Executive Summary

Micro, Small and Medium Enterprises (MSMEs) are critical to the nations economy. They contribute approximately 40% o !ndias domestic production, almost "0% o total exports and 4"% o industrial employment. More important, they are the second lar#est manpo$er employer o%erall a ter a#riculture. MSMEs in !ndia are mostly in the unor#ani&ed sector and are the source o li%elihood or millions o people. The social contribution made by MSMEs is e%en more si#ni icant than its economic contribution. 'ithin the MSME sector, the small sector ser%es as a seed(bed or nurturin# entrepreneurial talent and ori#inatin# units to #ro$ e%entually to medium and lar#e enterprises. The promotion o MSMEs, there ore, becomes a ma)or area or policy ocus. *e#eneration o MSMEs must recei%e public support particularly or the %illa#e, cotta#e and micro le%el enterprises. Micro, Small and Medium Enterprises (MSMEs) are a critical economic actor in poorer countries as $ell as the more de%eloped economies in the $orld today. They ma+e up a ma)ority o the domestic business transactions and at the same time play an important role in international trade. ,i%en their si&e and di%ersity o sectors in $hich they unction, MSMEs are hi#hly adaptable bet$een the de%eloped and de%elopin# economies, pro%ided that they ha%e a acilitatin# en%ironment to #ro$. 'ith trade barriers allin#, !ndian MSMEs $ere initially apprehensi%e o their ability to sur%i%e in a #lobally competiti%e en%ironment, but o%er a period o time, they reali&ed that it also pro%ided them $ith #reater opportunities to become part o a #lobal supply chain as lar#e manu acturin# companies are outsourcin# their production to lo$( -ost economies.

Need for the study

The MSME sector is a %ery %ast area and contributin# nearly /% o ,01. This study is use ul or the MSME or#ani&ations as it contains *2! #uidelines or raisin# unds or MSME sector, eli#ibility criteria and norms. !t helps ne$ entrepreneurs to +no$ $hether they $ill #et the credit rom the ban+s or not accordin# to their business plan and ho$ much they can #et accordin# to their inancial structure. The $ide ran#e o in ormation re#ardin# the lendin# norms and conditions $ill help the business man to ta+e decision about undin# o lon# term, $or+in# capital and other re3uirements o the or#ani&ation.

Objectives of the study

To learn the inancin# procedures or MSMEs i.e. To study the chain o e%ents o processin# a loan proposal( rom recei%in# the application rom the borro$er, doin# credit ratin# o the borro$er and the company, analy&in# the inancial statements, sanctionin# to disbursement and the post sanction re%ie$s or MSMEs. To study the borro$ers opinion to$ards und raisin# norms and other criteria. To study the structure o MSMEs.

Scope of the study

The study $as intended to obtain the in ormation about4 To study the -redit 5ppraisal Methods. !n understandin# the commercial, inancial 6 technical %iability o the pro)ect proposed 6 its undin# pattern. To +no$ the +no$led#e o the borro$ers and their responses on di erent criteria.

Industry Profile
Canara Bank
8ounded in .90:, -anara 2an+ is one o the premier ban+s in !ndia, $ith a net$or+ o 7"/; branches across the country. The ban+ $as the irst t$o launch net$or+ed 5TMs in !ndia and obtain an !S< certi ication. -anara ban+ has also achie%ed the distinction o bein# the countrys hi#hest net pro it earner amon# nationali&ed ban+s or the year march 700/. The ban+ has already car%ed a niche in pro%idin# !T(based ser%ices such as net$or+ed 5TMs, any$here ban+in#, Teleban+in#, *emote access Terminals, !nternet and Mobile ban+in#, 0ebit cards, etc. -anara ban+ a %ision to help impro%e the economic condition o the common people o !ndia by inculcatin# the habit o sa%in#s in rural areas 5s part o its %ision o usin# technolo#y to pro%ide a ordable ban+in# ser%ices to the %ast rural population o !ndia, -anara ban+ has extend the per ormance and cost bene its o enterprises =inux to its customers. 'ith a moderni&ed branch in rastructure, -anara ban+ hopes to ser%e customers in a timely and e icient manner, rein orcin# its ima#e o bein# a customer sa%%y ban+. 8ounded as >-anara 2an+ ?indu 1ermanent 8und> in .90:, by late, Mr. 5mmembal Subba *ao 1ai, a philanthropist, this small seed blossomed into a limited company as >-anara 2an+ =td.> in .9.0 and became -anara 2an+ in .9:9 a ter nationali&ation. >>5 #ood ban+ is not only the inancial heart o the community, but also one $ith an obli#ation o helpin# in e%ery possible manner to impro%e the economic conditions o the common people@. Canara Bank oundin! Principles To remo%e Superstition and i#norance. To spread education amon# all to sub (ser%e the irst principle. To inculcate the habit o thri t and sa%in#s. To trans orm the inancial institution not only as the inancial heart o the community but the social heart as $ell. To assist the needy. To $or+ $ith sense o ser%ice and dedication.

