Sme Credit Flow

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A Study on

Credit flow to SME Sector Is it adequate? If

not, suggest remedies ...

SUBMITTED BY VIKAS JAIN

MASTER IN MANAGEMENT STUDIES (MMS)

ROLL NO: 2011095

2011-2013 BATCH

23 A, 24-28, Rajasthani Sammelans Educational Complex, S. V. Road, Malad (W), Mumbai - 400 064, India.

Phone: +91-22-6681 2311Fax: +91-22-6681 2338


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I have taken efforts in this project. However, it would not have been possible without the kindsupport and help of branch Manager and Mentor. I would like to extend my sincere thanks toboth of them.

I am highly indebted to Deepak Chavan (Branch Manager) and Jeet Shah (Mentor) for theirguidance and constant supervision as well as for providing necessary information regardingthe project & also for their support in completing the project.

I would like to express my gratitude towards my colleague& member of Bank Of Baroda fortheir kind co-operation and encouragement which help me in completion of this project.

I would like to express my special gratitude and thanks to industry persons for giving mesuch attention and time.

After the completion of this Project I feel myself as a well aware person about the ResearchProcedure and the complexities that can arose during the process. Also I get an insight of theSME sector. Finally, I am also grateful to all those personalities who have helped me directlyor indirectly in bringing up this project report.

VIKAS JAIN


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Durgadevi Saraf Institute of Management StudiesMalad, Mumbai

May 2012 June 2012

Students Declaration

I hereby declare that this report, submitted in partial fulfilment of the requirement for

the award for the Master in Management Studies, to Durgadevi Saraf Institute of

Management Studies, is my original work and not used anywhere for award of any

degree or diploma or fellowship or for similar titles or prizes.

I further certify that without any objection or condition I grant the rights to Durgadevi

Saraf Institute of Management Studies, to publish any part of the project if they deem

fit in journals/Magazines and newspapers etc without my permission.

Place : Mumbai

Date : ------------------------------------Signature

Name : Vikas JainClass : MMS - SEM-II

Roll No: 095


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About SME

Swot Analysis

Composition Of Sme Sector

Trend Of Sme Sector

Contribution Towards Gdp

State Bank Of India (Psu)Bank Of Baroda (Psu)

Idbi Bank(psu)

Small Industries Development Bank of India(SIDBi)

Barclays Bank (Foreign)


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Executive summary---------------------------------------------------------

Before going to describe about the topic i.e. Credit flow to SME Sector, It is an essential toknow about what is SME? The abbreviation of SME is Small and Medium Enterprises. The

Small scale industries are those industries whose total fixed expenditure is does not exceed1crore and Medium enterprises are those whose total fixed expenditure is above 1 crore andbelow 10 crores.

Small and Medium Enterprises (SMEs) play a vital role for the growth of Indian economy bycontributing 45% of industrial output, 40% of exports, employing 60 million people, create1.3 million jobs every year and produce more than 8000 quality products for the Indian andinternational markets. SME's Contribution towards GDP in 2011 was 17% which is expectedto increase to 22% by 2012. Despite its commendable contribution to the Nation's economy,SME Sector does not get the required support from the concerned Government Departments,Banks, Financial Institutions and Corporate, which is a handicap in becoming morecompetitive in the National and International Markets.

Following are the main challenges faced by the SME sector:

According to RBI, bank credit to SMEs grew by 13 per cent in May, 2011, ascompared to 14.8 per cent growth in the same month in 2010. So it is clearlydescribed, that bank credit is decline from last year.

High bank interest rate and lack of required infrastructure are the major barriers thathurt the SME sectors growth in the country . Due to high interest Many SMEentrepreneurs dont dare to take loan at higher interest rate. As a result, manyenterprises are nipped in the bud.

SME have inadequate access to finance due to lack of financial information and non-formal business practices.

In India, there is not availability of suitable technology in operational field.

Due to scarcity of fund, there is low production capacity, non-availability of skilledlabour and there are constraints in modernisation and expansions.


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Introduction--------------------------------------------------------------------

With the advent of planned economy from 1951 and the subsequent industrial policyfollowed by Government of India, both planners and Government earmarked a special rolefor small-scale industries and medium scale industries in the Indian economy. Due protectionwas accorded to both sectors, and particularly for small scale industries from 1951 to 1991,till the nation adopted a policy of liberalization and globalization. Certain products werereserved for small-scale units for a long time, though this list of products is decreasing due tochange in industrial policies and climate.

SMEs always represented the model of socio-economic policies of Government of Indiawhich emphasized judicious use of foreign exchange for import of capital goods and inputs;labour intensive mode of production; employment generation; non concentration of diffusion

of economic power in the hands of few (as in the case of big houses); discouragingmonopolistic practices of production and marketing; and finally effective contribution toforeign exchange earning of the nation with low import-intensive operations. It was alsocoupled with the policy of de-concentration of industrial activities in few geographicalcentres. It can be observed that by and large, SMEs in India met the expectations of theGovernment in this respect.

SMEs in spite of having low Capital base with concentration of functions in one / twopersons, inadequate exposure to international environment and inability to face impact of WTO regime, inadequate contribution towards R & Dand lack of professionalism, SMEs

have made significant contribution towards technological development and exports.

SMEs have been established in almost all-major sectors in the Indian industry such as: FoodProcessing; Agricultural Inputs; Chemicals & Pharmaceuticals Engineering; Electricals;Electronics; Electro-medical equipment; Textiles and Garments; Leather and leather goods;Meat products; Bio-engineering; Sports goods; Plastics products; Computer Software, etc.The contribution of SMEs in the Indian economic development has been immense. The sectorcurrently accounts for about 39 per cent of the manufacturing output and around 33 percentof the total exports of the country. There are approximately 1.3 crore Smes which employnearly 3 crore people. The sector contributes close to 7 percent of our GDP. Thus, specialthrust by the Government to the sector has been consistent with the objectives of employmentgeneration, regional dispersal of industries and fostering of entrepreneurship.


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About SME

Micro, Small and Medium Enterprises (SMEs), including khadi and village/rural enterprises

are credited with generating the highest rates of employment growth and account for a majorshare of industrial production and exports. They also play a key role in the development of economies with their effective, efficient, flexible and innovative entrepreneurial spirit. Thesocio-economic policies adopted by India since the Industries (Development and Regulation)Act, 1951 have laid stress on SMEs as a means to improve the countrys economicconditions.

The Micro, Small and Medium Enterprises (SME) Sector is an important pillar of the Indianeconomy by way of creating employment of about 70 million through 30 million units,manufacturing more than 6000 products, contributing about 45% to manufacturing output and

about 40% of exports, directly and indirectly.

The small and medium enterprises segment has been a topic of intense deliberation amongbanks, financial institutions, industry and academicians. In India, small and mediumenterprises (SME) is a generic term used to describe small scale industrial (SSI) units andmedium-scale industrial units. As per the Micro, Small and Medium EnterprisesDevelopment Act of 2006, any industrial unit with a total investment in its fixed assets orleased assets or hire-purchase asset upto Rs10 million is considered as a SSI unit andinvestment up to Rs. 100 million is considered as a medium unit. In addition, an SSI unitshould neither be a subsidiary of any other industrial unit nor can it be owned or controlledby any other industrial unit. The SME sector produces a wide range of industrial productssuch as food products, beverage,tobaccoand tobacco products, cotton textiles, wool, silk, synthetic products, jute, hemp & juteproducts, wood & wood products, furniture and fixtures, paper & paper products, printingpublishing and allied industries, machinery, machines, apparatus, appliances and electricalmachinery. SME sector also has a large number of service industries.

