TOPIC“ROLE OF SIDBI”

SUBMITTED BYDIVYA DWARKA DUBEY

PROJECT GUIDEPROF. DEEPTI SONI

SUBMITTED TOUNIVERSITY OF MUMBAI

RAJASTHANI SAMELAN’SGhanshyamdas Saraf College

Affiliated To University Of MumbaiACCREDITED BY NAAC WITH ‘A’ GRADE

&DURGADEVI SARAF JUNIOR COLLEGE

(ARTS & COMMERCE)S.V.ROAD, MALAD (W)

MUMBAI: 400 064YEAR: 2011-2012

CERTIFICATE

I Prof.Dipti Soni here by certified that Ms.Divya Dwarka Dubey a student of Ghanshyamdas Saraf College of T.Y.B.C.B.I. (Semester V) has completed project on “ROLE OF SIDBI” in the Academic Year 2011-2012.This information submitted is true and Original to the best of my knowledge.

External examiner: Principal:

Date:

Project Co-ordinator: College Seal:

Date:

ACKNOWLEDGEMENT

I take the opportunity to thank the UNIVERCITY OF MUMBAI for giving me a chance to do this project.I express my sincere gratitude to the principle; course Co-ordinator Mrs. Bhanukrishnan Madam, Guide Prof. Dipti Soni and our librarian and other teachers for their constant support and helping for completing the project.I am also grateful to my friends for giving support in my project. Lastly, I would like to thank each and every person who helped me in completing the project especially MY PARENTS.

DECLERATION

I Miss Divya Dwarka Dubey a student of Ghanshyamdas Saraf College, Malad (W) T.Y.B.C.B.I. (Semester V) hereby declares that I have completed project on “ROLE OF SIDBI” in the Academic Year 2011-2012.This information submitted is true and Original to the best of my knowledge.

Date: Signature of Student

ROLE OF SIDBI

INDEX

CHAPTER TOPIC PG NO

Executive summaryDesign of the studyMethodology of the study

1 INTRODUCTION

1.1 SSI sector

1.2 Post World War II Scenario

1.3 Technology

2 DEVELOPMENT BANKING

2.1 What is Development Banking?

2.2 Overview Of Development Banking in India

2.3 Technological Problems in the Modern

Process

3 SIDBI

3.1 History and Business Domain

3.2 Promotional & Development Initiatives

3.3 Objectives

3.4 Products

3.5 Channels of Assistance

3.6 Schemes

3.7 Subsidiaries

3.8 Interpretation of Manager’s View

4 SIDBI’S FINDINGS

4.1 Findings

5 CONCLUSION.

5.1 Conclusion

CASE STUDY

REFERENCES

Executive Summary

S M E s   a r e   m a j o r   c o n t r i b u t o r s   t o   G D P ,   a n d   a n   e v e n   l a r g e r  c o n t r i b u t o r   t o   e x p o r t s   a n d employment. Given this background, banks will find SME financing an attractive business oppo r tun i t y r a t he r   t han a   compu l s ion , o f   l end ing t o   t he p r i o r i t y   s ec to r .  S IDBI and  banks  jointly have to play a pivotal and proactive role in financing the SMEs.The present slow down in lending to the SME sector is principally due to the risk aversion a r i s i ng ou t o f a h igh p ropo r t i on o f t he l end ing becoming non pe r fo rming . Th i s c a l l s f o r   reassessment of the strategy of lending to this sector and this reassessment has led us to t h r ee p r i nc ip l e e l emen t s o f ou r s t r a t egy . ( 1 ) One i s d i r e c t ed a t t hose un i t s wh ich have linkages with large corporate undertakings as vendors or suppliers. To these units, provision and flow of credit could be tied up with the large undertakings which would facilitate recovery but more important than finance our proposal is that the linkage will have to be strong enough to ensure a win win approach for both. This could be achieved by technology transfer of the large undertakings to the small units accompanied by a greater oversight and the quality of  t he p roduc t s de l i ve r ed ; ( 2 ) t he s econd l eg o f ou r s t r a t egy i s a imed a t deve lop ing a s e t o f   standard products for units belonging to the same cluster of industries; (3) the third leg of our strategy is to develop local financial intermediaries specifically aimed at financing units in the tiny and small sectors and more particularly to the former. These would be in the nature of  the NBFCs but without any permission to accept deposits from the public. They would draw their resources from the banking system, by originating the loans and selling the same to the banks as a portfolio with appropriate arrangements for risk sharing. Th i s r epo r t , t he r e fo re , emphas i ze s t he need fo r new veh i c l e s and i n s t rumen t s v i z . bankp romoted   (nondepos i t   t ak ing )  NBFCs ,  m ic ro   c r ed i t   i n t e rmed i a r i e s  ded i ca t ed   t o  SME financing, etc. Such micro credit intermediaries (funded by individual or a group of banks)would be able to credit-rate and risk assess and serve as instruments for extending quick credit to SME clusters, accredited to them. This report also reinforces the importance of SIDBI’s

DESIGN OF THE STUDY

OBJECTIVES

The major objective behind doing this project is to get a clear view about how SIDBI, an

apex institution in Small Industries Financing Programmes came into existence, is

organized and managed, its objectives, lending terms and conditions, lending purposes,

challenges faced and tackled.

LIMITATIONS

The study of the project is limited to the SIDBI.

It renders the limited information provided by the officials, books and websites.

Time, length and depth of the study were limited in making the project to the

requirement of Mumbai University.

SCOPE

The scope of this study is to get the knowledge about how credit granted by SIDBI helps

in Small Industrial development.

