Post on 12-Mar-2015
BANK FINANCING FOR THE SSI SECTOR
SMALL SCALE INDUSTRY
DEFINITION OF THE SME SECTOR
Though the definitions are not part of the terms of reference for the Working
Group, a clearer definition of the SME sector vis-à-vis conventional SSI and
Tiny sectors was felt necessary.
(a) At present small scale industry is defined as one having original
investment in plant and machinery not exceeding Rs.1 crore. While
recognizing need of larger investment in some of the more important
segments of SSI, the Government of India has enhanced this to Rs.5 crore in
respect of certain specified industries. A process of graduation of several
SSIs into medium enterprises, having larger investment is a natural
progression of successful units. Therefore, it was agreed that a separate
category of medium enterprises (ME) needs to be recognized. While ME may
not qualify for priority sector lending, it must be seen as contiguous with SSI.
(b) The SME definition, adopted by other countries is generally based
on number of employees, capital investment or turnover. The
existing definition of SSI adopted in India, based on investment in plant
and machinery, excludes the rapidly growing service sector. The past
decade has witnessed the services sector contributing almost half of
the GDP. The Working Group strongly recommends the adoption of
turn over as a measure for defining the SME sector. Based on turn
over, Tiny, Small and Medium enterprises may be redefined as under:
Tiny :Turn over up to the financial limit of Rs.2 Crore,
Small: Turn over up to the financial limit of above Rs 2 Crore
and Up to Rs.10 Crores,
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BANK FINANCING FOR THE SSI SECTOR
Medium: Turn over above the financial limit Rs.10 Crores and
up to Rs. 50 Crores.
SSI SECTOR IN INDIA – A BRIEF
The SSI sector has been contributing immensely to the Indian economy, in terms
of employment, production and exports. Figures available show that in the year
2001-02 the SSI sector registered a higher growth rate than the growth in overall
industrial production. While the SSI sector registered a growth of 8.03%,
industrial production went up by 2.7%.
The SSI sector in India with an estimated 3.6 million units produces over 8000
items and provides employment to about 20 million individuals. What further
highlights the importance of this sector is its share of 39% in industrial value
added and 34% in India’s total exports.
SSIs IN INDIA
Source: Ministry of Small Scale Industries, Government of India.
An analysis of time series data shows that from 1980 to 1997 an additional 80
lakh jobs were created in the SSI sector. This figure is way ahead of the 54 lakh
new jobs created in the Organized Sector during the same time period. With an
annual average increase in employment of 5.1% during the period 1980 to 1997,
this sector has been the mainstay of employment generation and livelihood for
many in our country. The SSI sector has tremendous potential for generating
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BANK FINANCING FOR THE SSI SECTOR
sustainable employment at comparatively low costs and this potential must be
exploited if the economy has to maintain a sustained growth in employment.
SME in India
Total Units 3.57 Million
Employment 19.96 Million
Share in Industrial Value Added 39%
Share in Total Exports
DIRECT 34%
OVERALL 45%
Total Number of Items Produced Over 8000
Number of Reserved Items 675
Dr. S.P. Gupta Study Group on ‘Development of Small Enterprises’
acknowledged the critical role played by small enterprises in industrialization of
rural and backward areas, reduction of regional imbalance and in ensuring a
more equitable distribution of national income and wealth. The Interim Report of
the Study Group, while recognizing the importance of the small-scale sector in
the Indian economy, stressed on the problems plaguing the sector and made
recommendations to overcome these problems relating to inadequate credit flow
from banks and FIs, inadequate infrastructure facilities, low quality standard of
products, use of obsolete technology, plant, machinery and equipment and
inefficient management techniques.
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BANK FINANCING FOR THE SSI SECTOR
The Government of India has been helping the sector through supportive policy
measures, with focus on improving the credit flow to the sector. The policy
support provided so far has acted as a catalyst in promoting this sector.
However, opening up of the economy has thrown up new challenges to the
sector. As units in this sector prepare themselves to withstand the pressures of
global competition, their credit needs have increased manifold.
A disturbing trend seen over the last few years is the fall in the share of the SSI
sector in the net bank credit outstanding. While in March 2000 the share of the
SSI sector in the net bank credit outstanding was 14.2%, the figure had come
down to 11.1% by March 2003. A look at the figures for priority sector lending
also show that there has been a decline in the credit extended to this sector over
time. Figures for March 2000 show that lending to the SSI sector accounted for
36.12% of the total priority sector lending. This figure has since then declined
continuously from 32.45% in March 2001 to 29.1% in March 2002 and further to
26.1% in March 2003- a trend that does not augur well for the SSI units.
The government and the RBI have taken cognizance of the problems, which the
SSI units face on the bank financing front. With the view to adequately pass on
the benefits of the declining interest rate regime to the SSI sector, the Finance
Minister in his budget speech for the year 2003-04 had made an appeal to banks
for adopting an interest rate band of 2 percent above and below their prime
lending rate for secured advances to the SSI sector. With regard to improving the
flow of credit to the SSI sector, a working group was constituted by the RBI under
the chairmanship of Director, Central Board of the RBI in February 2004. The
group’s terms of reference include assessing the progress made in
implementation of Kapur Committee and Gupta Committee recommendations
and also suggesting ways to improve credit flow to the SSI sector. In the Interim
Budget for the year 2004-05, the Finance Minister announced that the public
sector banks would increase the credit limit of their Laghu Udyami Credit Cards,
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BANK FINANCING FOR THE SSI SECTOR
for borrowers who have a satisfactory track record, from Rs. 2 lakh to Rs.10 lakh.
The modified scheme is expected to be operational from March 1, 2004.
In the past also several initiatives have been taken for addressing the problems
of the SSI sector. A brief of the committees constituted, their recommendations
and subsequent follow up action is given below.
Nayak Committee (1991-92)
Nayak Committee was set up by RBI in December 1991 to look into the aspects
of adequacy of the credit that was being advanced to the SSI sector and also the
time involved in processing loan applications.
Nayak Committee found that the SSI sector was receiving advances only to the
extent of 8.1% of their annual output, which was way below the normative
requirement of 20%. On the basis of the recommendations of the Nayak
Committee RBI advised banks to grant working capital to the extent of 20% of the
projected annual turnover. RBI also issued a number of circulars advising banks
to process loan applications without delay and also set up specialized bank
branches to provide SSI loans in areas where there is a high concentration of
SSI units.
Seven Point Action Plan (1995-96)
The Nayak Committee recommendations were incorporated in the Seven Point
Action Plan that was announced by the Finance Minister in the Budget speech of
1995-1996 to enhance the flow of credit to the SSI sector. The recommendations
incorporated included the following:
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BANK FINANCING FOR THE SSI SECTOR
1. Setting up of specialized SSI bank branches
2. Adequate powers to be delegated to the branch and regional levels
3. Banks to conduct sample surveys of their performing SSI accounts to find
out whether they were getting adequate credit.
4. Steps to be taken for sanctioning of composite loans, covering both term
loans and working capital, to SSI entrepreneurs as far as possible.
5. Sensitization of bank managers towards the working of the SSI sector.
6. Simplification of procedural formalities by banks for SSI entrepreneurs.
7. Regular meetings to be held by the banks at both zonal and regional
levels with the SSI entrepreneurs.
Kapur Committee (1997-98)
The RBI appointed a one-man committee under the chairmanship of Shri.
S.L.Kapur to study the working of the credit delivery system to the SSI sector and
suggest measures for improving the delivery system and also simplifying the
procedural formalities for credit to the SSI sector. The Committee submitted its
report to RBI on 30th June 1998 containing 126 recommendations. The major
recommendations were as follows:
1. Special treatment to smaller among small industries.
2. Enhancement in the limits of Composite Loan from Rs.2 lakhs to Rs. 5
lakhs
3. Simplification of procedural formalities.
4. Raising the exemption limit for collateral security from Rs. 25,000 to Rs. 5
lakhs.
5. Enhancement of SIDBI’s role and status to match with that of NABARD.
6. Opening of more specialized SSI bank branches.
7. Allowing access to low cost funds to SIDBI for refinancing SSI loans.
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BANK FINANCING FOR THE SSI SECTOR
8. Setting up of Collateral Reserve Fund to provide support to first party
guarantees.
9. Introduction of Credit Guarantee Scheme.
. Initiatives Steps taken in the Budget of 1999-2000
1. Launch of a new credit insurance scheme.
2. Composite loan scheme limit enhanced to Rs.5 lakhs.
3. For working capital loans, the annual turnover limit was raised from Rs. 4
crores to Rs. 5 crores
SP Gupta Study Group – Interim report, July 2000
The SP Gupta Study Group on development of Small enterprises submitted its
interim report in July 2000. Some of the suggestions relating to fiscal and
financial measures were as follows –
1. Setting up of targets for tiny and SSI units for credit from banks and FIs
under priority sector lending.
2. Need for reduction of cost of credit for SSI sector.
3. Setting up of more specialized bank branches for SSI sector.
4. Standardization of procedure and simplification of norms by banks.
5. More effective monitoring of credit flow to SSI sector by the Monitoring
Committee of Reserve Bank of India.
6. To make available credit to SSI sector at a reasonable cost, viz, PLR plus
three per cent.
7. Raising the limit of composite loans from Rs.10 lakh to Rs.25 lakh to
encourage tiny units to get term loan and working capital from same
bank/FI.
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BANK FINANCING FOR THE SSI SECTOR
8. Not to cover all future fixed assets of assisted units for securing its
advances.
9. Measures for time-bound disposal of loan applications and easy
documentation.
Comprehensive policy package - August 2000
Based on the recommendations made by the Nayak Committee, the Kapur
Committee and Dr. S.P. Gupta Study Group a comprehensive policy package
was announced in August 2000. It included the following:
1. Launch of Credit Guarantee Scheme to cover loans up to Rs. 25 lakhs.
2. Launch of Credit Linked Capital Subsidy Scheme to provide subsidy
against loans taken for technological upgradation.
3. Further enhancement of ceiling of composite loan limit to Rs.25 lakhs.
4. Enhancement of project cost limit under National Equity Fund to Rs.50
lakhs.
Steps taken over-time by the RBI for improving the flow of credit to the SSI
Sector
The RBI from time to time has resorted to ‘moral suasion’ to improve credit
delivery from the banks to the small-scale sector. Some of the steps taken by the
RBI in this regard include –
1. In order to ensure that credit is available to all segments of SSI sector,
RBI has issued instructions that out of the funds normally available to SSI
sector, 40% be given to units with investment in plant and machinery up to
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BANK FINANCING FOR THE SSI SECTOR
Rs.5 lakhs, 20% for units with investment between Rs.5 lakhs to Rs.25
lakhs and remaining 40% for other units.
2. Public sector banks have been advised to operationalise more specialised
SSI branches at centres where there is a potential for financing many SSI
borrowers. As on March 2002, 391 specialised SSI branches are working
in the country.
3. Extension of 'Single Window Scheme' to all districts to meet the financial
requirements (both term loan & working capital) of SSIs.
4. With a view to moderating the cost of credit to SSI units, banks have been
advised to accord SSI units with a good track record, the benefit of lower
spreads over the prime lending.
5. In order to take expeditious decision on credit proposals of SSI units,
banks have been advised to delegate enhanced powers to the branch
managers of the specialized SSI branches so that most of the credit
proposals are decided at the branch level.
6. Laghu Udyami Credit Card (LUCC) Scheme launched by Public Sector
Banks for providing simplified & borrower friendly Credit facilities to SSI,
tiny enterprises retail traders & artisans.
7. An interest rate band of 2% above & below PLR should be applicable to
SSIs.
8. Bank advised to fix self set targets for growth in advances to SSI sector
based on previous year's achievements and overall tread in growth of net
bank credit.
9. Bank to consider 3 slabs for rate of interest-loans unto Rs.50,000,
between Rs.50,000 and Rs.2 lakhs and above Rs.2 lakhs.
10. Composite loan limit to be enhanced to Rs.50 lakhs from Rs.25 lakhs.
11. Limit on collateral free loans to be increased to Rs.25 lakhs in deserving
cases.
12. Deposits of foreign banks with SIDBI to earn interest at Bank Rate.
13. Working Group to be set up on flow of credit to SSI sector.
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BANK FINANCING FOR THE SSI SECTOR
TIME SERIES DATA FOR SSIS IN INDIA
Time
Series
data for
SSIs in
India
Export
Year No. of units
(millions)
Fixed
investment
Production Employment
(at current
prices)
(Rs. billion)
(at current
prices)
(Rs. Bn.)