In India, SME is the biggest provider of employment next only to Agriculture. The SMEsconstitute 95% of total industrial units and constitute 40% of total industrial output.

Formerly, both Government and RBI credit policy placed emphasis on manufacturing unitsfrom the Small-scale Sector. However, in order to make the size of the unit and thetechnology employed by firms to be globally competitive, the definition of Small ScaleSector was revisited. Keeping in view the same and the global practices, it was decided tobroaden the concept of SSI Sector by inclusion of services within its ambit as also includingthe Medium Enterprises in a composite sector of Small & Medium Enterprises.

Banks were interalia advised to formulate comprehensive and more liberal policiesthan the existing policies in respect of loans to SME Sector.


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SWOT analysis-----------------------------------------------------------------

STRENGTHS

Contribution to National Economic Growth. Generating Employment and Vitalizing Indian brand to the world. Regional Development. Technological Innovation. Export Market Expansion.

WEAKNESS

Lack of Funds Lack of Marketing Skill

Lack of Information. Poor adaptability to changing trade trends. Nonavailability of technically trained human resources. Lack of management skills. Lack of access to technological information and consultancy services.

OPPORTUNITY

Bilateral & Multilateral trade agreements. Enhanced credit support. Support for technological up gradation.

Comprehensive support for cluster development. Marketing assistance and export promotion support growing domestic andinternational markets.

WTO regime

THREATS

Dumping from developed countries. Distrust between SMEs and Financial Institutions. Poor incentive structures for entrepreneurs. Virtual absence of Enterprise Education. Nontariff barriers from developed countries. Slow improvement in quality to meet the international standards.


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Composition of SME sector ---------------------------------------------

The SME Sector includes Micro Enterprises, Small Enterprises, Artisans & VillageIndustries, Medium Enterprises, Service Sector units & individual sub-sectorunits.

a. Micro Enterprises:

Micro Enterprises are those engaged in manufacturing, processing,preservation of goods, mining, quarrying, servicing & repairing of specifiedtype of machinery & equipment, agro service units whose investment inPlant and Machineries does not exceed Rs. 25.00 lacs irrespective of location of the unit in respect of manufacturing units and investment inequipments not exceeding Rs 10.00 lacs in respect of Service Sector units.

b. Small Enterprises:

A Small Enterprise industrial undertaking / unit is one which is engaged inthe manufacture, processing or preservation of goods or is a servicing andrepair workshop undertaking repairs of machinery used for production,mining or quarrying or custom service unit (except water service units),having investment in Plant and Machineries (original cost) above Rs 25.00lacs but not exceeding Rs. 5.00 crores in respect of manufacturing unitand above Ra 10.00 lacs but not exceeding Rs 2.00 crores in respect of Service Sector unit.

c. Medium Enterprises:

A Unit which is engaged in the manufacture, processing or preservation of goodsor is a servicing and repair workshop undertaking repairs of machinery used forproduction, mining or quarrying or custom service unit (except water serviceunits), with investment in Plant & Machinery in excess of Rs 5.00 crores and uptoRs.10.00 crores in respect of manufacturing units and investment in equipments inexcess of Rs 2.00 crores and upto Rs 5.00 crores in respect of Service Sector unitswill be treated as Medium Enterprises (MEs).

The SME segment isbroadly classified asunder: Particulars

Investment in Plant & Machineries of ManufacturingEnterprises

Investment in Equipments of Service Sector Enterprises

Micro Enterprises Upto Rs. 25/- lacs Upto Rs.10/- lacsSmall Enterprises Above Rs. 25/- lacs and

upto Rs.500/- lacsAbove Rs.10/- lacs and uptoRs.200/- lacs

Medium Enterprises Above Rs.500/- lacsand upto Rs.1000/- lacs

Above Rs.200/- lacs and up toRs.500/- lacs


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Trend of SME sector--------------------------------------------------------

According to the Ministry Of Micro, Small and Medium Enterprises, the number of

SME units in India has grown at a CAGR of 4.5 per cent during FY07 FY11, and stood at31.2 million at the end of FY11. The cumulative investments in these units rose at a CAGRof 11.5 per cent during the same period. Strong growth in total investments in SMEs indicatestowards their expanding footprint and growing importance. The SMEs are increasinglycontributing towards employment generation in India. The number of people employed bySME has grown to 73.2 million during FY11 recording a CAGR of 5.3 per cent since FY07.

As per the fourth All-India Census of SMEs (2006-07), 94 per cent of the enterprises are inthe unorganised sector. The SMEs are not concentrated in terms of rural versus urban origin.Rural areas account for 45 per cent of all SMEs, while the remaining 55 per cent are locatedin urban areas. On the other hand if classified with respect to sector of operation, 67 per centare involved in manufacturing activities and the remaining 33 per cent units are distributed inthe service sector (17 per cent) and repairing and maintenance sector (16.1 per cent),respectively.


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PERFORMANCE OF SMEs------------------------------------------------------

The sector has consistently registered a higher growth rate than the rest of the industrialsector. There are over 8000 products ranging from traditional to high-tech items, which arebeing manufactured by the SMEs in India. It is well known that the SMEs provide goodopportunities for both self-employment and wage employment.

The Office of the DCMSME (SME) provides estimates in respect of various performanceparameters relating to the sector. The time series data in respect of the sector on variouseconomic parameters is given in the following Table 1.

Table 1: SMEs Performance: Units, Employment, Investments, Production & Exports

Sl.

No.

Year Total

WorkingSMEs

Employment Fixed

Investment

Production(Current Prices)

Exports

(Lakhnumbers)

(Lakhpersons)

(Rs. crore)

I II III IV V VI VII 1

2001-02 105.21 249.33 154349 282270 71244 (4.07) (4.44) (5.11) (8.03) (2.07)

22002-03

109.49 260.21 162317 314850 86013 (4.07) (4.36) (5.16) (11.54) (20.73)

32003-04

113.95 271.42 170219 364547 97644 (4.07) (4.31) (4.87) (15.78) (13.52)

4 2004-05 118.59 282.57 178699 429796 124417 (4.07) (4.11) (4.98) (17.90) (27.42)

52005-06

123.42 294.91 188113 497842 150242 (4.07) (4.37) (5.27) (15.83) (20.76)

62006-07

261.12 595.66 500758 709398 182538 (111.57) (101.98) (166.20) (42.49) (21.50)

72007-08

272.79 626.34 558190 790759 202017 (4.47) (5.15) (11.47) (11.47) (10.67)

82008-09

285.16 659.35 621753 880805 N. A. (4.53) (5.27) (11.39) (11.39)

9*2009-10

298.08 695.38 693835 982919 N. A. (4.53) (5.46) (11.59) (11.59)

10# 2010-11

311.52 732.17 773487 1095758 N. A. (4.51) (5.29) (11.48) (11.48)

The figures in brackets show the percentage growth over the previous year. The data for the period up to 2005-06 is SmallScale Industries (SSI). Subsequent to 2005-06, data with reference to Micro, Small and Medium Enterprises are beingcompiled. The growth for the year 2010-11 is based on the average growth rate for the previous three years. *:Provisional,#:Projected, N. A.:Not Available.