 To de%elop a concern or ello$ human bein# and sensiti%ity to the surroundin#s $ith a %ie$ to ma+e chan#esBremo%e hardships and su erin#s. Sound oundin# principles, enli#htened leadership, uni3ue $or+ culture and remar+able adaptability to chan#in# ban+in# en%ironment ha%e enabled -anara 2an+ to be a rontline ban+in# institution o #lobal standards. 5s -anara ban+ ounded in .90:, -anara 2an+ is one o the premier ban+s in !ndia, $ith a net$or+ o 7"/; branches across the country. The ban+ $as the irst to launch net$or+ed 5TMs in !ndia and obtain an !S< -erti ication. -anara 2an+ has also achie%ed the distinction o bein# the country>s hi#hest net pro it earner amon# nationali&ed ban+s or the year March 700/. The ban+ has already car%ed a niche in pro%idin# !T (based ser%ices such as Cet$or+ed 5TMs, 5ny$here 2an+in#, Tele(ban+in#, *emote 5ccess Tensional, !nternet 6 Mobile 2an+in#, 0ebit -ards, etc. -anara 2an+ has a %ision to help impro%e the economic condition o the common people o !ndia by inculcatin# the habit o sa%in#s in rural areas. "he Bank "oday -anara 2an+ is one o the premier ban+s in the country, accredited $ith umpteen distinctions. The present stature o the 2an+ is due to its stron# undamentals and 3uality customer orientations. 1ro it ma+in# since inception, the 2an+ today constitutes a per ect blend o commercial and social ban+in#. 8or the year March 700/, the 2an+ cloc+ed the hi#hest net pro it ( *S....0 crore) amon# nationali&ed ban+s, $ith si#ni icant impro%ement in capital ade3uacy ratio (.A."0%) and asset 3uality (net C15 ratio o 0.94%). The 2an+ has already car%ed a niche in pro%idin# !T (based ser%ices. 'ith .00% computeri&ation o the branches, the ban+ pro%ides a $ide array o ser%ices, such as, Cet$or+ed 5TMs, 5ny$here 2an+in#, Teleban+in#, and *emote 5ccess Terminal also !nternet 6 Mobile 2an+in#, 0ebit -ard etc. The 2an+ $as the irst amon# ban+s to launch net$or+ed 5TMs and obtain !S< -erti ication. -ommercial consideration has, no $ay, diluted the 2an+>s role in national priorities. -anara 2an+ is in act the irst ban+ to be con erred 8!--l a$ard or contribution to rural de%elopment.

C#N#$# B#N% SE$&ICES

&ision' To emer#e as a D2est 1ractices 2an+ by pursuin# #lobal benchmar+s in pro itability, operational e iciency, asset 3uality, ris+ mana#ement and expandin# the #lobal reach.

(ission' To pro%ide 3uality ban+in# ser%ices $ith enhanced customer orientation, hi#her %alue creation or sta+eholders and to continue as a responsi%e corporate social citi&en by e ecti%ely blendin# commercial pursuits $ith social ban+in#.

#ny)here Bankin!' 5ny$here 2an+in# is a technolo#y(based, customer( riendly ser%ice desi#ned to pro%ide #reater con%enience to our customers. 'ith 5ny$here 2an+in# acility, once customer has an account $ith any o the select branches, -ustomer can operate it rom any other desi#nated branch across ;" cities. #CI*I"IES' !ndi%iduals I )oint account holders (operated se%erally) maintainin# -urrent I "; I <0 5ccounts4 .. 'ithdra$al o cash 7. *emittance o cash A. Trans er o unds 4. 2alance en3uiry ". !ssue o mini statement :. 0epositin# local che3ues or collection /. 1urchase o 0emand dra t irms S* Companies I Other Bodies maintainin! Current I O+ I OCC #ccounts' .. Trans er o unds bet$een accountsE rom one 5ny$here 2an+in# branch to another any$here ban+in# branch. 7. 0epositin# o local chec+s or collection and creditin# to the respecti%e account at any 5ny$here 2an+in# branch. E*I,IBI*I"-' 5ccount holders should ha%e maintained a minimum a%era#e balance o *s.",<<< B ( in S2 account and *s..0,000B ( !n -urrent account in the last six months E#".$ES' .. -ash $ithdra$al up to *s."0, <<<B ( per occasion 7. Transactions permitted on production o identity card issued exclusi%ely or #N-/0E$E B#N%IN, #CI*I"-