Nos. in
million
(Rs.
billion)1973-74 0.416 22.96 72.0 3.97
3.93 1974-75 0.498 26.97 92.0 4.04
5.41 1975-76 0.546 32.04 110.0 4.59
5.32 1976-77 0.592 35.53 124.0 4.98
7.66 1977-78 0.67 39.59 143.0 5.40
8.45 1978-79 0. 734 44.31 157.0 6.38
10.69 1979-80 0.805 55.40 216.35 6.70
12.26 1980-81 0.874 58.50 280.6 7.10
16.43 1981-82 0.962 62.80 326.0 7.50
20.71 1982-83 1.059 68.00 350.0 7.90
20.45 1983-84 1.155 73.60 416.2 8.42
21.64 1984-85 1.24 83.80 505.2 9.00
25.41 1985-86 1.353 95.85 612.28 9.60
27.69 1986-87 1.462 108.81 722.5 10.14
36.43 1987-88 1.583 126.10 873.0 10.70
43.72 1988-89 1.712 152.79 1064.0 11.0
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BANK FINANCING FOR THE SSI SECTOR
54.89 1989-90 1.823 N.A. 1323.2 11.96
76.25 1990-91 1.948 N.A. 1553.4 12.53
96.64 1991-92 2.082 N.A. 1786.99 12.98
138.83 1992-93 2.246 N.A 2093.0 13.406
177.84 1993-94 2.388 35.376 2416.48 13.938
253.07 1994-95 2.571 40.799 2988.86 14.656
290.68 1995-96 2.658 49.620 3626.56 15.261
364.7 1996-97 2.803 54.698 4118.58 16.0
392.48 1997-98 2.944 60.549 4626.41 16.72
444.42 1998-99 3.08 86.106 5206.5 17.158
489.79 1999-00 3.212 72.633 5728.87 17.85
542.00 2000-01 3.312 79.703 6390.24 18.564
697.97 2001-02 3.442 84.329 6903.16 19.223
712.44 2002-03 3.572 90.450 7420.21 19.965
Source: Development Commissioner (SSI), Ministry of Small Scale
Industries, Government of India
GROWTH OF SSI EXPORTS
Cooperative Statement of Export Performance
Year Total exports
(Rs. Crores)
Exports from SSI
sector
(Rs. Crores)
Percentage share
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BANK FINANCING FOR THE SSI SECTOR
1951-52 716 Negligible -
1961-62 660 Negligible -
1971-72 1608 155 9.6
1976-77 5142 766 14.9
1981-82 7809 2071 26.5
1986-87 12567 3644 29.0
1991-92 44040 13883 31.5
1992-93 53688 17785 33.1
1993-94 69547 25307 36.4
1994-95 82674 29068 35.1
1995-96 106353 36470 34.2
1996-97 118817 39249 33.4
1997-98 126286.00 44442.18 35.19
1998-99 141603.53 48979.23 34.59
1999-00 159561.00 54200.47 33.97
2000-01 202509.7 69796.5 34.47
2001-02 207745.56 71243.99 34.29
2002-03 252789.97 86012.52 34.03
Status Classification of SSIs
According to Sample Survey of 1994-95 of registered small scale industries (for
the base year 1992-93), the status classification of SSI units is given below. The
status has been compared with the findings of Second All India Census (base
year 1987-88).
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BANK FINANCING FOR THE SSI SECTOR
SAMPLE
SURVEY
SECOND
CENSUS
1994-95 1987-88
1) Locational Status
Rural Areas 42.20% 42.20%
Urban Areas 48.50% 48.00%
Metropolitan Areas 9.30% 9.90%
Backward Areas 48.30% 62.20%
2) Organisational Status
Proprietory Units 80.48% 78.00%
Partnership Units 16.84% 16.03%
Limited Companies 2.01% 3.78%
3) Distribution By Categories of Industries
Small scale Industries 96.24% 87.28%
Ancillary Industries 0.52% 1.57%
Small Service Establishments 3.24% 11.15%
4) Activity Status
Engaged in manufacturing activity only 50.19% 51.01%
Engaged in processing activity only 15.23% 10.37%
5) Ownership Status
By scheduled caste entrepreneur 6.84% 4.57%
By scheduled tribe entrepreneur 1.70% 1.41%
By women entrepreneur 7.69% 5.15%
6) Important Parameters
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BANK FINANCING FOR THE SSI SECTOR
Per unit fixed investment (book value) (Rs.
lakhs) 3.08 1.60
Per unit fixed investment in P&M (original
value) (Rs. lakhs) 4.0 0.93
Per unit working capital (Rs. lakhs) 6.98 1.23
Per unit production (Rs. in lakhs) 30.93 7.38
Per unit employment (numbers) 8.54 6.29
Capacity utilisation (percentage) 79.7% 50.6%
7) Important Ratio
Production/investments in fixed assets (Rs.
lakhs) 10.00 4.62
Net value added/Investment in fixed assets
(Rs. lakhs) 6.75 1.10
Employment/Investment in fixed assets (Rs.
lakhs) 2.73 3.94
Wages paid/Employment excluding self
employment (Rs. 000) 12.50 8.00
PARTNERS IN PROGRESS
SIDO has been working towards the development of the small scale sector
industry, in India, but the efforts are enormous. Its partners, who play a key role
in the progress achieved, are aiding the gigantic task.
The Key Partners in the Progress are:
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BANK FINANCING FOR THE SSI SECTOR
SSI Ministry
Ministry of SSI and ARI
KVIC
Coir Board
SIDO
NSIC
FFDC
Other Partners
UNIDO
EAN India
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BANK FINANCING FOR THE SSI SECTOR
IIP
IP&P
WIPO
CMC Web Tech
TBSE
APCTT
TANSTIA
CEDOK
Financial
Institutions
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BANK FINANCING FOR THE SSI SECTOR
SIDBI
RBI
CGTSI
Training Institutes
NIESBUD
NISIET
ITC
SEPTI
IIE - Guwahati
Other Web References
Other Web Links
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BANK FINANCING FOR THE SSI SECTOR
CSIR
ICAMT
Toy Association
Stone Association
CODISSIA
COINTEC
Useful Websites
CBEC
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BANK FINANCING FOR THE SSI SECTOR
Tax india Online
Department of Revenue
Directorate of Service Tax
Development
Commissioner
(Handicrafts)
Technology Information,
Forecasting &
Assessment Council
Department of Science &
Technology
HELPING HANDS OF SSI SECTOR IN INDIA
Ministry
The Ministry of SSI designs policies, programmes, projects and schemes in
consultation with its organizations and various stakeholders and monitors their
implementation with a view to assisting the promotion and growth of small scale
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BANK FINANCING FOR THE SSI SECTOR
industries. The Ministry also performs the function of policy advocacy on behalf
of the SSI sector with other Ministries/Departments of the Central Government
and the State and Union Territories.
The implementation of policies and various programmes/projects/schemes for
providing infrastructure and support services to small enterprises is undertaken
through its attached office, namely the Small Industry Development Organization
(SIDO) and the National Small Industries Corporation (NSIC) Ltd., a public sector
undertaking under the Ministry.
Small Industry Development Organization (SIDO)
The Office of the Development Commissioner (Small Scale Industries) is also
known as the Small Industry Development Organization (SIDO). It is an apex
body for assisting the Ministry in formulating, coordinating, implementing and
monitoring policies and programmes for the promotion and development of small
scale industries in the country and is headed by the Development Commissioner
(SSI).
In addition, the SIDO provides a comprehensive range of common facilities,
technology support services, marketing assistance, etc., through its network of
30 Small Industries Service Institutes (SISIs), 28 Branch SISIs, 7 Field Testing
Stations (FTS), 4 Regional Testing Centers, 2 Small Entrepreneur Promotion and
Training Institutes (SEPTI) and 1 Hand Tool Design Development and Training
Centre. The SIDO also has a network of Tool Rooms, Process-cum-Product
Development Centers (PPDCs) and technology and training support institutes
which are run as autonomous bodies registered as societies under the Societies
Act.
NATIONAL SMALL INDUSTRIES CORPORATION (NSIC) LTD.
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BANK FINANCING FOR THE SSI SECTOR
The National Small Industries Corporation Ltd. was set up with a view to
promoting, aiding and fostering the growth of small scale industries in the
country with focus on commercial aspects of these functions. NSIC continues to
implement its various programmes and projects throughout the country to assist
the SSI units. The Corporation has been assisting the sector through the
following schemes and activities:
Supply of both indigenous and imported machines on easy hire-
purchase terms
Composite term loan scheme
Procurement, supply and distribution, of indigenous and imported raw-
materials
Marketing of small industries products
Export of small industries products and developing export-worthiness
of small scale units
Enlisting competent units and facilitating their participation in
Government Stores Purchase Programme
Training in several technical trades
Sensitizing SSI units on technological up gradation through Software
Technology Parks and Technology Transfer Centers
Mentoring & advisory services
Technology business incubators
Setting up small scale industries in other developing countries on
turnkey basis
Other areas & international co-operation
Over the years, the Corporation has made significant contribution to the growth
of the SSI sector in India. The Corporation has also set up a large number of
turnkey projects in a number of developing countries. The Corporation is an
ISO: 9001-2000 Company.
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BANK FINANCING FOR THE SSI SECTOR
SMALL SCALE INDUSTRIES BOARD
SSI Board is the apex non-statutory advisory body constituted by the
Government of India to render advice on all issues pertaining to the SSI sector.
The Minister incharge of the SSI Ministry is the Chairman of the Board. Members
of the Board, include inter alia State Industries Ministers, selected Members of
Parliament, Secretaries of various Departments of the Central Government,
Heads of Financial Institutions, Representatives of Industry Associations and
Eminent Experts.
The SSI Board provides to its members a forum for interaction to facilitate co-
operation and inter-institutional linkages and to render advice to the Government
on various policy matters, for the development of the sector.
The Board was first constituted in 1954. Its term is for two years. The Board was
last constituted on 18th January 2003, with 101 members and held its 48 th
meeting on 17 January, 2004.
NATIONAL INSTITUTES FOR ENTREPRENEURSHIP DEVELOPMENT
As entrepreneurship development and training is one of the key elements for the
promotion of small scale industries, the Ministry has established three National
Institutes, viz. the National Institute of Small Industry Extension Training (NISIET)
at Hyderabad, the National Institute of Entrepreneurship and Small Business
Development (NIESBUD) at NOIDA and the Indian Institute of Entrepreneurship
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BANK FINANCING FOR THE SSI SECTOR
(IIE) at Guwahati as autonomous bodies. These Institutes are responsible for
development of training models and undertaking of research and training for
entrepreneurship development in the SSI sector.
National Commission FOR Enterprises in the Unorganized Sector
The National Commission for Enterprises in the Unorganized Sector was
constituted in September, 2004 under the chairmanship of Dr. Arjun K. Sengupta,
an eminent economist. It has three full-time Members and two part-time
Members and an Advisory Board consisting of 11 eminent experts from different
fields relating to the unorganized/informal sector. The Commission will
recommend measures considered necessary for bringing about improvement in
the productivity of the informal sector enterprises, generation of large scale
employment opportunities on a sustainable basis, particularly in the rural areas,
enhancing the competitiveness of the sector in the emerging global environment,
linkage of the sector with institutional framework in areas such as credit, raw
material, infrastructure, technology up gradation, marketing and formulation of
suitable arrangements for skill development.
In accordance with its terms of reference, the Commission and its Advisory
Board have held several rounds of deliberations on a host of issues relating to
the unorganized/informal sector enterprises. In the light of these deliberations,
the following issues have been identified so far by the Commission for detailed
consideration and recommendations:
● Notion of growth poles for the informal sector in the form of clusters/hubs,
where external economies need to be provided to spur employment generation
and productivity enhancement and the feasibility of integrating the initiatives and
programmes of various Ministries in this domain;
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BANK FINANCING FOR THE SSI SECTOR
● Skill formation in the informal sector and potential for public private partnership
in providing the required skills;
● Provision of micro finance and related services to the informal sector
enterprises and strengthening of the institutional framework in this area; and
● Issues concerning social security for the workers in the informal sector and
instrumentalities for achieving this objective.
Performance and policy initiatives in SSI sector during 2004-05
Over the last five decades, the small-scale industries (SSI) sector has acquired a
place of prominence in the economy of the country. It has contributed
significantly to the growth of the Gross Domestic Product (GDP), employment
generation and exports. The sector now includes not only SSI units but also
small scale service and business enterprises (SSSBEs) and is thus referred to as
the small enterprises sector.
During 2000-01 to 2004-05, the SSI sector registered continuous growth in the
number of units, production, employment and even exports (till 2002-03). During
this period, the average annual growth in the number of units was around 4.1 per
cent, while employment grew by 4.4 per cent annually. Further, the average
annual growth in production, at current and constant prices, was 10.6 per cent
and 7.6 per cent respectively.
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BANK FINANCING FOR THE SSI SECTOR
Performance of small scale sector
Year
No. of units (lakh) Production (Rs.
crore)
Employ
ment
in lakh
Export
s
(Rs.
crore)
Regd.