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Contribution towards GDP ---------------------------------------------

Small and Medium Enterprises (SMEs) play a vital role for the growth of Indian economy bycontributing 45% of industrial output, 40% of exports, employing 60 million people, create1.3 million jobs every year and produce more than 8000 quality products for the Indian andinternational markets. SMEs Contribution towards GDP in 2011 was 17% which is expectedto increase to 22% this year. There are approximately 30 million SME Units in India and 12million persons are expected to join the workforce in the next 3 years. SMEs are the fountainhead of several innovations in manufacturing and service sectors, the major link in the supplychain to corporate and the PSUs. By promoting SMEs, the rural areas of India will bedeveloped.

SMEs are now exposed to greater opportunities than ever for expansion and diversification

across the sectors. Indian market is growing rapidly and Indian entrepreneurs are makingremarkable progress in various Industries like Manufacturing, Precision Engineering Design,Food Processing, Pharmaceutical, Textile & Garments, Retail, IT and ITES, Agro andService sector.

The statistics reveal the contribution of the sector to India's economy.


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Credit Flow to sme sector from Banks--------------------------

SME is fast growing sector in the Indian Economy. Every Bank has given highest importanceto financing SMEs in their strategically growth plan. It has become necessary to bring policy

shift and create free market environment from regulations & interventions in economicactivity. Growth resulting from globalization and liberalization is visible most profoundly inthe SME segment.

Funds are invariably a pressing issue for most entrepreneurs, more so for those starting orrunning a small or medium enterprise. Though venture capital (VC) and private equity (PE)funding has grown considerably in the last decade or so, micro, small & medium enterprises(SMEs) are still founded mostly with the entrepreneur's own money or, in some cases, withloans from banks.

The RBIs consistent direction to PSBs to allocate 40 per cent of their lending towards the

priority sector, i.e., agriculture, small scale industries, tiny sector, village and cottageindustries, small traders, professionals and self-employed, housing loans, etc.

In order to enhance the flow of credit to the sector, various initiatives have been taken by theGovernment of India/Reserve Bank of India from time to time, viz.

Enhancement of loan limit under Composite Loan Scheme Increase in project cost limit under National Equity Fund (NEF) Scheme Launching of Credit Guarantee Fund Trust for Small Industries

Extension of concessional assistance under Technology Development andModernisation Fund Scheme

Introduction of special schemes for modernization of units under Technology Upgradation Fund Scheme for textiles and jute industries

Tannery Modernisation Scheme and Credit Linked Capital Subsidy Scheme forTechnology Up gradation.

Public sector banks have so far opened 391 specialised SME branches so as to givefocused attention to the needs of SMEs

Dedicated agencies for credit rating to SME sector have been created with provision

of subsidized credit rating charges.

Financing options available for SMEs in India----

The Long term funding includes funding through Capital market (Equity Shares,Preference Shares, non- voting shares). Quasi capital (Investment Subsidiaries, Softloans/ Equity Fund Loans, VC Debts- Term Loans, Non-convertible Debentures,Leasing and Hire Purchase, Floating Rates Notes, Structured Obligations, Bonds,Technology Up-gradation and Modernization Credit from FIs, Development

Institutions )


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The Short term funding includes Working Capital, Commercial Paper, Inter-corporate Deposits, Trade Credit, Factoring, FCNR, Bills Discounting and PublicDeposits.

The Foreign Funding and Miscellaneous options for SMEs is to take Term loan

assistance, refinance, loans for leasing and hire purchase, bill discounting, foreigncurrency loans, and venture capital loan.

Not many SMEs are aware of the finance options. The SMEs must have the acumen tounderstand the business processes integrated with the banking options to meet therequirements to continuous flow to credit. They must also have the ability to re-jig thebusiness process to meet the short-time challenges of the market.

Comparison of the SME Sector with the Overall Industrial Sector

The SME Sector has consistentlyregistered a higher growth rate thanthat of industrial sector. Table 2.8depict the comparative annual growthrates of production in the SMEsegment vis--vis that of the industrialsector as a whole since 1997 98. Itis pertinent to note that the annualgrowth rate of SME sector hasconsistently outpaced that of the

industrial sector during the Ninth andTenth Plans. According to theEleventh Plan document, the SMEsector in India has grown significantlysince 1960, when there were only 12,376 SMEs providing employment to 10 lakh people of which, direct employment was 1.85 lakh; annual production level was Rs 875 crore. At thebeginning of the Tenth Plan, 249 lakh people in the rural and urban areas were employed in105.21 lakh SMEs. This has increased to 295 lakh people in 128 lakh units now; an averageannual growth rate of 4.4% in the number of these units and 4.62% in employment. If theunits in the khadi, village, and coir sector are taken into account, the employment is estimatedto be over 332 lakh. With the inclusion of handlooms, handicrafts, wool, and sericulture, thetotal job in the SME sector in India goes up to 650 lakh. The employment intensity of theregistered units indicates that an investment of Rs 0.72 lakh is required for creating oneemployment in SME sector as against Rs. 5.56 lakh in the large organized sector.

As per the Reserve Bank of India, the credit to the Micro and Small Enterprises (SME) sectorby Scheduled Commercial Banks (SCBs) registered a growth of 21.8% during FY 2010-11


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i.e. from Rs. 3,73,530 crore as at end March 2010 to Rs. 4,54,995 crore as at end March2011. But it is still not enough as Sme Sector in India is growing like anything.

According to the data, SME contributes around 17% to GDP but they didnt getting adequate

fund to run their business properly and some of the entrepreneur are not aware about thefinancing options and their benefits. So the overall framework of the credit dispensation isfound to be inadequate in meeting the need for sufficient and timely institutional creditto the SMEs.


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Banks products --------------------------------------------------------------

STATE BANK OF INDIA (PSU)

State Bank of India (SBI) is the largest banking and financial services company in India byrevenue, assets and market capitalisation. It is a state-owned corporation with its headquartersin Mumbai, Maharashtra. As of March 2011, it had assets ofUS$370 billion with over 13,577outlets including 157 overseas branches and agents globally. The bank traces its ancestryto British India, through the Imperial Bank of India, to the founding in 1806 of the Bank of Calcutta, making it the oldest commercial bank in the Indian Subcontinent. Bank of Madrasmerged into the other two presidency banks Bank of Calcutta and Bank of Bombay toform the Imperial Bank of India, which in turn became the State Bank of India.The Government of India nationalised the Imperial Bank of India in 1955, with the ReserveBank of India taking a 60% stake, and renamed it the State Bank of India. In 2008, thegovernment took over the stake held by the Reserve Bank of India. SBI is ranked No. 292globally in Fortune Global 500 list in 2011.

