yusuf saiyed

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INDEX

PARTICULARS PAGE NO.CHAPTER - 1

1. SME financing 101.1 Introduction about SMES 3

1.2 Definition 5

1.3 Globalisations and SMEs 6

1.4 Importance of SSI India 7

1.5 SME sector is vital to the economy 8

1.6 Introduction 9

1.7 Challenges to banks in financing SMEs 10

1.8 Process of SME financing 11

2. History of Banking sector 12

3. History of Corporation Bank 15

4. Profile of Corporation Bank 165. Schemes of Corporation Bank 17

6. History of Union Bank of India 21

7. Profile of Union Bank of India 22

8. Schemes of Union Bank of India 23

9. History of State Bank of India 24

10. Profile of State Bank of India 25

11. Schemes of State Bank of India 26

CHAPTER - 2

12. Research Methodology 33

12.1 - Research Objective 34

12.2 - Sources of Data 3512.3 - Research Design 36

12.4 - Sampling Plan 37

12.5 - Data Analysis 38

CHAPTER - 3

13. Limitation of the study 42

13. Findings 43

14. Suggestions 44

15. Conclusion 45

16. Bibliography 46


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INTRODUCTION ABOUT SMEs

In India, small and medium enterprises (SME) is a generic term used to

describe small scale industrial (SSI) units and medium-scale industrial units. Any

industrial unit with a total investment in its fixed assets or leased assets or hire-

purchase asset up to Rs10 million is considered as a SSI unit and investment up

to Rs. 100 million is considered as a medium unit. In addition, an SSI unit should

neither be a subsidiary of any other industrial unit nor can it be owned or

controlled by any other industrial unit.

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(SMEs) play a major role in global economic growth in terms of their

contribution to industrial employment, output and exports. SMEs occupy a place

of strategic importance in the Indian economy as well. However, since the early

1990s, Indian SMEs have been exposed to intense competition due to the

accelerated process of globalisation. Therefore, the survival as well as growth of

SMEs is under strain. However, globalisation has also brought, in its wake, never

opportunities for SMEs.

Small & medium enterprises (sSME) sector is the future of India. In order

to sustain the economic growth and development of the country, it is essential

that the SME sectors play their role without which the growth story of India will be

dampened. However, one of the biggest hurdles to the growth in the SME sectoris lack of access to appropriate form of capital or funding. Traditionally, projects

were funded for entrepreneurs in the SME sector by essentially some bank

borrowings apart from the promoters contributions; however the modern

concepts and thinking has undergone a sea change.

The SME sector produces a wide range of industrial products such as food

products, beverage, tobacco and tobacco products, cotton textiles, wool, silk,

synthetic products, jute, hemp & jute products, wood & wood products, furniture

and fixtures, paper & paper products, printing publishing and allied industries,

machinery, machines, apparatus, appliances and electrical machinery. SME

sector also has a large number of service industries.

The small scale sector in India comprises of a diverse range of units from

traditional crafts to high-tech industries. The number of SSI working units

(registered & unregistered) in India totalled 11.4 million in 2003-0480.5 per cent

of which are proprietary concerns and 16.8 per cent are partnership firms and

private limited companies.

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DEFINITION

There is no official definition of a SME in India. The Government of India has

officially defined a small-scale enterprise as:

SMEs will be as defined in RPCD Circular No. RPCD.PLFNS.BC. 31/ 06.02.31/

2005-06 dated August 19, 2005, which is reproduced below:

" At present, a small scale industrial unit is an undertaking in whichinvestment in plant and machinery, does not exceed Rs.1 crore, except in

4
http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=2456&Mode=0http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=2456&Mode=0http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=2456&Mode=0http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=2456&Mode=0


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respect of certain specified items under hosiery, hand tools, drugs and

pharmaceuticals, stationery items and sports goods, where this investment

limit has been enhanced to Rs. 5 crore. A comprehensive legislation which

would enable the paradigm shift from small scale industry to small and

medium enterprises is under consideration of Parliament. Pending

enactment of the above legislation, current SSI tiny industries definitionmay continue. Units with investment in plant and machinery in excess of

SSI limit and up to Rs. 10 crore may be treated as Medium Enterprises

(ME). "

In the Indian content, we have so far not defined medium enterprises clearly.

What is neither small nor large is being closely defined as medium. further,

enterprise encompasses business, service and industries. In the broadband of

small, the discussion extends to medium as well. Another possible connection

for the SMEs is the small manufacturing enterprises.

