sme lending
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SME LENDING
Neha JainNaveen Panchal
Malay Srivastava Vishal Patil
• SME play vital role for growth of Indian economy by contributing 45% of industrial output, 40% of exports and employing 60 million people and creating 1.3 million jobs every year and produce 8000 quality products.
IndiaClassification Manufacturing Enterprises Service Enterprises
Micro Upto Rs.25 lakh Upto Rs.10 lakh
Small Above Rs.25 lakh & upto Rs.5 crore
Above Rs.10 lakh &upto Rs.2 crore
Medium Above Rs.5 crore & upto Rs.10 crore
Above Rs.2 crore & upto Rs.5 crore
Source : Ministry of Small Scale Industries vide its notification No. S.O. 1722(E) dated October 5, 2006.
Top 5 GDPs of World v/s IndiaCountry (Rank)
GDPIn $
trillion
GDP(In Rs. trillion)(@ 45.02,
31 March 2010)
SME % GDP
(2010-2011)
Loan Value as % of GDP
USA(1) 14.582 657.4 51 4.93
China(2) 5.878 265.02 58.5 48.67
Japan(3) 5.497 247.82 - 35.90
Germany(4) 3.309 149.206 53.8 -
France(5) 2.560 115.410 56 10.64
India(9) 1.729 77.947 8 4.34
(World GDP $ 63.044 trillion )(World Bank, 2010)Source: www.CGAP.org (Independent Evaluation Group) www.data.worldbank.org , European Commision (SBA Fact Sheet) ASSOCHAM, www.gov.cn(China Government Website)
Competitors
• Indian Bank Crore Rs(Advances)• SBI 1,10,812• ICICI 71720 • PNB 45296• Canara Bank 29958• Bank Of Baroda 27365• Bank Of India 21000• UCO Bank 15727• Central Bank of India 11901
StakeHolders
• End User SME(http://rbidocs.rbi.org.in/rdocs/content/PDFs/78396.pdf)
• Rating Agency.• Banks.• Promoters• Employee.• Government.• Government Schemes.• Government Bodies like NABARD, PFC.• RBI.• Lobbyist.• NBFC.• Venture capitalist.• IT service providers.
Value Parameters
• No. of Branches.• Geographical coverage.• Interest Rate.• Transparency.• Information Confidentiality.• Efficiency in Operation.• Fees and Charges.• Interest.• Services(Funded, Non funded, Value Added Services,
Internet Banking).• Collateral/Security.
FRONT END DISTRIBUTION CHANNELS
In-house
•Relationship managers•Websites•Existing customers Database. •Branches
External agencies
•Direct Sales Agent ( 1% of lending amount)•Charted Accountants (1-2% of lending amount)•Rating Agencies.
11
WORKFLOW FOR SME SALES TEAM
Lead genera-
tion
Proposal genera-
tion Activities performed Contacting customer for preliminary information In-principle check on viability of lending
Compilation of proposal Proposal generated
Given to local Credit Hub
Industry association
tie-ups
Branch walk-in
Outbound tele-calling
Sales referrals
Events
Sales Coordinator
Head Sales
Advertising (SMS, Internet,
Inbound Call Centre)
. . .
Relationship Manager (RM)
Relationship Officer (RO)
Sales team
Parameters for Loan consideration
Indiv
idual
• Integrity
• Intentions
• Educational Background
• Past Experience in the Sector
• Owners Capital
• Capability to Pay back
Organization
• Credit Rating
• Debt Equity ratio
• Balance Sheet
• Feasibility of the Product
• Lenders experience with the organization
• Asset and Mortgages offered
Value parameters from Borrowers Perspective
• Interest Rate.• Turn around Time.• Collateral.• Pre sanction amount facility.• Documentation.• Products/Schemes available.• Relationship with Bank.
WORKFLOW FOR SANCTION AND DISBURSEMENT PROCESS (1/2)
14
File with appraisal note
In-principle decision to go-ahead with proposal or not, together with Credit Officer
5
File with inspection report
Receipt of proposal
1
Credit Suppor
t Officer
Credit Officer
Sanc-tioning Authorit
y
Check on complete-ness of proposal
2
Proposal
Data entry for credit rating and financial analysis
3
Complete proposal
Study of file, pre-sanction visit, customer meeting and raising customer queries
4
File with ratios and credit rating
Request for advocate, valuer and TEV reports (where required)
6
Returned to RM/RO for completion
Incomplete proposal
Satisfactory response to customer queries, preparation of appraisal note
7
2 day
4 day
6 day
8 day
10 day
12 day
14 day
Time meter for cases where TEV is not required
WORKFLOW FOR SANCTION AND DISBURSEMENT PROCESS (2/2)
15
Credit Suppor
t Officer
Credit Officer
Sanc-tioning Authorit
y
Issue of final sanction letter with signature from Credit Officer
11
Decided files
Check on advocate, valuers and TEV reports
9
File with reports
Preparation and stamping of documents
12
Execution of documents in presence of Branch Officer/ Manager
13
Vetting of documents by advocate
14
Disburse-ment by Branch
Sanctioned and vetted documents released for disbursement
Receipt of advocate, valuers and TEV reports (where required)
8
Final sanction by Sanc-tioning Authority
10
File with reports
2 day
4 day
6 day
8 day
10 day
12 day
14 day
Time meter for cases where TEV is not required
Need Gap
• Back end1. Documents are submitted by the client at the
front end of the branch and are forwarded to SME factory for due diligence and processing
2. CMA data is developed using balance sheet and P&L account and gives the current status and the future projection for 5-6yrs
3. Every CA prepares the CMA data in their own format
Consulting Service
• Small Business diversification.• Paid Consulting not affordable.• Time and Energy Spend to know the Registrations
and other procedures.• Delays in complying with the preconditions can
frustrate entrepreneurs.• Bank provide consultancy to help start business
in terms of assistance to expedite the startup. This will enhance customer experience.
SME Groups
• A single Entity will become guarantor.• Derisking.• Leveraging.• Pressure for Repayment.• Reduced Transaction cost.
Women Entrepreneur
• Many Incentives from Government.• Dedicate Cell to track and cater Women
Entrepreneur.• Eg: Financing women-owned SMEs (Nigeria)
and Women Entrepreneurs’ Package (Turkey)
Interest Rate Deregulation
• RBI taking steps towards Interest Rate regulation.
• Interest Rate war will set in.• Help SME entrepreneurs.
Recommendation by RBI
Thank You