SMALL MEDIUM ENTERPRISE S LOANS

REVIEW AND IMPROVEMENTS

TABLE OF CONTENTS

• INTRODUCTION OF COMPANY• OVERVIEW OF TOPIC • DEFINITION OF SME• OBJECTIVE OF SME• ABOUT BASEL II• SCHEMES OF SME• RESEARCH ON TOPIC• OBJECTIVE OF RESEARCH• METHODS OF RESEARCH

CONTINUE………

PRIMARY METHOD

SECONDARY METHOD• QUESTIONNARE• SUGGESTIONS• CONCLUSIONS• BIBLOGRAPHY

An overview of SME

• Small enterprise : A business with an annual turn over

upto Rs.5 crores.

Medium enterprises: A business with an annual turnover of above rs. 50 crores < and would include SSIs and

Corporates / Non-corporates within this turnover

• Small Medium Enterprises: A business with annual

turnover of less tan Rs.50 crores,

and would include SSIs and

Corporates /Non-corporates within this turnover

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What Constitutes the SME Sector

• It is rather difficult to define precisely as to what constitutes the SME sector, as– It covers a wide spectrum of activities ranging from

manufacturing to trade to services.– It involves different types of organizations with varying

constitutions like proprietary concerns, partnership firms, private limited companies, public limited companies.

– Regulations/ Govt. Policy guidelines varies from activity to activity.

– It overlaps with the presently defined Priority Sector.

6

In the given scenario, it can be broadly said that the SME segment would include the following

Individuals

Individuals as

BusinessmenProfessionals

Partnership & Family owned

Business

Small & MediumSized

Companies

Larger Corporate

Corporate Giants/ PSUs

Retail

SegmentSME Segment

(Constitutionwise)

Wholesale / CorporateSegment

What Constitutes the SME Sector ……..

Definitions- AS PER MSMED ACT, 2006

Original Investment in Original Investment in Plant & Machinery Equipment

INDUSTRIAL ENTERPRISES SERVICE ENTERPRISES

MICRO Upto Rs. 25 lacs Upto Rs. 10 lacs

SMALL Above Rs. 25 lacs & upto Rs.5 cr. Above Rs. 10 lacs & upto Rs.2 crore

MEDIUM Above Rs.5 cr.& upto Rs. 10 cr. Above Rs. 2 cr. & upto Rs. 5 cr

BASEL II

 - Basel II is an international business standard that requires financial institutions to maintain enough cash reserves to cover risks incurred by operations. The Basel accords are a series of recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision (BSBS). The name for the accords is derived from Basel, Switzerland, where the committee that maintains the accords meets.Basel II improved on Basel I, first enacted in the 1980s, by offering more complex models for calculating regulatory capital. Essentially, the accord mandates that banks holding riskier assets should be required to have more capital on hand than those maintaining safer portfolios. Basel II also requires companies to publish both the details of risky investments and risk management practices. The full title of the accord is Basel II: The International Convergence of Capital Measurement and Capital Standards - A Revised Framework.

ESSENTIAL ELEMENTS

The three essential requirements of Basel II are:

1.Mandating that capital allocations by institutional managers are more risk sensitive.2 .Separating credit risks from operational risks and quantifying both.

3 .Reducing the scope or possibility of regulatory arbitrage by attempting to align the real or economic risk precisely with regulatory assessment.

Basel II has resulted in the evolution of a number of strategies to allow banks to make risky investments, such as the subprime mortgage market. Higher risks assets are moved to unregulated parts of holding companies. Alternatively, the risk can be transferred directly to investors by securitization, the process of taking a non-liquid asset or groups of assets and transforming them into a security that can be traded on open markets.

PURPOSE OF BASEL II

• The purpose of Basel II, which was initially published in June 2004, is to create an international standard that banking regulators can use when creating regulations about how much capital banks need to put aside to guard against the types of financial and operational risks banks face

SME BUSINESS UNIT

• SME Business Unit (SMEBU): SME Business Unit is implementing multiple strategies to maintain Bank's premier position in SME financing. Advances to SME sector increased to Rs.763.29 billion as on 31st March, 2008 from Rs.586.74 billion of the previous year registering a Y-O-Y growth of 30%. Deposits under SME sector increased to Rs.1,651.68 billion as at the end of March 2008 from Rs.1,230.54 billion of previous year, recording a growth of 34% during the year.

WHAT IS SME LOANS

State Bank of India has been playing a vital role in the development of small scale industries since 1956.The Bank has financed over 8 lakhs SSI units in the country.It has 55 specialised SSI branches, 99 branches in industrial estates and more than 400 branches with SIB divisons. 