In India there exists no definition of SMEs. What prevails here is only the concept

of small scale, ancillary, and tiny industry which are related to the historic value of

the investment in plant and machinery. In other countries, SMEs are defined on

the basis of quantitative and qualitative elements, such as the number of workers

employed and/or annual turnover or the level of fixed investment. Howeveremployment is an omnipresent criterion for determining the size of the unit in

these countries.

GLOBALISATION AND SMEs

Globalisation is usually seen as the conversion of the world into a single

economic space, one macro economy, or perhaps mega-economy, and as a

result, into a single seamless society and culture (Sutcliffe,1998). Globalisation

the process of continuing integration of the countries in the world is strongly

underway in all parts of the globe. While the movement of goods, services, ideas,

capital and technology.

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Table 2: SMEs in Indian Industry

Years %share in

no.of

factories

%share in

employment

% share in

value of

production

%share in

gross value

added

1989/90 93.00 62.00 52.00 0.44

1996/97 92.31 61.29 43.57 34.19

Table 2: SMEs in Indian Industry

Globalisation has been affecting every economic activity in almost every country

across the world. Indian SMEs are no exception. The performance of SMEs has

a determining significance for Indian economic growth due to their substantial

share of enterprises, employment, production and gross value added in the

industrial sector. However, in general, Indian SMEs lack technological strength to

access and exploit the benefits emerging from the intensifying process of

globalisation. Therefore, technological transformation of SMEs should attract the

focus of attention of policymakers.

IMPORTANCE OF SSI IN INDIA

SSI is one of the significant segments of the Indian economy, contributing about

7 per cent to the Indian GDP and providing employment to over 28 million people.

The Indian SME segments current production value is almost Rs 816,000 crore.

It contributes to around 40% of industrial production & exports. It manufactures

more than 8,000 diverse products, ranging from low-tech items to technologically-

advanced products. The SSI sector targets both domestic as well global markets.

SSIs sector is recognized as the engine of growth, accounting for about 70% of

employment and contributes a significant amount for the growth of GDP.

Globally, 99.7 per cent of all enterprises in the world are SMEs and the balance6


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0.3 per cent is large-scale enterprises. By contrast, the SSI sector in India

accounts for 95 per cent of all industrial units.

According to the Ministry of Small Scale Industries, the number of registered SSI

units in India has increased from 11 million units in 2002-03 to 11.4 million units

in 2003-04, up 3.6 per cent. The fixed investment grew by 5.04 per cent from Rs.162,533 crore in 2002-03 to Rs. 170,726 crore in 2003-04. About 8,000 products

are manufactured in the small-scale sector. The production of SSI units in India

increased from Rs.311,993 crore in 2002-03 to Rs.357,733 crore in 2003-04.The

industry groupswith a large share in the total production of SSIs such as textile

products, wood, furniture, paper, printing, and metal productshave recorded

high growth rates.

The exports grew at a faster rate than production in 2002-03. While production at

current prices grew by about 10.53 per cent and exports rose by 20.7 per cent

from Rs. 71,244 crore to Rs. 86,013 crore between 2001-02 and 2002-03. The

industry groups with a large share in exports are hosiery and garments (29.0%),

food products (21.4%) and, leather products (18%).

The SSI units continue to create employment. The number of employed in the

SSI sector went up from 260.13 lakhs in 2002-03 to 271.36 lakhs in 2003-04.

This sector is next only to agriculture in employment.

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FINANCING IN SMEs

INTRODUCATION

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Funding small and medium-sized enterprises is a major function of the general

business finance market in which capital for firms of types is supplied, acquired,

and costed/priced. Capital is supplied through the business finance market in the

form of e.g.:

Bank loans and overdrafts; leasing and hire-purchase arrangements;

Equity/corporate bond issues;

Venture capital or private equity; and

Asset-based finance such as factoring and invoice discounting.

However, it should be noted that not all business finance is external/commercially

supplied through the market. Much finance is internally generated by businessesout of their own earnings and/or supplied informally as trade credit (i.e., delays in

paying for purchases of goods and services).

They find that the challenges in risk management while lending to SMEs include:

lack of financial data, intrinsic weakness of the financial structures, and slender

resources of the promoters in terms of money and/or knowledge of markets.

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PROCESS OF SME FINANCING10


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The process of SME financing starts with the application of the person who wants

loan. After receiving the application the bank analyses the cibil report, and 3Cs

i.e. capital, credit worthiness, capacity (margin) of the person. If it is proper then

the bank proceeds further. The bank seeks documents makes the analysis of the

project value of collateral security and the required amount of the loan by theperson and decides the credit rating of the firm/company to charge applicable

rate of interest.