Unregd.l
Total
(at
current
prices)
(at
constant
prices)
2000-01 13.1 88 101.1 2,61,289 1,84,428 239.09 69,797
-4.1 -11.5 -8 -4.4 -28.8
2001-02 13.75 91.46 105.21 2,82,270 1,95,613 249.09 71,244
-4.1 -8 -6.1 -4.2 -2.1
2002-03 14.68 94.81 109.49 3,11,993 2,10,636 260.13 86,013
-4.1 -10.5 -7.7 -4.9 -20.7
2003-04 15.54 98.41 113.95 3,57,733 2,28,730 271,36 N.A.
-4.1 -11.6 -8.6 -4.3
2004-05 16.38 102.15 118.53 3,99,020 2,45,747 282.82 N.A.
-4 -11.5 -7.4 -4.2
Website: http:/indiabudget.nic.in
Policy initiatives in SSI sector during 2004-05
1. The National Commission on Enterprises in the Unorganized/Informal
Sector was set up in September 2004. The Commission will, inter-alias,
recommend measures considered necessary for improvement in the
productivity of these enterprises, generation of large scale employment
opportunities on a sustainable basis, linkage of the sector to institutional
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BANK FINANCING FOR THE SSI SECTOR
framework in areas like credit, raw material supply, infrastructure,
technology up gradation, marketing facilities and skill development.
2. 85 items reserved for exclusive manufacture in the SSI sector were
dereserved in October 2004. The total number of reserved items now
stands at 605.
3. To facilitate technology up gradation and enhancing competitiveness, the
investment limit (in plant and machinery) has been raised in October 2004,
from Rs. 1 crore to Rs. 5 crore, in respect of 7 items of sports goods,
reserved for manufacture in the small scale sector.
4. The Small and Medium Enterprises (SME) Fund of Rs. 10,000 crore was
operationalised by the SIDBI since April 2004. Eighty per cent of the
lending from this fund will be for SSI units, at interest rate of 2 per cent
below the prevailing PLR of the SIDBI.
5. The Reserve Bank of India enhanced the composite loan limit for the SSI
sector to Rs. 1 crore from Rs. 50 lakh.
6. With a view to integrate small and medium enterprises, facilitating their
growth and enhancing their competitiveness (including measure for
freeing the sector from “Inspector Raj”), a suitable legislation is being
finalized.
7. A new “Promotional Package for small enterprises" is being formulated.
This would include measures to provide adequate credit, incentives for
technology up gradation, infrastructural and marketing facilities, etc.
26
BANK FINANCING FOR THE SSI SECTOR
CREDIT - THE LIFELINE OF BUSINESS
Of all the elements that go into a business, credit is perhaps the most crucial.
The best of plans can come to naught if adequate finance is not available at the
right time. SSIs need credit support not only for running the enterprise &
operational requirements but also for diversification, modernization/ up gradation
of facilities, capacity, expansion etc. In respect of SSIs, the problem of credit
becomes all the more critical when ever any episodic event occurs such as a
large order, rejection of consignment, inordinate delay in payment etc. In general,
SSIs operate on tight budgets, often financed through owner's own contribution,
loans from friends and relatives and some bank credit.
Government of India recognised the need for a focused credit policy for SSIs in
the early days of promotion of SSIs. This in turn led to a credit policy with the
following components:-
Priority Sector Lending: Credit to the small scale sector is ensured as part
of the priority sector lending by banks. Banks are required to compulsory ensure
that defined percentage (currently 40%) of their overall lending is made to priority
sectors as classified by Government. These sectors include agriculture, small
industries, export etc. The inclusion of small industries in this list makes them
eligible for this earmarked credit.
Institutional Arrangement: Small Industries Development Bank of India
( SIDBI ) was set up as the apex refinance bank. Term loans are provided by
State Financial Corporations (SFCs) and Scheduled Banks. Credit lending in
direct/indirect forms is also undertaken to some extent by NABARD , NSIC etc.
27
BANK FINANCING FOR THE SSI SECTOR
With the liberalization of the Indian economy, greater emphasis was placed on
meeting the credit needs of SSIs. This was manifest through the following
initiatives:-
1. Earmarking of credit for tiny sector within overall lending to small industries.
2. Opening of specialized SSI bank branches.
3. Establishment of National Equity Fund for venture capital support.
4. Technology Development & Modernization Fund through SIDBI.
5. Enhancement of turnover limit for assessing aggregate working capital
requirement.
6. Enhancement of limit of composite loan to Rs. 10 lakhs. (Rs 1 million)
7. No collateral security for loans up to Rs. 5 lakhs. (Rs 0.5 million)
The Comprehensive Policy Package announced on 30th August 2000 took this
process further. This included:-
1. Launch of Credit Guarantee Scheme to cover loans up to Rs. 25 lakhs.
(Rs 2.5 million)
2. Launch of Credit Linked Capital Subsidy Scheme to provide for subsidy
against loans taken for technology up gradation.
3. Further enhancement of ceiling composite loan limit to Rs. 25 lakhs.(Rs
2.5 million)
4. Enhancement of project cost limit under National Equity Fund to Rs. 50
lakhs.(Rs 5 million)
Many of these initiatives were based on the recommendations made by the
Nayak Committee, the Kapur Committee and the Dr. S.P. Gupta Study Group.
28
BANK FINANCING FOR THE SSI SECTOR
Credit to SSI Sector from Public Sector Banks
Indian Bank Charters
The Jammu & Kashmir Bank
Ltd.State Bank of Mysore
State Bank of Indore Bank of Baroda
State Bank of Travancore Oriental Bank of Commerce
Central Bank of India United Bank of India
State Bank of Bikener and
JaipurAllahabad Bank
Indian Bank State Bank of Hyderabad
Syndicate Bank Union Bank of India
Bank of India UCO Bank
Indian Overseas Bank Bank of Maharashtra
SBI Canara Bank
PNB
29
BANK FINANCING FOR THE SSI SECTOR
The table below gives the status of credit flow to Village & Small Industries (VSI) Sector
since 1991:-
YearNet Bank Credit
(in Rs. crores)
To SSI
(in Rs. crores)Share of SSI
March 1991 1,05,632 16,783 15.89%
March 1992 1,12,160 17,398 15.51%
March 1993 1,32,782 19,388 14.60%
March 1994 1,40,914 21,561 15.30%
March 1995 1,69,038 25,843 15.29%
March 1996 1,84,381 29,485 15.99%
March 1997 1,89,684 31,542 16.60%
March 1998 2,18,219 38,109 17.50%
March 1999 2,46,203 42,674 17.33%
March 2000 2,92,943 45,788 15.6%
March 2001 3,40,888 48,445 14.2%
March 2002 3,96,954 49,743 12.5%
March 2003 4,77,899 52,988 11.1%
Source: RBI
30
BANK FINANCING FOR THE SSI SECTOR
The Table below give the status of credit flow to Tiny Sector since 1995:-
At the
end of
March
'95
At the
end of
March
'96
At the
end of
March
'97
At the
end of
March
'98
At the
end of
March
'99
At the
end of
March
'2000
At the
end of
March
'2001
At the
end of
March
'2002
At the
end of
March
'2003
Net Credit
To Tiny Sector (Rs.
Crore)
7734 8183 9515 10273.138837.47*22,742**26,01927,03026,937
Tiny Credit as
percentage
of net SSI credit
29.93 27.76 30.2 27.0 20.7 54.03 53.7 54.34 50.84
Refers to units with investment in P&M upto Rs. 5 lakhs.
** Refers to units with investment in P&M upto Rs. 25 lakhs.
Note: Rs. 1 Crore = Rs. 10 million, Rs. 1 Lakh = Rs. 100,000/-
Assistance to SSIs by SFCs
The main objective of State Financial Corporations(SFCs) is to meet Term
Loan/Fixed Capital needs of the Small Scale Industries. There are 18 SFCs in
the country.
31
BANK FINANCING FOR THE SSI SECTOR
The Table below gives the total assistance and assistance to SSIs by SFCs:-
Year
SANCTIONS (Rs Crores)DISBURSEMENTS (Rs
Crores)
Total
AssistanceTo SSIs
Total
AssistanceTo SSIs
1992-93 2015.3 1686 1557.4 1163.9
1993-94 1908.8 1561 1563.4 1175.2
1994-95 2702.4 1920 1880.9 1314.5
1995-96 4188.5 2513 2961.1 1675.4
1996-97 3544.8 2115 2782.7 1529.6
1997-98 2626.0 1786 2110 1222
1998-99 1864 1365 1625 1004
1999-2000 2203 1617 1754 1083
Source: IDBI Annual Report
32
BANK FINANCING FOR THE SSI SECTOR
HISTORY OF BANKING IN INDIA
Without a sound and effective banking system in India it cannot have a healthy
economy. The banking system of India should not only be hassle free but it
should be able to meet new challenges posed by the technology and any other
external and internal factors.
For the past three decades India's banking system has several outstanding
achievements to its credit. The most striking is its extensive reach. It is no longer
confined to only metropolitans or cosmopolitans in India. In fact, Indian banking
system has reached even to the remote corners of the country. This is one of the
main reasons of India's growth process.
The government's regular policy for Indian bank since 1969 has paid rich
dividends with the nationalization of 14 major private banks of India.
Not long ago, an account holder had to wait for hours at the bank counters for
getting a draft or for withdrawing his own money. Today, he has a choice. Gone
are days when the most efficient bank transferred money from one branch to
other in two days. Now it is simple as instant messaging or dial a pizza. Money
have become the order of the day.
The first bank in India, though conservative, was established in 1786. From 1786
till today, the journey of Indian Banking System can be segregated into three
distinct phases. They are as mentioned below:
Early phase from 1786 to 1969 of Indian Banks
33
BANK FINANCING FOR THE SSI SECTOR
Nationalization of Indian Banks and up to 1991 prior to Indian banking sector
Reforms.
New phase of Indian Banking System with the advent of Indian Financial &
Banking Sector Reforms after 1991.
To make this write-up more explanatory, I prefix the scenario as Phase I, Phase
II and Phase III.
Phase I
The General Bank of India was set up in the year 1786. Next came Bank of
Hindustan and Bengal Bank. The East India Company established Bank of
Bengal (1809), Bank of Bombay (1840) and Bank of Madras (1843) as
independent units and called it Presidency Banks. These three banks were
amalgamated in 1920 and Imperial Bank of India was established which started
as private shareholders banks, mostly Europeans shareholders.
In 1865 Allahabad Bank was established and first time exclusively by Indians,
Punjab National Bank Ltd. was set up in 1894 with headquarters at Lahore.
Between 1906 and 1913, Bank of India, Central Bank of India, Bank of Baroda,
Canara Bank, Indian Bank, and Bank of Mysore were set up. Reserve Bank of
India came in 1935.
During the first phase the growth was very slow and banks also experienced
periodic failures between 1913 and 1948. There were approximately 1100 banks,
mostly small. To streamline the functioning and activities of commercial banks,
the Government of India came up with The Banking Companies Act, 1949 which
was later changed to Banking Regulation Act 1949 as per amending Act of 1965
(Act No. 23 of 1965). Reserve Bank of India was vested with extensive powers
for the supervision of banking in India as the Central Banking Authority.
34
BANK FINANCING FOR THE SSI SECTOR
During those days public has lesser confidence in the banks. As an aftermath
deposit mobilization was slow. Abreast of it the savings bank facility provided by
the Postal department was comparatively safer. Moreover, funds were largely
given to traders.
Phase II
Government took major steps in this Indian Banking Sector Reform after
independence. In 1955, it nationalized Imperial Bank of India with extensive
banking facilities on a large scale especially in rural and semi-urban areas. It
formed State Bank of India to act as the principal agent of RBI and to handle
banking transactions of the Union and State Governments all over the country.
Seven banks forming subsidiary of State Bank of India was nationalized in 1960
on 19th July, 1969, major process of nationalizations was carried out. It was the
effort of the then Prime Minister of India, Mrs. Indira Gandhi. 14 major
commercial banks in the country were nationalized.
Second phase of nationalization Indian Banking Sector Reform was carried out in
1980 with seven more banks. This step brought 80% of the banking segment in
India under Government ownership.
The following are the steps taken by the Government of India to Regulate
Banking Institutions in the Country:
1949: Enactment of Banking Regulation Act.
1955: Nationalization of State Bank of India.
1959: Nationalization of SBI subsidiaries.
1961: Insurance cover extended to deposits.
1969: Nationalization of 14 major banks.
1971: Creation of credit guarantee corporation.
1975: Creation of regional rural banks.
35
BANK FINANCING FOR THE SSI SECTOR
1980: Nationalization of seven banks with deposits over 200 crore.
After the nationalization of banks, the branches of the public sector bank India
rose to approximately 800% in deposits and advances took a huge jump by
11,000%.
Banking in the sunshine of Government ownership gave the public implicit faith
and immense confidence about the sustainability of these institutions.
