replacement by contributions to funds from its own working capital and as part of its

working expenses when this is not done by some private sector undertakings in the

anxiety to declare dividends even by defaulting on contributions to funds these are

going to create trouble for themselves.

4. For expansion and development progressive public and private sector undertakings

make regular anticipatory contributions to a development fund to finance blocked or

funded capital by floating shares, scrip’s equities or debentures, particularly for large

expansions or for new ventures.

Methods

For the large- Scale undertakings there are four major streams of finance.

1. Such undertakings raise block or funded capital by floating shares, scrip’s, equities and

debentures shares and equities can be preference and ordinary, and of different

denominations, debentures, scrip’s, bonds and promissory notes are also issued and sold to

the public. All these transactions are arranged through commercial bank or financial

institutions.

Public interest in share or debenture capital of progressive established or promising

concerns is encouraging for new undertakings with new and unknown names the response

is not so spontaneous. Such public indifference often lead new ventures to pack the boards



of Directors with well-known names as “sleeping director” who are of no or little use in

governance.

2. The practice of inviting deposits is popular with textiles companies in western India

and tea companies in eastern India. The practice started with the managing agency system

in cotton textile, Jute milling and tea gardening and processing with the abolition of

managing agency, the system has lost its punch and preference shown for fixed, recurring

and programmed deposits in commercial banks.

3. The rural and indigenous banks have extended loans and advances to small and

medium scale companies for both funded and working capital. These proved of little use

to large companies, for their requirements were “beyond the means” of such banks.

Commercial banks are lukewarm to provide finance to large undertakings, as these involve

risk taking for loans and uncertainties for equities. The nationalised banks during the

1960s and 1970s however sponsored floating of share and debenture capital for them.

4. From the mid-1950s, but largely during the 1960s 1970s and 1980 a long awaited

specialised institutional structure for floating, dispersal/ and dissemination of industrial

finance came into being. This was already overdue for financial term-lending.

Finance for Small-Scale Industries

While some of the above mentioned sources also provide funds for small-scale

industries, it may be useful to make a separate mention f their sources of funds, as these

industries differ from large-scale industries in such important matters as organisation,

scale of production, collateral or security etc. Their sources are both traditional and

modern, and both are important.

Traditional Sources

An important traditional source of finance is the money lender; He predominates in

the rural areas, and is of some significance in urban areas. However in urban areas it is the

indigenous banker who does much of the financing of small industries. Considerable

Finances flow from these sources. The sources are also important because these often

come to the aid of these industries at very critical times and that too with little fuss. Their

relations with small industries are very close indeed. But the financing from these sources

has not been of much help in ensuring a proper use of funds or in promoting productive



activities along healthy lines. Interest charges have been quite high. Repayment conditions

too are stiff.

Modern Sources

As for modern sources concerned, there are several institutions in the field. To

begin with one may mention those almost exclusively meant for small industries (and also

medium industries). These are, for example, the state financial corporation’s so far set up

in 18 states and in operation since 1951. At the state level there are also industrial

development corporations for financing small industries in their respective states. In

addition there are several institutions and schemes of all India level. There is for instance,

the credit guarantee scheme (started in July 1960) and later replaced (In April 1981) by the

deposit Insurance and credit Guarantee corporation. These are meant to ensure guarantee-

support for finance of the weaker section. There are commercial banks offering mostly

short term credit. They have also been helpful in setting up of industrial estates.

Review of Literature

The available literature on SSIs can be grouped under three categories.

Studies relating to the importance of SSIs and its advantage over large scale

industries.

Studies concerned with institutional support to SSIs and

Studies relating to finance to SSIs

Hoselitz deals mainly with the factors differentiating between large scale

Industries and SSIs like employment, investment or power required. Further by analysing

the formal structure of Indian planning process his study emphasis the need for greater

importance for SSIs in the five year plans.

Dr.Trivedi, stress on the Industrial policies of the government and the measures

taken by the government to protect and promote SSIs from Industrial policy, 1948

(Resolution). The author also briefly – analysis the investments made during the plan

periods.

Sandesara (1993) studied the performance of SSIs producing reserved items

collecting data from the second census conducted by the Ministry of SSIs. The study

examined the null hypothesis that the SSI firms producing reserved category items should



perform better than the SSIs producing non-reserved items. The study result revealed that

capacity utilization in 1987-88 and aggregate change in production in 1987-88 were both

lower for reserved than for unreserved items. This below par performance of the SSI firms

producing reserved items was surprising as those firms did not have to face competition

from the large firms. The author observed that this could be due to the entrance of excess

SSI firms into the protected areas.

Sonia and Kansai Rajeev (2009) studied the effects of globalization on Micro,

Small and Medium Enterprises (MSMEs) during pre and post liberalization from 1973-74

to 2008-09. They used four economic parameters namely number of units, production,

employment and export and interpreted study results based on Annual Average Growth

Rate (AAGR) calculation. AAGR in pre liberalization period (1973-74 to 1989-90) was

higher in all selected parameters than that of post liberalization period (1991-92 to 2007-

08). They concluded that MSMEs failed to put up an impressive performance in post

reform era.

Bhavani T.A. (2010) highlights the issue of quality employment generation by the

SSIs and negates the short term attitude of increasing the volume of employment

generation compromising with quality. The author argues that employment generation by

the SSIs may be high in quantitative term but very low in quality. Technological up

gradation would enable the small firms to create quality employment improving

remuneration, duration and skill. This structural shift may reduce the rate of employment

generation in the short run but would ensure high-income employment generation in the

long run.

Subrahmanya Bala (2011) has probed the impact of globalization on the exports

potentials of the small enterprises. The study shows that share of SSI export in total export

has increased in protection period but remain more or less stagnated during the

liberalization period. However, the correlation co-efficient in liberalization period is

higher than that of protection period suggesting that the relationship between the total

export and SSI export has become stronger in liberalization period. This may be due to the

drastic change in composition of SSI export items from traditional to non-traditional and

growth in its contribution to total export through trading houses, export houses and

subcontracting relation with large enterprises. Thus, the current policy of increasing



competitiveness through infusion of improved technology, finance, and marketing

techniques should be emphasized.

Desai, deals With the sources 0 f finance for S5Is and defines the assessee and the

requirement of working capital for SSIs. There is also a cursory glance on the commercial

Banks Finance to SSIs. Further Desai traces the history of commercial banks' finance to

this sector from 1956 when SBI introduced the Pilot Project Scheme. Desai also deals in

detail the security approach of banks and the terms and conditions of the banks to provide

finance.

Ramakrishna explains about the capital and credit needs of SSI by keeping the

number of people employed as the basis and analyses the role played by state Bank of

India in financing SSIs.

Pareek (Financing of Small Scale Industries in a Developing Economy)

Illustrate the need for finance for SSIs problem of finance and the present institutional

network to provide finance, His study is devoted more towards the operations of

commercial banks and their schemes to provide finance to SSIs.

1.2 IMPORTANCE OF THE STUDY

The prominence for Small-scale sector emanates from two basic premises of

economic development policies viz., the balanced development and sustainable growth of

the economy which calls for certain minimum level of diversification of the economy. In

an economy with a predominant primary sector and agriculture depending on the

monsoon, such a diversification has to be in the direction of industrial sector in general

and small scale sector in particular.

Although agriculture is the backbone of our economy and the largest contributor to

GDP, too much dependence on this sector is unwise. In spite of the fact, that millions of

people depend on agriculture this sector is unable to absorb all and provide productive

employment. There is a widespread disguised unemployment in this sector. There is a

need to diversify economic activities and shift the disguised unemployed from agriculture

to other sectors where they can be productively employed. SSI sector is one of such sector

which is labour intensive and hence, provides scope to absorb such labours.



Modern small-scale industries in India were almost non-existent sector of priority

to the II world war. It was during the war period that a number of SSIs were established to

relieve pressures (like-poverty, unemployment, depression, trade deficit and etc.,). After

independence, organised efforts were made for the development of SSIs on the basis of the

report submitted by a team of Ford Foundation experts.

Industrialization in India since independence has been predominantly based on the

development of large scale industries. The policy of the government during the early

planning era was to develop import substituting heavy industries as the “key stone” with

traditional SSI as an adjunct to meet day to day demands.

Industrial development becomes incomplete without the development of SSIs,

since this sector provides an opportunity to utilize the abundant man power and

unexploited resources. Accordingly in the process of reshaping and developing the Indian

economy under the aegis of Five year plans, SSI sector is rapidly coming into prominence.

Importance of the Small scale sector can be gauged by the account given by small

Industries development Bank of India (SIDBI).

1.3 OBJECTIVES OF THE RESEARCH STUDY

Following are the objectives of the study:

1. To analyse the pattern, trends and magnitude of financial assistance given to the SSI

sector in Davangere City.

2. To study the norms of lending and recovery of loan given to SSIs.

3. To know about terms and conditions for providing financial assistance to small scale

and cottage industries.

4. To study the extent of financial assistance provided in the financial year 2012-13 to the

SSI and its recovery position.

5. To evaluate the impact of institutional finance on industrial development.

1.4 NEED FOR THE STUDY

The needs for the study about financing of Small Scale Industry because of the

potential and existing entrepreneurs of small scale industries are facing the financial

problems as their target customers’ demand. The entrepreneur has to approach various

financial institutions which can provide financial assistance to produce the qualitative



products based on the adoption of technology. To revise the terms and conditions of

repayment of loans which are costlier in their nature to small scale industry units?

1.5 SCOPE OF THE STUDY

The scope of the study is restricted to the financial assistance given by state Bank

of Mysore Mandipet Branch, Davangere for establishment of small scale and cottage

industries by the selected beneficiaries of Davangere city.

1.6 METHODOLOGY

Methodology is a prime important in any type of study. It is the method and

procedure used to work in the project. In this study the data is collected through primary

and secondary sources of data. The primary data is collected on the basis of questionnaire

and the secondary data is collected from the text books. Annual reports of the District Co-

ordinator of the bank who is personally interviewed together to get information about the

financial assistance extended by the bank branch to those selected beneficiaries.

1.7 LIMITATIONS OF THE STUDY

1. The study is limited Davangere branch of State Bank of Mysore only and its financial

assistance to small scale and cottage industries of Davangere.

2. No comparative study is made with other lending institutions.

3. This is being an academic study; it suffers from time and cost constraints.

4. Accuracy of project report is mainly based on the reactions given by the respondents.

1.8 CHAPTER DESIGN

The first chapter contains the introductory aspects of the study such as review of

literature, Need for the study, objectives of the study, Scope of the study, Methodology

used in the study, limitations of the study.

The second chapter deals with the brief profile of State Bank of Mysore, growth

and development, Organization structure, product and services, business growth, corporate

vision and mission, corporate objective, founding principles and Davangere branch profile

also.

The third chapter deals with the concept of priority sector. This chapter attempts

for orientation of the word “priority sector”, coverage under its definition.