DOCUMENTS

PHOTO

IT RETURN FOR PAST 2-3 YEAR

PERSONAL IDENTIFICATION- PAN CARD/ DRIVING LICENSE/VOTERS ID

RESIDENTIAL/ BUSINESS- PROOF OF ADDRESS

PROJECTED BALANCE SHEET- NEXT YEAR- EMA

AUDITED BALANCE SHEET FOR PAST 2 YEAR

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HISTORY OF BANKING SECTOR

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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. The government's regular policy for Indian bank

since 1969 has paid rich dividends with the nationalisation of 14 major private

banks of India.

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:

Phase I

The General Bank of India was set up in the year 1786. Next come 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.

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.

Phase II

Government took major steps in this Indian Banking Sector Reform after

independence. In 1955, it nationalised Imperial Bank of India with extensive

banking facilities on a large scale especially in rural and semi-urban areas.

Seven banks forming subsidiary of State Bank of India was nationalised in 1960

on 19th July, 1969, major process of nationalisation was carried out. It was the

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effort of the then Prime Minister of India, Mrs. Indira Gandhi. 14 major

commercial banks in the country was nationalised. Second phase of

nationalisation 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.

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

liberalisation of banking practices.

The country is flooded with foreign banks and their ATM stations. Efforts arebeing 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.

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CORPORATION BANKS

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HISTORY AND INTRODUCTION

Every institution has its start in modest initiatives but what makes it great is the

passion of the people behind it carrying the legacy forward with its vision, the

journey of corporation bank truly epitomizes this.

Corporation bank was established in the year 1906 at the temple town of

Udupi ,Karnataka one of the leading public sector bank of India, with an initial

capital just Rs.5000. corporation bank is all set to cross Rs.1 lakhs crore make in

business and far more, with over 2000 service outlets across the nation served

by committed and dedicated 12,000 plus crop bankers. Proof of which is seen in

its enviable track record in financial performance.

It is a bank based on the traditional Indian values of service to the community;

corporation bank is reputed as one of the well-run banks in the country. It is

dedicated to give vast, varied and versatile services to the nation with a comfort

and zeal stealing the common say in the banking sector. The bank of pride

closes to hit the mark 100 years at your service. Corporation bank has regularly

tried to keep a personal touch with customer.

Corporation bank is dividend paying bank. Presently bank has a network of 1001

branches, 15 extension counters and 19 currency chests covering 24 states and

2 union territories of the countries of the country. The bank has 1000 online

interconnected ATM spread across the country. The bank has presence in 98

centres out of 100 top centres in the country. It has a specialised branch, which

are designed to cater exclusively to the bank needs of different segment like

personal segment, trade and commercial segment, small scale industry, large

and medium industrial units, non residential Indians, housing sector, segment,

small scale industry and export and import segment.

Corporation bank is corporate agent of LIC since 10 years. The bank is having

tied up with LIC between these periods of time. Corporation bank set up its head

office at Manglore.

Corporation bank is a bank with 57.17% of its share capital held by thegovernment of India. The bank came out with its public offer (IPO) in Oct, 1997

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and 37.87% of its share capital is presently held by the public and financial

institutions.

The corporation bank merged with the bank of citizens in 1961 and in 1980 the

bank crop was nationalised. In 2004, the bank crop becomes the member of cash

net and shared ATM network managed by EURONET.

The Bhavnagar branch was established 6 February, 1980.presently the branch

shown a turn over of 40 crores. Its having more than 12000 customers. Recently

the bank has introduced the CAMPUS cards (non chip basis) this CAMPUS cards

are an improved verson of VISA debit cards designed to meet various in-campus

functionalities. The students can use the card for a number of application variant

from it use as a simple identity card to its use for making instant payment of the

all types towards the organisation from any where in the CAMPUS.

The key factor of the success of corporation bank India is its young and dynamic

manpower which gives service with efficiency and dedication. Even in this era of

technology and staff competition. Corporation bank is rapidly growing confidence

among its clients.

PROFILE

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SME SERVICES

SME LIQUID PLUS SCHEME

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NAME OF BANK: CORPORATION BANK

TYPE OF BANK: PUBLIC SECTOR BANK

ESTABLISHMENT OF BANK: 1906

HEAD OFFICE ADDRESS: MANGALADEVI TEMPLE ROAD,MANGLORE-575001.