SBI provides a range of banking products through its vast network of branches in India andoverseas, including products aimed at non-resident Indians (NRIs). The State Bank Group,with over 18,324 branches, has the largest banking branch network in India. SBI has 14 localhead offices situated at Chandigarh, Delhi, Luck now, Patna, Kolkata, Guwahati (North EastCircle), Bhuwaneshwar, Hyderabad, Chennai, Trivandram, Banglore, Mumbai, Bhopal &Ahmedabad and 57 Zonal Offices that are located at important cities throughout the country.

It also has 157 branches overseas.SBI is a regional banking and is one of the largest financial institutions in the world. It has amarket share among Indian commercial banks of about 20% in deposits and loans. The StateBank of India is the 29th most reputed company in the world according to Forbes. Also , SBI isthe only bank featured in the coveted "top 10 brands of India" list in an annual surveyconducted by Brand Finance and The Economic Timesin 2010.

The State Bank of India is the largest of the Big Four banks of India, along with ICICIBank, Punjab National Bank and HDFC Bank its main competitors.

State Bank of India has been playing a vital role in the development of small scale industriessince 1956. The Bank has developed a wide array of products to meet the changing needs of the industry. It provides end -to -end solutions for the financial needs of the industry. Toservice the specific credit needs of small and medium enterprise (SME) the Bank establishedthe Small & Medium Enterprise business unit in 2004.

Apart from the general working capital requirements (like Cash credit, Bill Discountinglimits, LC, BG etc) to meet the day to day requirements and term loans to take care of investment needs for acquiring fixed assets, Bank has an array of products/schemes to caterto the enterprise specific requirements of SME Units both in Manufacturing and Trade andservices sectors. Brief details of some of the schemes are as under:
http://en.wikipedia.org/wiki/Financial_servicehttp://en.wikipedia.org/wiki/Market_capitalisationhttp://en.wikipedia.org/wiki/Government-owned_corporationhttp://en.wikipedia.org/wiki/Mumbai,_Maharashtrahttp://en.wikipedia.org/wiki/British_Rajhttp://en.wikipedia.org/wiki/Imperial_Bank_of_Indiahttp://en.wikipedia.org/wiki/Bank_of_Calcuttahttp://en.wikipedia.org/wiki/Bank_of_Calcuttahttp://en.wikipedia.org/wiki/Indian_Subcontinenthttp://en.wikipedia.org/wiki/Government_of_Indiahttp://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/Fortune_Global_500http://en.wikipedia.org/wiki/Non-resident_Indianhttp://en.wikipedia.org/wiki/Brand_Financehttp://en.wikipedia.org/wiki/Big_Four_(banks)#Indiahttp://en.wikipedia.org/wiki/ICICI_Bankhttp://en.wikipedia.org/wiki/ICICI_Bankhttp://en.wikipedia.org/wiki/Punjab_National_Bankhttp://en.wikipedia.org/wiki/HDFC_Bankhttp://en.wikipedia.org/wiki/HDFC_Bankhttp://en.wikipedia.org/wiki/Punjab_National_Bankhttp://en.wikipedia.org/wiki/ICICI_Bankhttp://en.wikipedia.org/wiki/ICICI_Bankhttp://en.wikipedia.org/wiki/Big_Four_(banks)#Indiahttp://en.wikipedia.org/wiki/Brand_Financehttp://en.wikipedia.org/wiki/Non-resident_Indianhttp://en.wikipedia.org/wiki/Fortune_Global_500http://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/Government_of_Indiahttp://en.wikipedia.org/wiki/Indian_Subcontinenthttp://en.wikipedia.org/wiki/Bank_of_Calcuttahttp://en.wikipedia.org/wiki/Bank_of_Calcuttahttp://en.wikipedia.org/wiki/Imperial_Bank_of_Indiahttp://en.wikipedia.org/wiki/British_Rajhttp://en.wikipedia.org/wiki/Mumbai,_Maharashtrahttp://en.wikipedia.org/wiki/Government-owned_corporationhttp://en.wikipedia.org/wiki/Market_capitalisationhttp://en.wikipedia.org/wiki/Financial_service


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SME Credit Card (Up to Rs.10 Lakh)

Product provides loans for the micro enterprises, small business enterprises,professional and self-employed persons, small retail traders, transport operators etc. formeeting any kind of credit requirement including purchase of shops, maximum limit being Rs10 lakhs including term loan & working capital loan. The loan will be sanctioned for 3 yearswith an annual review. This product has simplified sanction process without requirement of elaborate financial data.

The borrower will be provided a photo identity card and a passbook giving details of the limit and validity of the facility. A cheque book marked as SME Credit Card and a passbook would be issued to the customer.

SME Smart Score (Up to Rs.50 Lakh)

The Loan product is for units in Micro and Small Enterprise sector in manufacturing tradeand services segments to meet working capital needs and for acquisition of fixed assets. Asimplified appraisal model has been developed to standardize the appraisal process for loansupto Rs 50 lakhs in SME sector and upto Rs 25 lakhs for trade and services sector availablewith attractive interest rates. The loan will be sanctioned for 2 years with an annual review.

SBI SMILE (Interest Free Loan as equity)

The scheme envisages grant of interest free loan as equity assistance towards part of margin

requirements of the project, to assist eligible professional and technically qualifiedentrepreneurs setting up new Micro and Small enterprises and units covered under the BanksProject uptech for technology upgradation.

Equity assistance is up to a maximum of Rs.10 lakhs. Professional and Technically qualifiedpersons will cover doctors including dentists, engineers, and management graduates etc. Theinterest free loan is repayable in 3 years with a moratorium period of 5-7 years.

SME Credit Plus

For existing and new borrowers this scheme provides a clean cash credit facility to meetcontingencies, sudden and unforeseen expenditures like repairs, meeting bulk orders, taxpayments, mismatch in cash flows etc.

Under the scheme 20% of aggregate WC or max Rs.25 lakhs fund based limit can be availed.Margins are not required and interest rate will be same as applicable to cash credit limit. Thefacility is repayable in 2 months and can be availed for 12 times a year

SME Collateral Free Loan (SMECFL)

Collateral free loan for viable projects of micro and small enterprises in manufacturing and

service sector with maximum guarantee cover up to Rs.1.00 crore under CGTMSE guaranteescheme for working capital & Term Loan (FB+NFB) facilities. This facility is available to all


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borrowers except those involved in trading (wholesale & retail), SHGs, educationalinstitutions & training institutions.

Additional benefits for borrowers if they opt for the scheme, Guarantee Fee & AnnualService Fee charged under the scheme is absorbed by the bank at present. In addition there is50% concession in processing fee & 0.25% concession in interest rate.

Traders Easy Loan

Easy loan for specific business needs of traders, wholesalers and professionals, self-employed, small business enterprises, agents engaged in purchase and sale of food grains,commodities, cold storage units, having collaterals like land, buildings and liquid securities.

Loan can be availed for normal day to day business requirements or for purchase of equipments/ fixed assets. Loan is available upto Rs 5 crore with very competitive rate of

interest.