• The Bank finances for Small Business activities which are of special significance to a large number of people as many of these activities can be started with relatively lower investment and with no special skills on the part of the enterpreneurs.

 

OBJECTIVE OF SME

• The SME Loan Guarantee Scheme (SGS) aims to help small and medium enterprises (SMEs) secure loans from participating lending institutions (PLIs) for :

acquiring business installations and equipment; and

meeting working capital needs of general business uses.

The overall objective is to assist SMEs to enhance productivity and competitiveness.

IMPORTANCE

IThe economic and social importance of the small medium enterprises (SME) sector is well

recognized in academic and policy literature.[ It is also recognized that these actors in the economy may be underserved, especially in terms of finance.

• There have been numerous schemes and programmes in markedly different economic environments. However, there are a number of distinctive recurring approaches to SME finance.

• Collateral based lending offered by traditional banks and finance companies is usually made up of a combination of asset-based finance, contribution based finance, and factoring based finance, using reliable debtors or contracts.

• Information based lending usually incorporates financial statement lending, credit scoring, and relationship lending.

• Viability based financing is especially associated with venture capital.

OBJECTIVE OF RESEARCH

• The main objective of research is that to find out which bank provide best SME scheme and what are the lending rates they provide

Methodology

• Primary dataExecutive Manager of SBI -:

Mr.Maniesh Agnihotri Staff members of respective bank Internet Financial Magazines

CONTINUE………….

• Secondary data Questionnaires Discussions Visits

DOCUMENTS REQUIRED

• Complete Audited Balance sheet of 2008-09,2007-08• Provisional Balance sheet of 2009-10• Projected Balance sheet of 2010 -11• Sales tax Registration• Pan Card of proprietor• DL/ passport / Election Card of proprietor• Partnership Deed• Current Month telephone bill as operating address proof• Pan Card of firm • Last 2 yrs Income tax return of the proprietor• 3 photograph of proprietor • Bank statement of all account holding with any Bank

SBI SME SCHEMES

• Traders easy loans• Doctor plus(double click)• School plus• SBI shoppe• Rent Plus• Construction Equipment Loan• SBI SME Power Gain and Power Pack

Key Banking Ratios-: PSU VS PRIVATE

• HDFC • ICICI• SBI• AXIS• BOB

IMPROVEMENTS IN SME SCHEMES

• SBI cuts rates for new SME loans

• State Bank of India, India’s largest lender, has cut interest rates for new SME (small and medium enterprises) loans and announced more measures to improve credit flow to the segment

• SBI has slashed lending rates for new SME loans up to Rs 5 lakh to eight per c s 5-25 lakh to 10 per cent, SBI said.

• The rate reduction will be available for the next two years and will be applicable for working capital and term loans provided they are covered under CGTMSE (credit guarantee fund trust for micro and small enterprises) , the bank said. ent

Government to procure generic drugs from smaller pharma units

• In order to ensure uninterrupted supply of generic drugs to the Jan Aushadhi Kendras as well as widen the range of drugs available through the kendras, the Union government’s Department of Pharmaceuticals (DoP) has decided to procure medicines from small and medium enterprises (SMEs) in the pharma industry.

• The government currently procures drugs from public sector undertakings (PSUs) only. The Centre’s decision is expected to benefit over 6,000 pharma units in the SME sector across India.

SBI launches new loan scheme for doctors

•  jan 2003• NEW DELHI: State Bank of India and All India Medical Association

on Monday launched a new loan scheme 'Doctor Plus' which would enable doctors to purchase medical equipments at a concessional interest rate. 

Under the scheme, SBI would provide working capital and term loans to doctors up to Rs 10 lakh in the urban areas and up to Rs 15 lakh in rural and semi-urban areas. 

SBI has also targeted other professionals through schemes like Police Plus, Teacher Plus and Justice Plus for increasing its retail loan portfolio.

RECENT REVIEW OF INTEREST RATE

• , HDFC Bank fixed its base rate at 7.25 per cent, the first major bank to set it rate lower than SBI’s 7.5 per cent. The move is likely to give HDFC Bank more elbow room to lend at lower rates compared to SBI.

• A day before the new regime sets in, most banks announced their base rates, which varied between 7 per cent and 8.25 per cent. The exception being Karnataka Bank that set its base rate at 8.5 per cent.

• THE small private sector banks such as DBS and Dhanlaxmi Bank that came out with most aggressive base rate at 7 per cent.