WEBSITE: WWW.CORPBANK.IN

E-MAIL: [email protected]

PHONE NO: 0824-2426416-20

FAX: 0824-2444617

NO.OF BRANCHES: 1001

ADDRESS OF BHAVNAGAR BRANCH: GOPI ARCADE ,OPP.TAKHTESHWARPOST OFFICE, WAGHAWADI ROAD,BHAVNAGAR.364002

ESTABLISHMENT OF BHAVNAGARBRANCH:

6 FEBRUARY,1980

TURNOVER OF BRANCH: 40 CRORES

NO. OF CUSTOMERS NEAR BY 12000

STAFF MEMBERS: 1 BRANCH MANAGER,3 OFFICERS,5 CLERKS,1 SUBSTAFF OR PEON.
http://www.corpbank.in/mailto:[email protected]://www.corpbank.in/mailto:[email protected]


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The various SME services provided by the bank is as under:

Objective:

Timely, hassle-free and adequate credit delivery to SME clients.

Eligibility:All SMEs in the manufacturing & service sector. The existing SMEs with good

track record as well as new SMEs having satisfactory Due Diligence Report. The

SME may be an Individual, Proprietor, Partnership firm, Private/Public limited

company, Co-operative society.

Purpose:

To meet the liquidity mis-matches and expenses incurred on account ofResearch & Development, Product Development, Marketing & Branding,

Executing unexpected bulk orders, Stocking the seasonally available raw

materials etc.

Nature of facility:

Running accounts in the form of overdraft.

Eligible Amount:

From Rs.10 lakhs to Rs.1 crore, subject to a maximum of 65% of the value of

immovable property or the value of financial assets such as NSCs/FDs/LIC

policies etc. Proposals for less than Rs.10 lakhs may also be considered with the

prior approval of the Zonal Head.

Primary Security: Nil

Collateral Security:

Mortgage of immovable and/or financial assets held in the name of business/ in

the personal name of the proprietor/ Director or any third party. Mortgage of

immovable property and/or pledge of specified financial assets.

Margin:

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Immovable property: 35% of assessed market value [10% in case of financial

assets]

Rate of interest:

12% per annum [COBAR-1.50%]

Relaxation/ Concessions in rate of interest:

SMEs rated by Rating Agency viz., SMERA, D&B, CRISIL, CARE, ICRA, &

FITCH and assigned with ratings of Satisfactory and above, are extended 50 bps

concessions in the rate of interest.

Operative period:

One year, renewable every year.

Guarantor:

Third party guarantee. However, personal guarantee of partners/directors may be

accepted in the case of partnership firm/ private/public limited companies.

Processing Charges:

At prescribed rate.

Additional facilities:

Value addition to the Scheme by way of supplementary services like internet

banking, multi-city cheques, crop bullet [RTGS based remittance] facilities

available.

Other terms:

Satisfactory Due Diligence Report to be obtained from approved Due

Diligence Agencies.

Accounts should be classified under Secured advances.

Confidential opinion from the existing banker if any, to be obtained.

In case the party enjoying the credit facility with other bank/s, it should be

ensured that there is no double finance.

Property mortgaged for loan shall not be taken as continuing security for

any other limits.

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Loan against the property already mortgaged to the Bank for any other

credit limits is not permitted.

Delegated Lending Powers shall be as per Schemes of Delegation of

Lending Powers as applicable to Industrial/Commercial credit.

The nomenclature for SME Liquid Plus Scheme shall be CSLPS.

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HISTORY OF THE UNION BANK

UNION BANK OF INDIA- was flagged off by the Father of the Nation, Mahatma

Gandhi in 1928, Since that the golden moment, Union Bank of India has this far

unflinchingly travelled the arduous road to successful banking........ a journey that

spans 88 years. Union Bank of India is, innovative commercial Bank, with a

proactive approach to the changing needs of the society. Union Bank has

ensured complete customer delight, living up to its image of, GOOD PEOPLE

TO BANK WITH.

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Union Bank's unique family of about 26,000 qualified / skilled employees is and

ever will be dedicated and delighted to serve the discerning customer with

professionalism and whole heartedness. Union Bank is a Public Sector Unit with

55.43% Share Capital held by the Government of India. The Bank came out with

its Initial Public Offer (IPO) in August 20, 2002 and Follow on Public Offer in

February 2006. Presently 44.57 % of Share Capital is presently held byInstitutions, Individuals and Others.