Phase III
This phase has introduced many more products and facilities in the banking
sector in its reforms measure. In 1991, under the chairmanship of M
Narasimham, a committee was set up by his name which worked for the
liberalization of banking practices.
The country is flooded with foreign banks and their ATM stations. Efforts are
being put to give a satisfactory service to customers. Phone banking and net
banking is introduced. The entire system became more convenient and swift.
Time is given more importance than money.
The financial system of India has shown a great deal of resilience. It is sheltered
from any crisis triggered by any external macroeconomics shock as other East
Asian Countries suffered. This is all due to a flexible exchange rate regime, the
foreign reserves are high, the capital account is not yet fully convertible, and
banks and their customers have limited foreign exchange exposure.
36
BANK FINANCING FOR THE SSI SECTOR
BANKS IN INDIA
In India the banks are being segregated in different groups. Each group has their own
benefits and limitations in operating in India. Each has their own dedicated target market.
Few of them only work in rural sector while others in both rural as well as urban. Many
even are only catering in cities. Some are of Indian origin and some are foreign players.
All these details and many more are discussed over here. The banks and its relation with
the customers, their mode of operation, the names of banks under different groups and
other such useful informations are talked about.
One more section has been taken note of is the upcoming foreign banks in India. The RBI
has shown certain interest to involve more of foreign banks than the existing one
recently. This step has paved a way for few more foreign banks to start business in India.
MAJOR BANKS IN INDIA
ABN-AMRO Bank
Abu Dhabi Commercial Bank
Indian Overseas Bank
IndusInd Bank
37
BANK FINANCING FOR THE SSI SECTOR
American Express Bank
Andhra Bank
Allahabad Bank
Bank of Baroda
Bank of India
Bank of Maharastra
Bank of Punjab
Bank of Rajasthan
Bank of Ceylon
BNP Paribas Bank
Canara Bank
Catholic Syrian Bank
Central Bank of India
Centurion Bank
China Trust Commercial Bank
Citi Bank
City Union Bank
Corporation Bank
Dena Bank
Deutsche Bank
Development Credit Bank
Dhanalakshmi Bank
Federal Bank
HDFC Bank
HSBC ICICI Bank
IDBI Bank
Indian Bank
ING Vysya Bank
Jammu & Kashmir Bank
JPMorgan Chase Bank
Karnataka Bank
Karur Vysya Bank
Laxmi Vilas Bank
Oriental Bank of Commerce
Punjab National Bank
Punjab & Sind Bank
Scotia Bank
South Indian Bank
Standard Chartered Bank
State Bank of India (SBI)
State Bank of Bikaner & Jaipur
State Bank of Hyderabad
State Bank of Indore
State Bank of Mysore
State Bank of Saurastra
State Bank of Travancore
Syndicate Bank
Taib Bank
UCO Bank
Union Bank of India
United Bank of India
United Bank Of India
United Western Bank
UTI Bank & Vijaya Bank
38
BANK FINANCING FOR THE SSI SECTOR
INDUSTRY PROFILE
Small Industries Development Bank of India (SIDBI) was established in April
1990 under an Act of Indian Parliament as a wholly-owned subsidiary of
Industrial Development Bank of India. SIDBI has since completed 8 years of
service to the small scale sector. As at March 31, 1998, SIDBI had a total staff
strength of 861 comprising of 685 professionals and 176 support staff.
SIDBI's statute provides that it should serve as the principal financial institution
for:
Promotion
Financing and
Development of industry in the small scale sector and
Co-ordinating the functions of other institutions engaged in similar
activities.
SIDBI became operational on April 2, 1990.
The Small Scale Industry (SSI) sector, which is a vibrant and dynamic sub-sector
of the India's industrial economy, comprises the area of SIDBI's business. The
contribution of the SSIs in terms of production, employment and export earnings
has been significant. The objectives of Government policy have been to impart
vitality and growth impetus to the sector by removing bottlenecks that affect the
growth potential. In the liberalised era and emerging economic scenario, the
sector is assured of continued support.
RANGE OF SERVICES
SIDBI REFINANCES:
Loans granted by PLIs for new SSI projects and for expansion,
technology upgradation, modernisation, quality promotion.
40
BANK FINANCING FOR THE SSI SECTOR
Loans sanctioned by PLIs to small road transport operators,
qualified professionals for self-employment, small hospitals and
nursing homes and to promote hotels and tourism-related activities.
SIDBI DIRECTLY FINANCES:
SSI units for new/expansion/diversification/modernisation projects.
Marketing development projects which expand the domestic and
international marketability of SSI products.
Existing well-run SSI units and ancillaries/sub-contracting units/
vendor units for modernisation and technology upgradation.
Infrastructure development agencies for developing industrial
areas.
Leasing and hire purchase companies for offering leasing/hire
purchase facilities to SSI units.
Existing export-oriented units to enable them to acquire ISO-9000
Series Certification
SIDBI HELPS:
SSIs to obtain credit rating from accredited credit rating agencies
SIDBI PROVIDES FOREIGN CURRENCY LOANS TO:
Import equipment by existing export-oriented SSIs and new units
having definite plans for entering export markets.
Execute confirmed export orders by way of pre-shipment
credit/letter of credit and provides post-shipment facilities.
SIDBI's VENTURE CAPITAL FUND PROVIDES ASSISTANCE TO:
Small scale entrepreneurs using innovative indigenous technology
and expertise.
41
BANK FINANCING FOR THE SSI SECTOR
LINES OF CREDIT ARE ESTABLISHED BY SIDBI IN FAVOUR OF:
State Financial Corporations
State Small Industries Development Corporations for supplying raw
material and extending marketing support to SSI units.
Factoring Companies to factor receivables of SSIs.
Commercial banks to cover their pre-shipment credit in foreign
currency of SSI exporters.
Merchant Banks for supporting equity issues of SSIs on Over The
Counter Exchange of India.
DEVELOPMENT AND SUPPORT SERVICES BY SIDBI ARE FOCUSED AT:
Enterprise promotion with emphasis on rural industrialisation
Human Resource Development of the SSI sector
Technology Upgradation
Special Emphasis Programmes - Quality and Environment
Management and
Information Dissemination
Programmes implemented for Enterprise promotion include:
Micro Credit Scheme
Rural Industries Programme
Mahila Vikas Nidhi
Entrepreneurship Development Programme
Programmes for Human Resource Development of the SSIs:
SIDBI supports the reputed management and technical institutions spread
throughout the country to conduct.
Small Industries Management Assistance Programme (SIMAP)
Skill-cum-Technology Upgradation Programme (STUP)
42
BANK FINANCING FOR THE SSI SECTOR
While the SIMP is aimed at providing to SSIs a trained cadre of
managers, STUP seeks to offer skill development opportunity to
owners/senior managers of SSIs.
Programmes for Technology Upgradation include:
Technology upgradation in identified industry clusters
Technology Transfer
Quality Enhancement
Quality and Environment Management programmes include support to
programmes and workshops on quality management techniques and assistance
to create awareness among the SSIs for abatement of environmental pollution.
Information Dissemination initiatives aim at promoting new units by
identification and publicity of viable project ideas and business opportunities
through :
Publication of Project Profiles
Broadcasting Udyog Sadhana Radio Programme
Production of video films on various entrepreneurship themes and
telecasting them through electronic media.
RANGE OF SERVICES
INSTITUTIONAL BUILDING:
SIDBI Co-promoted
Factoring Companies
Technology Bureau of Small Enterprises
North Eastern Development Finance Corporation Ltd.
IDBI Bank Ltd.
Indian Institute of Entrepreneurship, Guwahati
43
BANK FINANCING FOR THE SSI SECTOR
SPECIAL PURPOSE FUNDS IN SIDBI
National Equity Fund
Mahila Vikas Nidhi
Mahila Udyam Nidhi
Venture Capital Fund
Technology Development and Modernisation Fund
Marketing Development Assistance Fund with special earmarked
corpus for women.
UCO BANK-CHARTER FOR SMALL SCALE
INDUSTRIES
Both term and working capital loan sanctioned for setting up of a new
Industrial Unit or expansion/modernization/technological up gradation of an
existing industrial unit.
Simple Loan Application Forms
Acknowledgement for receipt of Loan
Application.
TIME NORMS:
Disposal of Loan Applications
Upto Rs.25,000 Two Weeks
Over Rs. 5 lacs Four Weeks
Upto Rs.5 lacs Eight to Nine
Weeks
44
BANK FINANCING FOR THE SSI SECTOR
COLLATERAL FREE LOANS :
No collateral security/Third Party Guarantee is required.
For loans upto Rs.5 lacs
For loans upto Rs.25 lacs on the basis of good track record and financial position
For loans upto Rs.25 lacs under the scheme of Credit Guarantee Trust Fund for
Small Industries (CGTSI)
Composite Loan upto Rs. 50 Lacs to SSI Units :
Rate of Interest :
Total funded exposure :
Upto Rs.50,000 9%
More than Rs.50,000 &upto Rs.2
lacs10%
More than Rs.2 lacs &upto Rs.5 lacs 11.5%
More than Rs.5 lacs &upto Rs.10
lacs* 12%
More than Rs.10 lacs &upto Rs.25
lacs* 13%
*with maturity less than 3 years
INDUSIND BANK- CHARTER FOR SMALL SCALE
INDUSTRIES
Working Capital Finance
45
BANK FINANCING FOR THE SSI SECTOR
It offers working capital facilities - both fund-based and fee-based. Fund-based
working capital products include cash credit, overdraft, bill discounting, short-
term loans, export financing (pre-shipment as well as post-shipment). Fee based
facilities include letters of credit and bank guarantees.
Working Capital facilities are provided to finance the day-to-day business
requirements. Funding requirements are structured to finance procurement of
raw materials/stores and payment towards manufacturing costs and other
overheads. Sales are financed against sundry debtors/ receivables.
The Bank offers a combination of operative cash credit and working capital
Short Term Finance
The Bank offers short-term loans for a period ranging from 3 months to 12
months to sound corporates for meeting their specific short-term working capital
requirements. The funds are provided with interest rates either linked to our
BPLR or at a fixed rate with varying repayment patterns.
Term Loans
It offers term loans to both Industrial as well as Infrastructure sectors promoted
by strong business houses. These loans are for a period of 3-5 years with a
moratorium period. Interest rates could be fixed or floating linked to the bank's
BPLR.
Bills Finance - Supply /Purchase
This product enables corporate to fund their operating cycle right from the stage
of procurement to sale. Bill Financing is extended by IndusInd Bank to its clients
at competitive rates.
Letter of credit backed bill discounting and clean bill discounting are the
convenient mode of financing for domestic trade transactions.
46
BANK FINANCING FOR THE SSI SECTOR
BOE could be broadly classified into Demand and Usance bills and are further
classified into clean and documentary bills.
Asset Securitization
It also extend loans for asset securitization comprising lease rental receivables
and other receivables backed by firm arrangements. In such cases, the future
cash flows of the client are discounted applying a discount rate and arrived at the
Net Present Value (NPV) which is the amount lent to the borrower.
BOI Artisan Credit Card (ACC)
Purpose
To provide adequate and timely assistance to artisans to meet their credit
requirements both investment needs as well as working capital. Investment loans
for purchase of tools/equipments by way of Demand Loan/Term Loan with
appropriate repayment schedule. The scheme would be applicable both in rural
and urban areas.
Eligibility
All artisans involved in production/ manufacturing process. Preference would be
given to artisans registered with Development Commissioner (Handicrafts) ·
Thrust in financing on cluster of artisans and artisans who have joined to form
Self-Help Groups (SHGs) · Beneficiaries of other Government Sponsored
Schemes are not eligible
47
BANK FINANCING FOR THE SSI SECTOR
Issue of cards
A photo Identity Card with sanctioned limit, validity period of credit facilities along
with a passbook incorporating Name, Address, Borrowing Limit, Validity Period,
etc. will be issued.
Credit limit
Credit limit to be fixed based on assessment of Working Capital requirements as
well as cost of tools and equipments required for carrying out manufacturing
process. For assessing working capital requirement, 20% of anticipated turnover
will be taken into consideration.
Maximum Limit
Rs.2 lakhs per borrower.
Security
Hypothecation of Assets created out of Bank Finance.
Margin
Up to Rs.25,000/- Nil
above Rs.25,000/- 20% to 25%
Rate of Interest *
Present
Upton Rs.50,000/- - 9% p.a
48
BANK FINANCING FOR THE SSI SECTOR
Above Rs.50,000/- upto Rs.2 lakhs - 9.75% p.a
* subject to change
Validity/Renewal of limits
1) Small scale units, artisans, village and cottage industry.
2) Self-Help Groups (SHGs) for their economic activities.
Purpose
i) Purchase of equipment machinery, vehicle, furniture/fixtures etc.
ii) Working capital needs.
Loan Amount Need based depending on project cost/turnover etc.