METHODOLOGY OF THE STUDY

The data for this project is obtained in two ways- primary source and secondary source.

PRIMARY SOURCE DATA

The primary source data for this project has been collected by visiting the office of SIDBI

located at Bandra Kurla Complex, Mumbai.

SECONDARY SOURCE DATA

Secondary data for this project has been gathered through various books, newspapers and

internet.

CHAPTER 1-INTRODUCTION

“GOOD THINGS IN LIFE BEGIN SMALL”

1.1 SSI SECTOR

Small Scale Industry accelerates Indian economy not only in terms of its contribution to

industrial output and national export but also in growing employment opportunities. Small Scale

Industries accounts for about 95% of industrial units, contributes about 40% of the value added

manufacturing sector and over 33% of the national exports through 28 lack units spread all over

the country.

MEANING OF SSI

The Government of India grouped small-scale industrial undertaking into 2 categories-

those using power but employing less than 50 persons and those not using power but employing

less than 100 persons. All small-scale enterprises however had capital investment of less than Rs.

5 lacks. The ownership and management in small enterprises is predominantly proprietary with

individual ownership or partnership.

The small-scale sector has been assigned a significant role in industrialization and economic

development in India as an effective tool in sub serving the national objective of growth with

social justice. Its importance has been increasingly recognized in India as a solution for the wide

spread unemployment and under unemployment.

Small-scale sector is credited with short gestation periods, generation of conduciveness for its

dispersal over of widening base of indigenous entrepreneurship. Up gradation and adoption of

other modernization measures have received added attention in the recent years to make this

sector more cost effective.

ESSENTIAL FEATURES OF THE SSI POLICY 1991

SR

NO

OBJECTIVES MAJOR FEATURES

1 To meet the emerging demand

for credit.

Emphasis to shift from cheap credit to

adequate credit.

Equity participation by other

undertakings domestic foreign up to

24%.

2 To strengthen small industry

marketing.

Introduction of factoring service

through Banks.

Marketing of mass consumption goods

under common brand name.

Setting up subcontracting exchanges.

3 To upgrade technology and

promote modernization.

Technology developmental in SIDO.

Quality counseling and testing

technology information centre.

Technology Up gradation

programmes.

OPPORTUNITY

The opportunities in the small-scale sector are enormous due to the following factors:

Less Capital Intensive

Extensive Promotion & Support by Government

Reservation for Exclusive Manufacture by small scale sector

Project Profiles

Funding - Finance & Subsidies

Machinery Procurement

Raw Material Procurement

Manpower Training

Technical & Managerial skills

Tooling & Testing support

Reservation for Exclusive Purchase by Government

Export Promotion

Growth in demand in the domestic market size due to overall economic growth

Increasing Export Potential for Indian products

Growth in Requirements for ancillary units due to the increase in number of Greenfield units

coming up in the large-scale sector.

1.2 POST WORLD WAR II SCENARIO

The second half of the 20th century has been called the 'era of development'. The origins of this

era have been attributed to:

The need for reconstruction in the immediate aftermath of World War II;

The evolution of colonialism or "colonization" into globalization and the establishment of

new free trade policies between so-called 'developed' and 'underdeveloped' nations.

The start of the Cold War and the desire of the United States and its allies to prevent the

Third World from drifting towards communism. Before the date, however, the United States had

already taken a leading role in the creation of the International Bank for Reconstruction and

Development (now part of the World Bank Group) and the International Monetary Fund (IMF),

both established in 1944, and in the United Nations in 1945.

The concept of development banking rose only after Second World War, after the Great

Depression in 1930s. The demand for reconstruction funds for the affected nations compelled in

setting up a worldwide institution for reconstruction. As a result the IBRD was set up in 1945 as

a worldwide institution for development and reconstruction. This concept has been widened all

over the world and resulted in setting up of large number of banks around the world which

coordinating the developmental activities of different nations with different objectives among the

world.

The early history of Indian banking and finance was marked by strong governmental

regulation and control. The roots of the national system were in the State Bank of India Act of

1955, which nationalized the former Imperial Bank of India and its seven associate banks. In the

early days, this national system operated alongside of a large private banking system. Banks

were limited in their operational flexibility by the government’s desire to maintain employment

in the banking system and were often drawn into troublesome loans in order to further the

government’s social goals.

The major issues confronting SSI’s are identified to be:

Technology obsolescence

Managerial inadequacies

Delayed Payments

Poor Quality

Incidence of Sickness

Lack of Appropriate Infrastructure and

Lack of Marketing Network

There can be many more similar issues hindering the orderly growth of SSI’s.

Over the years, SIDBI has put in place financing schemes either through its direct financing

mechanism or through indirect assistance mechanism and special focus programmers under its

P&D initiatives. In its approach, SIDBI has struck a good balance between financing and

providing other support services.

1.3

1.3 TECHNOLOGY

In the process of industrialization in general and development of SSI’s in particular,

technology plays a key role in providing cutting edge for development. SIDBI, since inception,

has been giving thrust to technology up gradation of the SSI’s and towards this end; various steps

were taken by the bank aimed at identifying their needs in terms of process technology,

environment management, quality management, common facilities center etc. & adopting

suitable measures to address them. Thus, apart from meeting the credit needs of SSI’s, SIDBI has

developed support mechanism and facilitated institutional and infrastructural framework for

development and use of technology on an increasing scale.