Over the years, the Bank has earned the reputation of being a techno-savvy and

is a front runner among public sector banks in modern-day banking trends. It is

one of the pioneer public sector banks, which launched Core Banking Solution in

2002. Under this solution umbrella, All Branches of the Bank have been 1135

networked ATMs, with online Tele banking facility made available to all its CoreBanking Customers - individual as well as corporate. In addition to this, the

versatile Internet Banking provides extensive information pertaining to accounts

and facets of banking. Regular banking services apart, the customer can also

avail of a variety of other value-added services like Cash Management Service,

Insurance, Mutual Funds and Demat.

PROFILE

NAME OF BANK UNION BANK

TYPE OF BANK PUBLIC SECTOR BANK

ESTABLISHMENT OF BANK 22 AUGEST 1956

HEAD OFFICE ADDRESS UNION BANK BHAVAN

239,VIDHAN BHAVAN MARG,

BOMBAI-400021

WEBSITE WWW.UNIONBANK.COM

FAX NO. 2423126

BRANCH ADDRESS KRISHANAGAR SHAKHA

PANCHAVATI FLAT NO-1488

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http://www.unionbank.com/http://www.unionbank.com/


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GHOGHA CIRCLE, KRUSHNA NAGAR

BHAVNAGAR-364201

Union Bank of India has adopted a policy package for stepping up credit to Small

& Medium Enterprises [SME] with the approval of the Board in its meeting held

on 30th September 2005 and subsequently following steps have been initiated in

this direction.

SCHEMES OF THE BANK

Following are the special schemes for SMEs.

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UNION PROCURE

Purpose: Financing the purchases of dealers supplying products to

Corporates.

Quantum: Above Rs 25 lakhs to Rs 25 crores.

Appraisal/Assessment: Based on Turnover/FBF with relaxed terms i.e.

Current Ratio not less than 1.17:1, TOL/TNW not exceeding 4.00:1.

Facility: Bills drawn by Corporates on Vendors duly accepted by the latter.

Margin: Nil

Collateral: Minimum coverage of 30% of advance value.

Pricing: Based on Credit Rating with floor rate of 175 bps below BPLR.

UNION SUPPLY

Purpose: Financing against Receivables of the Vendor of goods supplied

to the Corporates.

Quantum: Above Rs 25 lakhs to Rs 25 crores.

Appraisal/Assessment: Based on Turnover/FBF with relaxed terms i.e.

Current Ratio not less than 1.10:1, TOL/TNW not exceeding 4.00:1.

Facility: Bills drawn by Vendors on Corporates duly accepted by the latter.

Margin: Nil

Collateral: Minimum coverage of 10% of advance value. Pricing: Based on Credit Rating with floor rate of 300 bps below BPLR.

UNION HIGH PRIDE

Quantum: Above Rs 5 crores to Rs 25 crores.

Appraisal/Assessment: Based on FBF with relaxed terms i.e. Current Ratio

at 1.1:1, DER at 3.00:1 and DSCR at 1.50:1.

Collateral coverage of not less than 20% of total exposure.

Interest rate ranging from 125 bps below BPLR to maximum BPLR for

Working Capital based on credit rating.

Further interest concession up to 0.50% in case of SME rated by SMERA

or CRISIL.

Other additional benefits

Multicity Cheque Book

Cash Management Services

Quicker disposal with reduced time frame for sanction within 15 days.

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The scheme being implemented through 50 designated branches.

Channel Financing

The Bank has two schemes for financing the suppliers and wholesale dealers of

selected Corporate under Channel Financing.

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STATE BANK OF INDIA

State Bank of India (SBI) is India's largest commercial bank. SBI has a vast

domestic network of over 9000 branches (approximately 14% of all bankbranches) and commands one-fifth of deposits and loans of all scheduled

commercial banks in India.

The State Bank Group includes a network of eight banking subsidiaries and

several non-banking subsidiaries offering merchant banking services, fund

management, factoring services, primary dealership in government securities,

credit cards and insurance.

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The eight banking subsidiaries are:

1-State Bank of Bikaner and Jaipur (SBBJ)

2-State Bank of Hyderabad (SBH)

3-State Bank of India (SBI)

4-State Bank of Indore (SBIR)5-State Bank of Mysore (SBM)

6-State Bank of Patiala (SBP)

7-State Bank of Saurashtra (SBS)

8-State Bank of Travancore (SBT)

The origins of State Bank of India date back to 1806 when the Bank of Calcutta

(later called the Bank of Bengal) was established. In 1921, the Bank of Bengaland two other Presidency banks (Bank of Madras and Bank of Bombay) were

amalgamated to form the Imperial Bank of India. In 1955, the controlling interest

in the Imperial Bank of India was acquired by the Reserve Bank of India and the

State Bank of India (SBI) came into existence by an act of Parliament as

successor to the Imperial Bank of India.