The fourth chapter deals with role of Micro, Small and Medium Enterprises, definition, importance, Debatable issues, Opportunities and constraints of globalization, etc.,

The fifth chapter deals with small scale industries meaning and definition of SSIs,

objectives of SSIs, Role of SSIs, Problems faced by small scale industries, registration of

small scale industries.

The sixth chapter deals with state Bank of Mysore credit Schemes to Small Scale

industries, various loans, schemes offered by state Bank of Mysore to Industrialists in

Small scale Sector, procedure followed by the bank to give loans to small-scale industries,

methods and objectives of recovery.

The seventh chapter deals with analysis and interpretation of data covering the

following aspects:-

Qualification of entrepreneurs, nature of unit, organisation form, form of fixed

capital, form of working capital, reasons for opting State Bank of Mysore. Purpose of loan

taken, interest charged and opinion about the financial assistance of State Bank of Mysore.

The eighth chapter covers survey findings, suggestions and conclusions.



CHAPTER- 02

PROFILE OF STATE BANK OF MYSORE

2.1 HISTORY OF SBM

There are many banks operating in our country. Some of they are public sector

banks some others are private sector banks where as some others are foreign banks.

Among public sector banks, State Bank of India is the biggest bank. And there are many

other banks like Canara Bank, Punjab National Bank, Indian Bank, Corporation Bank,

Allahabad Bank, Indian overseas Bank and some others. All these banks are doing very

good business all over the country and they have acquired good market share in the

country. They are offering good services and products.

It formally became a nationalized bank of India in the month of March in 1960

when it became a subsidiary and an associate bank of the State Bank of India.

Our Profile

State Bank of Mysore was established in the year 1913 as Bank of Mysore Ltd.

under the patronage of the erstwhile Govt. of Mysore, at the instance of the banking

committee headed by the great Engineer-Statesman, Dr. Sir M.Visvesvaraya.

Subsequently, in March 1960, the Bank became an Associate of State Bank of India. State

Bank of India holds 90% of shares. The Bank's shares are listed in Bangalore, Chennai and

Mumbai stock exchanges.

During 1953, “Mysore Bank” was appointed as an agent of Reserve Bank of India

to undertake Government business and treasury operations, and in March 1960, it became

a subsidiary of State Bank of India under the State Bank of India (Subsidiary Banks) Act

1959.

Now the bank is an Associate Bank under State Bank Group and the State Bank of

India holds 92.33 percent of shares. The Bank’s shares are listed in Bangalore, Chennai,

and Mumbai stock exchanges.

The bank has a record of uninterrupted profits since 1913 and has declared

dividend every year since 1913.



“To give real service, you must add something which cannot be bought or measured with

money” - Sir M. Visvesvaraya

2.2 MILE STONES OF STATE BANK OF MYSORE:

1913- The Bank was established as ‘Bank of Mysore ltd.’, on 19 May With an

authorised capital of Rs.20.00 lakhs.

Commenced its business on 2 October 1913.

1953- During the year, the Bank was appointed as an Agent of Reserve Bank of

India to conduct Government business and treasury operations.

1959- With effect from the 10th September, the bank was constituted as State Bank

of Mysore as a subsidiary of State Bank of India, under State Bank of India

(Subsidiary banks) Act, 1959 enacted through an act of parliament, (Act No.38 of

1959s).

Mysore bank is the first bank to finance for commercial crops like coffee, Tobacco,

etc.,

1959- The Bank has formulated schemes for financing coffee planters/coffee

traders against coffee curers’ certificate, financing coffee traders, coffee exporters

and coffee curers who also engage in trading.



The bank actively participated in all Government sponsored schemes and

contributed its share of financial assistance or the economically weaker sections

through DIR, IRDP, Prime Minister Rojgar Yojna and SUME schemes.

The Bank has sponsored two Regional Rural Banks, Cauvery Grameena Bank and

Kalpataru Gramin Bank which were merged to form Kaveri-kalpataru Gramin

bank, headquartered at Mysore with more than 300 branches for growth of

agriculture and rural industries.

The Bank, as a part of State Bank group has been engaged in financing agriculture

and MSME in 1960 and introduced the concept of need based rather than security

oriented finance and the entrepreneur scheme under which technically qualified

persons were financed the entire requirement up to Rs.2 lakhs.

The Bank has correspondent and agency arrangements all over the world and

offers spot services in 18 major approved currencies.

State Bank of Mysore handles a significant part of day-to-day banking business of

both the Central and State Governments in the State of Karnataka and is a banker

to various Public sector undertakings in various sectors of Economy.

The Bank has been actively participating in welfare banking needs of public

through its community services like Blood donation camps, Health Check up

camps, Donation of ceiling fans, water coolers etc for the needy schools.

The Bank is a member of society for Worldwide Inter Bank Financial Tele

communication (SWIFTs) which was established to offer cost effective and fast

transmission of financial messages globally, 2 branches of Bank are presently

covered under the scheme and an additional 15 branches are proposed to be

covered under SWIFT shortly.

1992-The State Government has also taken up vigorously ‘ASHRAYA’, a new

housing scheme for weaker sections and ‘VISHWA’, a new rural and cottage

industry scheme. A new programme called ‘AKSHAYA’ has also been launched

to help the children in primary education. The Konkan Railway Project and the

New Mangalore Port Project are also progressing satisfactorily.



1994- Several important measures have been introduced in the busy season credit

policy of November 1993 and slack season credit policy of May 1994, announced

by Reserve Bank of India.

Branch Network

The Bank has widespread network of 905 Branches (as on 31.12.2013) and 9

Extension Counters spread all over India including 6 Small and Medium Enterprise

Branches, 4 Industrial Finance Branches, 3 Corporate Accounts Branches, 7 Specialized

Personal & Services Banking Branches, 9 Agricultural Development Branches, 3

Government Business Branches, 2 Specialized NRI Branches, offering wide range of

services to the customers besides 5 Service Branches and 1 Asset Recovery Branch

rendering backup support to the Bank.

Human Resources

The Bank has a dedicated workforce of 10,479 employees consisting of 3,738

supervisory staff and 6,741 non-supervisory staff (as on 30.06.2013). The skill and

competence of the employees have been kept updated to meet the requirement of our

customers keeping in view the changes in the business environment.

2.3 ORGANISATIONAL SETUP

While the Chairman of State Bank of India is also the Chairman of the Bank, The

Managing Director is assisted by two Chief General Manager and 13 General Managers.

Managing Director Mr Sharada Sharma

Chief General Manager (Retail Banking) Mr Kalyan Mukherjee

Chief General Manager(Commercial Banking) Mr Saswata Chaudhuri

General Manager (Human Resource & General Administration) Mr Bibhupada Nanda

General Manager (SAMG) Mr J Ramakrishnan

General Manager (Priority Sector, Rural Banking & Financial Inclusion) Mr K Lakshmisha

General Manager (Corporate Banking - Head Office) Mr Rajiv Mathur

General Manager (Risk Management and Credit Policy and Procedures, IT) Mr Parthasarathy N

General Manager (Treasury) & Chief Financial Officer Sri Viswanathan V



General Manager (Retail NW Bangalore) Mr Nageswara Rao

General Manager(Vigilance) Mr Vijay Dube

General Manager(New Business,Govt Business & BPR) Mr A Karunanithi

General Manager (NW - Delhii) Mr Ravinder Kumar Madaan

General Manager (Retail Network Mysore) Mr S Bangara Raju

General Manager (Inspection & Audit) Mr Subhabrata Ray

General Manager (Personal Banking) Mr Ashok K Pradhan

2.4 MANAGEMENT COMMITTEE OF THE BANK

Mr Sharad SharmaManaging Director

Mr.Kalyan MukherjeeChief General Manager

(Retail Banking)

Mr.Saswata Chaudhuri Chief General Manager(Commercial Banking)

Mr Bibhupada NandaGeneral Manager

(Human Resource & General Administration)

Mr J Ramakrishnan General Manager

( SAMG).

Mr Lakshmisha KGeneral Manager

(Priority Sector, Rural Banking & Financial Inclusion)

Mr Rajiv MathurGeneral Manager

(Corporate Banking - Head Office)

Mr Parthasarathy NGeneral Manager

(Risk Management and Credit Policy and Procedures)

Mr Viswanathan VGeneral Manager

(Treasury) & Chief Financial Officer


http://www.statebankofmysore.co.in/index.php/our-profile/89.html

http://www.statebankofmysore.co.in/dr.k_lakshmisha


Mr K Nageshwara RaoGeneral Manager

(Retail NW Bangalore)

Mr VIJAY DUBEGeneral Manager

(Vigilance)

Mr A KarunanithiGeneral Manager

( New Business,Govt Business & BPR)

Mr Ravinder Kumar MadaanGeneral Manager (NW - Mumbai)

Mr S Bangara Raju General Manager

(Retail Network Mysore)

Mr Subhabrata Ray General Manager (Inspection &

Audit)

Mr Ashok K PradhanGeneral Manager

(Personal Banking)

2.5 FINANCIAL PROFILE

The Paid-up Capital of the Bank as on 31.12.2013 is Rs 48.01 crores of which

State Bank of India holds 90% share. The Bank has achieved a Capital Adequacy Ratio of

11.19% under Basel III guidelines. The Bank has an enviable track record of continuously

earning profits and payment of uninterrupted dividend since its inception in 1913. The

Bank earned a net profit of Rs. 167 crores for the nine months period ended December

2013.



2.6 BUSINESS PROFILE

Total Deposits of the Bank as at the end of December 2013 stood at Rs. 57,419

crores and the total Advances stood at Rs. 46,225 crores including an export credit of

Rs. 1,709 crores. The Bank is a major player in Foreign Exchange dealings also and has

recorded a merchant turnover of over Rs 21,543 crores and a trading turnover of over Rs

2,01,929 crores for the nine months period ended December 2013.