Margin
For limits up to Rs.25,000/- - NIL
For limits over Rs.25,000/-
up to Rs.5 lakhs - 10% - 20%
For limits over Rs.5 lakhs 15% - 30%
Rate of interest 1% less than the applicable interest rate for limits above
Rs.50,000/-.
Security No collateral for advances up to Rs.5 lakhs. If account is eligible for
cover under CGFTSI, no collateral is required for limits up to Rs.25 lakhs.
49
BANK FINANCING FOR THE SSI SECTOR
Repayment Period Repayment schedule will be spread over 3 to 7 years
depending upon nature of manufacturing activity proposed.
BOI - Laghu Udyami Credit Card (LUCC)
Eligibility
All existing customers under SSI sector who are having satisfactory dealings for
last 3 years and enjoying loan/operation limit up to Rs.2 lakhs.
Purpose
To meet the credit requirements of Small Scale Industries and Tiny Sector.
Assessment of credit
For assessing working capital requirement, 20% of anticipated turnover will be
taken into consideration, as per Nayak Committee recommendations.
Margin - 25%
Rate of interest (*)
Upto Rs.50,000/- - 9% p.a
Above Rs.50,000/- upto Rs.2 lakhs - 9.75% p.a
50
BANK FINANCING FOR THE SSI SECTOR
Above Rs.2 lakhs upto Rs.10 lakhs - 10.75% p.a
(*)subject to change
Women holding LUTC card are granted 1% p.a. concession in rate of interest
when the limit exceeds Rs. 50,000/-.
Validity
Limit sanctioned under LUCC will be valid for 3 years subject to satisfactory
conduct of account.
Limit valid for 3 years subject to annual review. Annual review without asking
financial statements from the borrower but based on assessment of performance
by field inspections.
CANARA BANK- CHARTER FOR SMALL SCALE
INDUSTRIES
1. Simplified & bilingual applications for credit facilities to SSI units are
available at all our branches.
2. Acknowledgments are issued to SSI units immediately on receipt of loan
application by branches.
3. SSI loan applications/credit proposals are disposed off within the
stipulated Time Norms from the date of receipt of application completed in
all respects:
a. Up to Rs.25000/- 2 Weeks
b. Over Rs.25000/- & up to Rs.5 lakhs 4 Weeks
c. Over Rs.5 lakhs 8 to 9 Weeks
4. Margin:
Up to Rs.25000/- Nil
Over Rs.25000/- 15% to 25% as determined by Bank
51
BANK FINANCING FOR THE SSI SECTOR
5. Rate of Interest:
Up to Rs.50000/- 8.75% for working capital & 9.25% for Term Loans
Over Rs.50000/- up to Rs.2 lakhs for Working Capital and Term Loans at
BPLR ( presently 10.75%)
Over Rs. 2 lakhs at attractive rate of interest.
6. Collateral-free loans up to Rs.5 lakhs.
7. Collateral -free loans over Rs. 5 lakhs & up to Rs.25 lakhs based on good
track record and financial position of the borrowing unit.
8. Collateral/Third Party Guarantee free credit limits (Fund Based) up to
Rs.25 lakhs if covered under Credit Guarantee Fund Scheme for Small
Industries (CGFSI).
9. Composite Loans under Single Window concept of RBI up to Rs.100
lakhs.
10.Loans under Margin Money Scheme of Khadi &Village Industries
Commission under their Rural Employment Generation Programme
(REGP) for setting up industrial/service units in Rural/ Semi Urban areas
focussing on employment generation.
11.Equity type Soft Loans under National Equity Fund (NEF)/Mahila Udyam
Nidhi (MUN) Schemes of SIDBI and Special Assistance to Women
Entrepreneurs through CED for Women/Mahila Banking Branches.
12.Loans under Technology Upgradation Fund Scheme (TUFS) for Textile &
Jute industrial units in SSI sector AND to 39 Specified Industries in SSI
sector for Technology Upgradation under Credit Linked Capital Subsidy
Scheme (CLCSS).
13.Loans for Acquisition of ISO 9000 Series certification by SSI units.
14.Standby Credit for Capital Expenditure of SSI units up to Rs.5 lakhs along
with renewal of working capital facilities for making small additions to fixed
assets of the unit.
15.Laghu Udyami credit card / Artisan credit cards upto a limit of Rs. 10 lakhs
& Rs. 2 lakhs respectively.
52
BANK FINANCING FOR THE SSI SECTOR
16.Focussed attention to SSI units at our 38 Specialized SSI branches
located in different parts of the country.
TERM LOANS
ELIGIBILITY Individuals, Proprietorship, Partnership, Ltd. Companies etc.
PURPOSE For acquisition of fixed assets (viz, land/building,
plant/machinery, other fixed assets) towards setting up of new
units and for expansion, modernization and diversification in
case of existing units
QUANTUM Depending on the project cost.
REPAYMENT 36 months and above in monthly/quarterly/half yearly/yearly
installments depending on the cash generation and Debt
Servicing capacity.
SECURITY 1st charge on fixed assets financed by us. Collateral Security
and Personal/Third Party guarantee shall be insisted wherever
required.
GUARANTEE
COVER
Cover under credit guarantee fund for small industries (CGFSI)
(in case the aggregate credit facility permitted is upto Rs. 25
lakhs)
ROI, Insurance cover etc., as per Bank's norms
53
BANK FINANCING FOR THE SSI SECTOR
SIMPLIFIED OPEN CASH CREDIT (SOCC)
A LIBERALISED credit facility to SSI entrepreneurs who are not in a position to
maintain detailed stock books.
PURPOSE For working capital needs of Small SSI units. Facility available
as Running Limit.
MAXIMUM LIMIT Rs.5 lakhs only
SECURITY Prime security - Assets created out of the credit facility
Collateral security - Fixed assets of the unit wherever
applicable
REPAYMENT Facility is permitted as a Running Limit subject to review
/renewal every year.
GURANTEE
COVER
Cover under Credit Guarantee Fund for Small Industries
(CGFSI) would be available
COMPOSITE LOAN SCHEME
A SIMPLIFIED scheme devised under Single Window Concept of RBI to suit
the requirements of Tiny Units under SSI sector.
PURPOSE For acquiring equipments, construction of work sheds and to
meet working capital needs of the unit
ELIGIBILITY Artisans, village and cottage industries engaged in
manufacturing, processing, preservation and servicing by
utilizing locally available natural resources and/or human skills
where individual credit limit does not exceed Rs.25 lakhs.
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BANK FINANCING FOR THE SSI SECTOR
Tiny units under SSI sector irrespective of their location and
whose investment in plant and machinery does not exceed
Rs.25 lakhs.
LOAN
AMOUNT
Maximum Rs.100 lakhs
MARGIN * NIL up to Rs.2 lakhs
* 25% for loans over Rs.2 lakhs
SECURITY Prime security - Assets created out of the credit facility
Collateral security - Nil up to Rs.5 lakhs.
For loans over Rs.5 lakhs and as determined by Bank on merits
REPAYMENT Repayment within 3 to 10 years including initial moratorium of
12 to 18 months.
GURANTEE
COVER
Cover under Credit Guarantee Fund for Small Industries
(CGFSI) would be available. For collateral free/3rd party
guarantee, free loans upto Rs. 25 lakhs.
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BANK FINANCING FOR THE SSI SECTOR
BANK OF INDIA- CHARTER FOR SMALL SCALE
INDUSTRIES
1. To acknowledge loan applications.
2. To issue applications accompanied by checklists.
3. To comply with time norms for disposal of applications, received complete in
all respects –
(a) 2 weeks for loan up to Rs.25, 000/-
(b) 4 weeks for loan up to Rs.5 lakhs
(c) 8-9 weeks for loan over Rs.5lakhs
4. No collateral security for loans up to Rs.5 lakhs.
5. No collateral for loans over Rs.5 lakhs and up to Rs.25 lakhs subject to good
track record and financial position.
6. To consider composite loan up to Rs.100 lakhs.
7. To compute working capital requirements based on Nayak Committee norms.
Loan quantum: minimum 20% of anticipated annual turnover.
8. To cover loan accounts with limits up to Rs.25 lakhs without collateral
security/third party guarantee under CGFTSI, if eligible.
9. To offer concession in interest rates up to 1% under “Priyadarshini Scheme”
(Scheme for women entrepreneurs).
10. To consider short term loan facility at Sub-PLR rates to meet temporary
liquidity requirements of eligible credit worthy existing borrowers with good track
record under “Star - SSI Supreme Scheme”.
11. We also participate in -
(a)Rural Employment Generation Programme (REGP) of KVIC.
(b) Credit Linked Capital Subsidy Scheme for Technology Up gradation
administered by SIDBI.
(c) National Equity Fund Scheme of SIDBI.
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BANK FINANCING FOR THE SSI SECTOR
Bank of India’s product spectrum
To assist the SSI sector, Bank has been adopting innovative and growth
measures. Keeping in view, the Bank's past rich experience in financing this
sector and in tune with Government/Reserve Bank of India guidelines, the Bank
has recently launched innovative products with defined objectives and refined
methodology exclusively for SSI units. The philosophy behind launch of new
products/schemes has been to promote growth of industries and to provide
hassle free assistance to borrowers who have established their credentials with
the Bank and shown their commitment to run the unit successfully. These
products/schemes are listed below :-
i) Star - SSI Suprime Scheme (SSS)
ii) BOI - Artisan Credit Card (ACC)
iii) BOI - Laghu Udyami Trade Card (LUTC)
iv) "Priyadarshini Scheme" (Scheme for Women Entrepreneurs)
Star - SSI Suprime Scheme (SSS)
Objective
The product has been designed to offer loans at BOI Sub-PLR rates to existing
credit worthy borrowers coming under SSI Sector.
Purpose
Short Term Loans up to 180 days to meet/supplement temporary liquidity
requirements which may have arisen due to bunched despatch of goods,
execution of special orders with short delivery schedule, seasonal build up of
inventories awaiting despatch for which orders from reputed companies are on
hand.
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BANK FINANCING FOR THE SSI SECTOR
Eligibility
"AAA" and "AA" rated borrowers having sound track record making net profit at
least during the last 3 years and having an annual turn-over in excess of Rs.50
lakh.
Facility : Short Term Loans up to 180 days against inland bills of our Prime,
"AAA" and "AA" rated borrowers accepted by the drawees, bills drawn on
Government Department/ Undertaking including SEBs with whom power of
attorney has been registered and against accepted bills drawn under L/C (DA) by
prime banks with usance not exceeding 180 days.
Quantum of finance : Minimum : Rs.5 lakhs
Maximum : Rs.25 lakhs
Margin
Short Term Loan : 25%
Against Bills : Nil
Interest Rate
<For customers with Credit Rating :
"AAA" : 2% below BOIPLR
"AA" : 1% below BOIPLR
Repayment
Identified at the time of consideration of the loan and depending on the type of
facility availed (maximum 180 days).
Security
Charge on assets/extension of charge, wherever needed.
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BANK FINANCING FOR THE SSI SECTOR
1. Acknowledgments for receipt of loan application by branch by affixing date
stamp.
2. Time Norms for disposal of loan applications:
a. Upto Rs. 25,000 - Within 2 weeks*
b. Over Rs. 25000 & up to Rs. 5 lacs - Within 4 weeks*
c. Over Rs. 5 lacs - Within 8-9 weeks*
* from the date of receipt of duly completed loan application and check list
3. No collateral security for advances up to Rs. 5 lacs and for Advances over Rs.
5 lac up to Rs. 25 lakh based on good track record and financial position.
4. Guarantee cover is available under Credit Guarantee Scheme floated by
CGTSI for SSI for loans sanctioned without collateral security /third party
guarantee for advances upto Rs. 25 lacs. For availing guarantee cover under the
Scheme, a guarantee fee of 2.5 % of credit facility sanctioned for a period of 5
years and Annual service fee @ 1% of outstanding amount as on 31st March
every year is payable.
5. Composite loan upto Rs. 50 lakh is sanctioned to SSI units.
6. Loan quantum : Minimum 20% of projected annual sales turnover (Nayak
committee norms) for working capital requirement.
7. Margin Money Requirement(Contribution by the Borrower):
Loans upto Rs. 25,000/- NIL
Loans above Rs. 25,000/- 15% to 25%
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BANK FINANCING FOR THE SSI SECTOR
8. Rate of Interest
a. Credit limits upto & inclusive of Rs. 2 lakhs: At COBAR (presently 10.5%) for
loans of tenor upto & inclusive of 1 year
At COBAR +0.50% for loans of tenor above 1 year
b. Credit limits above Rs. 2 lakhs and upto & inclusive of Rs. 100 lakhs: At
COBAR +0.50% for loans of tenor upto & inclusive of 1 year
At COBAR + 1% for loans of tenor above 1 year
c. Credit limits above Rs. 100 lakhs:
Maximum at COBAR +2% for loans of tenor upto & inclusive of 1 year
Maximum at COBAR + 2.5 % for loans of tenor above 1 year
(Corporation Bank Benchmark Advance Rate [COBAR] is presently fixed at
10.5%)
9. Bank has launched the following entrepreneur friendly Schemes:
A. Corp Artisan Credit Card Scheme: Financing Artisans to meet the cost of
acquiring tools and equipments and working capital requirements
B. Corp Laghu Udyami Credit Card Scheme: Hassle-free Scheme for Financing
Small Businessmen, Retail traders, Artisans, Village Industries, SSI and tiny
units, Professionals and Self Employed.