Today, State Bank of India (SBI) has spread its arms around the world and has a

network of branches spanning all time zones. SBI's International Banking Group

delivers the full range of cross-border finance solutions through its four wings -

the Domestic division, the Foreign Offices division, the Foreign Department and

the International Services division.

PROFILE OF THE BANK

NAME OF BANK STATE BANK OF INDIATYPE OF BANK PUBLIC SECTOR BANK

YEAR OF ESTABLISHMENT 1955

PHONE NO. (0278) 2565167

FAX NO. 2562360

WEBSITE ADDRESS www.statebankofindia.co.in

E MAIL ID [email protected]

BRANCH ADDRESS SARDARNAGAR BRANCH, PLOT NO: 1923/

C-1, NEAR SINDHUNAGAR BUS STOP,

SARDARNAGAR, BHAVNAGAR.

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SCHEMES OF THE BANK

State Bank of India has been playing a vital role in the development of small

scale industries since 1956.The Bank has financed over 8 lakhs SSI units in the

country. It has 55 specialised SSI branches, 99 branches in industrial estates and

more than 400 branches with SIB divisons.

TERM LOAN FOR SSI

Eligibility

The SSI unit that takes the loan should not have any history of defaults in

payment of interest or installments of the principal. The unit should have a strong

performance record and a respectable credit rating as per the banks own credit

assessment scales (In case of loan above Rs. 25 lakhs).

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Purpose

For meeting general commercial purposes like substitution of high cost debt,

research and development, shoring up net worth and funding business

expansion.

MarginA minimum margin of 25 per cent is applicable for acquisition of land and

building, building construction, renovation of offices, showrooms, godowns,

purchase of equipment, vehicles etc. In other words, the quantum of the loan will

be restricted to 75 per cent of the total expenditure.

Tenor for loan

The tenor of loan is generally of 3 years.

Repayment

The repayment is structured in monthly or quarterly installments, according to the

cash generation cycle.

Collateral security

Extension of hypothecation charge over the current assets and fixed assets is

required as primary security. Further, the borrower whose aggregate loans with

the Bank exceed Rs 5 lakhs may explore the possibility of collateralizing tangible

security such as immovable property and third party guarantee.

SME CREDIT PLUS

Purpose

For meeting bulk orders

repair to machineries

Tax payments and other contingency

Features

Clean Cash Credit. 20% of agg. WC limit subject to a max. of Rs. 25 lakhs.

Utilization

Existing SSI borrowers with good track record and new units can avail the

additional WC limit facility to meet sudden unforeseen expenditure.

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Eligibility

The unit should be enjoying a good track record (standard assets for at least two

years) Units with CRA rating of SB4 and above.

Margin: Nill

Tenure of loan

Each amount with drawn should be repaid within 2 months. There should be a

gap of 15 days between the last date of repayment of outstanding and for the

next withdrawal.

Collateral securityExisting collateral to be extended to cover this limit and additional collateral to be

obtained only if considered necessary by the sanctioning authority.

Rate of interest

Up to Rs. 50,000 8.50%

Above Rs. 50,000 to Rs. 2 lakhs 9.50%

Above Rs. 2 lakhs to Rs. 5 lakhs 10.25%


Above Rs. 25 lakhs based on credit assessment -

ENTREPRENEUR SCHEM

State Bank of India grants financial assistance to technically qualified, trained and

experienced entrepreneurs for setting up new viable industrial projects.

Loans are extended to technocrats who are unable to meet the normal margin

requirements under the liberalized schemes.

Eligibility Criteria

The borrower has to be a technically qualified person (a degree/diploma holder in

engineering or technology), a craftsman with adequate experience or training or a

person possessing a degree in business or industrial management, a chartered

accountant or a cost accountant with relevant experience.

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Types of Financial Assistance

The bank provides:

term loans,

working capital and

equity fund finance

Margins

For requirements up to Rs 5 lakhs, no margins are involved. For needs ranging

from Rs 5 lakhs to Rs 20 lakhs, the margin is set at 10 percent. Under the Equity

Fund scheme, the SBI grants financial assistance to entrepreneurs who are not

able to meet their share of equity fully, by way of interest-free loans repayable

over a long period.

This type of assistance fills in the gap between the margin requirements in the

project and the capital contributed by the promoter. The Equity Fund assistance

can be normally repaid over 5 to 7 years after the moratorium period.