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A. 8acilities o both intra(city and inter(city transactions. 4. ?<ME -=E5*!C, ( on line debit o chec+s dra$n on our o$n 5 '2 branches $ithin the city B clearin# &one. "ele services 5ccess in ormation about your account ri#ht rom your home, o ice or rom any$here o%er telephone, a round the cloc+ teller ans$erin# the en3uiries rom any$here presentin# %oice in ormation at any time Personal Bankin!' +eposits F Sa%in#s 2an+ 5ccount F -urrent 5ccount "erm +eposits ( 8ixed 0eposits ( Gamadhenu 0eposits ( *ecurrin# 0eposits ( -an lexi 0eposits *oans 1 #dvances $etail *oan Products ( ?ome !mpro%ement =oan H -an cash ( -an mobile ( -an bud#et ( Teachers =oan Card Services Insurance N$I ( C*E (Con *esident External *upee 5ccount) ( C*< (Con *esident <rdinary 5ccount) ( 8-C* (8orei#n -urrency Con *esident 5ccounts (2an+s) ( *8- 0eposits *oans 1 #dvances ( ?ousin# =oan ( ?ome !mpro%ement ( -an carry (-onsumer 0urables)

( -an cash (Shares) ( -an mobile (%ehicle) ?ETs !CST!TITE <8 M5C5,EMECT STI0!ES ?I2=! 1a#e .: ,eneral acilities (Sa e -ustody Ser%ices (Sa e 0eposits =oc+er (Comination acility <ther Ser%icesB8acilities (C * ! 2ranches (C * ! Ser%ices (*emittance 8acility (8acilities or *eturnin# !ndians *ural 8inancin# (5#riculture 6 *ural -redit (Gisan -redit (=oans or settin# up 5#ri -linic (Minor !rri#ation =oans (8arm Machinery =oans (8arm 0e%elopment =oans (Jehicle =oan or 5#riculturists (=oans or 1lantation -rops (Jidyasa#ar (Educational =oan) ( ?ousin# =oan ( =oans to SS!s ( -harter or SS!s ( <ther 1riority Sector =oans ( ,o%ernment Sponsored Schemes ( =ead 2an+ 5cti%ities ( 5#ricultural -onsultancy Ser%ices Social Bankin! ( *ural 0e%elopment Schemes ( -2K*0T !nstitutes ( 'omen 0e%elopment

( Social 2an+in# ( -ommunity -oncerns ( *I0SET!s International Bankin! Services -anara 2an+ entered ore arena in .9"A $ith the openin# o its irst 8orei#n Exchan#e 0epartment in Mumbai Today -anara 2an+ the 4th lar#est 2an+ in !ndia caterin# to the cross border trade 6 remittances and inancin# o orei#n trade. The 2an+ inance exports at pre(shipment sta#e as $ell as post shipment sta#e, $hich can be a%ailed either in orei#n currency or !ndian *upee s. !n addition $e acilitate or aintin#. That is, discountin# o de erred export recei%ables on >$ithout recourse basis> rom an o%erseas or eitin# a#ency. The 2an+ has been the pioneer in inancin# o =- based !nternational Trade transactions in !ndia. The 2an+ not only inance at customers option in orei#n currency at pre(shipment and post( shipment sta#es at =!2 <* related rates but also inance the import le# in orei#n currency $here imported inputs are re3uired or exp0l.s. The 2an+ has the expertise in handlin# pro)ect exports o #oods and ser%ices. The 2an+ has an excellent $orld$ide correspondent relationship and ha%e the capability to handle any export, import, remittance and related transactions any$here in the $orld and in any currency. Con und based transactions li+e addin# con irmations to =-, issuin# in$ard and out$ard 2id bonds 6 #uarantees, establishin# =-s or import into !ndia, arran#in# buyer>s credit at attracti%e terms etc. are our orte. -anara 2an+ has a branch in =ondon and holly o$ned subside in ?on# Gon#. 'e ha%e a )oint %enture $ith S2! at Mosco$ under the name -ommercial 2an+ o !ndia ==-. 'e ha%e recently opened a *epresentati%e < ice at Shan#hai, 1eople *epublic o china. They are en#a#ed in Trade inance and ha%e expertise on the !ndian mar+et scenario. The 2an+ also mana#es 7 Exchan#e houses in the ,ul and arran#ement $ith 70 Exchan#e ?ouses and .; 2an+s or dra$in# on 00s rom ,ul -ountries on our select branches thou#ht out !ndia. The 2an+ has " ore dealin# rooms located in Mumbai, Ce$ 0elhi, -alcutta, -hennai and 2an#alore in !ndia. 'e pro%ide a $hole ran#e o ser%ices and products li+e purchases and sale o / $orld currencies or$ard boo+in# and other ore hed#in# instrument li+e currency s$aps.