2.7 BALANCE SHEETS OF SBM

Liabilities: Particulars Rs. In Crores

Capital & Liabilities

Mar-13 Mar-12 Mar-11 Mar-10

12 Months 12 Months 12 Months 12 Months

Total Share Capital 46.80 46.80 46.80 36.00

Equity Share Capital 46.80 46.80 46.80 36.00

Share Application Money

0.00 0.00 0.00 0.00

Preference Share Capital 0.00 0.00 0.00 0.00

Reserves 4,285.73 3,365.92 3,052.67 2,037.40

Revaluation Reserves 0.00 575.81 583.85 591.89

Net Worth 4,332.53 3,988.53 3,683.32 2,665.29

Deposits 56,969.04 50,186.30 43,225.47 38,880.00

Borrowings 3,854.20 4,425.59 3,307.95 2,274.01

Total Debt 60,823.24 54,611.89 46,533.42 41,154.01

Other Liabilities & Provisions 2,076.98 1,803.15 1,815.73 1,589.64

Total Liabilities 67,232.75 60,403.57 52,032.47 45,408.94

Assets:



Particulars Rs. In CroresAssets Mar-13 Mar-12 Mar-11 Mar-10

12 Months 12 Months 12 Months 12 Months

Cash & Balances with RBI 2,404.67 3,025.85 2,705.68 2,765.62

Balance with Banks, Money at Call

1,100.09 336.86 234.60 213.85

Advances 44,932.57 39,835.31 34,029.81 29,535.86

Investments 16,774.58 14,732.70 12,927.14 11,494.41

Gross Block 2,020.85 1,192.02 1,127.62 1,107.10

Accumulated Depreciation 0.00 442.60 402.62 374.11

Net Block 2,020.85 749.42 725.00 732.99

Capital Work In Progress 0.00 0.00 0.00 0.00

Other Assets 0.00 1,723.44 1,410.23 666.20

Total Assets 67,232.76 60,403.58 52,032.46 45,408.93

Contingent Liabilities 13,026.14 13,641.75 13,333.64 20,057.35

Bills for collection 4,754.94 4,649.42 4,099.18 51.60

Book Value (Rs) 925.76 729.22 662.28 575.94Source: Annual Report

2.8 PROFILE OF STATE BANK OF MYSORE, MANDIPET BRANCH,



DAVANGERE

Establishment

State Bank of Mysore is a premier bank in Karnataka, with all India presence is

100 year young servicing all sections of communities in and outside the service.

Davangere branch of State Bank of Mysore was one of the earliest branches

opened outside Bangalore precisely on 24th December, 1913. The branch which is housed

in its building at mandipet, a busy commercial centre has grown along with the commerce

of the Davangere city. Despite the establishment of the other banks, Davangere branch has

maintained its glories and leadership among the banking sector in city.



Chapter-III

ROLE OF MICRO, SMALL AND MEDIUM ENTERPRISES (MSMEs)

3.1 MSME OVERVIEW

The Micro, Small and Medium Enterprise sector is crucial to India’s economy.

There are 29.8 million enterprises in various industries, employing 69 million people. The

sector includes 2.2 million women-led enterprises (~7.4 percent) and ~15.4 million rural

enterprises (51.8 percent In all, the MSME sector accounts for 45 percent of Indian

industrial output and 40 percent of exports. Although 94 percent of MSMEs are

unregistered, the contribution of the sector to India’s GDP has been growing consistently

at 11.5 percent a year, which is higher than the overall GDP growth of 8 percent. Poor

infrastructure and inadequate market linkages are key factors that have constrained growth

of the sector. The lack of adequate and timely access to finance has been the biggest

challenge. The financing needs of the sector depend on the size of operation, industry,

customer segment, and stage of development. Financial institutions have limited their

exposure to the sector due to a higher risk perception and limited access of MSMEs to

immovable collateral. Potential Interventions to Increase Access to MSME Finance

Building on the efforts already underway, there are several potential interventions that can

be undertaken to expand the access to MSME finance in India through enabling

infrastructure, liquidity management and risk management. Some of these potential

interventions include:

Enabling infrastructure

Encourage securitization of trade-receivables in the sector through conducive legal

infrastructure.

Promote institutions to syndicate finance and provide advisory support to MSMEs

in rural and semi-urban areas.

Incentivize formation of new MSME-specific venture funds by allowing existing

government equity funds to make anchor investment in venture funds.



Liquidity management

Improve debt access to non-banking finance companies focused on these

enterprises and provide regulatory incentives for participation in the sector.

Develop an IT-enabled platform to track MSME receivables to facilitate

securitization of these trade receivables, or alternatively expand the scope of

SIDBI and NSE’s IT-platform NTREES to facilitate securitization.

Provide credit guarantee support for MSME finance to non-banking finance

companies.

Risk Management

Develop a better understanding of financing patterns of service enterprises in the sector.

Expand the scope of the sector’s credit information bureau to collate and process

important transaction data, including utility bill payment.

Strengthen the recently established collateral registry and create stronger linkages

with other financial infrastructure.

Facilitate greater debt access to non-banking finance companies.

3.2 GOVERNMENT POLICIES REGARDING MICRO, SMALL AND MEDIUM ENTERPRISES (MSMEs)

After independence, the Govt. took up the policy of accelerating industrialization

since Second Five Year Plan. The Policy resolution 1948 emphasized that cottage and

small-scale industries can ensure best utilization of local resources, achieve ‘local-self-

sufficiency’ in production, increase employment generation through rehabilitation of

displaced persons and ensure balanced economic growth. Industrial Policy Statement 1977

introduced the concept of District Industries Centres (DICs) for SSIs to ensure supply of

raw materials and machinery, market survey of the district, generating new business ideas,

arrangement of credit facility, maintenance of quality of products etc. The Industrial

Policy Statement 1980 took some path breaking measures like increase in Investment limit

for tiny, small, and ancillary units, withdrawal of industrial location restriction,

elimination of provisions regarding expansion, increase in private participation. The New

Industrial Policy in 1991 emphasized on raising the investment ceiling for the purpose of

definition of a small unit to 6 million ( Rs 7.5 million if the unit concerned undertakes to

export 30 percent of its output or if it is an ancillary unit i.e. a firm supplying at least 50



percent of its output to large scale industries) , allowing other investors (including large-

scale enterprises and foreign investors) 24 percent equity participation in a small-scale

unit, introduction of the Act on delayed payment to small and ancillary enterprises,

encouraging banks to open specialized SSI Branches and giving better priority to the

sector in their annual credit budgets .Comprehensive Policy Package for SSIs and Tiny

Sector 2000 increased the exemption for excise duty limit from 50 lakhs to Rs One crore

to increase competitiveness, conducted the third census of small-scale industries and

motivated the SSI associations to develop and operate testing laboratories. As per the

Policy Package for SME 2005-06 Small and Medium Enterprises were recognized in the

services sector, and treated at par with SSIs in the manufacturing sector and emphasized

on Cluster Development Model.

3.3 DEFINITIONAL ASPECT OF MICRO, SMALL AND MEDIUM ENTERPRISES (MSMEs)

The definition of Small Scale Industries has undergone changes for many times.

The main criterion for definition was mainly the investment level & number of employees.

The chart below shows the changing pattern of SSI definition.

Changing pattern of Investments in SSIsYear INVESTMENT LIMIT (Rs.)

1955 1950 Up to Rs. 0.5 million in fixed assets

1965 Up to Rs. 0.75 million in Plant & Machinery

1975 Up to Rs. 1 million in Plant & Machinery


1985 Up to Rs. 3.5 million in Plant & Machinery



Source: Ministry of Small Scale Industries

A major change took place in 2006 with the enactment of MSME Development

Act, 2006.

In accordance with the provision of Micro, Small & Medium Enterprises

Development (MSMED) Act, 2006 the Micro, Small and Medium Enterprises (MSMEs)

are classified into two categories.



(a) Manufacturing Enterprises

The enterprises engaged in the manufacture or production of goods pertaining to any

industry specified in the first schedule to the industries (Development and regulation) Act,

1951. The Manufacturing Enterprise is defined in terms of investment level in plant &

machinery.

(b)Service Enterprises

The enterprises engaged in providing or rendering of services and are defined in terms

of investment in equipment. The limit for investment in plant and machinery / equipment

for manufacturing / service enterprises, as notified are as under:

Manufacturing Sector

Enterprises Investment in plant & machinery

Micro Enterprises Does not exceed twenty five lakh rupees

Small Enterprises More than twenty five lakh rupees but does not exceed

five crore rupees

Medium Enterprises More than five crore rupees but does not exceed ten

crore rupees

Service Sector

Enterprises Investment in equipments

Micro Enterprises Does not exceed ten lakh rupees:

Small Enterprises More than ten lakh rupees but does not

exceed two crore rupees

Medium Enterprises More than two crore rupees but does not

exceed five core rupees

Source: MSME Development Act 2006, Ministry of the District Industry Centres

(DIC) MSME, Government of India.

3.4 IMPORTANCE OF MSME DEVELOPMENT ACT, 2006

With the introduction of new MSME Act 2006, the Govt. has tried to resolve some

major issues related to the MSMEs like complicated bureaucratic registration procedures,

lack of finance, lack of managerial skills etc. The most important thing the Act has done is



to increase the significance of the sector and to offer a clear definition of MSMEs. Further,

the act mandated the composition of the National Board of MSME with clear long run

objective of overseeing and regulating the development of micro, small and medium

enterprises in India. The broad functions of this board are to manage cluster development,

train entrepreneurs, develop infrastructure and promote financial access to this sector. The

MSME Act 2006 has frame worked a strict rule regarding payment of dues by increasing

penalties substantially for delay in payment. For example, the Act mandates that all

payments be made within 45 days failing which the creditor must pay compound Interest

which is higher than the bank rate notified by the RBI. As noted in section 2.1, registration

in the MSME sector is voluntary and unregistered firms constitute a significant proportion

of the total firms constitute a significant proportion of the total. As a result, proper

maintenance of records becomes extremely difficult. The new MSME Development Act

2006 has made the registration procedure much simple and less time taking.

3.5 DEBATABLE ISSUES INITIATED BY THE MSME DEVELOPMENT ACT, 2006

Two policies introduced by the MSMED Act, 2006 have initiated much debate.

One is proposed Procurement Preference Policy and the other is Exit Policy or a Close of

Business (COB) policy. The first policy will determine how much supplies should be

purchased by the Govt. Agencies from the MSMEs and the second policy will determine

when and how to close a sick MSME unit.

The first policy tends to create a cold war between the small and medium

enterprises. The Federation of Associations of Cottage and Small Industries (FACSI) has

placed a demand for a separate policy exclusively for the small units regarding the

purchase of supplies. Many women run small and cottage industries have asked for

separate quota for themselves. Thus, the issue has taken a complicated shape.

Regarding the Close of Business (COB) two major issues remain unsettled. The

first one is at what level The Govt. should intervene to close a sick MSME unit. The

second issue is about the relative priorities of different parties associated with the MSME

units like owners, shareholders and employees, in case of conflict.

The Act has expanded the investment range and has clubbed small and medium

enterprises. In the process of doing so, it does not consider the ‘crowding out’ effect of



smaller firms within the sector. MSME sector falls into the Priority Sector where the

banks and many other financial institutions have to extend at least 40% of their total

portfolio. As the investment level have been increased many bigger firms fall into MSME

category. The banks prefer to extend their stipulated percentage of loan to those

comparatively bigger firms effectively crowding out smaller firms. Thus the small units

again get back to their original position of lack of working capital and some financially

strong firms get benefited. One possible solution that can be offered is to create own

priority package for different sectors to negate the crowding off effect of the large firms.

Another major problem for MSMEs is their less capacity of collective bargaining in the

credit market. MSMEs with net worth less than Rs.100 million cannot raise capital

through stock market. Thus they became fully dependent on banks and have to take loans

at a higher rate than the Prime Lending Rate (PLR).The larger businesses can bargain with

the banks and often can get loans at a lower rate. One possible solution may be to regulate

the banks more effectively and establish a uniform rate of lending.