The technology (APCTT), a United Nations outfits, is gradually emerging as a technology

bank for SSI’s providing information on range of technologies, sources and facilitating

collaboration together with financial tie-up, when feasible. It has also been successfully

exporting the SSI technologies to various countries. In April 1995 SIBI out of its own resources

set up technology development and modernization fund (TDMF) with an earmarked amount of

Rs. 200crores for encouraging existing industrial units in the small scale sector to modernize

their production facilities and adopt improved and updated technology.

Assistance under this scheme is being provided at SIDBI’s prime lending rate to beneficiary

units. Though the assistance under TDMF since inception crossed the originally earmarked

amount, the bank extended its operation for another 3 years by earmarked another Rs. 100 crores

from out its own resources. The major initiatives in this direction include cluster based

intervention programmed for technological up gradation, organizing skill cum technology up

gradation programmed and expanding information base on status of technologies in specific sub-

sector within SSI’s.

SIDBI is also performing the role of nodal agency in respect of specialized schemes of

Government of India for technological up gradation of cotton textile industry and tanneries in the

small –scale sector.

The range of assistance comprising financing, extension support and promotional are made

available through appropriate schemes of direct and indirect assistance for the following

purposes:-

Setting up of new projects.

Expansion, diversification, modernization, technology up gradation, quality

improvement, rehabilitation of existing units.

Strengthening of marketing capabilities of SSI units.

Development of infrastructure for SSI’s and

Export promotion.

CHAPTER 2- DEVELOPMENT BANKING

2.1WHAT IS DEVELOPMENT BANKING ?

The concept of development bank is not very much old. It has seen the light of the day

after World War II in the world’s economy and from 1948 onwards in Indian economy. It is true

that the idea of development bank has developed first of all in the West and has emerged

elsewhere later on. The World Bank has sponsored 68 development Banks in 44 countries so far

up to June 30, 1986. The concept of development bank has been perceived, viewed and

interpreted by the doyens of development banking in different tone and style according to the

prevailing environment of their region. Thus, every doyen of development banking has defined

and opined the term development bank in their own flavor.

“The development bank must act as an engine of socio-economic growth in

promoting technological transformation so as to achieve the goal of entrepreneurial

self-reliance in year to come. The dominant influence hitherto exerted by the west in

the area of development banking had to be broken. The countries of the third world

break this hegemony and develop their independence style of development banking.

The concept of development banking could assume this new role in helping the third

world so that it could emerge as the main force for the evolution of world economy.”

-Dr. Man Mohan Singh.

The idea of development bank is seeking new dimensions every day. Development Banks

as an institutional device to accelerate the pace of socio-economic development in the

undeveloped and developing countries are of a comparatively recent origin. The development

bankers have module the ideology of top financial institutions to act as a development banks so

as to fulfill the aspirations of the changing society at large. They are acting as gap filler in the

present set up of the entrepreneurial world.

Government and private entrepreneurship and others have sponsored them by joint

entrepreneurship of the two. Some development banks are of national and international

characters while the other are of state and regional level.

A development bank's policies or programs center on the following priorities:

a) Economic Growth

b) Human Development

c) Gender and Development

d) Good Governance

e) Environmental Protection

f) Private Sector Development

g) Regional cooperation

The main functions of a Development Bank :

a) Increase loans and equity investments to its developing associate countries (DMCs) for their

monetary and social development.

b) Provides technical help for the planning and implementation of development projects and

programs and for advisory services.

c) Promotes and facilitates speculation of public and private capital for growth and development.

d) Responds to requests for assistance in coordinating growth policies and plans of its increasing

member countries.

OBJECTIVES OF DEVELOPMENT BANKS

The ideology of development banking is based on entrepreneurship promotion in every

sector of the national economy. Thus, development banks are assiduously endeavoring to create

an economy of surplus and abundance by using innovative and entrepreneurial devices.

The major objectives are :-

1. To generate entrepreneurial environment in every sector of national economy.

2. To bridge gap of entrepreneurial expertise, knowledge, wisdom and experience.

3. To promote, encourage and stimulate the dormant and passive entrepreneurial human

wealth of the country.

4. To accord top priority to backward regions.

5. To nurse and protect the mushroom growth of entrepreneur promotion.

6. To modify the inhibitive environment by providing necessary finance for it.

7. To advise the Government and Planning Commission on matters of national policies and

strategies to be conceived for socio-economic development and reformation.

If the development bank virtually happens to be the principal development bank of the

country, then it should act as a guide, friend and philosopher for other DFI’s operating at

state and national level.

2.2OVERVIEW OF DEVELOPMENT BANKING IN INDIA

The course of development of financial institutions and markets during the post-Independence

period was largely guided by the process of planned development pursued in India with emphasis

on mobilization of savings and channeling investment to meet Plan priorities. At the time of

Independence in 1947, India had a fairly well-developed banking system. The adoption of bank

dominated financial development strategy was aimed at meeting the sector credit needs,

particularly of agriculture and industry. Towards this end, the Reserve Bank concentrated on

regulating and developing mechanisms for institution building. The commercial banking network

was expanded to cater to the requirements of general banking and for meeting the short-term

working capital requirements of industry and agriculture. Specialized development financial

institutions (DFIs) such as the IDBI, NABARD, NHB and SIDBI, etc., with majority ownership

of the Reserve Bank were set up to meet the long-term financing requirements of industry and

agriculture. To facilitate the growth of these institutions, a mechanism to provide concessional

finance to these institutions was also put in place by the Reserve Bank.

The first development bank in India incorporated immediately after independence in 1948 under

the Industrial Finance Corporation Act as a statutory corporation to pioneer institutional credit to

medium and large-scale. Then after in regular intervals the government started new and different

development financial institutions to attain the different objectives and helpful to five-year plans.