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BANK OF BARODA (PSU)

Bank of Baroda (BoB) is the highest profit-making PSU bank in India and the third largestPSU bank in terms of number of total business in India. It is also the country's second largestpublic sector lender in terms of annual profit. BoB is ranked 715 in Forbes Global 2000 list.BoB has total assets in excess of Rs. 3.58 lakh crores, or Rs. 3,583 billion, a network of 4002branches (out of which 3909 branches are in India) and offices, and over 2000 ATMs. It plansto open 400 new branches in the coming year. It offers a wide range of banking products andfinancial services to corporate and retail customers through a variety of delivery channels andthrough its specialized subsidiaries and affiliates in the areas of investment banking, creditcards and asset management. Its total global business was Rs. 6,722.48 billion as of 31 March2012.

The Maharajah of Baroda, Sir Sayajirao Gaekwad III, founded the bank on 20 July 1908 inthe princely state of Baroda, in Gujarat. The bank, along with 13 other major commercialbanks of India, was nationalised on 19 July 1969, by the government of India.

To promote the growth of SME Sector, the Bank has launched a special and novel deliverymodel, viz. SME Loan Factory, which at present, is operationalized in 36 centres of the Bank and well accepted in the marketplace.

The SME Loan Factory is an innovative model for streamlining processes and for timelysanctions of SME loan proposals. The model comprises of the Central Processing Cell forspeedy appraisal and sanctioning of proposals within the stipulated deadline. Business Modelon assembly line is adopted by the bank for SME segment by establishing separate Hub forCentralized Processing o f SME proposals. This model is named as SME LOANFACTORY at identified centers.

These SME Loan Factories sanctioned loans aggregating Rs 11,071 crore during FY10 asagainst Rs 8,508 crore in the previous year.

Products:

Baroda Vidyasthali Loan

Baroda Vidyasthali Loan is a special scheme for financing Educational Institutions to meetthe financial requirements for setting up the institutions which includes construction of building, purchase of equipment etc. for the new set up as also renovation of the existingfacilities, purchase of instruments for imparting education training to the students. Limits areminimum Rs. 25 lacs and maximum Rs. 10 crores.

Baroda Arogyadham Loan

The purpose is to meet the financial requirements for setting up of new NursingHome/Hospital including Pathological Laboratory, Expansion/renovation/modernization of existing Nursing Home/ Hospital including Pathological Laboratory, Purchase of medical
http://en.wikipedia.org/wiki/Forbes_Global_2000http://en.wikipedia.org/wiki/Lakhhttp://en.wikipedia.org/wiki/Croreshttp://en.wikipedia.org/wiki/Sayajirao_Gaekwad_IIIhttp://en.wikipedia.org/wiki/Princely_statehttp://en.wikipedia.org/wiki/Baroda_Statehttp://en.wikipedia.org/wiki/Gujarathttp://en.wikipedia.org/wiki/Government_of_Indiahttp://en.wikipedia.org/wiki/Government_of_Indiahttp://en.wikipedia.org/wiki/Gujarathttp://en.wikipedia.org/wiki/Baroda_Statehttp://en.wikipedia.org/wiki/Princely_statehttp://en.wikipedia.org/wiki/Sayajirao_Gaekwad_IIIhttp://en.wikipedia.org/wiki/Croreshttp://en.wikipedia.org/wiki/Lakhhttp://en.wikipedia.org/wiki/Forbes_Global_2000


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diagnostic equipments as also office equipments, viz. computers, air conditioners, officefurniture, Purchase of ambulance etc. and to meet working capital requirements.

All entities are eligible, i.e. SMEs, Enterprises other than individuals like Proprietorship,Partnership firms, Private Limited Companies and Trusts engaged in providing

medical/pathological diagnostic services to the Society and with turnover upto Rs. 150/-crores.

LIMIT

Rural Centres - Rs. 0.50 crores Semi-Urban Centres - Rs. 6.00 crores Urban & Metro Centres - Rs. 12.00 crores

Baroda Artisans Credit Card (BACC)

The purpose is to provide adequate and timely assistance to the artisans to meet their creditrequirements - both investment needs as well as working capital - in a flexible and costeffective manner. The scheme is implemented in rural and urban areas. And limit will bemaximum Rs.2/- lakhs per borrower.

ELIGIBILE BORROWERS:

All artisans involved in production / manufacturing process. Preference given to artisans registered with Development Commissioner

(Handicrafts). Beneficiaries of other Government Sponsored loan schemes will NOT be eligible for

coverage under BACC scheme.

Baroda Laghu Udhyami Credit Card

The purpose is to provide hassle free credit facilities to Small business units, retail traders,artisans, village industries, small scale industrial units and tiny units, professionals and self-employed persons etc. And limit will be maximum Rs.2/- lakhs per borrower.

All existing customers in the categories of Small Business, Retail Trade, Artisans, VillageIndustries, Small Scale and Tiny Units, Professional & Self Employed persons etc. havingsatisfactory track record / dealing with the bank for last 3 years are eligible for this creditcard.

Technology Upgradation Fund Scheme (TUFS) For Textile and Jute Industries

Bank of Baroda grants loans under Technology Up-gradation Fund Scheme launched byGovernment of India as per guidelines received from time to time from Ministry of Textiles.Bank of Baroda is a nodal agency for determining eligibility and releasing of subsidy for the

cases financed by the bank under the scheme.


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The objective is to provide encouragement to textile industrial units for taking up technologyup-gradation and to modernize their production facilities. The scheme envisages 5% interestreimbursement (4 percentage for spinning industry) of the normal interest charged by thebank on the loans availed by the units from the bank for undertaking technology up-gradation/modernization.

The scheme also provides 25% capital subsidy on purchase of new machinery andequipments for the pre-loom and post-loom operations, handlooms/up-gradations of handlooms and testing and quality control equipments for handloom production units.


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IDBI Bank (PSU)

In an effort to give a boost to the SME financing, IDBI Bank has developed a specialbusiness model to serve the SMEs in India. The Bank has set up 24 City SME Centres(CSCs) across India in Mumbai, Delhi, Kolkata, Chennai, Bangalore, Hyderabad, Pune toname a few. These CSCs are the Bank's hubs while dedicated SME desks have been set up inseveral branches across these cities. These branches serve as front offices for sales deliveryand customer service.

Answering its commitment to strengthen the SMEs in India, IDBI Bank has been activelyengaged in providing a major thrust to financing of SMEs by improving the credit deliverymechanism and shortens the Turn Around Time (TAT).

IDBI Bank has a wide variety of products and services catering to the needs of different

segments within small business. The Bank has been, for long, a trusted partner of large andmid-corporate and the experience has transpired the bank into deeper understanding of needsof small businesses and industries. The Bank has since parameterised products fortransporters, dealers, traders, and vendors. In addition, it has a separate Transaction BankingGroup that has expertise in products like cash management services, letter of credit, bank guarantees and treasury products.