Out of the total counts of MSMEs, a significant portion is run by the women

entrepreneurs and they must be provided sufficient encouragement. The Act is not very

specific about this area. This gap can be fulfilled by allowing some reservation of

procurement preference policies in women-run small units, creation of shared facilities for

female employees like day care services and single window interfaces to reduce the

information gap etc.

3.6 OPPORTUNITIES AND CONSTRAINTS OF GLOBALIZATION FROM THE VIEW POINT OF MSMEs

Concept of Globalization

Globalization may be defined as the process of integrating various economies of

the world without creating any hindrances in the free flow of goods and services,

technology, capital and even labour or human capital. Therefore, it signifies

internationalization plus liberalization, through which the world has become a small global

village.



3.6.1 OPPORTUNITIES

Exposure to foreign markets

Globalization has opened up the economy and integrated it with the world

economy. The MSMEs enjoy the benefits of selling their products and services to the

world market rather than being confined into domestic market. The free economy ushers

in accessibility to bigger markets, greater linkages for SMEs with larger companies and

marketing outfits, improved manufacturing techniques and processes.

Flow of foreign investment and technology

The MSMEs in India suffer from outdated technology and sub-optimal scale of

operation. Many foreign companies have tied up with Indian MSMEs and helped them to

use better technology, managerial skill etc. Thus, a proper collaboration between the small

and large companies can help small firms to develop technology base through Research &

Development activities, contribution from the technological institutes, universities etc.

Emerging areas of business

MSMEs have been able to identify many uncommon but highly promising

business areas like outsourcing, medical transcription, clinical research trials, sub-

contracting, ancillarization and many new technologies like biotechnology,

nanotechnology etc which are attractive for the new generation MSME entrepreneurs.

Less Govt. Intervention

As the economy is mainly market driven; there is less Govt. intervention, red tapes,

less control on import and export etc. The MSMEs would be allowed to work in a free

environment.

Employment generation

Being labour-intensive in nature, the MSMEs make significant contribution in

employment generation and expanding industrial network in rural areas. This sector

nurtures the traditional skills and knowledge based small and cottage industries. The

workers inherit and transfer skills from generation to generation. The handicrafts and other

products produced by this sector have good demand in market. The MSMEs have been a



good source of employment generation and can be even more if the sector gets support in

terms of infusion of technology, capital and innovative marketing techniques etc.

Better performance by the MSMEs

Before globalization, the MSME sector was a highly protected sector. Suddenly,

after globalization they discover that many of such protective measures were withdrawn

and they have to fight for their existence. This competitiveness in domestic and global

market may bring out superior performance.

Better Customer Satisfaction:

As the domestic market gets competitive, small and medium firms try to satisfy the

consumers in every possible way. They try to produce products as per the needs and

preferences of the consumers and satisfy the customers in best possible way.

Short and long term capital

In a liberalized economy, banks would try to find out new avenues of giving

credits to increase their profitability. Thus, supply of funds may be easier. Development in

money market would initiate development in capital market.

Export contribution

The products produced by MSME sector (like sports goods, readymade garments,

woollen garments and knitwear, plastic products, processed food and leather products,

handicrafts etc) have an excellent foreign market. As per the results of fourth MSME

census (2006-07), this sector has registered an export earning of Rs 202017 crores in

2007-08.

Removal of Regional disparity

People from remote areas have the tendency to migrate to urban areas in search of

jobs. This creates excessive pressure on urban areas and initiates social and personal

problems. This problem can be addressed by setting up a network of micro, small and

medium enterprises in economically backward areas. MSME sector can take care of local

needs, improve economic condition of the area and most importantly, can bring a

qualitative change in the economy of the country.



Better industrial relations

The MSMEs are less prone to industrial disputes. However, the truth behind the

scene is the workers in small sectors are mostly from unorganized sector and cannot raise

their voice collectively. Thus, apparently, they share harmonious relation with the firm

owners.

3.6.2 CONSTRAINTS

Process of globalization has resulted in some serious constraints on the MSMEs

Financing Problems

Financing has always been a major problem for the small and medium industries in

India. The MSMEs mostly depend on internal sources of finance (personal savings, loan

from relatives, and loan from local money lenders) than that of institutional financing by

banks and other financing institutions.

Extreme competition

The MSMEs face ruthless competition from the large domestic firms and

multinationals armed with improved technology, managerial ability, skilled workers,

marketing skills, better product quality, and wide range of products. The small firms find

it difficult to maintain their existence as the cases of merger and acquisition are

continuously increasing.

Poor Technology Base

There exists considerable heterogeneity among the MSMEs in India. A small

percentage of firms operate with sophisticated technology base whereas majority of firms

use outdated technology. They suffer from low productivity and poor product quality. Due

to their small size, they can not enjoy large-scale production economies.

Lack of infrastructure

Infrastructural lacking includes inadequate power supply, transportation, water

supply etc. Small firms cannot bear the cost of setting up independent power supply unit.

They have to depend on irregular power supply from the electricity boards. Inadequate



transportation system increases cost of production. The MSMEs producing beverages,

tobacco products, medicines etc face the problem of inadequate water supply. As per the

study conducted by Keshab Das and Sebastian Morris (2001), out of 1063 surveyed firms,

716 firms (more than sixty-seven percent) confessed that they have serious infrastructural

problems.

Lack of Skilled workers

Though India has no shortage of human resource, most of them are unskilled

workers. Large firms pay higher remuneration and employ skilled workers. The MSMEs

have to operate with unskilled or semi-skilled workers. Thus, the MSMEs suffer from low

managerial capabilities.

Marketing and Distribution Problems

Marketing is probably the most neglected and less explored problem for Micro and

Small firms. Most of them do not have any well formulated marketing strategy, market

research programmes, innovative advertisement techniques etc. Most of the MSMEs do

not have adequate monetary support to develop marketing section and many are not aware

of modern low-cost marketing techniques (blogging, sending mails, developing website

for the company).

Delayed payments

The small firms find it difficult to recover their dues from the large firms and even

from Govt. departments due to complex payment procedure and corruption. Due to lack of

funds, they cannot employ credit collection machineries (like factoring services). The

large firms force them to offer long credit period and even pay advance to ensure timely

supply of materials.

Gradual withdrawal of Reservation Policy

Reservation Policy, introduced in 1967 emphasized that some products would be

earmarked for exclusive production by the small enterprises and Non-MSME units can

undertake manufacture of reserved items only if they undertake 50 percent export

obligations. Withdrawal of reservation policy allowed MNCs and large domestic firms to

produce reserved items without any restrictions and increased the degree of competition

for the small firms. However, Several Expert Committees like Abid Hussain (1995), Shri



T.S. Vijayaraghavan (1997), Confederation of Indian Industries (CII) (1997) etc

concluded that reservation policy is no longer helpful for MSMEs as MSME units with no

reservation facility have performed better than those units with reservation support.

Moreover many MSMEs do not produce the reserved items and many MSME

Entrepreneurs do not consider it a relevant policy.

Mindset Problems

The mindset of the many MSME entrepreneurs has not yet changed. They still

expect protection policies and preferential treatment for the MSMEs. Fortunately, this

tendency is low in the new generation entrepreneurs. Workshops, success story based

approach may help reduce this tendency even more.

Outflow of wealth

Globalization process seems to favour the developed countries and the

multinationals more than that of developing countries and the MSMEs. The MNCs use

domestic wealth, infrastructure, and local unskilled workers at a lower cost and repatriate

huge profits to their own countries.

More prone to global fluctuations

A well liberalized economy reacts more sharply with the changes in global market.

The demand and supply would be determined by global fluctuations and not by the needs

of the consumers.

Social welfare areas neglected

The MNCs are more willing to produce consumer goods to maximize their profit.

The qualitative services like health, education etc which require huge investment but

generate less and time taking return on investment, would be neglected.



CHAPTER-IV

PRIORITY SECTORS

4.1 MEANING AND DEFINITION OF PRIORITY SECTOR

The meaning of the priority sectors was elaborated at the conference of custodians

of nationalized banks held in New Delhi in July 1970 by the finance minister in the

following words:

“When we talk of Priority Sector, the emphasis is on the needs of the common

man, the man who is engaged or is willing to be engaged in a productive Endeavour,

which is socially useful and economically viable but is handicapped for lack of finance on

reasonable terms”.

Thus the Priority or neglected sectors included those areas of economic activities

which are socially desirable but have been inadequately financed or wholly neglected by

commercial banks earlier.

The rationale of Priority Sector lending was one of the causes for nationalization of

the top 14 banks in 1969. However, it was the working group on the Priority Sector

lending and the 20 – point Economic Programme chaired by Dr. K.S. Krishnaswamy

which clearly spelt out the concept. “The concept of Priority Sector lending is mainly

intended to ensure that assistance from the banking sector floes in an increasing manner to

those for a significant proportion of the national product, have not received adequate

support of institutional finance in the past”.

Generally for commercial banks lending to priority sector connotes Agriculture

and Small – Scale Industries. This concept is in the aggregate sense. These will have sub

– sectors comprising of very under-privileged group. This group has been termed as

“weaker – Sector”.

More than 80 percent of the Priority Sector advances are directed towards

agriculture and Small – Scale Industries. For all practical purposes, therefore, the need for

identifying the weaker sections assumes importance only in these two categories.



Besides, the definition covers retail traders transport operators professional and

self – employed persons, Education, Housing loans to weaker section and also small

business under the term “Priority Sector”.

Traders whose annual turnover does not exceed Rs. 4 Lakhs have been brought

under this category. Transport operators owning a fleet of vehicles not exceeding 6,

including the one proposed to be financed could be included in the Priority Sector.

But special attention will be given to the needs of single vehicle owners or

operators. Professionals and self employed persons whose barrowing limits do not exceed

Rs. 2 Lakhs have to be included in the category of Priority Sector, small business man

whose business equipment does not exceed Rs. 4 Lakhs can be included in this category.

Certain vital sectors of the economy are declared as Priority Sectors by the

government / RBI from time to time in order to ensure that the bank credit flows in an

increasing measures to these sectors.

4.2 SEGMENT OF PRIORITY SECTOR

The following are the different segment of priority sector:

Agricultural

Small scale industries

Small road and operating transporter

Retail trade

Small business

Professional and self employed persons

State sponsored organization for scheduled castes and scheduled Tribes

Education

Housing

Consumption loans

Loans to self help groups (SHGs) / NGOs / Micro credit

Food and agro based processing sectors

Software industries

Venture capital



The definition and coverage of Priority Sector is based on the RBI guidelines issued from

time to time which are communicated by the bank.

4.3 NORMS FOR LENDING UNDER PRIORITY SECTORS

The bank shall adhere to the norms of lending such as quantum of financial

margin, security norms; rate of interest etc, based on the guidelines evolved in this regard

form time to time.