(IC$O2 S(#** #N+ (E+I.( EN"E$P$ISE 3(S(E4 IN#NCIN,

Micro, Small and Medium Enterprises (MSMEs) ha%e been reco#nised as one o the most important sectors or the de%elopment o any economy all o%er the $orld. This sector constitutes more than ;0% o all business or#anisations all o%er the $orld. !n !ndia too, its share is more than 90 %. This sector ensures that the processes o economic #ro$th in our country are inclusi%e, employment( riendly and they contribute to #reater re#ional balance in le%els o de%elopment. 0urin# the last decade alone, the MSME sector has pro#ressed rom the production o simple consumer #oods to the manu acture o many sophisticated products li+e T.J. Sets, micro($are components, electro(medical e3uipment etc. 1roduct ran#e %aries rom simple items produced $ith traditional technolo#y to hi#h(tech products, produced $ith sophisticated state o the art technolo#y. <ther than this, the micro, tiny and small scale sector ha%e been en#a#ed in the production o #oods li+e $ood products, hosiery and #arments, cotton textiles, be%era#es and tobacco products, ood products, )ute textile, leather 6 leather products, transport e3uipments etc. These industries produce o%er /"00 commodities. Inderstandin# the importance o this sector the #o%ernment has brou#ht about the enactment o the Micro, Small and Medium Enterprises 0e%elopment 5ct. To stren#then this important sector and to create more national a$areness about its #ro$in# importance in our national economic li e there ha%e been amendments to the Ghadi and Jilla#e !ndustries -ommission 5ct, a comprehensi%e 1ac+a#e or 1romotion o Micro and Small Enterprises has been announced and a Cational -ommission or Enterprises in the Inor#ani&ed Sector ha%e

been set up. The Cational Manu acturin# -ompetiti%eness 1ro#ramme has contributed to the #raduation o tiny and small scale units in micro and medium enterprises and in the process stren#thened the industrial base o our economy. 5s per the %ery latest statement o issued by S!02!, the MSME sector currently contributes ; percent o the country>s ,01, 4" percent o the manu actured output and 40 percent o its exports pro%idin# employment to about :0 million persons throu#h 7: million enterprises. 'ith the passin# o Micro, Small and Medium Enterprises 0e%elopment 5ct in Kune 700:, %arious components o this sector ha%e been #i%en a clear cut de inition.

+efinition of (icro2 Small and (edium Enterprises 3(S(E4

(a) Enterprises en#a#ed in the manu acture or production, processin# or #oods as speci ied belo$4 preser%ation o

i. 5 micro enterprise is an enterprise $here in%estment in plant and machinery does not exceed *s. 7" lacE ii. 5 small enterprise is an enterprise $here the in%estment in plant and machinery is more than *s. 7" lac but does not exceed *s. " croreE and iii. 5 medium enterprise is an enterprise $here the in%estment in plant and machinery is more than *s." crore but does not exceed *s..0 crore. !n case o the abo%e enterprises, in%estment in plant and machinery is the ori#inal cost excludin# land and buildin# and the items speci ied by the Ministry o Small Scale !ndustries. (b) Enterprises en#a#ed in pro%idin# or renderin# o ser%ices and $hose in%estment in e3uipment (ori#inal cost excludin# land and buildin# and urniture, ittin#s and other items not directly related to the ser%ice rendered or as may be noti ied under the MSME0 5ct, 700:) are speci ied belo$4 i. 5 micro enterprise is an enterprise $here the in%estment in e3uipment does not exceed *s. .0 lacE ii. 5 small enterprise is an enterprise $here the in%estment in e3uipment is more than *s..0 lac but does not exceed *s. 7 croreE and

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iii. 5 medium enterprise is an enterprise $here the in%estment in e3uipment more than *s. 7 crore but does not exceed *s. " crore. The enterprises included under this sector are4 Small road 6 $ater transport operators. (o$nin# a leet o %ehicles not exceedin# ten %ehicles) *etail trade. ($ith credit limits not exceedin# *s..0la+h) Small business. ($hose ori#inal cost price o the e3uipment used or the purpose o business does not exceed *s.70 lac) and 1ro essional 6 sel (employed persons. ('hose borro$in# limits do not exceed *s..0 lac o $hich not more than *s.7 lac should be or $or+in# capital re3uirements except in case o pro essionally 3uali ied medical practitioners settin# up o practice in semi(urban and rural areas, the borro$in# limits should not exceed *s.." lac $ith a sub(ceilin# o *s.A lac or $or+in# capital re3uirements. 5s may be seen rom the abo%e de inition, the se#ment $hich $as earlier +no$n as tiny sector, ha%e been reco#ni&ed throu#h a ormal de inition (in%estment in plant and machinery upto *s. 7" lac) and has been #i%en the term Micro Enterprise. The in%estment ceilin# in in%estment in plant and machinery has been raised upto *s.".0 crore or small enterprises en#a#ed in production or manu acturin# as a#ainst *s...0 crore earlier. !t is expected that this enhancement $ill allo$ these enterprises to #o or technolo#y up#radation and moderni&ation $hich is one o the prime re3uirements or enhancin# competiti%eness in the context o liberali&ation, #lobali&ation and to ul il the conditions o 'T<. 5lso, or the irst time, o icial reco#nition and de inition has been #i%en to medium enterprises en#a#ed in production or manu acturin# as those ha%in# in%estment in plant and machinery bet$een *s. " crore and *s. .0 crore. The term industries has been replaces by the concept o enterprises to include the ser%ice sector. The !mportance o Small and Medium Enterprises (SMEs) in any economy cannot be o%erloo+ed as they orm a ma)or chun+ in the economic acti%ity o nations. They play a +ey role in industriali&ation o a de%elopin# country li+e !ndia. They ha%e uni3ue ad%anta#es due to4( L Their si&e L Their comparati%ely hi#h labor(capital ratio L need a shorter #estation period