The Financial Institutions in India were set up under the strong control of both central and state

Governments, and the Government utilized these institutions for the achievements in planning

and development of the nation as a whole. The All India Financial Institutions can be classified

under four heads according to their economic importance that are:

All-India Development Banks

Specialized Financial Institutions

Investment Institutions

State-level institutions

Other institutions

2.3 TECHNOLOGICAL PROBLEM IN THE MODERN

PROCESS

In this modern age new technology is making possible decentralized production units at a high

efficiency, which at one time seemed impossible. Appropriate technology is not static but a

dynamic concept that must change as the country’s technological skills develop. Appropriate

technology is primarily meant for SSI’s that employ local raw materials, utilize available skills

and cater largely to a large demand.

The general level of technology in terms of installed equipment is backward in the SSI sector

when compared to the others. The present low level of new product lines hampers the

developments of SSI. The vast majority of the machines used by the SSI sector are conventional.

Moreover, accessories for the imported machines are not manufactured in India, because of their

age, they need constant attention and maintenance and problem of spare parts is acute. Old

machinery is never replaced due to variety of reasons. Finance, long waiting periods for

deliveries, risk aversion and some of the reasons for the slow replacement of machines in the SSI

sector.

Those who use indigenous machines generally feel that they lack speed and are made of

tempered steel, lack precision, lack durability and often lead to frequent repairs. For those who

wish to modernize or diversify their production, it is difficult to get imported machines because

of restrictions over imports.

What is needed right now is to spot the possibilities that exist all round and to either adapt

existing techniques or devise new ones for the best utilization of the available raw materials. It is

such improvement effected on a wide scale that can bring about a revolutionary transformation in

the SSI sector.

There at present two arrangements for providing technical advice and assistance to small

firms. First, the Central Small Scale Industries Organization which through its service institutes

provides a staff of technically qualified people whose job is to give advice to small entrepreneurs

or the technical problem facing them and secondly the common facility workshops which

undertake production operations on behalf of the small firms for a cost.

CHAPTER 3- SIDBI

3.1 HISTORY AND BUSINESS DOMAIN

SIDBI was established on April 2, 1990. The Charter establishing it, The Small Industries

Development Bank of India Act, 1989 envisaged SIDBI to be "the principal financial institution

for the promotion, financing and development of industry in the small scale sector and to co-

ordinate the functions of the institutions engaged in the promotion and financing or developing

industry in the small scale sector and for matters connected therewith or incidental thereto.

SIDBI retained its position in the top 30 Development Banks of the World in the latest ranking

of The Banker, London. As per the May 2001 issue of The Banker, London, SIDBI ranked 25th

both in terms of Capital and Assets.

Small Industries Development Bank of India [SIDBI] as the principal financial institution for

promotion, financing and development of industry in the small-scale sector, has been assisting

the entire spectrum of the SSI sector, including the Tiny, Village and Cottage industries.

 

During the year 2002-03, the aggregate sanctions and disbursements of SIDBI amounted to

Rs.10904 crore and Rs.6789 crore respectively.

Cumulative assistance, as at the end of March 2003, surged to Rs.86, 158 crores in terms of

sanctions and at Rs.59, 101 crores of disbursements, thus recording a compounded annual

growth rate of 13.4 % and 11.4 % respectively. Net worth of the Bank is Rs.4075 crores as at the

end of March 2003.

Role of Small Industries Development Bank of India (SIDBI) is envisaged as "the principal

financial institution for the promotion, financing and development of industry in the Small Scale

Sector and to coordinate the functions of the Institutions engaged in similar activities. SIDBI is

headquartered at Lucknow with networking of 5 Zonal Offices, 1 Regional office and 59 Branch

offices covering all the states and important industrial locations in the country.

In line with the international concept of Small and Medium Enterprises (SMEs), Government of

India has permitted SIDBI to extend assistance to medium enterprises, in addition to the SSI’s

and service enterprises served hitherto. SIDBI, as a part of its operational strategy, has been

emphasizing on increasing the flow of financial assistance to SMEs and enhancement in the

capabilities of SMEs at all levels, with focus on adoption of improved and modern technology.

As a matter of policy, SIDBI has tried to identify the gaps in the credit delivery system so as to

fill them through appropriate new Schemes. Over the years, SIDBI has been continuously

expanding its credit horizon and is assisting enterprises in the sectors like Tiny, Small Scale,

Medium, Service and Micro-Finance Sector.

In order to improve the flow of credit to small and medium enterprise sector, strategic business

initiatives were taken by the Bank by broad basing certain schemes in line with the changing

requirements of the sector. Steps were taken to enhance the scale of operations under direct

finance schemes, in addition to refinance activities. Greater emphasis was laid on liberalizing the

schemes as well as simplifying the systems and procedures and increasing the retail portfolio of

the Bank. Some of the major contributions are launching of Small and Medium Enterprises

Rating Agency (SMERA) for credit rating of SMEs, launching of SME Growth Fund of Rs 500

Crore, launching SME Fund for providing Credit to SMEs at concessional rate of interest, a tie

up with OBI for providing working capital facilities and signing of MoUs with commercial

banks for joint lending/co-financing of SME projects.

SIDBI is the principal financial institution for the promotion, financing and development of

industry in the small-scale sector and to co-ordinate the functions of the institutions engaged in

the promotion, financing or developing industry in the small-scale sector and for matters

connected therewith or incidental thereto. The Bank has also been authorized by Government of

India (GOI) to provide financial assistance to small and medium enterprises.