4.4 TARGETS UNDER PRIORITY SECTORS

Advance to Priority Sector 40% of net bank credit

Agriculture 18 % of net bank credit both direct and

indirect [ indirect agriculture advance only up

to 4.5% of the net bank credit shall be

reckoned for the purpose]

Small Scale Industries 40% of small scale industries advance

shall be for unit original investment in

Plant and machinery up to 5 lakhs.

20% of Small Scale Industries advances shall

be for units with original investment plan &

Machinery of above Rs. 5 Lakhs but up to

Rs. 25 Lakhs.

The remaining 40% shall be for units with

investment in Plant & Machinery (original

cost) exceeding Rs. 25 Lakhs.

Weaker section advances 10% of net bank credit

DRI advances 1 % of previous year Total advan



CHAPTER V

SMALL SCALE INDUSTRIES

5.1 INTRODUCTION

Small Scale industries play a key role in the industrialization of developing

country. This is because they provide immediate large scale employment and have a

comparatively higher labour – capital ratio: They have a shorter gestation period and

relatively smaller markets to be economic. They need lower investments offer a method of

ensuring a more equitable distribution of national income and facilitate an effective

mobilization of resources of capital and skill which might otherwise remain unutilized and

they stimulate the growth of industrial entrepreneurship and promote a more diffused

pattern of ownership and location.

Small Scale Industries units are those engaged in the manufacturing, processing or

preservation of goods and whose investment in plant and machinery (Original Cost) does

not exceed Rs. 1 Crore. These would interalia included units engaged in mining or

quarrying serving and repairing of machinery. In the case of ancillary units, the investment

in plant and machinery (original cost) should also not exceed Rs. 1 Crore to be classified

under Small Scale Industries.

5.2 DEFINITION OF SMALL SCALE INDUSTRIES

Professor Larving Fisher, defined real economic development as “shifting of an

working population from primary to secondary and from secondary to territory sector”.

Small Scale Industries units are those engaged in manufacturing, processing or

preservation of goods with investment in plant and machinery (original cost) not to

exceeding Rs. 1 Crore.

In case of ancillary also the investment in plant and machinery (original cost)

should not exceed Rs. 1 Crore to get classification under Small Scale Industry.

The investment limit of Rs. 1 Crore for classification as Small Scale Industries has

been enhanced to Rs 5 Crore in respect of certain specified items like hand tools,

pharmaceuticals and drugs and stationery by government of India.



The status of “Tiny enterprises” may be given to all Small Scale units whose

investment in plant and machinery is up to Rs. 25 Lakhs, irrespective of the location of the

unit.

Small Scale service / Business Enterprises (SSSBE) having investment in fixed

assets (excluding land and building) upto Rs. 10 Lakhs and registered as such are

classified as Small Scale Industries.

Artisans, village and cottage industries has been defined as Artisan (irrespective of

location) or small industrial activities viz, manufacturing, processing, preservation and

servicing, in village and small towns with a population not exceeding 50000, involving

utilization of locally available natural resources and human skills (where individual credit

requirement does not exceed Rs. 50,000/-)

Fiscal commission (1949-50) defined SSIs as “One operated with hired labour of

usually 10 to 15 hands”

According to SSIs board (1954) “an industrial unit using power and employing less

than 50 persons and without using power and employing less than 100 persons and with

capital assets not exceeding Rs. 5 Lakhs in considering as Small Scale.

But in 1966 SSIs was defined as “one which had capital investment in plant and

machinery not exceeding Rs. 7.5 Lakhs irrespective of number of persons employed”

In July 1980 the government of India has given another definition on plant and

machinery not exceeding Rs 20 Lakhs.”

In 1985 the Investment limit was raised to 35 Lakhs. In May 1990 the investment

limit was raised to 60 Lakhs and the investment limit was Rs. 75 Lakhs in the case of

Small Scale Industries which undertook export obligation of at least 30% of their annual

outputs in the third year.

Small Scale Industrial units

Export oriented Small Scale

Industrial units.

Ancillary industrial undertakings.



Tiny enterprises.

Small Scale services and business enterprise.

Power looms.

Industrial Estates.

Manufacture of common salt.

Ship breaking.

Tea manufacturing.

Water mills.

Food and Agro based processing sector.

Investment in securitized Asset.

Classification of Small Scale Industries

Features of Small Scale Industries

1. Structural Feature of Small Scale Industries

This may be classified under three broad categories:i. Some industries are started on a Small – Scale but they are likely to develop into

medium sized units within a short time like medium – scale industries these are capital

intensive relatively large investment in block assets and are generally in the corporate

sector, organize as public or private limited companies or as co-operative societies in

these concerns. Borrowed capital is higher than owned capital these concerns are in an


Small Scale Industries TraditionalKhadiVillage IndustriesHand LoomSericultureModernPower Looms Small ScaleExport orientedAncillariesWith Power


advantageous position to offer adequate security by way of block assets of stocks; they

are also able to provide the necessary information for the consideration of loan

applications. The concerns in this group are comparatively will managed and have a

good sales turnover.

They can be generally considered creditworthy for institutional financing. Biscuits,

Paints, Pans, Oil, Engines, Grinding wheels etc come under this category.

ii. Under the second category some units started on a small – Scale and are likely to

remain so far long time in view of the specialized nature of demand for their products,

though specialized types of machines are required by this sector. They do not require

any large – scale investment in block assets generally these are organized as non –

corporate concerns, partnerships, proprietary or joint family concerns. These concerns

have little block assets to after as security, though they maintain sufficient stocks.

The managerial ability of these concerns also varies considerably from unit to unit,

their own resources are blocked either in holding stocks or in giving short term credits

units producing Agarbatties, Bolts, Nuts, Oil stoves etc come under this category.

iii. The third category covers concerns which began as cottage industries but later

developed into Small – Scale Industries or as feeder units to large – scale industries,

this group however, forms the smallest segment among the Small Scale Industries, such

concerns are mostly organized as proprietary or partnership concerns, barrowed capital

is relatively insignificant in their resources and the availability of institutional finance

negligible – Being more labour intensive, the tangible assets of these units are limited.

iv. Their management as well as maintenance of records are rather poor. Units producing

Toys, Confectionery coil, Springs etc come under this category. Under the second

category some units started on a small – Scale and are likely to remain so far long time

in view of the specialized nature of demand for their products, though specialized types

of machines are required by this sector. They do not require any large – scale

investment in block assets generally these are organized as non – corporate concerns,

partnerships, proprietary or joint family concerns. These concerns have little block

assets to after as security, though they maintain sufficient stocks.



The managerial ability of these concerns also varies considerably from unit to unit,

their own resources are blocked either in holding stocks or in giving short term credits

units producing Agarbatties, Bolts, Nuts, Oil stoves etc come under this category.

v. The third category covers concerns which began as cottage industries but later

developed into Small – Scale Industries or as feeder units to large – scale industries,

this group however, forms the smallest segment among the Small Scale Industries, such

concerns are mostly organized as proprietary or partnership concerns, barrowed capital

is relatively insignificant in their resources and the availability of institutional finance

negligible – Being more labour intensive, the tangible assets of these units are limited.

Their management as well as maintenance of records are rather poor.

Units producing Toys, Confectionery coil, Springs etc come under this category:

The managerial ability of these concerns also varies considerably from unit to unit, their

own resources are blocked either in holding stocks or in giving short term credits units producing

Agarbatthies, Bolts, Nuts, Oil stoves etc come under this category.

5.5 SPECIAL FEATURES

Small Scale Industry has gained a firm place in industrial scenario due to special

features which it has. They are quite unique in nature.


Artisan Skilled


i. In every economy for every rupee invested, they created more and more job

opportunities. They offer an opportunity to absorb surplus, man power and make use of

their inherent skills and talent possessed by them.

ii. Financial resources normally concentrate in big industries which has created a problem

of concentration of economic power, which is deemed as social evil in all the advanced

countries. Small Scale Industries will not give birth to such problems. Small Scale

Industries are very much needed in socialistic and democratic setup.

iii. Small Scale Industries works as a bed for emergence of organizational talent and

entrepreneurship. Big enterprises dampen such entrepreneurial skills.

iv. Small Scale Industry effective mobilization of resources of capital and skill which

might otherwise remain untapped.

v. Big enterprise leads to social problems like slums, educational problems, housing

problems. Small Scale Industry will not lead to such problems.

vi. Many a times, Small Scale Industry acts as auxiliary units to main units.

vii. Proportion of output in Small Scale Industries is 5 times greater than big units for their

output of capital investment.

viii. Generally Small Scale Industries make use of indigenous technology and local material

for production.

ix. For Small Scale Industries state need not spend lot of money for creating

infrastructures.

5.6 BENEFITS OF SMALL – SCALE INDUSTRIES

Small Scale Industries play vital role in the economic growth of developing countries.

i. Utilization of Resources: Small – Scale Industries facilitates the tapping of resources

which otherwise would remain unused. These resources included entrepreneurship

capital labour and raw materials.



ii. Employment Generation: Since they are fairly labour intensive Small Scale Industries create employment opportunities at a relatively low capital cost.

iii. Generation of Foreign Exchange: Small Scale Industries facilitate substantial

foreign exchange earnings. A wide range of consumer and simplex procedure goods

so Small – Scale Industries is going to be generation of foreign exchange.

iv. Formative and Productive: It is the small units which are highly innovative though

they do not maintain their own research and development wings.

v. Individual tastes, Fashions and Personalized Service: Small Scale firms are quick

in studying changes in tastes and fashions of consumers and in adjusting the

production process and production accordingly, small firm seen to have an edge in

industries that all for personalized service.

vi. Diversification of Industrial Structures: Small Scale Industries contribute

significantly to the strengthening of the industrial structure, for many more articles

can be produced more economically on a Small Scale than on a large scale.

vii. Entrepreneurial Development: Small Scale Industries serve as seedbeds of

entrepreneurship they serve a developing economy not only by their output of goods.

viii. Small is Beautiful : “Small is Beautiful”, said E.F. Schumacher, he maintains that

man’s current pursuit of profit and progress, which promotes giant organizations and

increased specialization, has in fact resulted in gross inefficiency. Environmental

pollution and inhuman working conditions.

ix. Dispersal over wide areas: It is only small scale units which have a tendency to

disperse over wider areas according to the second all India census of Small – Scale

units.

x. Happier in Work : People who work in small enterprises are happier in their work

than those who work in large ones in spite of lower wages and poor standards of

safety, comfort and welfare facilities.



5.7 OBJECTIVES OF SMALL – SCALE INDUSTRIES

i. The basic objective of these industries are to create immediate and permanent

employment on a large scale at a relatively small cost

ii. To meet a substantial part of the increased demand for consumer goods and simple

procedures goods.

iii. To facilitate the mobilization of resources of capital and skill which might otherwise

remain inadequately utilized.

iv. To bring about an integration of the development of these industries with the rural

economy on the one hand and with large scale industry on the other.