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L ocus on relati%ely smaller mar+ets L need lo$er in%estments L ensure a more e3uitable distribution o national income L acilitate an e ecti%e mobili&ation o resources o capital and s+ills $hich mi#ht other$ise remain unutili&ed and L Stimulate the #ro$th o industrial entrepreneurship.

(icro2 Small and (edium Enterprises #ct2 5667

'ith the passin# o Micro, Small and Medium Enterprises 0e%elopment 5ct in Kune 700:, %arious components o this sector ha%e been #i%en a clear cut de inition. 8or the irst time, micro enterprises, the se#ment $hich $as earlier +no$n as tiny sector, ha%e been reco#ni&ed throu#h a ormal de inition (in%estment in plant and machinery upto *s. 7" la+h). 8or the irst time, a reasonable in%estment ceilin# in in%estment in plant and machinery upto *s. " crore has been prescribed or small enterprises en#a#ed in production or manu acturin# as a#ainst *s. . crore earlier. !t is expected that this enhancement $ill allo$ these enterprises to #o or technolo#y up#radation and moderni&ation $hich is one o the prime re3uirements or enhancin# competiti%eness in the context o liberali&ation, #lobali&ation and 'T< conditional ties. 8or the irst time, o icial reco#nition and de inition has been #i%en to .medium enterprises. En#a#ed in production or manu acturin# as those ha%in# in%estment in plant and machinery bet$een *s. " crore and *s. .0 crore. 5nd or the irst time, the concept o enterprises has been accorded its due role replacin# the term .industries.. This sho$s the #ro$in# importance o ser%ice sector in employment #eneration. Since inance is re3uired by the enterprises to meet %arious needs, particularly ixed capital and $or+in# capital, it is essential to estimate the si&e o MSMEs in the country. 5s per the annual report o Ministry o SS!, the estimated number o SS!s, includin# tinyBmicro units in the country, at the end o iscal 7004(0" $as ...;: million. Thou#h, so ar no irm data are a%ailable about the number o small scale enterprises $hich $ould #et added due to enhancement o in%estment ceilin# rom *s. . crore to *s. " crore and due to inclusion o medium enterprises upto in%estment o *s. .0 crore, it is rou#hly estimated that the number o such enterprises $ould be about t$o(third o the existin# actory units other than existin# SS! actory units. !t is estimated that out o ".; la+h actory units, about A." la+h are existin# SS! actory units and . la+h ne$ly de ined SS!s and medium enterprises. Thus assumin# a #ro$th rate o 9% in the SS! Sector (#oin# by past hi#her se#ment o SS! and inclusion o medium MSME in the country may be around .A million no$, trend) and due to addition o enterprises, the number o

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consistin# o .7.9 million small and micro enterprises and 0.. million ne$ hi#h in%estment small enterprises and medium enterprises. This estimate does not include traditional industries li+e handloom, handicra t, + o iscal 7004(0" $as ...;: million. Thou#h, so ar no irm data are a%ailable about the number o small scale enterprises $hich $ould #et added due to enhancement o in%estment ceilin# rom *s. . crore to *s. " crore and due to inclusion o medium enterprises upto in%estment o *s. .0 crore, it is rou#hly estimated that the the existin# actory units other number o such enterprises $ould be about t$o(third o

than existin# SS! actory units. !t is estimated that out o ".; la+h actory units, about A." la+h are existin# SS! actory units and . la+h ne$ly de ined SS!s and medium enterprises. Thus assumin# a #ro$th rate o 9% in the SS! Sector (#oin# by past trend) and due to addition o hi#her se#ment o SS! and inclusion o medium enterprises, the number o MSME in the country may be around .A million no$, consistin# o .7.9 million small and micro enterprises and 0.. million ne$ hi#h in%estment small enterprises and medium enterprises. This estimate does not include traditional industries li+e handloom, handicra t, +hadi and %illa#e industries, coir and sericulture.