There is a well-defined system in the Bank regarding decision-making process. The Bank

follows a committee based approach for all its lending decisions wherein Credit/Settlement

committees have been set up right from branch level depending upon the nature and size of loan.

Branches receive applications for credit facilities and recommend to the appropriate sanctioning

authority. In the case of major loan products applications are processed at branches and

Centralized Credit Processing Cells.

There is a defined organizational structure and clear system of accountability based on RBI /

CVC guidelines. All credit decisions approved by any sanctioning authority are reported to the

next higher authority for control / monitoring purpose. The system of exercising proper

delegation of power and submission of control reports is in place and control officers monitor

them.

Administrative decisions are taken at various levels of Officers and also by Executive Directors

and Chairman & Managing Director as per the powers delegated to them by the Board.

The documents being obtained at the time of lending are preserved at the respective branch

offices of the Bank. The Bank maintains register of share holders and record of proceedings of

the Board meetings at its Head Office at Lucknow

The Bank’s shareholders are IDBI, LIC, GIC, other Nationalized Banks / FIs. Representatives of

the shareholders and Industry Association / SSI Sector are members on the Board of Directors.

The issues concerning the policies can be raised by the shareholders in the Annual General

Meetings of the Bank and by members in the Board meetings.

The Bank has the following bodies:

1. Board of Directors.

2. Executive Committee.

3. Audit Committee.

4. Risk Management Committee.

5. Committee for supervision of State Financial Corporations.

The Board and its Committees meet at regular intervals and guide the bank in achieving its

objectives. The meetings of the Board or Committees are not open to the public and the minutes

of such meetings are not accessible to public.

There are no plans and budgets for expenditure of public money. The provision is not applicable

to that extent to the Bank.

The Bank does not have its own subsidy programmes or plans for lending activities. However,

the Bank is the nodal agency for implementing GOI sponsored schemes like Credit Linked

Capital Subsidy Scheme (CLCSS), Technology Up gradation Fund Scheme (TUFS) & Integrated

Development of Leather Sector (IDLS).

BOARD OF DIRECTORS (AS ON AUGUST 05, 2011)1 Shri Sushil Muhnot Chairman & Managing Director (CMD)

2 Shri Rakesh Rewari Deputy Managing Director (DMD)

3 Shri N.K. Maini Deputy Managing Director (DMD)

4 Dr. Shyam Agarwal Government Director

5 Shri Anurag Jain Government Director

6 Shri T.R. Bajalia Nominee of IDBI Bank

7 Shri K. Sitaramam Nominee of State Bank of India

8 Shri B. Manivannan Nominee of Life Insurance Corporation of India

9 Shri Vikas Raj Nominated by Government of India

10 Shri Prakash Bakliwal Nominated by Government of India

11 Shri M. Balachandran Co-opted  Director

12 Shri Janki Ballabh Co-opted  Director

13 Shri S.K. Tuteja Co-opted  Director

14 Shri P.A. Sethi Co-opted Director

Credit Guarantee Fund Trust for Small Industries ( CGTSI) Coverage in

North Eastern Region

 

The Ministry of Small Scale Industry, Government of India, and SIDBI have set up the Credit

Guarantee Fund Trust for Small Industries (CGTSI), to help small scale/tiny units in accessing

institutional credit, both term loan and working capital, for their viable projects without

arranging for collateral security and/or third party guarantee. As on August 30, 2006

banks/institutions have availed of CGTSI guarantee in North Eastern Region in respect of 1147

units covering aggregate assistance of Rs 2718 lacks in North Eastern Region.

SME Rating Agency of India Ltd (SMERA) Coverage

 

As a part of SIDBI's thrust towards emerging as one step shop to serve the SME sector, the SME

Rating Agency of India Ltd. (SMERA) was launched as country's first and only rating agency

dedicated to the SME segment. A joint initiative of SIDBI, Dun & Bradstreet Information

Services India Pvt. Ltd., Credit Information Bureau (India) Ltd and banks, SMERA's primary

objective is to provide ratings that are comprehensive, transparent and reliable and which would

enable the rated units to borrow at competitive rates of interest. SIDBI calls upon the existing

SMEs in the country to get them rated by SMERA in order to have competitive edge in availing

credit at lower rates.

BUSINESS DOMAIN OF SIDBI

The business domain of SIDBI consists of small-scale industrial units, which contribute

significantly to the national economy in terms of production, employment and exports. Small-

scale industries are the industrial units in which the investment in plant and machinery does not

exceed Rs.10 million. About 3.1 million such units, employing 17.2 million persons account for

a share of 36 per cent of India's exports and 40 per cent of industrial manufacture. In addition,

SIDBI's assistance flows to the transport, health care and tourism sectors and also to the

professional and self-employed persons setting up small-sized professional ventures.

Mission

To empower the Micro, Small and Medium Enterprises (MSME) sector with a

view to contributing to the process of economic growth, employment generation and

balanced regional development

Vision

To emerge as a single window for meeting the financial and developmental needs

of the MSME sector to make it strong, vibrant and globally competitive, to position

SIDBI Brand as the preferred and customer - friendly institution and for enhancement of

share - holder wealth and highest corporate values through modern technology platform.

Four basic objectives are set out in the SIDBI Charter. They are:

Financing

Promotion

Development

Co-ordination

For orderly growth of industry in the small scale sector the Charter has provided

SIDBI considerable flexibility in adopting appropriate operational strategies to meet these

objectives. The activities of SIDBI, as they have evolved over the period of time, now

meet almost all the requirements of small scale industries which fall into a wide spectrum

constituting modern and technologically superior units at one end and traditional units at

the other.