C. Establishment of Creches: Finance for setting up of Creches for children of
working women to assist them to take up employment and become economically
independent.
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BANK FINANCING FOR THE SSI SECTOR
D. Village Information Centres: Financing village information centres to generate
employment and to derive benefits of information technology.
E. Self Employment Ventures: Financing ventures in rural areas under KVIC
margin money Scheme.
F. Technology Up gradation Fund Scheme: Under the Scheme, interest
reimbursement of 5% is available on the loans availed for induction of state of the
art or near state of the art technology.
G. Credit linked Capital subsidy Scheme for Technology Up gradation of the
Small Scale Industries: Back ended capital subsidy is admissible on the loans for
technology up gradation in certain sectors.
INDIAN BANK- CHARTER FOR SMALL SCALE
INDUSTRIES
Time - Bound Loans for Small Scale Industries
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BANK FINANCING FOR THE SSI SECTOR
Loan Limit Time for Disposal from the date of receipt
of application complete in all respects.
Loans upto Rs.25,000/- 2 Weeks
Over Rs.25,000/- and upto
Rs. 5 lakhs
4 weeks
Over Rs.5 lakhs 8 - 9 weeks
The exemption limit of SSI borrowal accounts for obtention of collateral
security is Rs 5.00 lakhs
Based on good track record and financial position of the units the
dispensation limit of collateral requirement for SSI loans is now extended
upto Rs 25.00 lakhs
For loans sanctioned without collateral security/Third party Guarantee with
limits upto Rs 25 lakhs, guarantee is available under Credit Guarantee
Fund Trust Scheme for SSIs (CGTSI).
For loans covered under Credit Guarantee Fund Trust Scheme (CGTSI)
the one time up front fee of 2.5%* is borne by the Bank (from 01 04 2004
to 31 03 2006)
[* the fee is 1.5%
a) for all loans upto Rs 2.00 lakh
b) All eligible women entrepreneurs
c) All eligible borrowers located in the North Eastern Region (including
Sikkim) and Jammu & Kashmir]
Composite loans upto Rs 100 lakhs is sanctioned to SSI units
Loan Quantum
Loan quantum /credit requirement would be assessed based on the norms
of the Bank
Minimum 20 % of projected annual sales (Nayak Committee Norms) for
working capital limits upto Rs 5 crores
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BANK FINANCING FOR THE SSI SECTOR
Branch Managers empowered to sanction adhoc limits upto 20% of
Working Capital Limits (both Fund based and Non-Fund based) This is
also applicable to Medium Enterprises.
Interest rate structure
Advances -
SSI
Interest Rate
Working Capital
& Term Loan < 36
months
Term Loan (36 months and
above)
Limits upto Rs
2 lakhs
BPLR - 1%
(presently 10%)
BPLR + TP - 1% (presently
10.50%)
Limits above
Rs 2 lakhs
PLR + 2% *
(presently
13.00%)
PLR + TP + 2% * (presently
13.50%)
* Finer rate of interest upto PLR are given based on credit rating and subject to
change from time to time .
Incentives
One time cash incentive of Rs 10,000/- for ISO certified SSI borrowers.
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BANK FINANCING FOR THE SSI SECTOR
COMPANY PROFILE
1. SSI entrepreneurs have a right to seek credit assistance from bank-
branches convenient to them.
2. Our Bank sanctions loans/credit assistance to Small Scale Industries for
acquisition of fixed assets (factory land/buildings & machinery) and working
capital requirements at very competitive interest rates and against soft margins
Rate of interests effective from 01.06.2003:
PeriodUpto Rs. 2
lacsAbove Rs. 2 lacs
Having contractual maturity upto 180
days (STPLR-I)
10.00% 10.00% with band of 0% to 2% based
on credit ratings
Having contractual maturity more
than 180 days but upto 1 year
(STPLR-II)
10.50% 10.65% with band of 0% to 2% based
on credit ratings
Having contractual maturity more
than 1 year (TPLR)
11.00% 11.50% with band of 0% to 2% based
on credit ratings
Interest rates on new SSI advance accounts will have a band of 0.50% only in case of
loans above Rs. 2 lacs.
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BANK FINANCING FOR THE SSI SECTOR
The above interest rates are subject to change from time to time as per RBI
directives/bank’s policy guidelines.
3. Trilingual Loan application forms for availment of loans by SSI
borrowers in Hindi, English and local Language are available at branches.
4. A “Check List” of requirements along with the application form to
enable the potential borrower to submit all necessary information and
documents required for consideration of his/her request for loan at one
time will be available at our branches
5. An acknowledgement of receipt of application forms along with
Check List will be issued and definite date for discussion, clarification etc.,
if considered necessary, will be intimated to the applicable by branches
6. Loan application forms complete in all respects will be disposed off within
the time schedule given below:
Upto Rs. 25,000
Within 2 weeks
Upto Rs. 25,000/- to upto Rs. 5 lacs Within 4 weeks
Over Rs. 5 lacs Within 8 to 9 weeks
7. Collateral /third party guarantee free loans are considered to Tiny/Small
Scale Industries for credit limits upto Rs. 25 lacs based on the criteria given
below:
For loans upto Rs. 5 lacs
To all the Tiny sector/ Small Sector units
For loans over Rs. 5 lacs &
upto Rs. 25 lacs
To all Tiny Sector/Small Scale Sector units, if covered
under Credit Guarantee Fund Scheme for Small
Industries (CGFSI)
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BANK FINANCING FOR THE SSI SECTOR
For loans over Rs. 5 lacs &
upto Rs. 15 lacs
To Tiny Sector / Small Scale Sector units having
satisfactory dealings with the Bank for last 3 years and
sound financial position even if not covered under
Credit Guarantee Fund Scheme for Small Industries.
8. Composite Loans upto Rs. 50 lacs for Capital investment/working
Capital under Single Window Concept are considered
9. Hassel free credit limits upto Rs. 2 lacs under special scheme -
“BOB Laghu Udyami Credit Card Scheme” are considered to all our
existing customers in the categories of Tiny/Small Scale units having
satisfactory track record/dealings with our bank for the last 3 years
10. The Loans are available under following special schemes:
National Equity Fund Scheme where bank loan at Interest
Rates as mentioned aforesaid and Equity Loan at a service charge
of 5& p.a. from SIDBI for setting up new projects in tiny/small scale
sector and for undertaking expansion, modernization, technology
upgradation for existing SSI/Tiny units
Margin Money Scheme of Khadi & Village Industries
Commission Under Rural Employment Genertion Programme for
setting-up industrial/service units in Rural/Semi urban areas which
generate employment under which margin money subsidy upto a
maximum amount of Rs. 4 lacs is available to the beneficiaries
Technology Upgradation Fund Scheme (TUFS) under which
an interest incentive of 5 percentage points on the loans for
Technology upgraqdation /modernization of their units can be
availed by Textile Textile Industrial Units in SSI sector
Credit Linked Capital Subsidy Scheme under which 12%
capital subsidy for induction of proven technologies approved under
the scheme is provided for Technology Upgradation specified
industries in SSI sector to facilitate technology upgradation of their
units
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BANK FINANCING FOR THE SSI SECTOR
11. Specialised services at our 38 Specialised SSI branches to SSI
units across the country
12. Interaction with our existing and potential SSI entrepreneurs
through periodical meetings conducted at SSI Clubs of our Specialised
SSI branches for furthering quality of service at branches
13. A grievance - redressal mechanism is in place in our Bank:
Customer’s Complaints against a branch can be lodged with respective
Regional Office of the Bank. If no action is initiated within 15 days,
customer may approach respective Zonal Office. If still no action for a
month, customer may directly write to Priority Sector Department, Baroda
Corporate Centre, Mumbai. Addresses of Regional, Zonal and Baroda
Corporate Centre are available at all our branches.
Charter of Credit Entitlements for SSI Borrowers
SSI Entrepreneurs have right to seek credit assistance from bank-
branches convenient to them
Bank considers loans/credit assistance to SSIs for acquisition
offixed assets (factory land/buildings & machinery) and working capital
requirements against : (a) soft margins (b) at very competitive interest
rates for loans above Rs. 2 lacs with a ban of 0% to 2% over respective
PLR for existing accounts based on credit ratings. For new accounts the
band is only 0.50% over respective PLR.
Loans upto Rs. 2 lacs are granted existing as well as new accounts
at 0.25% and 0.50% below respective PLRs for a period from 6 months to
1 year and above 1 year respectively.
Trilingual Loan application forms for availment of loans by SSI
borrowers in Hindi, English and local language are available at our
branches.
An acknowledgement of receipt of application forms along with
Check List will be issued and definite date for discussions, clarifications
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BANK FINANCING FOR THE SSI SECTOR
etc., if considered necessary, will be intimated to the applicants by
branches.
Loan application forms complete in all respects will be disposed off
within a period of 2 weeks for limits upto Rs. 25,000/- within 4 weeks for
limits between Rs. 25,001/- to Rs. 5 lacs and within a period of 8 to 9
weeks for limits above Rs. 5 lacs.
Collateral/third party guarantee free loans are considered to all
Tiny/Small Scale Industries for credit limits upto Rs. 5 lacs. For loans over
Rs. 5 lacs and upto Rs. 25 lacs - no collateral security if covered under
Credit Guarantee Fund Scheme for Small Industries (CGFSI). For
Tiny/SSI units having satisfactory dealings for last 3 years and sound
financial position - no collateral security / third party guarantee insisted for
loans over Rs. 5 lacs and upto Rs. 15 lacs even if not covered under
CGFSi.
Composite Loans upto Rs. 50 lacs for Capital Investment/Working
Capital under Single Window Concept are considered.
Hassle free credit limits upto Rs. 2 lacs under “BOB Laghu Udyami
Credit Card Scheme” to all our existing Tiny/SSI units having satisfactory
track record/dealings with the bank for the last 3 years.
Loans are available under following special schemes.
National Equity Fund Scheme fir setting up new projects in
tiny/small scale sector and for undertaking expansion,
modernization, technology upgradation for existing SSI/Tiny units
Margin Money Scheme of KVIC for setting up
industrial/service units in Rural /Semi Urban areas with margin
money subsidy upto a maximum amount of Rs. 4 lacs
Technology Upgradation Fund Scheme (TUFS) - loans with
interest subsidy of 5% for technology upgradation / modernization
by Textile Industrial Units in SSI sector
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BANK FINANCING FOR THE SSI SECTOR
Credit linked Capital Subsidy Scheme - Loans with 12%
capital subsidy for Technology Upgradation to specified industries
in SSI sector.
Specialised services at our 38 Specialised SSI branches to SSI
units across the country
Interaction with our existing and potential SSI entrepreneurs
through periodical SSI Club meetings at our Specialised SSI branches for
furthering quality of service
A grievance - redressal mechanism is in place at our Branches / Regional / Zonal
offices and Corporate Office to redress customers’ banking related
complaints/issues.
RESEARCH OBJECTIVE
To study the
To study.
To study the
RESEARCH METHODOLOGY
DATA ENVELOPMENT ANALYSIS
Measuring Efficiency
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BANK FINANCING FOR THE SSI SECTOR
Data Envelopment Analysis (DEA) is concerned with comparing the efficiency of
organizations such as local authority departments, British Telecom districts,
schools, retailers and bank branches. It is applied where there are many fairly
similar units each of which has multiple inputs and multiple outputs.
For instance, to assess the efficiency of petrol stations one might draw up this list
of inputs:
number of pumps;
population in catchments area;
number of cars per head in catchments area;
competitors in the catchments area;
income of households;
state of repair of petrol station;
shelf space in convenience store;
And outputs:
petrol sales;
Convenience store sales.
If one simply had a single input and a single output one would define a measure
of efficiency as:
Efficiency = output / input
And normalize it to be less than or equal to 1.
The natural extension to multiple inputs and outputs is to use weighted sums of
the inputs and outputs:
Efficiency = weighted outputs / weighted inputs
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BANK FINANCING FOR THE SSI SECTOR
= Σi ui xi / Σj vj yj
The DEA Approach
If everyone could agree on a common set of weights {ui, vj} that would be the
end of the story. But people cannot agree. This is where DEA comes in.
It allows units in the system to choose their own weights in the way which is most
advantageous to them. If a unit is inefficient even with the set of weights which is
most favorable to it, then there are serious grounds for investigating further.