IDBI BANK SME PRODUCTS:

Sulabh Vyapar/ Business Solutions

Traders act as a vital link between the manufacturers of goods/commodities and theconsumer. The product aims to provide hassle free finance to traders and to meet theirbusiness and financial needs at competitive interest rates. Any individual or a firm(partnership or proprietorship) engaged primarily in buying and selling mercantile goods iseligible for this mode of finance. IDBI Bank offers solutions to all the financial needs of thewholesalers/traders/retailers under the Product.Dealer Finance Programme

Dealers are one of the important channel partners through whom a substantial volume of business is conducted by most of the manufacturers. IDBI Bank's "Dealer FinanceProgramme" is designed in such a way such that it leads to a better liquidity position byproviding various facilities to the dealers, thereby improving the overall businessenvironment.

Vendor Financing Programme

Realization of funds tied at various points of the value chain is one of the primary concerns of

those involved in the business of manufacturing & supplying of various kinds of goods.Funds are required by the manufacturers/suppliers at two stages of the production viz., the


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manufacturing stage (Accounts Payable Cycle) and the post-manufacturing stage (AccountsReceivable Cycle), while in the former, funds are required to acquire the raw-materials, in thelatter it's required for smooth functioning till the products are sold and realized into cash.IDBI Bank's "Vendor Finance" product is so designed such that all the links in the value

chain always remain adequately funded, thereby leading to a smooth functioning for thevendor.

Funding Under Credit Guarantee Scheme for Micro and Small Enterprises (CGMSE)

Providing security for the loan availed by the micro/small enterprises units (MSEs) has beenfound to be a major roadblock for their inability to access banking systems. Keeping this inview, the Government of India and SIDBI had set up "Credit Guarantee Fund Trust for Micro& Small Enterprises" (CGTMSE). On the basis of the guidelines issued by CGTMSE, IDBIBank offers collateral free loans up to Rs. 1 crore and enable SMEs realize their dreams.

Loans to Small Road & Water Transport Operators (SRWTOs)

Road & Water Transport Operators play a key role in the socio-economic development of thenation by providing transport and communication services to the society in general and theindustry in particular. This product enables various transport operators acquire fleets of vehicles/ vessels thereby offering cheap yet safe and convenient solutions to transport relatedissues.

Lending Against the Security of Future Credit Card Receivables

In today's environment, there has been a phenomenal change in the way business is run andpayments are made. More and more number of people is taking to electronic payments bymeans of credit or debit cards. IDBI SME product "Lending against Future Credit CardReceivables" - provides financial assistance to the business entity accepting paymentsthrough credit/debit cards.

Working Capital Financing to IT & ITES Entities

Information Technology Industry in India has the potential of tremendous growth as a globalIT solutions provider. IDBI SME Product "Working Capital Financing to IT & ITES Entities"offers all the necessary financial assistance to those engaged in this sector.


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Small Industries Development Bank of India (SIDBi)

Small Industries Development Bank of India or SIDBI was founded on April 2, 1990. Itwas founded with the intention of providing easy financing option to SMEs and othernon-credit schemes in order to assist, promote and develop the MSME sector in India.SIDBI runs various credit schemes in conjunction with primary lending institutions like

banks, state financial corporations etc. SIDBI helps the small and medium sized industries in sustaining income generatingactivities by assisting them in their various activities- finance and otherwise. Some of theschemes initiated by SIDBI are:

1. Development of Industrial Infrastructure fund- This fund was set up to allowease in setting up industrial units or the development of existing industrial units.This fund helps industries in SME sector strengthen their warehousing facilitiesand also helps the business in procuring support services like raw materials,

research centres, test centres, etc.This scheme is meant to give risk capital to the SME sector, who finds it hard toget equity funding because of various reasons. The risk capital is provided in aflexible manner with different options available for repayment. This scheme canbe availed for projects costing up to Rs 100 million. The debt to equity ratio inthis scheme is 3:1.

2. Vendor Development Scheme- This scheme from SIDBI is meant for financingSMEs in the manufacturing and service sector who are vendors of largecorporations or OEMs. OEMs are effectively run corporate, PSU or MNC. Under

this scheme, the bank ties up with the OEM to facilitate the development of vendor by means of flexible loan assistance. This loan helps the SME vendor inexpansions, diversification and modernisation plan.

3. Scheme for energy saving projects in MSME sector- SIDBI in conjunctionwith Japan International Cooperation Agency, extends loans for SMEs whoundertake energy saving investments for their plant, machinery etc. or to improvetheir energy efficiency.Loan under this scheme is granted only after screening the energy savinginvestment of the SME concerned. Both new as well as existing SMEs areeligible for a loan under this scheme, subject to the fact that they have a worthytrack record.A minimum assistance of 10 lakhs is provided under this scheme and it has adebt to equity ratio of 2.5:1. Furthermore, it does not have a rigid repaymentpolicy. Although the general norm of repayment is 7 years, it can be extendedaccording to the needs of the business.

4. Risk Capital Fund- Realising that lack of equity funding is the major source of hindrance for SMEs with expansion plans, SIDBI offers risk capital fund. Therisk capital fund can be available for tangible investments like purchase of equipment or machinery as well as intangible investments like R&D centre,brand building, marketing, training etc. The intangible investments requirementsare often ignored by banks.


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Again, this funding scheme is flexible and the repayment is matched to the cashflow of the business. It involves mezzanine funding as one of the tools whichallows easier exit options than equity based investments. It involves the interestrate of return of 14-16% per annum.

SIDBI has several refinancing schemes for SMEs as well. It has the followingrefinancing schemes:

I. General Refinance Scheme- This scheme for small and medium enterprises whowant to set up new units or expands their existing ones. All forms of business viz.sole proprietorship, partnership, company etc. are eligible for this financescheme.

II. Technology upgradation fund- This financing scheme is primarily meant fortextile industry and help the small units modernise their technology. A specialincentive of 5 percentage points with respect to interest is also given to SMEswhich are new or which take loans from recommended Private LendingInstitutions (PLI).

III. Acquisition of ISO Certification by SSI Unit- As the name suggests thisfunding scheme helps SMEs in the SSI sector avail funding for auditing,certification and other fee involved in the certification process. To avail this fund,an SME should have been in operation for at least 2 years, should have a good

track record and should have earned a profit for two successive years beforeapplying for the finance.

IV. Single Window Scheme- This scheme is meant for financing fixed assetsacquisition as well as working capital. New businesses in the SSI sector or newpromoters who are acquiring assets of existing SSI are available for this kind of funding. A maximum loan of Rs 20 million is extended under this scheme.


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Barclays bank (Foreign)

The importance of the SME sector is well recognised world over, owing to its significantcontribution to the global economic growth. The vibrant SME sector in India plays a pivotalrole in generating employment, increasing cross - border trade and fostering the spirit of entrepreneurship.

Keeping in mind the important role played by the SME sector in the economic growth of thecountry and also with a view to enhance SMEs' competitiveness in the present globalisedscenario, Business banking from Barclays provides a gamut of comprehensive financialsolutions and services. These are aimed at supporting the growth of the Indian SMEs, therebyenabling them to create a sustainable competitive advantage.

Whether you are an entrepreneur starting your business or an established business looking togrow, Barclays leverages its global footprint and expertise to offer your business relevant andinnovative products and services. Furthermore, we apply our expertise to ensure that ourproducts and services are customised to suit your specific needs and requirements.