3.2 PROMOTIONAL AND DEVELOPMENTAL (P&D) INITIATIVES :

 

As an apex institution for the small-scale sector, SIDBI also plays a major role in meeting the

varied developmental needs of the Indian SSI sector. The P&D initiatives of the Bank aim at

improving the inherent strength of the small scale sector so as to enable it to face the emerging

challenges of globalization as also economic development of poor through enterprise promotion

resulting in self employment and creation of additional employment.

 

SIDBI has sanctioned grants to various organizations like TCOs, Industry Associations, reputed

NGOs and other agencies to conduct topical seminars and EDPs, and also sponsored the

participation of SSI units in exhibitions at subsidized rates to enable them to market their

products. In pursuance of its multifaceted P&D activity, synergistic with its business activities

aimed at development of the small industries, SIDBI looks forward to a partnership with NGOs,

associate financial institutions, corporate bodies, R&D laboratories, marketing agencies, etc., for

national level programmes. The sanction and disbursement of grant under P & 0 activities in

NER during the last three financial years amounted to Rs 125 lacks and Rs 92 lacks respectively.

RURAL INDUSTRIES PROGRAMME

 

Besides P&D activities, SIDBI has been providing a cohesive and integrated package of basic

inputs like information, motivation, training and credit, backed by appropriate technology and

market linkages for the purpose of enterprise promotion under its Rural Industries Programme

(RIP). RIP is a unique approach for rural industrialization where the emphasis is on stimulating

and helping the potential entrepreneurs to set up small enterprises through a consultancy outfit

positioned by SIDBI. The prime objectives of RIP are development of viable and self-sustaining

tiny/small enterprises in rural and semi urban India by harnessing local entrepreneurial talent.

The programme attempts to address the problems such as rural unemployment, urban migration

and under-utilization of local skills and resources, and is designed as a comprehensive Business

Development Services programme.

3.3 OBJECTIVES

Four basic objectives are set out in the SIDBI Charter. They are:

Financing

Promotion

Development of industry in the small scale sector and

Co-ordination the functions of other institutions engaged in similar activities.

For orderly growth of industry in the small scale sector the Charter has provided

SIDBI considerable flexibility in adopting appropriate operational strategies to meet these

objectives. The activities of SIDBI, as they have evolved over the period of time, now

meet almost all the requirements of small scale industries which fall into a wide spectrum

constituting modern and technologically superior units at one end and traditional units at

the other.

SIDBI has an Integrated (Rupee and Forex) Treasury set up at Mumbai which functions as a

separate business unit. The Treasury is headed by a Chief General Manager and has Front, Mid

and Back offices which are manned by experienced officers. The Treasury has various required

IT infrastructure to support the day-to-day operations and MIS requirement. The forex treasury is

equipped with RMDS, SWIFT and WANDA settlement systems.

3.4 PRODUCTS

DIRECT FINANCE

SIDBI had been providing refinance to State Level Finance Corporations / State Industrial

Development Corporations / Banks etc., against their loans granted to small-scale units

Since the formation of SIDBI in April, 1990 a need was felt/ representations were made that

SIDBI being the principal financial institution for the small sector, should take up the financing

of SSI projects directly on a selective basis.

So it was decided to introduce direct assistance schemes to supplement the other

available channels of credit flow to the small industries sector. Since then, SIDBI has evolved

itself into a supplier of a range of products and services to the Small & Medium Enterprises

[SME] sector.

Direct Credit Schemes

Purpose : - Assistance for purposes, such as

Setting up of a new SSI unit/ service sector unit.

Expansion / Diversification/ modernization/ technology up gradation/ quality

certification.

Any other activity considered relevant to the project.

For undertaking various marketing related activities

Acquisition of additional machinery / equipment

Meeting working capital requirements including gap in MPBF or margin on selective

basis.

Any other activity as per guidelines (having linkages and benefits accruing to SSI sector

from the proposed assistance). All activities covered under erstwhile marketing assistance

scheme for SSI’s.

Minimum loan amount

Generally Rs.50 lacks for setting up new unit and Rs.25 lacks for other purposes. In

respect of well-run existing SSI units, the minimum loan could be Rs. 10 lacks.

BILLS FINANCE SCHEME

Bills Finance Scheme involves provision of medium and short-term finance for the benefit

of the small-scale sector. Bills Finance seeks to provide finance, to manufacturers of indigenous

machinery, capital equipment, components sub-assemblies etc, based on compliance to the

various eligibility criteria, norms etc as applicable to the respective schemes.

      To be eligible under the various bills schemes, one of the parties to the transactions to the

scheme has to be an industrial unit in the small-scale sector within the meaning of Section 2(h)

of the SIDBI Act, 1989.

3.5 CHANNELS OF ASSISTANCE

SIDBI’s financial assistance to small-scale sector has three major dimensions:

i) Direct assistance:

The objective behind SIDBI's direct assistance schemes has been to supplement the

efforts of PLIs by identifying the gaps in the existing credit delivery mechanism for SSI’s.

Assistance is provided directly through 43 branches of SIDBI. The assistance is extended

directly for setting up of new SSI units, small hotels, hospitals/nursing homes, technology up

gradation and modernization, expansion and diversification, marketing of SSI products, setting

up of multiplexes, development of infrastructure for the SSI sector, discounting of bills etc.

ii) Indirect assistance:

SIDBI's schemes of indirect assistance envisage credit to SSI’s through a large network

of 913 PLIs SIDBI has bagged the prestigious "ADFIAP Development Award 2003" for its

Rural Industries Programme designed to give impetus to rural development by creating

sustainable industrial and service enterprises in rural areas spread across the country with a

branch network of over 65,000. The assistance is provided by way of refinance, bills

rediscounting and resource support in the form of short-term loans/line of credit in lieu of

refinance etc.

iii) Development and Support Services:

SIDBI extends development and support services in the form of loans and grants to different

agencies working for the promotion and development of SSI’s and tiny industries. The support is

given for enterprise promotion with emphasis on rural industrialization, HRD development in the

SSI sector, technology up gradation, quality and environment management, marketing

promotion, information dissemination etc.