Each unit is considered in turn and its most favorable weights are selected. The
efficiency of all other units is computed using this set of weights. The result is
that for each unit we obtain a series of relative efficiencies both using those
weights most favorable to it and those most favorable to other units.
Allowing this flexibility in setting the weights has both strengths and weaknesses.
Permitting each unit to show itself in its most favorable light strengthens the
evidence where units are found to be inefficient and at the same time makes
such results more palatable. On the other hand, if too many inputs and outputs
are considered, every unit may be efficient on its own terms. The underlying
linear model of efficiency is also open to criticism, although this can be
addressed to some extent by transforming the raw data (e.g. taking logarithms).
Aligning DEA with an Organization’s Aims
The implication is that DEA is a tool which needs to be applied with care and
judgment. There needs to be a large enough number of similar units and this
number must be much greater than the number of inputs and outputs chosen.
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BANK FINANCING FOR THE SSI SECTOR
Value judgments may be needed to constrain weights to ensure that the results
are consistent with the purpose of the units.
At their least controversial, constraints on weights are simply common-sense. For
instance, in a study of prenatal care there were separate measures of output for
the numbers of very satisfied mothers, satisfied mothers and not dissatisfied
mothers. The weights on these were constrained so that the weight on very
satisfied mothers was greater than or equal to that on satisfied mothers which
was greater than or equal to that on not dissatisfied mothers. It would be an odd
health authority which proclaimed its efficiency by placing greater weight on
those who acquiesced to its services than those who were pleased with them.
Similarly, few would challenge the need to restrict weights when faced with a
finding that Liverpool's Rates Department appeared efficient only by loading its
entire output weights onto the number of summons and distress warrants issued
with zero weight on the revenue raised.
Performance Targets
When DEA assesses a unit as inefficient, it identifies those other units’ m* by
which the unit has been found to be inefficient. It produces a set of weighting
factors {λm*} such that the outputs of the inefficient unit could be produced using
fewer inputs by a "target" unit comprising a weighted combination of the units m*.
(An alternative formulation constrains the inputs and then shows the greater
outputs which would be achieved by the composite efficient unit).
It is one of the strengths of DEA that it automatically produces targets where it
finds units to be inefficient. However, the target which is generated automatically
is not necessarily that to which the inefficient unit would aspire and DEA software
(such as that developed at Warwick) enables the user to explore the entire
efficient frontier which improves on the unit's current performance.
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BANK FINANCING FOR THE SSI SECTOR
Figure 1: Setting Targets for an Inefficient Unit
In the diagram there are two outputs, y1 and y2 whose values are shown relative
to a single (fixed) input. The efficient frontier is defined by points P1, P2, P3 and
P4. Unit P5 is inefficient and its natural target is the point P* which lies where the
ray traced from the origin intersects the efficient frontier (i.e. pro rata increases in
the outputs). However, there is no reason why it should not choose any target on
the efficient frontier between P' and P": this would amount to increasing one of
the outputs more than the other. If it really wanted to, it could choose any point
on the efficient frontier at all, but this would raise questions about why it was
producing its current levels of the outputs.
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BANK FINANCING FOR THE SSI SECTOR
Using DEA in Practice
One way in which DEA is used, for instance in studies commissioned by the
Audit Commission, is to identify those units worth further investigation (either
because they are very good or very bad). The more detailed study then leads on
to a report describing best practice and making recommendations.
Somewhat similar to this is the use which a brewery made of DEA when required
to divest itself of a large number of pubs. Rather than simply selling those which
were least profitable, it used DEA to assess the performance of its pubs. Those
which were efficient but unprofitable or marginally profitable were sold but those
which were inefficient and unprofitable were investigated further to determine
whether they could become profitable and should be retained.
When DEA is used to set targets one needs to beware of the possibility of
undesirable behavioral responses. For instance, if one of the output measures for
a university department is the number of papers published, academics may
improve their measured efficiency by submitting each minor advance as a fresh
paper to a different journal.
DEA therefore cannot be used in isolation but must be seen as a tool within the
complete cycle of management.
Figure 2: Performance Measurement and Control
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BANK FINANCING FOR THE SSI SECTOR
The stages of DEA: defining inputs and outputs; determining value systems;
measuring performance; assessing it and setting targets, must all be related to
the aims and values of the organization. Within this context DEA becomes part of
a mission-driven framework of performance measurement and improvement.
DATA ENVELOPMENT ANALYSIS AND ITS USE IN
BANKING
Data Envelopment Analysis
Data Envelopment Analysis (DEA) is a way of assessing the comparative
performance of units within an organization, e.g. branches of a bank, schools
within a Local Education Authority, and sales outlets of a retailer. These units
must perform broadly comparable functions but may vary in size, environment,
resources used and results achieved. DEA seeks to measure their efficiency in
terms of how well each unit performs when compared with its peers.
CONSIDER AN EXAMPLE
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BANK FINANCING FOR THE SSI SECTOR
A bank has 4 branches within which there are two types of labor: supervisors and
trainees, and a single measure of output: thousands of transactions processed.
The data are as shown in the table.
Branch Inputs Outputs
Supervisory
Hours
Trainee Hours Transactions (000)
1 2 3 1
2 4 1 1
3 2 2 1
4 1 4 1
Clearly branch 1 is doing worse than branch 3 because it uses the same number
of supervisory hours but more trainee hours to achieve the same output. But you
cannot make direct comparisons with branches 2 and 4. These results are
typical: pair wise comparison normally doesn't get very far.
In order to make progress we make some assumptions. Consider two possible
sets of inputs and outputs, P1, P2. In our example they could represent branches
1 and 2, i.e. the sets {2, 3; 1}, {4, 1; 1}. Then we assume that:
given any two possible sets of inputs and outputs, P1, P2, any weighted
average of these is also possible, i.e. we can define new sets of inputs
and outputs of the form [P1 + ( 1 )P2 ] for 0 < < 1;
there are constant returns to scale, i.e. if you double the inputs you can
double the outputs;
You can dispose of excess inputs and outputs at zero cost.
Assumption 1 means that we can make a new possibility by weighting branch 3
by 0.5 and branch 4 by 0.5 to yield:
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BANK FINANCING FOR THE SSI SECTOR
0.5 * {2, 2; 1 } + 0.5 * { 1, 4; 1 } = { 1.5, 3; 1 }
This combination can now be compared directly with branch 1. It uses the same
trainee hours but fewer supervisory hours to achieve the same result and so is
clearly more efficient.
Using other values of and considering combinations of branches 2 and 3 as
well as branches 3 and 4 we can define the efficient frontier, B2 B3 B4 as shown in
Figure 1.
Figure 1: Combinations of Trainee and Supervisory Hours to Achieve 1 Unit of
Output
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BANK FINANCING FOR THE SSI SECTOR
These are possible ways of producing 1 unit of output which are efficient in the
sense that for each ratio of supervisory to trainee hours it is not possible to
achieve the output with fewer hours' labor.
Assumption 3 means that any point in the shaded area above the efficient frontier
is also a possible way of achieving the outputs. It is known as the production
possibility set. Points strictly within the interior, such as B1, are inefficient. Their
efficiency is defined as the proportion by which their inputs could be reduced
while retaining the mix of inputs, i.e. how far one could move along the radius
from the origin before reaching the efficient frontier. The efficiency of B1 is thus
the ratio OM/OB1 = 0.857. The point M is known as the target and B3 and B4 are
B1's efficient peers.
Issues with the DEA Approach
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BANK FINANCING FOR THE SSI SECTOR
In using DEA one is making a fundamental leap of faith with assumption 1, that
convex combinations of observed possibilities will work. DEA should only be
used where this is credible. On the other hand, assumption 2, about constant
returns to scale, can be relaxed (and is in the Warwick DEA software).
Assumption 3 is more generally applicable, although there will be some situations
where it is not.
DEA tackles problems which might also be tackled using regression. DEA offers
the advantage that it identifies an efficient rather than an average level of output
against which the performance of individual units is judged. Further, while in
regression we must specify in advance the functional form linking inputs to
output, that is not necessary in DEA. This makes it possible to consider multiple
inputs against multiple outputs in DEA while in regression we must either have a
single input with multiple outputs or a single output with multiple inputs. Set
against this there is a greater risk of distortion of results by outliers. It is normal to
do several runs with different sets of inputs and outputs and check that the
results are robust.
Uses in Banking
Two approaches are used in applying DEA in banking:
the production view, in which branches are viewed as using labor, capital,
space, etc to process transactions, make sales of financial products, etc;
The intermediation view, in which branches are viewed as collecting funds
and deposits from the neighborhood and intermediating them into loans
and other income-earning activities.
These two views are complementary and can be integrated into an overall
assessment, as shown in Figure 2.
Figure 2: Integrating DEA Assessments in Banking
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BANK FINANCING FOR THE SSI SECTOR
The intermediation view was used in a sales maximization model at a UK bank.
Branches were considered as using resources of sales people, opening hours,
market size, customer base, transactions processed and facilities. The outputs
were mortgage applications, insurance sales and savings accounts sales. This
model assumed fixed returns to scale and market size was one of the main
inputs. The model served to measure the efficiency of branches in generating
business within their markets and comparisons were made primarily among
branches with similar types of market.
This model was supplemented by a resource optimization model which took
direct staff costs as its input and considered mortgage applications, insurance
sales, savings account sales and transactions as outputs. This model used
variable returns to scale and was used to set target values to emphasize to
branches the potential to improve performance.
The Bank of Finland (i.e. the Finnish central bank) uses DEA in its Financial
Markets Department to monitor banks operating in Finland. It uses the production
view and seeks to assess the efficiency of banks' payment and account
transaction services. The inputs are the number of branches, number of ATMs,
the use of labor and the number of computer terminals used. The outputs are the
number of transactions handled by clerks, the number of ATM transactions, cash
withdrawals and loans processed. Its model uses variable returns to scale and
seeks to identify banks' overall efficiency and decompose it into that part which is
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attributable to the scale at which the unit is operating and the rest, which is
attributable to management.
As well as studies across banks, the Bank of Finland also does cross-time
studies to compute Malmquist indices. These decompose changes in a unit's
productivity over time into that due to the unit's becoming more efficient and that
due to shifting of the boundary.
Outcome from DEA Assessments
The main outcome from DEA assessments tends to be the identification of
efficient peers as role models for each inefficient unit and the setting of targets.
This gets away from the underlying theory of DEA and its applicability, which may
well be open to challenge. It therefore acts as a spur to improvement within the
normal processes of management. At a higher level, DEA assessments may be
used to gauge the level of returns to scale with a view to long-term changes in
the structure of an organization, e.g. whether to reduce the number of branches
or concentrate transaction processing.
Data Collection
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We have considered secondary data for the research study.
SECONDARY DATA: mainly consists of books, periodicals, magazines,
Internet etc.
STUDY ON
‘BANK FINANCING FOR THE SSI SECTOR’
SURVEY PROFILE
The survey attracted responses from 100 individual SSI units. The participating
SSI units exhibited a wide range of product mix that included items like sacks,
bags and tarpaulins, paraffin wax, foundry materials, stainless steel castings,
measuring instruments, aroma & fine chemicals, auto components, shoes, gas
cylinder valves, mixer machine, spices and other foodstuffs, adhesives, copper
pipes, coir products, rubber goods, natural essential oils, welding electrodes,
cooling tower and heat exchanger, sports goods and telecommunication
products.
STUDY ON
‘BANK FINANCING FOR THE SSI SECTOR’
HIGHLIGHTS
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Working Capital Financing
There has been some improvement over time in the availability of working capital
finance from banks to the SSI units.
Five years ago
35% of the respondents were getting between ‘10% to 20%’ of their projected
annual turnover as working capital loans
Now
42% of the respondents are getting between ‘10% to 20%’ of their projected
annual turnover as working capital loans
Despite the above improvement nearly a third of the participating SSI units are
presently getting less that 10% of their projected annual turnover as working
capital loans from their respective banks.
Interest rate on working capital loans
The rate of interest charged by banks to the SSI units for advancing working
capital loans has come down over the last five years. A larger number of SSI
units are now paying interest in the 12% to 14%.
Five years ago
47% of the respondents have reported that for working capital loans they were
charged interest in the range of ‘14% to 16%’ five years ago.
17% of the respondents were paying interest in the range of ‘12% to 14%’ on
their working capital loans
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Now
51% of the respondents are paying interest in the range of ‘12% to 14%’ on their
working capital loans.
Only 12% of the respondents are paying interest in the range of ‘14% to 16%’.
While the rate of interest charged to the SSI units have gone down, some of the
banks have increased the frequency of compounding from quarterly
compounding to monthly compounding. This increases the financial burden and
also negates the benefits of reduced interest rates.
Interest rate on term loans
41% of the respondents are paying interest in the range of the ‘12% to 14%’ for
term loans for a period of five years on average.