Further, these industries are said to offer a method of ensuring a more equitable

distribution of the national income and of avoiding some of the problems that unplanned

urbanization tends to create.

Basically small industries are important for national for national development

programmes because they can make a definite contribution to the realization of the central

purpose of such a problem i.e., to bring about an efficient utilization of natural. Human

and capital resources of the country for the achievement of pre – determined ends.

5.8 ROLE OF SMALL – SCALE INDUSTRIESSmall- Scale Industries play a strategic role in the progress of a country, these

industries, by and large, represents a stage in economic transition from. Traditional to

modern technology, the transitional nature of this process is reflected in the diversify of

these industries. Some small scale units use simple skills and machinery while many other

units use modern and sophisticated technology, the challenge of economic growth is to

accelerate the productivity of agriculture and industry by improving their techniques of

production, so far as industries are concerned, this will involve the adoption of a

progressively superior technology, particularly in semi – urban and rural areas.



5.9 PROBLEMS FACED BY SMALL – SCALE INDUSTRIES

Small – Scale Industries quite often face distinctive problems there are:

i. Difficulty in obtaining credit from commercial banks because their inability to

provide security.

ii. Inability to offer liberal credits terms in the sale of their products.

iii. Absence of management expertise often management is by one person who

performs a number of functions usually with no formal training.

iv. Difficulty in completing with imported products due to production cost.

v. Difficulty with competition from other local entrepreneurs in the same line of

business competing for the limited local market.

vi. Difficulty in obtaining industrial land in towns and cities. The shortage of industrial

land is giving rise to more and more backward operations.

vii. Difficulties in identifying appropriate technology and technical assistance.

viii. The manner in which both the needs of the economy and linkage existing industry

can best be served.

ix. Survey if the material and human resources of the countries to identify the regions or

areas for the development of Small – Scale and Medium – Scale Industrial

enterprises.

x. Identification of industrial projects for development.

xi. Project preparation and evaluation.

xii. Financial or credit support and investment promotion.

xiii. Technology development and applications such as the designing of proto type

machines for products identified according to country resources and requirements.

xiv. Industrial training, skill formation and entrepreneurship development.

xv. Linkages between large industries and small industries and the creation of sub –

contracting facilities at the national regional and international levels.

xvi. Quality control and testing facilities.

xvii. Procurement of raw – material and equipment.

xviii. Scientific and industrial research.

xix. Identification and assistance to enterprises which are experiencing difficulties.

xx. Management and re – organization or restructuring of small and medium scale

enterprises through various schemes.



xxi. Local initiative and productivity increases through modernization.

xxii. Regional and international technical and financial assistance.

xxiii. Creation of institutions and changes in prevailing institutional arrangements.

5.10 SMALL SCALE INDUSTRIES IN INDIAN CONTEXT [IMPORTANCE]

Small Scale Industries are not of recent origin. They were the principal source of

income and employment and the production were noted for the excellent and artistic skill.

Professor, Webber Wrote “The skill of the Indians in the production of delicate

Woven fabrics, in the mixing of colors, the working of metals and precious stones, the

preparation of essence and in all manner of technical art, was from early times enjoyed a

worldwide celebrity”.

Professor, Webber’s words signify the prominence and glory of the products of the

cottage and Small Scale Industries.

The frequent definition of Small Scale Industry itself will signify the importance of

Small Scale Industry itself will signify the importance of Small Scale Industries in our

country.

Small Scale Industry is the second biggest sector next to agriculture in our

economy. The real significance of Small Scale Industry can be explored from different

angles of view. They should be developed reasons should be given due weight age for the

following reasons:

i. Labour oriented

India has abundant manpower resources. Primary sector is already

overburdened. In the secondary sector, big enterprises cannot employ huge human

folk. The left over sector is Small Scale Industries which can provide a large volume

of employment generated by Small Scale Industry rose to 96 Lakhs by 1985-86 from

67 Lakhs in 1979-80 with a growth rate of 80% with its inherent nature of labour

investment so Small Scale Industries has gaining momentum even today.



ii. Capital light

Ours is a developing economy and suffers form the serious problems of

shortage of capital which is very important for the growth of secondary sector Small

Scale Industries needs only few lakhs investment whereas big, medium sized units

need crores of Rupees. Small Scale Industry offers a higher degree of employment

from this given investment. It has been estimated that for an investment of Rs. 1 Lakh

in Small Scale Industry employment opportunity if to 55 persons whereas it is only 6

persons in big industries.

iii. Skill

Large industries require technology which is on imported one, but small

enterprises doesn’t require such an imported technology. They make use of inherited

skills of intellectual for the production. Further they don’t need services of highly

skilled personnel.

iv. Small Scale Industry provides employment without affecting main occupation namely

agriculture. The illiterate masses of rural area undertake work in off seasons in these

industries.

v. They mobilize the untapped capital and skill that may otherwise remain untapped in

this vast country. Large industries cluster around big cities and therefore cannot attract

these resources.

vi. Indigenous technology, light capital and limited skill will breed the new rural

entrepreneurs.

vii. Concentration of big industries given birth a large number of administrative and social

problems like law and order problem, congestion, creation of slums – government will

be forced to make heavy investment on overheads i.e. Roads, water supply, Schools,

Hospitals, Housing etc. Small Scale Industries will check the evils of concentration of

big industries and urbanization.

viii. Small Scale Industries have relatively shorter generation period when compared to big

industries.



ix. Large industries give birth to the problem of concentration, economic power and

wealth in few hundreds. Small Scale Industries helps in dispersal of economic power.

x. Big industries generally concentrate in particular region keeping rest of the country in

isolation, such to sided development will hamper economic development of rest of the

country. Small Scale Industry ensures balanced economic growth of the country.

xi. Small Scale industry can develop handicraft and promote aesthetic values.

xii. Small Scale Industry units have made suitable and valuable contribution even in the

sphere of exports. The volume of exports in 1984-85 has been at the rate of 3685

crores. The exports have substantially increasing.

xiii. Neither technology nor input are helpful to Small Scale Industries absolutely they

depend on local materials; market for them will be of national and international in

nature.

5.11 Target for lending to Small Scale and Medium enterprises sector

Lending to Small Scale Industries fall under priority sector and lending to medium

enterprises [industry] fall under non – priority sector. Reserve Bank of India has advised

to double to credit flow to Small and Medium Enterprises sector by the year 2009-10 i.e.,

in 5 years. Accordingly, targets are being set by the bank within the Small Scale Industry

sector fallowing sub sector targets are stipulated by Reserve Bank of India:

i. 40% of the total credit to Small Scale Industry to go the cottage industries, khadi and

village industries, Artisans and Tiny industries with investment in plant and machinery

upto Rs. 5 lakhs.

ii. 20% of the total credit to Small Scale Industries units with total investment in plant and

machinery over Rs. 5 lakhs and upto Rs. 0.25 lakhs.



CHAPTER-IV

STATE BANK OF MYSORE CREDIT SCHEMES TO SMALL – SCALE INDUSTRIES

6.1 VARIOUS LOANS SCHEMES OFFERED BY STATE BANK OF MYSORE

TO INDUSTRIALISTS IN SMALL – SCALE SECTOR

Loans to Small Scale Industries

Eligibility: - Any individuals / partnership firm public or private ltd companies desirous

of promoting Small Scale Industry with investment in Plant and Machinery not exceeding

Rs. 1 crore.

Extent of Finance:- Need based [both fund based and non-fund based].

Margin:- Working capital / Medium term loan

a) No margin up to Rs. 25,000/-

b) Credit limit over Rs. 25,000/- flexible approach – 15% - 25% depending on the merits of each case.

Primary Security:- Assets created out of bank finance

Collateral Security:- obtention of collateral security exempted

a) Up to Rs. 5 Lakhs

b) Over Rs. 5 Lakhs and up to Rs. 15 Lakhs, based on good track

record satisfactory financial position

c) Over Rs. 15 Lakhs at the discretion of the Bank

Rate of Interest:- Slab rate in conformity with the quantum of limit and also on credit

rating, ranging from 11.56% to 13.75% per annum [for the present]

Export finance:- a) establishment of letter of credit b) Pre – shipment finance c) Post – shipment finance

d) Assistance against Duty drawn back



Flexi [SSI] Term Loans

Introduction: - Finance to Small Scale Industry is extended in the form of term loan, cash

credit, demand purchase etc, with the main focus in monitoring of end – use of funds.

Taking into account the growing financial requirements of the sector and also the

flexibility required by Small Scale Industries units to survive in today’s highly competitive

environment a general purpose high value Small Scale Industry units.

Nature of facility: - Term Loan

Eligibility: - Small Scale Industries barrowers with a record of cash profit for at least 3

years and whose account are classified as Standard Assets.

Purpose :- Any genuine commercial purpose such as sharing of net working capital,

capital expenditure, substitution of high cost debt, research and development expenditure,

quality up gradation to ISO standard etc. Loan for acquisition of Land and Building,

Building construction, up – gradation and renovation of officer, show rooms, godowns,

purchase of equipments, vehicles etc.

Quantum of Finance: - Maximum of Rs. 50 Lakhs

Margin: - 25%

Primary security: - Extension of hypothecation / pledge charge over current and fixed

assets.

Collateral Security: - Extension of charge over existing collateral additional tangible

security such as immovable property, Bank deposits etc., wherever required. Personal

guaranty of proprietors / partners / promoters.

Repayment: - In monthly / quarterly instalments as per normal cash generation cycle in 3

years period in deserving cases, the repayment period can be extended up to 5 years.

Interest: - As per interest rate applicable to term loan

Insurance: - Will be covered for all assets changed to the bank.



SME Credit Plus

This scheme is designed to meet the unforeseen expenditure of the Small scale

Industries with excellent track record.

Nature of facility: - Clean cash credit.

Eligibility: - The existing Small Scale Industries barrowers whose account has been

classified as Standard Assets of the past two consecutive years.

New borrowers also considered for facility on merits.

Limits: - An amount equal to 20% of the aggregate working capital limit will be

sanctioned to eligible Small Scale Industry barrowers, subject to a maximum of Rs. 25

Lakhs.

The barrowers are free to utilize the facility for 12 times in a year. There should be

a gap of at least 15 days between the date of the complete repayment of the outstanding in

the account and the date of the next utilization. In any case, an amount once drawn cannot

be outstanding for more than 2 months.

Purpose: - For contingencies like repairs to machinery, labour payments, tax payments,

additional purchase of raw-materials for execution of bulk orders received from customers

etc.

Security: - The facility will be extended by way of clean cash credit and no primary

security is required. The available security by way of collateral to other sanctioned limits

will be extended to cover the SME credit plus limit.

Interest: - At the rate applicable to working capital limits.

Insurance: - No insurance coverage is necessary as the limit is clean in nature.

Annapurna

Scheme for financing women for establishing food catering unit.