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RESEARCH METHODOLOGY

The meaning of research is, a careful investigation or inquiry especially through

search for new fact in any branch of knowledge.

The manipulation of things, concepts or symbol for the purpose of generalizing to

extend, correct or verify knowledge, whether that knowledge adds in construction

to theory or practice of an art. In short, the search for knowledge through

objective and systematic method of finding solution to a problem is research. The

systematic approach concerning generalization and the formulation of a theory is

also research.

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Research Methodology is a way to systematically solve the research problem. It

may be understood as a science of studying how research is done scientifically.

In it we study the various steps that are generally adopted by a researcher in

studying his problem along the logic behind them.

RESEARCH OBJECTIVES

The purpose of research is to discover answers to questions through application

of scientific procedures. The main aim of research is to find out the truth which is

hidden & which has not been discovered as yet. The objectives of this research

are as follows:

To know how bank is helpful to small and middle sized enterprises.

To know which type of benefits are provided to SMEs.

To know what is the procedure of financing to SMEs.

To know the different terms and other related areas of SME financing.

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SOURCE OF DATA

Data has to be collected from the right source the purpose of the research. Data

are collected as per the requirement of the research project. There are two main

sources of data.

Source of data

Primary data

Secondary data

Primary Data:

Primary source means the data are collected for the first time directly from the

sample or population as per the requirement.

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Secondary Data:

For this project report I have used secondary data because this is secondary

research.

The secondary source are those which have all ready been collected

by some one else and which have already passed through statistical process likeinformation available from newspaper, magazines, journals, websites, book or

periodical reports, data services and computer data based.

MEANING OF RESEARCH DESIGN

A research design is the arrangement of conditions for collection & analysis of

data in a manner that aims to combine relevance to the research purpose with

economy in procedure. In other words decisions regarding what, where, when,

how much, by what means, concerning an inquiry or research study constitute a

research design.

TYPES OF RESEARCH DESIGN

Research design in case of exploratory research studies:

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The main purpose of such study is that of formulating a problem for more precise

investigation or of developing the working hypotheses from an operational point

of view.

Research design in case of descriptive research studies:

Descriptive research studies are those studies which are concerned withdescribing the characteristics of a particular individual, or of a group.

Research design in case of hypothesis-testing research studies:

These studies are those where the researcher tests the hypotheses of casual

relationship between variables.

In this project the research design is based on descriptive research studies. It

includes concerned with specific prediction, with narration of facts and

characteristics concerning individual, group or situations. Most of the social

research comes under this category. As the topic of the project is SME financing

by the public sector bank, the points covered in the project are concept of SME

financing importance, schemes of SME loan in different public sector banks etc.

For that 3 private sector banks are studied. The data is collected from the news

paper, brochure of banks and their websites.

SAMPLING PLAN

All the items under consideration in any field of inquiry constitute a universe or

population. A complete enumeration of all the items in the population is known

as a census inquiry. It can be presumed that in such an inquiry when all the items

are covered no element of chance is left & highest accuracy is obtained. But in

practice this may not be true. Even the slightest element of bias in such an

inquiry will get larger & larger as the number of observation increases. Besides,

this type of inquiry involves a great deal of time, money & energy. In fact, census

inquiry is not possible in practice under many circumstances.

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Hence, quite often we select only a few items from the universe for our study

purposes. The items so selected constitute what is technically called a Sample. In

other words, a sample design is a definite plan determined before any data are

actually collected for obtaining a sample form given population.

As this project is about SME financing in Public Sector Banks, it is not possible tostudy all the public sector banks. Hence, I have selected 3 public sector banks as

the sample of the project: State Bank of India, Corporation Bank & Union Bank of

India. The type of sampling is convenience sampling. In which the population

elements are selected for inclusion in the sample based on the ease of access.

DATA ANALYSIS

After the data have been collected, the researcher turns to the task of analyzing

them. The analysis of data requires a number of closely related operations such

as establishment of categories, the application of these categories to raw data

through coding, tabulation & then drawing statistical inferences.

Thus, researcher should classify the raw data in to some purposeful & usable

categories. Coding operation is usually done at this stage through which the

categories of the data are transformed in to symbols that may be tabulated &

counted. Editingis the procedure that improves the quality of the data for coding.38


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With coding the stage is ready for tabulation. Tabulation is a part of the technical

procedure wherein the classified data are put in form of tables.

In the following, table the data of the schemes of the 3 banks if presented in the

table form.