While 23% said that they are paying interest in the range of ‘14% to 16%’,
another 16% reported paying interest between ‘16% to 18%’ on their term loans.
. 50% of the respondents have said that the bank authorities do not provide
reasons in case of refusal of loan applications.
. 70% feel that the banks are not giving adequate publicity to various schemes
relating to SSIs.
. 59% of the respondents said that obtaining funds from banks is moderately
difficult. Another 20% felt that it is an extremely difficult process.
. Problem faced by SSI units
Delay in loan sanction and disbursement
Lack of transparency with regard to sharing of information
Inadequate discretionary power with the bank manager
Absence of collateral security norms
Inadequate publicity by banks of various schemes for the SSI sector
Present composite loan limit of Rs 25 lakh is inadequate
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Operational issues
♠ The processing fee is charged by the banks even on limits not sanctioned,
as the same needs to be paid with the application.
♠ Most of the bank branches do not have forex facility. This proves to be a
major hindrance for SSI exporters as they receive payments in foreign
currency.
♠ In computing maximum permissible bank finance, banks give a lot of
weight age to stocks. This methodology adversely affects those SSI units
which through efficient inventory management have reduced their stocks
and have greater bills receivables on their books.
♠ The time taken for collection of cheques deposited for realization is
inordinately long.
Suggested remedial measures
1. The decision on the loan application should be taken in a time bound manner.
Once all the required documents have been filed by the applicant, the application
should be reviewed and a stand taken within 4 weeks.
2. Information relating to credit appraisal done by the banks should be shared
with the applicants. It would be helpful if the banks inform the units the areas
where their performance has fallen below the rating parameters and counsel the
units to perform better and measure up.
3. In case the loan application is rejected, the bank must apprise the applicant
about the reasons for not granting the loan. This will help the applicants in
rectifying his application the next time he applies for a loan.
4. There should be devolution of greater authority at the branch manager level.
Further, as the branch manager is generally overworked with responsibilities
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vested in him, officers should be specified in all branches, who would be
responsible for loans to the SSI sector for limits within the sanctioning power of
the branch manager.
5. Guidelines on the amount of collateral required for different loan amounts
(both fresh loans and renewals) should be specified by the RBI and implemented
by the banks.
6. The present collateral-free loan limit is Rs 5 lakh. Further, as per the SSI
charter of some of the banks, units with good track record and financial position
are eligible for collateral-free loans over Rs 5 lakh and upto Rs 15 lakh. This limit
for collateral-free loans should be enhanced further
7. Information on all loan schemes pertaining to the SSI sector should be made
readily available. The banks should interact regularly with customers by way of
mailers and keep them updated with regard to changes in such schemes.
8. The present composite loan limit for SSIs, which is Rs 25 lakhs, should be
revised upwards.
9. Banks should revert to quarterly compounding of interest on working capital
loans where it is presently being done on a monthly basis.
10. The processing fee should be commensurate with the loan amount
sanctioned.
11. Forex facility should be available at greater number of bank branches.
12. For the benefit of those SSI units which through improved inventory
management have reduced their stock, the banks must give consideration to
other factors for computing maximum permissible bank finance.
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13. The period of collection and credit of cheques should not exceed three days.
In case it takes longer for the cheque to be cleared, banks should compensate
the clients by paying penal interest for the inconvenience caused.
STUDY ON
‘BANK FINANCING FOR THE SSI SECTOR’
INTRODUCTION
The SSI sector in India has over the years surpassed the growth targets and has
emerged as an important contributor to the growth and development of India’s
economy. The SSI sector is a key driver of economic growth and contributes
substantially to India’s total industrial production, exports and employment
generation. Statistics available for the year 2002-03 show that the sector
accounted for almost 40% of the industrial value added and 34% of the country’s
total exports. The 3.6 million SSI units in the country produced over 8000 items
and provided employment to about 20 million people.
Keeping in mind its importance, the government of India has been helping it
through supportive policy measures with focus on improving the credit flow to this
sector. In the last decade two high level committees were set up with the express
objective of studying the credit delivery system in place for the SSI units and
suggesting measures for improving the same. These were the Nayak Committee
(1991-92) and the Kapur Committee (1997-98). Besides these two committees, a
special SP Gupta Study Group (1999-2000) on development of small enterprises
was set also set up. Besides forming these special groups, recommendations
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and announcements have also been made in successive budgets for improved
credit flow to the SSI sector.
While several of the recommendations made by the special groups have been
incorporated by the banks in their policy charter for SSI lending, several voices
have been raised about the SSI units not being adequately benefited by the
policy measures announced. The units have expressed concerns with regard to
the problems faced on the bank-financing front. With the view to assess the
actual experience of the SSI units and to bring out the most pressing problems in
respect of bank financing, we has conducted the present survey.
STUDY ON
‘BANK FINANCING FOR THE SSI SECTOR’
1. SOURCES OF FINANCE
An overwhelming majority of the respondents have cited obtaining funding
from banks as their most important source of finance. Bank financing does
not cater to the entire financing requirement and is generally supplemented by
promoters own contribution, loans from state financial corporations and financial
institutions and borrowings from relatives and friends.
2. RESPONDENTS’ VIEW ON OBTAINING FUNDS FROM BANKS
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When asked to rate their experience with their respective banks while obtaining
funds, the respondents did not project a rosy picture. While 59% of the
respondents said that obtaining funds from banks is moderately difficult, another
20% felt that it is an extremely difficult process. It is their contention that the
banks do not consider the SSI units as valuable customers and this attitude gets
reflected in all stages right from obtaining information to filing of documents to
sanctioning and disbursement of loans.
3. WORKING CAPITAL FINANCING
A) Amount of loan sanctioned
The Nayak Committee set up by the Reserve Bank of India in December 1991
had mentioned as one of its recommendations that the SSI units should obtain
20% of its annual projected turnover by way of working capital. Following this the
RBI issued a number of guidelines advising the banks to grant working capital to
the extent of 20% of the projected annual turnover. Study of the SSI charter of
some of the public sector banks by us revealed that the banks have incorporated
this norm.
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An analysis of the responses received shows that there has been some
improvement over time in the grant of working capital loans to the SSI units by
the banks. While five years ago 35% of the respondents were getting between
‘10% to 20%’ of their projected annual turnover as working capital loans, the
proportion has improved to 42% at present. The banks would do well if they
could provide greater assistance to nearly the third of the respondents who have
been getting less than 10% of their projected annual turnover as working capital
loans.
PROPORTION OF PROJECTED ANNUAL TURNOVER MADEAVAILABLE AS WORKING CAPITAL LOANS TO SSIs
40
30
20
10
0
0-10% 10-20% 20-30%more than
30%
Present 30 42 20 8
3 years ago 34 40 16 10
5 years ago 33 35 22 10
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BANK FINANCING FOR THE SSI SECTOR
B) Rate of Interest Charged
Less than 10% 10-12% 12-14% 14-16% 16-18% 18-20%
Presently 12 20 51 12 5 0
3 years ago 6 6 21 42 23 2
5 years ago 5 14 17 47 17 0
The rate of interest charged to the SSI units for grant of working capital loans
have come down over the years. While five years ago 47% of the respondents
were paying interest at the rate of ‘14% to 16%’ on their working capital loans,
the proportion paying the same came down to 42% three years ago. Presently
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only 12% of the respondents are paying interest at the rate of ‘14% to 16%’ on
their working capital loans.
Further analysis of the responses received shows that a large part of the number
of small scale units that were earlier paying interest in excess of 14% have now
come into the ‘12% to 14%’ bracket. Infact 51% of the respondents have reported
that they are currently paying ‘12% to 14%’ rate of interest on their working
capital loans.
In the context of interest rate to be charged from the SSI units, Indian Banks
Association vide a circular dated 5th March 2003 had advised all its member
banks to take appropriate follow up action to the Finance Minister’s appeal made
during the budget regarding charging interest from SSIs in the band of 2% above
or below the PLR.
With the present average PLR for the banks being around 11%, there are still
SSI units being charged at rates higher than those stipulated in the norms. This
shows that the benefit of the softening interest rate regime has not been passed
on fully to the small-scale units and that there exists scope for further reduction in
the rates charged to them.
4. TERM LOANS
INTEREST RATE CHARGED ON TERM LOANS
45
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40
35
30
25 23
2016 16
15
10
5 2 2
0
less than 10% 10-12% 12-14% 14-16% 16-18% 18-20%
On rates charged by banks on term loans (around 5 years), 41% of the
respondents checked the ‘12% to 14%’ bracket. While 23% said that they are
presently paying interest in the range of ‘14% to 16%’, another 16% reported
paying interest between ‘16% to 18%’ on their term loans. These responses
again bring to light the fact that the SSI sector in India has to pay interest that is
much higher than the rates being charged to some of the other sectors.
PROBLEMS AND SUGGESTED REMEDIAL MEASURES
The analysis of the feedback received from the respondents from the SSI sector
has brought out the following issues that they would like to be addressed at the
earliest. The participants in the survey have also suggested measures by way of
which the banks can improve credit delivery and services rendered to them.
1. Delay in loan sanction and disbursement
While the banks should observe all prudent norms while evaluating the loan
applications, the decision on the loan application should be taken in a time bound
manner. Presently, the amount of paperwork and formalities required is a big
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impediment and as a first step the banks should address this issue. Once all the
required documents have been filed by the applicant, the application should be
reviewed and a stand taken within 4 weeks.
2. Lack of transparency with regard to sharing of information
Information relating to credit appraisal done by the banks is kept confidential. It
would be helpful if the banks inform the units the areas where their performance
has fallen below the rating parameters and counsel the units to perform better
and measure up.
In case the loan application is rejected, the bank must apprise the applicant
about the reasons for not granting the loan. This will help the applicants in
rectifying his application the next time he applies for a loan. In the survey 50% of
the respondents have said that the bank authorities do not provide reasons in
case of refusal of loan applications.
3. Inadequate discretionary power with the bank manager
Powers delegated to the branch heads of SSI bank branches are inadequate.
Most decisions on credit proposals are not taken at the branch level and hence
approvals take a lot of time. To rectify this situation, there should be devolution of
greater authority at the branch manager level. Further, as the branch manager is
generally overworked with responsibilities vested in him, officers should be
specified in all branches, who would be responsible for loans to the SSI sector for
limits within the sanctioning power of the branch manager.
4. Collateral security norms
There are no formal guidelines from the RBI with respect to collateral security
that should be insisted upon for SSI advances. Guidelines on the amount of
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collateral required for different loan amounts (both fresh loans and renewals)
should be specified by the RBI and implemented by the banks.
The present collateral-free loan limit is Rs 5 lakh. Further, as per the SSI charter
of some of the banks, units with good track record and financial position are
eligible for collateral-free loans over Rs 5 lakh and upto Rs 15 lakh. The
respondents have pointed out that they are not benefiting from this provision
despite having a good track record. They have asked for proper implementation
and enhancement of the limit for collateral-free loans.
5. Inadequate publicity given to various schemes and facilities provided
by banks for SSIs
Information on schemes like collateral-free and composite loan schemes is not
available to majority of the SSI units. In the survey, a whopping 70% have said
that the banks are not giving adequate publicity to various schemes relating to
SSIs. As a result SSI entrepreneurs are not aware of such schemes and are
unable to take advantage of the same.
Information on all loan schemes pertaining to the SSI sector should be made
readily available. The banks should interact regularly with customers by way of
mailers and keep them updated with regard to changes in such schemes.
6. Composite loan limit
The present composite loan limit for SSIs, which is Rs 25 lakhs, has been
reported as being inadequate by some of the respondents and they have
accordingly called for an upward revision of this limit.
7. Operational issues
The following operational concerns have emerged from our interaction with the
members of the SSI sector and the same should be dealt with expeditiously.
. In the case of some banks the frequency of compounding interest charged on
working capital loans has been increased from quarterly compounding to monthly
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BANK FINANCING FOR THE SSI SECTOR
compounding. This has had the effect of increasing the financial burden on the
SSI units.
. The processing fee is charged by the banks even on limits not sanctioned, as
the same needs to be paid with the application.
. Most of the bank branches do not have forex facility. This proves to be a major
hindrance for SSI exporters as they receive payments in foreign currency.
. In computing maximum permissible bank finance, banks give a lot of weightage
to stocks. This methodology adversely affects those SSI units which through
efficient inventory management have reduced their stocks and have greater bills
receivables on their books.
. The time taken for collection of cheques deposited for realization is inordinately
long. While in the case of local cheques it takes about a week for clearance, in
case of inter state cheques the time taken stretches up to 10 days or even more.
With modern communication facilities being adopted by banks, the period of
collection and credit should be brought down and should not exceed three days.
In case it takes longer for the cheque to be cleared, banks should compensate
the clients by paying penal interest for the inconvenience caused.
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