Introduction: - Now a day’s lifestyle of the people is changing at faster pace especially in

metro and big cities. Women have stepped out of the house to bear more responsibilities

for becoming financially independent and have joined hand in office jobs at different

levels as well as in running self – employment activities. Mainly people have money but



they are facing shortage of time for preparing food - specially, the working couples. This

scheme provides for financing women for selling breakfast / food / lunch packs etc.

Target group: - Women individual / partnership

Maximum Loan: - Rs 50,000/-

Type of Loan: - Composite Term loan. The working capital portion financed not more

than 50% of composite term loan.

Purpose of the loan :- The term loan component can be used for purchase of items like

utensils and cutlery, gas connection, refrigerator, mixer-cum- grinder / Blender / food

processor, hot case, utensil stand, Tiffin Boxes, working table, kitchen fan, exhaust Fan /

Electrical chimney, water Filter etc.

Repayment: - Up to 36 equal monthly instalments with one month moratorium period.

Margin: - 10%.

Rate of interest: - 8.50% [Subject to change from time to time].

Security: - Hypothecation of assets created out of Bank loan.

Guarantee: - a) One guarantor with sufficient means

b) In case the applicant is unmarried women, the loan has to be put

through in the joint names of father / guarantor of the applicant.

Insurance: - To cover up to the extent of capital assets created out of bank finance.

Stand – By Line of Credit [Term Loan]

Introduction: - It is observed that Bank receives multiple requests from valued barrowers

during a year requesting for sanction of term loans for capital expenditure towards

expansion, modernization etc. entails considerable delay. Therefore, stand – by – term

loan facility is introduction to the benefit of high rated barrowers.

Eligibility: - Small Scale Industry and C & I barrowers rated SBM – 3 above are eligible for the facility.



Quantum of Finance :- To the extent of 2 times the cash accruals of the previous year

with a maximum limit of Rs. 50 Lakhs for Small Scale Industry units and Rs. 200 Lakhs

for C & I units.

Nature of Facility: - Term Loan

Period of Loan: - 3 to 5 years

Purpose: - To meet any genuine purpose like acquisition of machinery and other capital

expenditure etc. The Stand – by – line of credit [Term Loan] will be sanctioned as a

separate limit (not as sub limits) along with regular limits.

Margin: - As applicable to Term Loans.

Security

Primary Security: - Change over assets acquired

Collateral Security: - As decided by the sanctioning authority.

Interest: - As applicable to Term Loans

Insurance: - To cover all the assets charged to the Bank.

Repayment: - In monthly / quarterly instalments as per normal cast generation cycle.

6.2 METHOD AND OBJECTIVES OF RECOVERY

i. Method of Recovery [Loan recovery policy 40 cir 290/2004]

Persuasion / Personal contacts

Seizure and disposal of securities has been advised of branches through various

circulars, as per the guidelines in force circles are empowered to permit disposal of

securities without referring to head office in respect of all LPD accounts subject to

the followings

a) If does not involve any concession and / or it does not result in under –

realization of securities when compared to the ruling market value.



b) If does not involved paring away any portion of the sale proceeds to the

borrowers when the debt is not fully cleared. If any one of the above conditions is

not fulfilled. Then the proposals are to be referred to head office.

c) Enforcement of securities under SARFAEST act,

d) Legal Action: Legal action is last resort adopted for recovery of the dues. Before

initiating legal action, bank has to exhaust all other avenues of recovery and after

considering the prospects of recovery. Thoroughly examine the pros and cons of

filling suit.

The following are the various steps the banks have to resort towards recovery

through legal action:

Serving of legal notices

Filing of suit / initiating proceedings under Revenue recovery act / referring to

DRTs / lok adalats.

Obtaining interim orders from the URT / DRT like appointment of court recover,

obtaining injunction orders seeking attachment of assets owned by the IDRs etc.

Filing of appeals whenever necessary.

Execution of decrees

Initiating insolvency proceedings

Initiating criminal proceedings, whenever necessary

Taking steps for winding up of the company

Purchase and sale of Non – banking assets acquired in arising out of loan recovery

proceedings.

Pursing ECGC / CGFS claims settlement

Settlement through compromise

ii. Objectives of loan Recovery Policy

Minimize the incidence of fresh NPAs

Effective monitoring of the barrower accounts

Proper classification of accounts under SPECIAL WATCH category and close

monitoring thereof.

Recovery of critical amount to avoid slippage



Reduce the level of NPAs by recovery, adopting various legal and non – legal

measures

Enforcement of securities invoking provisions of SARFAEST Act.

Filing suits in appropriate civil courts

Winding up the company

Settlement through compromise

Sales of assets to asset reconstruction companies

Timely revival / rehabilitation of the potentially sick and viable units

Execution of decrees within one year of abstention of the decree orders.

Upgrading the accounts by recovering the overdue amount

Re – structuring / Re – phasing of accounts whenever possible

Prevent deterioration in the quality of the assets

Regular inspection of securities (movable / immovable)



CHAPTER-VII

SURVEY ANALYSIS AND INTERPRETATION

7.1 INTRODUCTION

The area which is chosen for the purpose of study the financial assistance to small

scale industries in Davangere city by SBM. I have conducted survey with an intention to

bring out the opinions regarding Financial Assistance of State Bank of Mysore to Small

Scale Industry.

The following is the statement given by SBM, Davangere about the financial

assistance given to small scale industries.

Table showing the year wise financial assistance to SSIs by SBM, Davangere

Financial Year No. of beneficiaries Total amount% age of increase or

decrease

2009-2010 150 68,21,000 --

2010-2011 163 64,73,000 -5.10%

2011-2012 175 75,84,000 +17.16%

2012-2013 200 1,88,75,000 +48.88%

Source: Annual Report

The above statement is given by State Bank of Mysore, Mandipet branch,

Davangere about the financial assistance given to small scale industries.

Here, the last 4 years’ statements are available to compare year by year.

In the financial year 2009-10 the total beneficiaries are 150, who are got the

financial assistance from State Bank of Mysore at Davangere is Rs. 68,21,000/-.

In 2009-10, there is a decreasing in beneficiaries compared to last year, in this

financial year there is 163 beneficiaries are, the amount is Rs. 64,73,000/- And the

amount is also decreased by 5.10%, When compared to last year the trend is decreased.

In the year of 2010-11 the no. of beneficiaries are increased by 12. The total no. of

beneficiaries is 175, and the total loan amount given them to Rs.75,84,000/- The trend is



increased year by year, because when compared to the last year, the beneficiaries are

increased by 25 and the amount is increased by Rs.11,11,000/- a good trend.

The financial year of 2011-12, the beneficiaries are increased by 25 And the

amount provided to them is Rs.1,88,75,000/- Compared to last year, the amount is

increased by 48.88%, A good trend.

7.2 TABLES AND DIAGRAMS

The survey is conducted through direct interview by following the questionnaire

method for the 25 respondents; the result of this survey was interpreted in the following

tables and graphical diagrams. Those tables are given below…

Age wise classification of Respondents

Gender wise classification of Respondents

Monthly income of Respondents

Education Level of Respondents

Respondents’ Previous Occupation

Nature of industry of the Respondents

Type Of Organization of the Respondents

Classification of Respondents on the basis of Fixed Capital

Classification of Respondents on the basis of Amount of Working Capital

Reasons for opting State Bank of Mysore

Purpose of Loan taken

Loan barrowed under different Schemes

Amount of Loan Borrowed from the Bank by the Respondents



Table No.1

Age wise classification of Respondents

Age wise classification of respondents play an important role and influencing

factor for the establishment of business. The age wise classification represents their urge

to become entrepreneurs.

Table Showing Age wise classification of the Respondents

Age Wise Classification No. of Respondents Percentage

Below 25 Years 02 08%

25 to 40 years 21 84%

Above 40 Years 02 08%

Total 25 100%Sources: Survey Data

Chart No.1: Chart Showing Age wise classification of the Respondents

Below 25 Years

25 to 40 years

Above 40 Years

05

1015

2025

2

21

2

No. of Respondents

From the above table shows that, among the 25 respondents, 84% respondents were

between the age group of 25 to 40 years and rest of the respondents belongs to the age

group of Below 25 years & above 40 years i.e., 8%.



Table No.2

Gender Wise Classification of Respondents:

Education level of Entrepreneurs is one of the influencing factors for growing their

business. It helps in the acquisition of the required knowledge for a job, which also helps

in traditional skill.

Table Showing Gender Wise Classification of Respondents

Gender Wise Classification No. of Respondents Percentage

Male 21 84%

Female 04 16%

TOTAL 25 100%

Sources: Survey Data

Chart No.2: Chart Showing Gender Wise Classification of Respondents

Male

Female

05

1015

2025

No. of Respondents

From the above table shows that, among the 25 respondents, 84% were male and

16% were female, who have transaction with this bank, the number of male who utilizes

the service offered by the bank is more when compared to female.



Table No.3

Monthly Income of Respondents

Table Showing Monthly Income of Respondents

Range of Monthly Income No. of Respondents Percentage

Below Rs.10000 1 4%

Rs.10000 to Rs. 25000 4 16%

Rs.25000 to Rs.50000 5 20%

Rs. 50000 & Above 15 60%

TOTAL 25 100%


Chart No.3: Chart Showing Monthly Income of Respondents

Below Rs.10000

Rs.10000 to Rs. 25000

Rs.25000 to Rs.50000

Rs. 50000 & Above

0 2 4 6 8 10 12 14 16

1

4

5

15

No. of Respondents

Table no. 4

Educational Level of Entrepreneurs

Education level of Entrepreneurs is one of the influencing factors for growing their

business. It helps in the acquisition of the required knowledge for a job, which also helps

in traditional skill.



Classification of Entrepreneurs on the Basis of Educational Qualification

Education Level No. of Respondents Percentage

Up to SSLC 1 4%

PUC 16 64%

Graduate 2 8%

Post Graduate 6 6%

Total 25 100%

Sources: Survey data

Chart No.4: Chart Showing Classification of Entrepreneurs on the Basis of Educational

Qualification

Up to SSLC PUC Graduate Post Graduate02468

1012141618

1

16

26

No. of Respondents

The above table shows that the 64% of respondents are educated up to PUC and 8% of

entrepreneurs are educated up to Graduation like B.Com, B.Sc, B.A and 24% of respondents are

educated only up to SSLC.

Table No. 5

Respondents’ Previous Occupation:

Table Showing Classification of Respondents on the Basis of their previous Occupation

Previous Occupation No. of Respondents Percentage

Agriculturist 15 60%

Business Man 10 40%

Employee 0 0%



Others 0 0%

Total 25 100%


Chart No.5: Chart showing Respondent’s previous occupation

Agriculturist Business Man

EmployeeOthers

02468

10121416

15

10

00

No. of Respondents

Among of 25 respondents, 40% of respondents are of business background, 60% of

respondents were of the Agriculture background, and no one belongs to employee and other

sectors.