(Interest rates in schemes are per annum)

State Bank of India

NAME OF THE

SCHEME

SME CREDIT

PLUS

TERM LOAN

FOR SSI

AMOUNT

50000 to

above 25

Laces

Maximum

50 laces

INTEREST RATE Refer table-1 Refer table-2

MARGIN Nil Nil

TENUR OF LOAN 2 Months 3 Years

Interest rates of SME Credit plus scheme

Upton Rs. 50,000 8.50%



Above Rs. 5 lakhs to Rs. 25 lakhs 11.00%Above Rs. 25 lakhs based on credit assessment -

Table-1

Interest rates of Term Loan for SSI

Up to Rs. 50,000 9.00%




Above Rs. 25 lakhs based on credit assessment -Table-2

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Corporation Bank

NAME OF THE

SCHEME

SME LIQUID

Plus Scheme

AMOUNT 10 Lacs-1 Crore

INTEREST RATE 12 %

MARGIN 35 %

TENOR OF LOAN1 Year

(Renewable)

(OD: Over Draft, DL: Demand Loan & both should be secured, * Repayment period of

term loan depends on the income generation of unit.)

Union Bank of India

NAME OF THE

SCHEME

UNION HIGH

PRIDE

UNION

PROCEDURE

UNION

SUPPLY

AMOUNT5 Crore-

25 Crore

25 lakhs-

25 Crore

25 lakhs-

25 Crore

INTEREST RATE1.25% below

BPLR

1.75% below

BPLR

3 % below

BPLR

MARGIN - Nil Nil

The comparison of the three banks in various stages is as under:

The public sectors bank provides so many schemes to the customers. On basis ofnumber of the SME schemes for SME customer is differentiated to each other. In that the

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State Bank of India provides two schemes i.e. SME Credit Plus and Term Loan for SSI.

Union Bank provides three main schemes i.e. Union High Pride, Union Procedure, Union

Supply whereas Corporation bank provides SME LIQUID Plus scheme to their SME

customers.

On the basis of margin, for the scheme of SME margin is nil in the State Bank of India

and Union Bank while in the Corporation Bank margin is 35%.

In all the banks there is a bench prime lending rate according to this the all other interest

rate are decided. These rates are decided by various credit rating agencies. The banks

BPLR are as follows:

Union Bank 12.50%

State Bank of India 12.25%

Corporation Bank 12.50%

There is a minor difference between the interest rate of the bank as it is all public sector

banks.

LIMITATIONS OF THE STUDY

The major limitation of the study is as under:

As the interest rates of the schemes are floating, therefore in future

schemes are not make any judgement for the scheme.

As the number of customer of SME loan is less so that we could not

undertake the survey.

As our sample design is convenience sampling such a procedure may give

very biased results particularly when the population is not homogeneous.

As the survey is not undertaken we could not get the review of customers,

whether they are satisfied with the service of banks.

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FINDINGS

There are special schemes/ services provide to SME sector by the public

sector banks.

The interest rate generally depends on the credit rating of the company or

firm.

There are so many terms and conditions for guarantor or third party.

At the time of filing the application for loan the applicant should not only

consider the rate of interest and amount of loan but other terms like

services charges, margin, additional facilities, etc. Before deciding the

bank.

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SUGGESSTION

The banks need to create awareness of their schemes well.

The public sector banks should improve the documentation procedure for

approval of loan.

The public sector should explain the terms of SME financing loans and

their conditions to the customer, when the customer applies for the loan.

The banks should improve their SME service in small cities.

The banks should reduce the processing time of the loan.

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CONCLUSION

Research is mainly based on current scenario which prevails in Indian Financial

System present. Nowadays banks are introduced innovative product and services

day by day to survive in the market.

This research concludes that the public sector bank should improve

documentation procedure and reduce processing time. The bank needs to create

awareness of their schemes well. The bank should improve their SME services.

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BIBLIOGRAPHY

C.R.Kothari, RESEARCH METHODOLOGY, new age international private ltd.,

New Delhi, Second edition, 2004.

Poornima M Charanatimath, ENTERPRENEURESHIP DEVELOPMENT SMALL

BUSINESS ENTERPRISE, Pearson education in South Asia, Third edition,

2008.

www.corpbank.com

www.unionbankofindia.co.in

www.statebankofindia.com

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http://www.corpbank.com/http://www.unionbankofindia.co.in/http://www.statebankofindia.com/http://www.corpbank.com/http://www.unionbankofindia.co.in/http://www.statebankofindia.com/


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