3.6 SCHEMES

SIDBI, primarily a refinancing institution has offered various direct as well as indirect (through

refinance to the financial institution) start up term loan facilities to the small entrepreneurs.

This includes the following:-

GENERAL SCHEME

Purpose- For setting up new small-scale units & for all activities eligible for assistance under

the scheme including professionals practice/ consultancy ventures & services sector units such as

tourism related activities/hospitals/nursing homes/hotels/marketing & industrial infrastructure

projects.

Eligibility - All forms of organizations in the small scale sector (i.e. Proprietary, Partnership

Company, Cooperative Society etc.) for infrastructure development all forms of organization

such as public, private ltd.

SCHEMES FOR COTTAGE, VILLAGE & TINY INDUSTRIES :

Purpose- Assistance for equipments or working capital as also for shed.

Eligibility- Artisans, Village & Cottage Industries & Small Industries in tiny sector.

Limit- Not to exceed than 0.5 million Rupees.

SCHEMES FOR SC/ST & HANDICAPPED:

Purpose- Assistance for equipments or working capital.

Eligibility- SC/ST & Physically Handicapped persons.

Limit- Not to exceed than 0.5 million Rupees.

SCHEMES FOR SMALL ROAD TRANSPORT OPERATED (SRTO’S):

Purpose- To meet expenditure towards cost of chassis, building initial taxes/ insurance and

working capital.

Eligibility- Small road transport operators.

Limit- Need based.

NATIONAL EQUITY FUND SCHEME:

Purpose- To meet gap in prescribed minimum promoter’s contribution and in equity.

Eligibility- Small entrepreneur for setting up new projects and existing in small scale sector and

rehabilitation of potentially viable sick SSI units irrespective of the location, satisfying the

investments ceiling prescribed for tiny entrepreneur undertaking expansion, modernization,

technology up gradation and diversification.

Limit- Cost of projects not to exceed Rs. 1 million, soft loan limit 25% of cost of projects

subjects to max Rs.2, 50,000 per projects service charges 1% p.a. on soft loan.

MAHILA UDYAM NIDHI:

Purpose- To meet gap in prescribed minimum promoters’ contribution or in equity.

Eligibility- Small entrepreneurs for setting up new projects in small-scale sector and

rehabilitation of potentially viable sick SSI units irrespective of the location. Enterprises would

include all Industrial units and Service Industries satisfying the investment ceiling prescribed for

tiny entrepreneurs.

SELF EMPLOYMENT FOR EX-SERVICEMEN:

Purpose- For setting up small industrial projects including service industries and specified

transport activities which are eligible for finance as per SSI norms.

Eligibility- Ex-servicemen sponsored by Director General, Ministry of Defense, Government of

India.

Limit- Scheme operated through SFC’s twin function of project not to exceed than 1.5 million,

Soft loan limited to meet gap in equity subject to a maximum of Rs. 2, 25,000 per project.

Service charges-1% p.a. during moratorium period thereafter, interest at 6% p.a. on soft loan.

3.7 SUBSIDIARIES

SIDBI Venture Capital Ltd. [SVCL] a wholly owned subsidiary of SIDBI acts as the

Asset Management Company of the National Venture Fund for Software and Information

Technology. The fund has a committed corpus of Rs.100 crores as on March 31, 2003.

SIDBI Trustee Co.Ltd. [STCL] has been set up to carry out trusteeship functions for

Venture Capital Funds. Presently STCL is acting as Trustee of National Venture Fund for

Software and Information Technology.

Credit Guarantee Fund Trust Scheme for Small Industries [CGTSI] promoted

jointly by Government of India and SIDBI, was launched by the Hon'ble Prime Minister on

August 30, 2000. The credit guarantee scheme of CGTSI aims at helping the new and existing

industrial units in SSI sector, in getting collateral free credit by way of both term loan and

working capital from eligible member lending institutions. Member Lending Institutions include

scheduled commercial banks; select Regional Rural Banks and Government of India may

approve such of the institutions as. 

Technology Bureau for Small Enterprises [TBSE] was set up by SIDBI in 1995 in

collaboration with United Nations Asian & Pacific Center for Transfer of Technology. The

Bureau aims at helping SSI units to attain international competitiveness through transfer of latest

available technologies from both within and outside the country.

3.8 INTERPRETATION OF MANAGER’S VIEW POINTS

The development banks started before 1991 provide loan for Small Scale Industry and also

charge low and high rate of interest on it.

The loan sanctioned to the entrepreneur it is depending upon the three years Balance Sheet of the

industry, means the industry was profit making or not and entrepreneur is capable or not to repay

the taken loan in case of existing entrepreneur, if the entrepreneur is new then development bank

decide upon his/her financial background and nature of project report.

People have preferred Co- operative banks over the sources of finance.

General Rate of margin money is 25%.

The time required for completion of project report is 15 days.

Processing period in general is 3 months.