Table No. 6

Nature of industry of the Respondents:

Table Showing Nature of Industry of the Respondents

Nature of Industry No. of Respondents Percentage

Production 5 20%

Processing 17 68%

Service 03 12%

Any other 0 0%

Total 25 100%




Chart No. 6: Chart showing nature of Industry

The respondents are classified on the basis of the nature of industry into four types as follows:

Out of 25 respondents, 5 units belongs to production, 17 units belongs to processing

industry and 3 units are belongs to service and no units to other indust

Table No. 7

Form of Organization of the Respondents:

Table Showing Form of Organization of the Respondents

Form of Organization No. of Respondents Percentage

Sole Trading Concern 19 76%

Partnership 6 24%

Joint Stock Company 0 0%

Total 25 100%


Chart No.7: Chart Showing Form of Organization of the Respondents


5

17

3

No. of Respondents


Sole Trading ConcernPartnership

Joint Stock Company

0

5

10

15

2019

6

0

No. of Respondents

The above table shows that, out of 25 respondents, 19 respondents are belongs to Sole

Trading Concern and 6 respondents are belongs to Partnership and no one respondents is in the

form of Joint Stock Company.

Table No. 8

Classification of Respondents on the basis of Fixed Capital:

Table Showing Classification of Respondents on the basis of Fixed Capital

Fixed Capital [Rs] No. of Respondents Percentage

Below 5,00,000 12 48%

5,00,000 to 10,00,000 10 40%

10,00,000 and above 3 12%

Total 25 100%


Chart No.8: Chart Showing Classification of Respondents on the basis of Fixed Capital



0

2

4

6

8

10

12

Below 5,00,000

5,00,000 to 10,00,000

10,00,000 and above

12 10

3Below 5,00,0005,00,000 to 10,00,00010,00,000 and above

From the above table, it is clear that fixed capital of 48% respondents is presently below

Rs. 5,00,000, 40% of units the present fixed capital is between Rs. 5,00,000 to Rs. 10,00,000 and

12% of respondents having the fixed capital of Rs. 10,00,000 and above.

Table No. 9

Classification of respondents on the basis of Amount of Working Capital

Table Showing Classification of respondents on the basis of Amount of Working Capital

Working Capital [Rs] No. of Respondents Percentage

Below 5,00,000 6 24%

5,00,000 to 10,00,000 14 56%

10,00,000 and above 5 20%

Total 25 100%




Chart No.9: Chart Showing Classification of Respondents on the basis of Amount of Working Capital

Below 5,00,0005,00,000 to 10,00,000

10,00,000 and above

02468

101214

6

14

5

No. of Respondents

From the above data, we may find that, present working capital is Rs 5,00,000/- and below

in case of 24% (i.e. 6 out of 25) of respondent units, between Rs 5,00,000/- to Rs

10,00,000/- in case of 56% (i.e. 14 out of 25) of units. Finally, 20% of respondents (i.e. 5

out of 25) are having more than Rs 10,00,000/- as working capital presently.

Table No. 10

Reasons for opting State Bank of Mysore:

The respondents opting State Bank of Mysore because of so many reasons such as

repayment period is more, rate of interest is low, less procedure, quick sanction of loan and other.

Table showing Reasons for which respondents opted SBM

Reasons No. of Respondents Percentage

Repayment Period is more 8 32%

Rate of Interest is low 6 24%

Less Procedure 4 16%

Quick sanction of loan 7 28%



Other 0 0%

Total 25 100%


Chart No.10: Chart showing Reasons for which respondents opted SBM

Repayment

Period is more Rate of Interest

is lowLess Procedure Quick sanction

of loanOther

0123456789

8

6

4

7

0

No. of Respondents

From the above table, it is clear that 8 Respondents stated that they opt State Bank of

Mysore because of repayment period is more, 6 Respondents opt State Bank of Mysore because of

Rate of Interest is low, 4 Respondents opt State Bank of Mysore because of Less Procedure, 7

Respondents opt State Bank of Mysore because of Quick sanction of loan.

Table No. 11

Purpose of Loan taken:

The Small – Scale Industrial entrepreneurs are taken loan assistance from State Bank of

Mysore for various purposes such as establishment of units, expansion of existing unit,

modernization of existing unit etc.

Table Showing Classification of Respondents on the purpose of Loan taken from SBM

Purpose of Loan No. of Respondents Percentage

Establishment of unit 18 72%



Expansion of Existing unit 2 08%

Modernization 4 16%

Other 1 4%

Total 25 100%


Chart No.11: Chart Showing Classification of Respondents on the purpose of Loan taken from SBM

Establishment of unit Expansion of

Existing unit ModernizationOther

0

5

10

15

2018

2 4

1

No. of Respondents

The above table indicates that, out of 25 respondents, 18 respondents borrowed loan from State

Bank of Mysore for establishment of unit and 2 respondents borrowed loan for the purpose of

expansion of existing unit and 4 respondents taken loan from State Bank of Mysore for the

purpose of Modernization and 1respondent has taken loan from State Bank of

Mysore for other purpose.

Table No.12

Loan borrowed under different Schemes:

The Small – Scale industrial entrepreneurs are taken loan form State Bank of Mysore

under various schemes such as Flexi Term Loan, SME Credit Plus, Annapurna, and Stand – by

Line Credit etc.

Table Showing Loan borrowed under different Schemes

Schemes No. of Respondents Percentage

Flexi Term Loan 2 8%

SME Credit Plus 19 76%



Annapurna 2 8%

Stand – by Line Credit 2 8%

Total 25 100%


Chart No.12: Chart Showing Loan borrowed under different Schemes

Flexi Term LoanSME Credit Plus

AnnapurnaStand – by Line

Credit

0

4

8

12

16

20

2

19

22

No. of Respondents

Above table indicates that out of 25 respondents, 2 respondents have taken loan under the scheme

Flexi Term Loan, 19 respondents have taken loan under the scheme SME Credit Plus, 2

respondents are taken fund under the scheme Annapurna and 2 respondents have taken fund under

the scheme Stand – by line credit from State Bank of Mysore.

Table No. 13

Amount of Loan Borrowed from the Bank by the Respondents:

Table Showing Amount of Loan Borrowed from the Bank by the Respondents

Amount No. of Respondents Percentage

Up to Rs. 50,000 1 4%

Above Rs. 50,000 – Rs.

1,00,000

6 24%

Above Rs. 1,00,000 – Rs.

5,00,000

15 60%

Above Rs. 5,00,000 03 12%



Total 25 100%


Chart No.13: Chart Showing Amount of Loan Borrowed from the Bank by the Respondents

Up to Rs. 50,000

Above Rs. 50,000 – Rs. 1,00,000

Above Rs. 1,00,000 – Rs. 5,00,000

Above Rs. 5,00,000

0 2 4 6 8 10 12 14 16

1

6

15

3

No. of Respondents

Out of 25 respondents, 7 respondents has taken fund up to Rs. 50,000/-, 6 respondents has taken

fund of Rs. 50,000/- to Rs. 1,00,000/-, 15 respondents taken the fund of Rs. 1,00,000/- to Rs.

5,00,000/- and 3 respondents have taken fund above Rs. 5,00,000/-, from the State Bank of

Mysore.

CHAPTER – 8

Major Findings, Suggestions & Conclusion

8.1 Findings of the Survey



8.2 Suggestions

8.3 Conclusion

CHAPTER-VIII

FINDINGS, SUGGESTIONS AND CONCLUSION

8.1 Findings of the survey:



From the study of financial assistance to Small Scale Industries, the following findings are

identified:

i. Most of the respondents are from the background of Business and Agriculture who have started

small – Scale Industries.

ii. According to survey, majority of respondents have PUC and Post Graduation qualification

because of they have undertaken businesses like Brick industries, Garments, Saw mills etc…

iii. From the survey it was found that most of respondents have fixed capital below Rs 5, 00,000

which is enough for the type of industry like Brick industries, garments, saw mills, tyre

retreading, etc…

iv. From the survey we can consider that most of the respondents’ nature of the industry is

processing and Production.

v. It was found that, the most of the respondents’ form of Organization is sole trading concern and

partnership. Their size of investment is less.

vi. From the survey it was found that most of respondents have fixed capital below Rs. 5,00,000

which is enough for the type of industry like Brick industries, garments, saw mills, tyre

retreading etc…

vii. From the survey it was found that most of respondents have working capital between Rs. 5,

00,000 to Rs. 10, 00,000.

viii. Most of the respondents opted State Bank of Mysore as its repayment period is more and

interest rate is low.

ix. Most of the respondents’ borrowed loan for the establishment of new unit and expansion of

existing unit.

x. Most of the respondents have taken loan under the scheme SME Credit Plus because most of

the respondents are men and their type of industries are Brick industries, garments, saw mills,

tyre retreading etc…

xi. Business persons have taken loan under Annapurna Scheme for garments business; they have

taken loan under Flexi Term Loan for Brick Industries.

xii. Most of all the respondents didn’t face any problem while taking the loan from State Bank of

Mysore.

xiii. Most of the respondents’ amount of loan barrowed from bank is up to Rs. 5,00,000 to Rs.

10,00,000.

xiv. Most of the respondents repay the money to the Bank according to the schedule of SBM.

xv. By the survey we come to know that, the large numbers of respondents have satisfied with

respect to financial assistance of State Bank of Mysore.

xvi. Most of the respondents said that interest charged by State Bank of Mysore is reasonable one.



8.2 Suggestions:

The followings are the suggestion given to the Small Scale industrial entrepreneurs and to

the corporation.

i. The interest rate charged on loan should be low for improving Small Scale Industry and to face

competition from other big industries.

ii. The Government of India should encourage the financial institutions like commercial banks to

provide various programmes to the Small Scale Industries at free of cost for growth and

development of these industries.

iii. For the development of Small Scale industries, it is essential that the methods of production

are to be modernized. Research institutions are to be established in order to evaluate

technology. For this purpose State Bank of Mysore has to provide financial assistance. The

terms and conditions of State Bank of Mysore with regards to the procedure of availment of

loan for Small Scale Industries should be simplified:

iv. If a unit is eligible for subsidy, the unit should be allowed to utilize it fully. The Bank should

release the subsidy in time.

v. While evaluating the projects, sufficient freedom should be given to the applicants for the

selection of Plant and Machinery, equipments and when they should be procured.

vi. Financial assistance is to be given based on the needs rather than on security offered.

8.3 Conclusion:The bank plays vital role in providing finance to the needy people and helps to develop our

country. Different type of banks serves the different classes of people, and also helps the people to

overcome their financial problems in their day to day life. Hence, there is a necessary of banks in

the modern era to overcome the problems of every citizen.

The growth and performance of Small Scale Industries in Davangere City is not so good

because of problems like less demand, problem of raw materials etc, so these industries are in need

of financial assistance and support by the financial institutions.

State Bank of Mysore which provides financial assistance to Small Scale Industries for

various purposes is playing a very important role in the development of Small Scale industry units

in India.

.


Foreign Direct Investment

Documents

Transcript of Foreign Direct Investment