Ori!in and ,ro)th of (S(E 3"he ,ro)th En!ine of Indian Economy4'

!ndustries ha%e been an inte#ral part o the !ndian Economy since the ?arappan era. ?o$e%er, the entrepreneurial spirit o !ndia $as sti led durin# the lon# 2ritish rule, as also re lected in the ,01 #ro$th rate o 0.9% durin# the irst hal o the 70th century. Then came the S$adeshi mo%ement, part o the !ndian independence mo%ement in the irst 3uarter o the last century, $hich pro%ed to be a success ul economic strate#y to remo%e the 2ritish Empire rom po$er and impro%e economic conditions in !ndia by boycottin# the 2ritish products and the re%i%al o domestic(made products and production techni3ues. ,andhi)i belie%ed that alienation and exploitation o ten occur $hen production and consumption are di%orced rom their social and cultural context, and that local enterprise is a $ay to a%oid these problems. 'ith the ad%ent o planned economy rom .9". and the subse3uent industrial policy ollo$ed by ,o%ernment o !ndia, both planners and ,o%ernment earmar+ed a special role or small(scale industries and medium scale industries in the !ndian economy. 0ue protection $as accorded to both sectors, and particularly or small scale industries rom .9". to .99., till the nation adopted a policy o liberali&ation and #lobali&ation. -ertain products $ere reser%ed or small(scale units or a lon# time, thou#h this list o products is decreasin# due to chan#e in industrial policies and climate. !n .99; SS! 2oard came into existence $ith !!5 as its member since inception. =ater on, it $as

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replaced by Cational 2oard o MSME (C2MSME), !!5 $as a#ain nominated a member o this board. 'ith the enactment o MSME0 5ct in 700:, ollo$ed by mer#in# o Ministry o 5#ro and *ural !ndustries 6 Ministry o Small Scale !ndustries into the present Ministry o Micro Small 6 Medium (MSME), t$o important chan#es too+ place4 .) the concept o Menterprise replaced the ormer concept o Mindustry, 7) the resultant chan#e $as reco#nition 6 co%era#e o Mser%ices by the Ministry o MSME.The latest landmar+ de%elopment has been the constitution o the ?i#h le%el Tas+ orce on MSMEs by the ?on.1M in the year 7009 in C2MSME, representati%es o only 4 MSME associations rom all o%er the country $ere included in the tas+ orce.

$ole of S(Es in Indian Economy

The SMEs ha%e recently emer#ed as a stron#, dynamic and %ibrant sector o the !ndian economy and playin# an important and si#ni icant role in the socio economic de%elopment o the country. The importance o the SMEs is $ell established and reco#ni&ed in the sense that these are more labor intensi%e and more employment pro%ider as compared to other enterprises. 8urther they ha%e capacity to ad)ust $ith chan#in# en%ironment and expected to earn more and 3uic+ returns. This sector pro%ides more and enormous opportunities bein# less capital intensi%e and ha%in# hu#e #ro$th in demand in the domestic mar+et si&e, ra$ material, procurement, man po$er trainin# and ha%in# intensi%e promotion and support by the ,o%t. 0espite the #lobal and domestic recession re#istered the hi#her #ro$th rate than the o%erall industrial sector in terms o number o units, production, employment and exports. Employment ,eneration' The SMEs pro%ide si#ni icant contribution in achie%in# the socio(economic ob)ecti%e o the employment #eneration. The SMEs are the second lar#est pro%ider o the employment a ter a#riculture. The small scale sector has recorded an impressi%e #ro$th in employment rom A percent in .99.(97 to 4" percent in the year 700.(07.5s per Nuic+ *esult o the 4th 5ll !ndia -ensus o MSME 700:(0/, there $ere 7:0.;. lac MSMEs in !ndia (.".AA lac re#istered $or+in# and 74".4; lac unre#istered enterprises)E $hich pro%ided employment to about "94.:. lac persons. <ut o these, 7; percent $ere in manu acturin# sector and /7 percent in the ser%ice sector. 0urin# the year 700;(09, the number o MSMEs has increased to about 7;"..: lac orm the 7/7./9 lac in the pre%ious year, thus re#isterin# a #ro$th rate o 4."A percent. The employment