Whatever your future need, be it sustained growth or business expansion, Business bankingoffers many types of financial solutions. We offer the know-how you need so your potentialcan be realised with bespoke solutions tailored to your business.

Products:

Transaction banking

Transaction banking products from Barclays are offered in INR. These current accountproducts provide services that fulfil the domestic as well as cross border businessrequirements of customers. They provide convenience, superior service and cost effectivesolutions to customers. A wide range of variants are offered to cater to the transaction needsof various segments.The variants offered are Business First, Business Special, Business Super and BusinessRoyal.

Exchange Earners Foreign Currency (EEFC) account

The EEFC account is a special type of current account aimed at exporters / individual

professionals who receive eligible remittances in foreign currency as per FEMA regulations.The account is maintained in foreign currency, shielding accountholders from exchange ratefluctuations.

EEFC accountholders are required to open a current account in INR for crediting the INR legof the transaction / converting the balance held in the EEFC account into INR as well as forpaying the applicable charges.

Features & benefits Zero balance account, so no need to maintain any average or minimum balance in the

EEFC account Available in four currencies: US Dollars, Japanese Yen, Pound Sterling (GBP) and EURO Comprehensive range of Doorstep banking services


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Wide range of trade services available at attractive rates

Power trade

Power trade from Barclays gives you the required strength to catapult your business and takeit to the next level. A packaged product, Power trade bundles both trade & forex services thusoffering you the extra edge, convenience and flexibility for your business. It is a speciallydesigned product to take care of specific trade requirements of business. Power tradecustomers are entitled to a comprehensive range of Doorstep banking services including cashpickup and delivery, demand draft / pay order delivery, cheque pick up and document pickupand delivery

Importers, exporters and domestic businesses having a minimum business turnover of Rs. 8million are eligible for power trade.

Products offered under power trade-

Pre and post shipment finance Invoice / bill discounting Letters of credit Guarantees

Enterprise solutions

Enterprise solutions from Barclays offer a comprehensive range of product suites andservices suiting all your business needs. It's a complete package starting from a currentaccount, working capital finance, term loans, trade finance to forwards, which you can,choose from depending upon your business needs and requirements thus helping yourbusiness grow to greater heights. Enterprise solutions customers are entitled to acomprehensive range of doorstep banking services including cash pickup and delivery,demand draft / pay order delivery, cheque pick up and document pickup and delivery.

Manufacturers, traders, service providers, importers and exporters having a minimumbusiness turnover of INR 10 million are eligible for Enterprise solutions.

Products offered under Enterprise solutions

Overdraft Term loans Invoice financing Pre / Post shipment finance Letter of credit Bank guarantee Forwards
http://www.barclays.in/commercial/enterprise_soln.htm#overdrafthttp://www.barclays.in/commercial/enterprise_soln.htm#term_loanhttp://www.barclays.in/commercial/enterprise_soln.htm#invoicehttp://www.barclays.in/commercial/enterprise_soln.htm#shipmenthttp://www.barclays.in/commercial/enterprise_soln.htm#lochttp://www.barclays.in/commercial/enterprise_soln.htm#guaranteehttp://www.barclays.in/commercial/enterprise_soln.htm#coverhttp://www.barclays.in/commercial/enterprise_soln.htm#coverhttp://www.barclays.in/commercial/enterprise_soln.htm#guaranteehttp://www.barclays.in/commercial/enterprise_soln.htm#lochttp://www.barclays.in/commercial/enterprise_soln.htm#shipmenthttp://www.barclays.in/commercial/enterprise_soln.htm#invoicehttp://www.barclays.in/commercial/enterprise_soln.htm#term_loanhttp://www.barclays.in/commercial/enterprise_soln.htm#overdraft


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Problems/challenges----------------------------------------------------

There are a number of issues in lending to the SME sector, which banks generally face. Thekey issues among them are outlined below:

Information Asymmetry:

Accurate information about the borrower is a critical input for decision-making by banks inthe lending process. Asymmetric information about the business prospects of small-scaleprojects and financial standing of the small borrowers arises because small-scale borrowersgenerally do not have a well-documented credit history . In such situations, banks may alsocurtail the extent of lending even when SMEs are willing to pay a fair risk adjusted cost of capital. The implication of raising interest rates and/or curtailing lending is that banks willnot be able to finance as many projects as otherwise would have been the case.

Granularity:

This refers to a situation where the risk grading system at banks does not have the requisitecapability to discriminate between good and bad risks. The consequence is tightening of credit terms, or an increase in prices, or both. From the borrower s perspective, this leads toan outcome where the bank is over-pricing good risks and under-pricing bad risks. The factthat most banks in India have not developed adequate expertise in SME lending riskassessment exercises leads to the problem of granularity when it comes to SME lending.

Pecking Order Theory:

Pecking order theory flows from the above two issues, which makes SME lending highlydifficult for banks. Under this hypothesis, SMEs, which face a cost of lending that is abovethe true risk-adjusted cost , will have incentives to seek out alternative sources of funding.Evidence suggests that in such situations SMEs prefer to utilise retained earnings instead of raising loans from banks.

Moral Hazard:

Even when loans are made to SMEs, it may so happen that the owners of these SMEs takehigher risks than they otherwise would without lending support from the banks. One reasonfor this situation is that the owner of the firm benefits fully from any additional returns butdoes not suffer disproportionately if the firm is liquidated. This is referred to as the moralhazard problem, which can be viewed as creating a situation of over-investment . The moralhazard problem may, thus, result in SME lending turning bad in a short period of time, asituation that all banks would like to avoid.

Switching Costs:

SMEs may find it harder to switch banks, when countered with any issue. It is a known factthat the smaller the business, the more significant the switching costs are likely to be and,therefore, it is less likely that the benefits of switching outweigh the costs involved . Thissituation results in SME lending becoming a se llers market, which may not be attractive toSME borrowers.


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High-risk perception:

High-risk perception with small-scale sector stems from a number of factors such as weakfinancial strength, inability to provide adequate collateral and other factors. Inability to

properly appraise the new projects, new firms and new activities by bankers often results inbanks shunning a small borrower.

Insistence on collateral:

As a result of asymmetric information and high-risk perception, banks primarily prefercollateral-based lending rather than cash-flow analysis while working with small-scale sectorborrowers. Although there is a threshold up to which bankers should not insist on collateral,they seldom assume the risk involved in non-collateralized lending. The surveys conductedby Reserve Bank revealed that many bank branches are insisting on collaterals even forloans upto Rs. 5 lakh.

High transaction costs:

Due to the small amounts of each loan, the aggregate costs of information gathering, duediligence, loan processing and monitoring are much higher than for loans to large corporateborrowers.

Interest rates:

The financial institutions charge relatively higher interest rates to small-scale sector than tolarger companies in order to compensate for the higher costs of information collection, thesmaller volume of external financing and perceived greater credit risk.

Miscellaneous:

Other reasons stated by banks for the weak growth of SME credit are (i) the large number of unregistered enterprises, which require different lending and risk management techniques,processes, and skills; (ii) lack of a secured transactions law to regulate assignment andregistry of movables; and (iii) the difficulty and high cost of registering property andenforcing contracts.