• Bank of Baroda, Oriental Bank of Commerce, Allahabad Bank, Bank of India, Indian Bank and IDBI Bank have set the rate at 8 per cent. Syndicate Bank, Vijay Bank, Dena Bank and Indian Overseas Bank have fixed it at 8.25 per cent.

SME SCHEMES OF DIFFERENT BANKS

• BANK OF BARODA• HDFC• CENTRAL BANK OF INDIA • SYNDCATE BANK• ICICI

QUESTINNAIRE

• What is the definition of SME acc. to your bank?

• What are the schemes you provide ?• What documents you required while giving

such loans?• Did you divide SME in any sector?• What improvements you did in schemes ?• What are the BPLR? And also the base

rate?

SME OF ANDHRA BANK

• DIVIDED INTO TWO PARTS

MANUFACTURING

SERVICES

BANK OF BARODA

SME Medium Term Loans

PURPOSE:To augment enterprise’s working capital gap and to help in improvement of current ratio and also for meeting genuine business requirements. The facility will also be available for repayment of secured and unsecured Loans of other banks or institutions, but not for any purpose, which is not related to the enterprises activity.

Eligibility Criteria

• Satisfactory credit rating for the last three years.• Latest Balance Sheet etc. should be available.• Satisfactory financial performance in terms of

Sales/turnover and profits. Negative variance, if any, should not be more than 10%.

• Debt-equity ratio should not be higher than 2.5:1 and average DSCR should be not less than 1.5:1.

• Satisfactory dealings with the Bank for at least Three years.

• Loan Amount:Upto 25% of the existing fund based Working capital limits (depending on the Credit Rating), subject to a minimum of Rs. 25 Lakhs and maximum of Rs. 500 Lakhs.–36- months, to be repaid in equal quar

• Security:First charge / Equitable mortgage of fixed assets of the Company / firm or extension of existing first charge/ equitable mortgage of fixed assets, ensuring that there is a minimum asset cover of 1.50.terly or half-yearly installments.

BANK OF BARODA

• SME SCHEMES• Baroda Arogyadham loan• Baroda Laghu udhyami credit card• Baroda Vidhyasthali loan

CENTRAL BANK OF INDIA

• SME DETAIL

Central Bank of India

• SME schemes• CBI cent rental• CBI cent doctor scheme• CBI cent school• CBI cent vyapari

Syndicate bank

• SyndLaghuUdhyami•  

 

• A hassle-free credit product for meeting the credit requirement of small/medium entrepreneurs who are existing customers with a satisfactorily conducted loan/limit of over 2 years or maintaining the current account for last 3 years with good turnover and swing in operations.

 • Persons/Units eligible for assistance.

 • Small Business Units.

 • Retail, Small and medium traders.

 

CONTINUE………………

• Artisans, Tiny Sectors.

 • Small scale industrial units.

 • Professional and Self Employed persons.

• ELIGIBILITY 

Maximum eligible limit is Rs. 10 lakhs.

DOCUMENTS REQUIRED

A simple stock declaration on quarterly basis only need to be submitted

• TIME PERIOD

Limit is valid for 3 years subject to satisfactory conduct of the account

CONTINUE…………

• SyndVyapar•  •  • Purpose : To meet the credit needs of traders• Eligibility : All Traders• Quantum : Maximum Rs. 25 lakhs in the form of overdraft• Repayment : To be renewed once in 2 years• Rate of interest : Upto Rs.2 lakhs : PLR ; Above 2 lakhs: Depending on credit rating of the

borrower• Security : Mortgage of property / Pledge of NSC / KVP / LIC / RBI Relief bond and hypothecation

of stock in trade• Margin : 40% on immovable property, 15% on other securities• Requirements : Financial statements for limits of over Rs. 10 lakhs

Example…………….

• Idea: Many SMEs do not have sufficient collateral to get a bank loan even if they have cash flow to pay. Set up a collateral free loan and use score card to mitigate risk.

Continue ………………

• Problem: Credit bureau information are very important in setting up reliable credit scores, but India does not have a well functioning credit bureau.

• Challenge: Design/test monitoring and incentive schemes to improve repayment rates and increase client loyalty• Can the incentives that bank provides substitute for the

lack of financial infrastructure in the market?

SUGGESTIONS

• After all above findings I found that SBI is only bank who provide SME schemes for each sector, so I would like to suggest that each private banks provide new special schemes which is helpful for each sector and at minimum base rate .In last year SBI is only bank who have minimum base rate but in this year there is an improvement that hdfc bank provide minimum base rate as compare to SBI bank i.e SBI have 7.50% base rate but hdfc give 7.25%.C