.4

has increased to about :"9.A" lac durin# the year 700;(09 rom :7:.A4 lac durin# the pre%ious year. Contribution to ,ross +omestic Product' The SMEs are si#ni icantly contributin# to the o%erall #ro$th in terms o ,01. The SMEs contribute to ;% o the ,01 o !ndia and contribute 4"% o the #ross manu actured output o !ndian economy. The total production o SMEs $hich %alued *s :.77; crores in the year .9;"(;:, increased to *s :7"000 crore in the year 7009(70.0. Potential for ,lobal Investors' SMEs in !ndia, has o ered $ide opportunities and potential to #lobal in%estors loo+in# access to #ro$in# mar+ets in !ndia. The process o economic re orms liberali&ation, pri%ati&ation, #lobali&ation and mar+et re orms $hile exposin# the !ndian SMEs to increasin# domestic and #lobal competition, has opened attracti%e possibilities o access to lar#er mar+et o stron#er and deeper lin+a#es $ith lar#e enterprises. Contribution to Exports' SMEs contribute about 40% o the total exports. SMEs are dominant players in the exports rom our country. The prominent exports include En#ineerin# #oods, ,ems and 1recious Stones, -hemicals, *eadymade #arments, cotton cloth, handicra ts, sports #oods, plastic and leather products and processed ood. En!ine of Economic ,ro)th' SMEs play a %ital role in the o%erall industrial economy o the country by contributin# si#ni icantly to the manu acturin# output, employment and exports. -onse3uent upon enhanced technolo#ical capabilities, impro%in# product and ser%ice 3uality to #lobal standards by inno%ations, SMEs are achie%in# sustained #ro$th. Promote E8uitable +evelopment' The SMEs especially due to enhanced current emphasis to micro inance a%ailability in all parts o the rural areas in the country is ensurin# the e3uitable de%elopment in the country by remo%in# re#ional imbalances. Increase in Production' The total production o SMEs %alued *s :, 7",000 crores in the year 7009(70.0.SMEs contributes about 40% o the #ross manu acture to !ndian

."

economy. These recorded an economy. These recorded an increment o A..7. lac in the year 7009.SMEs contribute 4"("0% o the !ndian Exports. *apid #lobali&ation and emer#in# ne$ technolo#ies ha%e drastically reduced the importance o economics o scale in many acti%ities, thereby increasin# the potential contribution o SMEs. !n IS5, SME Sector accounts or "0% o ,01, in ?on# Gon# 6 Sin#apore 77%. !n Thailand, out o the total number o enterprises 9:% are SMEs and they are the dri%in# orce behind the expandin# economy.

NEE+S O "0E (S(E IN#NCIN,' The inancin# o SMEs by the 2an+s is 3uite old. The concepts and priorities ha%e been chan#in# o%er a period o time. The SMEs play an important role in the production and distribution o #oods and ser%ices and also act mediator bet$een producers and consumers. 5 ne#lect o this sector may lead to %ital #ap in the economy. The share o SMEs in our countrys ,ross 0omestic 1roduct is on the increase. 5 %ast scope exists or inancin# this sector pro itability. !n 3uite #ood number o the SMEs, the business is either amily o$ned or inherited. The ad%ances to them are more stable and less prone to become Con(per ormin# 5ssets and Sic+ 5ssets. The super%ision, ollo$ up and control o these ad%ances is comparati%ely easy and cheap. These pro%ide stable business $ith less o%erheads and #enerally pro itable business. The SMEs #enerally hold sound and #ood collateral securities in the orm o immo%able properties. ,uarantee 8und Trust or Micro and Small Enterprises (-,TMSE) $as set up by ,o%t. o !ndia and S!02! in the year o 7000(0. $ith a corpus o *S. .7" crores. The -,TMSE pro%ided #uarantees to ban+s and inancial institutions to acilitate collateral ree loans to MSE sector. This enabled better a%ailability o credit acility and lo$ o =endin# !nstitutions (M=!). They ha%e three parameters are used to e%aluate the success o a credit #uarantee scheme4 inancial additionality, economic additionality and sustainability o scheme. unds $ithin the MSE

sector. ,uarantee co%er is #i%en to collateral ree loans disbursement by Member

.:

 The ,o%ernment o !ndia had launched many Schemes necessary or technolo#ical up #radation and moderni&ation, protection o $or+ers a ected by technolo#ical up #radation and moderni&ation, in rastructure de%elopment, entrepreneurship de%elopment. !t is essential or the *eser%e 2an+ o !ndia (*2!) has also been emphasi&in# on the lo$ o ban+ credit to micro enterprises in rural and semi(urban areas set up by %ulnerable sections o society includin# $omen. 5 number o initiati%es ha%e been ta+en in this re#ard and ban+s ha%e been ad%ised to pro%ide maximum support to Sel ?elp ,roups. Ce$er orms o SME inancin# need to be ostered viz., %enture capital and leasin#. -ommercial ban+s and local #o%ernment undin# a#encies $ould need to play a ma)or role in %enture capital inancin#

SCOPE #N+ OB9EC"I&ES O "0E (S(E IN#NCIN, The main ob)ecti%e o -,TS! is to acilitate hassle( ree credit to the SS! sector and encoura#e ban+s to shi t rom collateral(based or security(oriented lendin#. The Small Scale !ndustries 0e%elopment 2an+ o !ndia (S!02!) has also encoura#ed the #ro$th o the %enture capital industry or hi(tech SME units in !ndia by promotin# .A State B re#ional le%el unds and settin# up an all !ndia Jenture 8und. !t has been $ell reco#ni&ed that the in%estment limit o *s..0 million or the remainin# SS! units lea%es little scope or such producers to achie%e economies o scale and scope and become competiti%e. Some in ormal #roups ha%e been set up by the *eser%e 2an+ to analy&e %arious micro( inance issues relatin# to (!) structure and sustainabilityE (ii) undin#E (iii) re#ulationsE and (!J) capacity buildin#. !t is the main ob)ecti%e o *2!. !t is the $ider scope in *2! or ormulatin# and e%aluatin# the policies. !t also #enerates the credit a%ailability by the ban+s to pro%ide SME unit. The main ob)ecti%e o SME inancin# or the impro%ements $ould only increase an inclusi%e #ro$th and economic de%elopment in our economy.