The surveys conducted by Reserve Bank revealed that majority of the banks are not havingany periodical meetings with local SSI/SME Associations to sort out credit related issues.Regarding delayed payments to SSI and SME by large corporates, no information is availablewith the bank branches. Some of the banks have suggested for relaxation in NPA norms forSSI sector and enhancement in limit for coverage under CGTSI scheme. During the surveysome of the borrowers suggested for setting up monitoring cell at controlling offices of banksto monitor credit flow to the sector. They also suggested for reduction in guarantee fee underCGTSI scheme.


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Remedies / suggestions---------------------------------------------------

Steps for Smooth SME Lending

In order to ensure that the above issues do not stand between SMEs and Bank Finance, thefollowing steps could be taken as remedial measures:

Relationships:

The length of the relationship between a bank and its SME customers is also an importantfactor in reducing information asymmetry, as an established relationship helps to createeconomies of scale in information production. A relationship between a SME and a bank of considerable duration allows the bank to build up a good picture of the SME, the industrywithin which it operates and the calibre of the people running the business. The closer the

relationship, the better are the signals received by the bank regarding managerial attributesand business prospects.

Collateral:

Existence of collateral that can be offered to banks by SMEs could be one effective way of mitigating risk. Banks could, therefore, look at collateral when pursuing the question of SMElending. It can also be stated that a borrowers willingness to accept a collateralised loancontract offering lower interest (relative to unsecured loans) will be inversely related to itsdefault risk. However, not all SMEs would be able to offer collateral to banks. Hence,Reserve Bank of India (RBI) allows banks, with a good track record and financial position on

SME units, to dispense with collateral requirements for loans up to Rs. 25 lakhs.

Quality of Information:

SMEs are required to provide accurate and qualitative information to the banks for them toundertake a reliable risk assessment. Accurate risk assessments obviously rely upon goodinformation regarding the SME and its prospects. Hence, it is suggested that banks shouldmake efforts to encourage SMEs to improve the quality of information provided.

Customer Consideration:

The SME markets is somewhat different to the corporate market in that corporate customersgenerally have a wide range of financing options to choose from and are not as dependent onbank financing as is the case with SMEs. The extent to which SMEs can take necessary steps,with the aid of public initiatives, to easily switch to another bank is another factor that caninfluence the level of competitive pressure on banks in the case of SME lending.

Self-Targets:

All banks may fix self-targets for financing to SME sector so as to reflect a higherdisbursement over the immediately preceding year, while the sub-targets for financing tinyunits and smaller units to the extent of 40% and 20% respectively may continue.


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Credit Appraisal & Rating Tool:

SIDBI has developed a Credit Appraisal & Rating Tool (CART) as well as a Risk Assessment Model (RAM) and a comprehensive rating model for risk assessment of proposals for SMEs. The banks may consider taking advantage of these models as

appropriate and reduce their transaction costs.

Increase coverage:

In order to increase the outreach of formal credit to the SME sector, all banks, includingRegional Rural Banks may make concerted efforts to provide credit cover on an average to atleast 5 new small/medium enterprises at each of their semi urban/urban branches per year.

Create awareness:

Create awareness among bank s people and sme entrepreneurs about law and infrastructurerelated to SME Sector like:

SMERA

SMERA is the country's first Rating agency that focuses primarily on the Indian Micro, Smalland Medium Enterprise (MSME) segment. This would facilitate greater and easier flow of credit from the banking sector to MSMEs.SMERA Credit Ratings provides a comprehensive and independent third-party evaluation of the overall condition of the applicant. Currently, SMERA offers Obligor Ratings which takesinto account the financial and non-financial factors that have bearing on the credit worthinessof the applicant.

MSMED Act, 2006

The registration under Micro, Small and Medium Enterprises Development (MSMED) Act,2006 is for facilitating the promotion and development and enhancing the competitiveness of Micro, Small and Medium enterprises.

Benefits available under the MSMED ActRegistration of Micro, Small and Medium (MSM) Enterprises under MSMED Act is a verypowerful medium to enjoy the benefits available to such firms:

Micro and Small Enterprises:

Easy finance availability from Banks, without collateral requirement

Protection against delay in payment from Buyers and right of interest on delayedpayment

Preference in procuring Government tenders,


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Stamp duty and Octroi benefits,

Concession in electricity bills

Reservation policies to manufacturing / production sector enterprises

Time-bound resolution of disputes with Buyers through conciliation and arbitration

Reimbursement of ISO Certification Expenses

Medium Enterprises:

Easy finance availability from Banks, without collateral requirement

Preference in procuring Government tenders

Reservation policies to manufacturing / production sector enterprises

Time-bound resolution of disputes with Buyers through conciliation and arbitration

Role of Government and Banking Regulator in SME Lending

As is apparent, the above factors are only idealistic solutions and may not be practical forSMEs to follow because they are faced with several problems such as weak nancialstrength, inability to provide adequate collateral and other factors. Hence, the Governmentand banking supervisors should take a holistic view of the SME Sector while considering

SME nancing, taking into account the risks faced by banks and the problems faced bySMEs. In this regard, the initiatives taken up by the Government and Banking Regulatorsacross various countries and in India are as follows:

Cross-country Perspectives:Increased competition in financial markets in developed countries has led severalGovernments and Banking Regulators to encourage banks and other financial institutions tolaunch a number of initiatives to serve the financing needs of SMEs effectively. Some of these initiatives (along with necessary government and regulatory support) include thepromotion of venture capital; receivables financing; leasing finance; soft loans, grants, and

guarantees for entry into public tenders; setting up of special financing companies with stateparticipation; microfinance programmes, etc.


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Conclusion-----------------------------------------------------------------------

Small and Medium Enterprises (SMEs) play a vital role for the growth of Indian economy butsome hindrances are there which restricting to grow more. In order to solve these problemsand develop the Sme sector they have to follow above suggested remedies to become No. 1sector in India.


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Bibliography-------------------------------------------------------------------

Sidbi annual report 2010-11 Msme annual report 2011-12 www.engrreview.com/editorial_pages/2010/may_10/banking-

finance_ind-focus_01.html www.smechamberofindia.com

Ministry Of Micro, Small and Medium Enterprises State bank of India--------------www.sbi.co.in Bank of Baroda -----------------www.bankofbaroda.com Barclays Bank-------------------www.barclays.in Idbi Bank Ltd-------------------www.idbi.com/ Article in dna paper---finance to sme sector--Date:14 june-2012
http://www.engrreview.com/Editorial_pages/2010/may_10/banking-finance_ind-focus_01.htmlhttp://www.engrreview.com/Editorial_pages/2010/may_10/banking-finance_ind-focus_01.htmlhttp://www.engrreview.com/Editorial_pages/2010/may_10/banking-finance_ind-focus_01.htmlhttp://www.engrreview.com/Editorial_pages/2010/may_10/banking-finance_ind-focus_01.htmlhttp://www.smechamberofindia.com/http://www.smechamberofindia.com/http://www.engrreview.com/Editorial_pages/2010/may_10/banking-finance_ind-focus_01.htmlhttp://www.engrreview.com/Editorial_pages/2010/may_10/banking-finance_ind-focus_01.html

Sme Credit Flow

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