3.9 SIDBI’S FINANCIAL HIGHLIGHT

1990-91 1999-00 2001-04 2006-090

500

1000

1500

2000

2500

3000

3500

4000

Income Of SIDBI

The bank has achieved consistent growth in financial parameters since inception. The total assets

of the bank have grown from a level of Rs. 5309 crores in March 1991 to Rs 36, 561 crores in

March 2009. The income has increased from Rs. 425 crores in 1990-1991 to Rs. 1598 crores in

1999-2000 and in 2001-2004 the income has increased to Rs. 1600 crores and to Rs. 5000 crores

in 2006-2009. While the net profit has grown from Rs. 36 crores to Rs.459 crores during the

same period. The capital to risk asset ratio as at end March 2000 was at 27.8 percent and 96.2

percent of the assets were standard assets. The bank has been paying dividends on equity holding

to IDBI since inception.

CHAPTER 4- SIDBI’S FINDINGS

4.1 FINDINGS

Over the past decades, SIDBI has evolved into a strong and small-scale sector credit giving

Facility apex developmental institution with a complete grass roots level understanding of the

Complexities of the small-scale sector. SIDBI is a major shareholder in the Small-scale Industry

In India. The bank is fully equipped organizationally, financially, and domain knowledge wise to

Emerge as a strong player in the Small-scale Industry Credit system. Promoting various groups

Reflects SIDBI”s capabilities in capacity-building and nurturing the small-scale Industry.

A small-scale industrial unit is considered sick if it has at the end of an accounting year incurred

losses equal to or exceeding 50% of its peak net worth in the preceding 5 accounting years. The

sickness in SSI units have been causing concerned to policy-makers because of the productive

assets lying unutilized or underutilized in this units, the huge assistance from financial

institutions and banks locked up in them and the adverse impact on employment in case the unit

closes.

CHAPTER 5- CONCLUSION

5.1- CONCLUSION

The main objective of SIDBI is to provide financial assistance to all SSI s

throughout India through SFC s and SSIDC s. SIDBI s motive is promoting industrial

development in India, it emphasizes on the development of the small-scale industries

not to earn much profits. The maximum shares of profits of SIDBI are transferred to

reserves. It can have more debt capital, hence the large portion of profits are utilized for

the payment of interest to long-term securities.

The activities of SIDBI, as they have evolved over the period of time, now meet

almost all the requirements of small scale industries which fall into a wide spectrum

constituting modern and technologically superior units at one end and traditional units at

the other.

Case Study on SIDBI “ A Successful Financial Institution in SME Financing”

Worldwide, the wind has been changing in the finance sector in general and banking-investment sector in particular. Such a panorama teaches us that now, is the time of cooperation rather than a competition, now it’s a time of convergence rather than cutting each other’s neck over customers and

markets, now it’s a time of consolidation rather than antagonism.

 

Curing the fatal disease requires the doses of small pills; impressive thoughts come out from the small brain, similarly, India requires prominence of small and medium enterprises for curing its problem of low economic growth vis-à-vis developed nations.

 

To cure the overall disease of lack of appropriate growth of Indian SMEs – Small and Medium Enterprises, India needs several small pills such as adequate credit delivery to SMEs, better risk management, technological up gradation of Banks esp. Public Sector Banks, attitudinal change in Bankers and so on. Among them, the major problem of inadequate financing to SMEs needs an urgent attention.

 

Having said this, it is pertinent to mention that Small Industrial Development Bank of India has achieved landmark results in the domain of small and medium enterprise financing and fulfilling their credit requirements time to time in various forms such as long term project finance, working capital finance, bill discounting etc. However considering the level of appetite for credit facilities of Indian small and medium enterprises, private and public sector banks in India need to work out an unique and innovative model of financing to this vital sector (SME) of Indian Economy.

 

In today’s changing world, retail trading, SME financing, rural credit and overseas operations are the major growth drivers for Indian banking industry. The scene has changed since the adoption of financial sector restructuring programme in 1991. The reform in the financial sector in India along with the overall second generation economic reforms in Indian economy has transformed the landscape of banking industry and financial institutions. GDP growth in the 10 years after reforms averaged around 6 %.

 

With the introduction of the reforms especially in financial sector and successful implementation of them resulted into the marked improvement in the financial health of the commercial banks measured in terms of capital adequacy, profitability, asset quality and provisioning for the doubtful losses.

BIBLIOGRAPHY

INTERNET REFRENSES

http://www.sidbi.com/

http://www.sidbi.com/NOTICES/MicroFinance/TOR%20Impact.pdf

http://www.sidbi.com/NOTICES/corporate.pdf

http://www.sidbi.com/FAQ.asp

http://www.sidbi.com/directobjectives.asp

http://www.sidbi.com/directcredit.asp

http://www.sidbi.com/directtechnology.asp

http://www.sidbi.com/UnderConstruction.asp

http://www.sidbi.com/directssi.asp

http://www.sidbi.com/directrisk.asp

http://www.sidbi.com/billsobjectives.asp

http://www.sidbi.com/billsreceivable.asp

http://www.sidbi.com/internationalpost.asp

http://www.sidbi.com/internationalpre.asp

http://www.sidbi.in/Micro/index.htm

http://www.sidbi.com/otherschemes.asp

http://www.sidbi.com/otherschemes.asp

http://www.sidbi.com/promotionalObjectives.asp

http://www.sidbi.com/refinanceiso.asp

http://www.sidbi.com/customersssi.asp

BOOK REFRNSES

Ramesh IDBI/SIDBI Assistant Manager Guide By Ramesh

Financial Services ManagementDeepak Abhyankar

MAGAZINE REFRENSES

OPTIMISMA bi-monthly magazine dedicated to the Micro, Small and Medium Enterprises