./

 To endea%or to achie%e the ob)ecti%e o a cumulati%e #ro$th o 40% in the number o re#istered enterprises and enhance this sector 6 its contribution to ,01 rom the present ;% to .0% by the end o .7th 1lan.

(S(E finance and credit issues'

8inance orms the most critical input or a business enterprise $hether lar#e or small. 5ll irms re3uire inancin# to #ro$ and sur%i%e. Sources may be external, such as loans, e3uity in usions, subsidies and #o%ernment #rants, or internal such as #enerated cash lo$s. Many irms are sel becomes a%ailable. The problem o MSMEs re#ardin# their need or inance is peculiar and %ery di erent rom the re3uirement o inance by the lar#e scale enterprises. The reason or peculiarity is that most o the SS!s operate on ti#ht bud#ets and the business is o ten inanced throu#h the o$ners o$n contribution and loans rom riends and relati%es. They a%ail the minimum possible ban+ credit. !n this scenario they sometimes need $or+in# capital loan under emer#ency situations or a short term. These situations may arise due to an unexpected lar#e order, or due to re)ection o a consi#nment or an inordinate delay in payments. !t is under such situations that they loo+ or institutional inance but the lo$ o institutional inance is lin+ed $ith the credit$orthiness o the enterprise. Small enterprises, due to their small si&e and lo$ capital base, #enerally ind it di icult to satis y the conditions laid do$n by the ban+s, particularly, in establishin# the %iability o the pro)ect, meetin# collateral re3uirements and ma+in# timely repayment o loans. ?ence, they do not ind a place amon# the pre erred clients o the ban+s. These problems ha%e not #one unnoticed by the ,o%ernment o !ndia. it has reco#nised the need or a ocused credit policy or MSMEs and earlier more importantly the SS!s. The ,o%ernment has realised that timely a%ailability o credit is one o the most important actors or a small scale unit. inanced in the be#innin#. <nce the irms reach certain de#ree o maturity in the de%elopment o their product line and customer base, external inance

.;

To impro%e the lo$ o credit, the *2! has constituted se%eral committees and $or+in# #roups since .99.. Cotable amon# the committees are Caya+ -ommittee, Gapur -ommittee and ,an#uly -ommittee. set up at the *2!. 5 multi(le%el institutional structure exists or inancin# o small enterprises and non( arm enterprises in !ndia. This consists o commercial ban+s, cooperati%e ban+s, **2s, State 8inancial -orporations. -redit to Micro and Small enterprises comes under priority sector lendin! pro#ramme o ban+s. The *eser%e 2an+ o !ndia (*2!) constantly re%ie$s the lo$ o credit to this sector. 5n exclusi%e re inancin# ban+, called Small !ndustries 0e%elopment 2an+ o !ndia (S!02!) $as set up in .990. The issue o pro%idin# micro credit to micro enterprises throu#h de%elopment o S?,(2an+s =in+a#e rests mainly $ith Cational 2an+ or 5#ricultural and *ural 0e%elopment (C525*0). 5ppropriate measures are ta+en by the *2! and ,o%ernment rom time to time based upon the decision o the Standin# -ommittee on SS!

Priority Sector *endin!

The ,o%ernment o !ndia throu#h the instrument o *eser%e 2an+ o !ndia (*2!) mandates certain type o lendin# on the 2an+s operatin# in !ndia irrespecti%e o their ori#in. *2! sets tar#ets in terms o percenta#e (o total money lent by the 2an+s) to be lent to certain sectors, $hich in *2!>s perception $ould not ha%e had access to or#anised lendin# mar+et or could not a ord to pay the interest at the commercial rate. This type o lendin# is called 1riority Sector =endin#. inancin! of Small Scale Industry2 Small business2 5#ricultural 5cti%ities and Export acti%ities all under this cate#ory. This is also called directed credit in !ndian 2an+in# system. 8inancin# 1riority Sector in the economy is not strictly on commercial basis as not only the #eneral approach is liberal but also the rate o interest char#ed on such loans is less. 1art o the cost o these concessions are borne by *2!, by means o re inancin# such loans at concessional rate. !ndian 2an+s, there ore, contribute to$ards economic de%elopment o the country by subsidi&in# the business acti%ities underta+en by entrepreneurs in the areas $hich are consider @priority sector@ by *2!. The *eser%e 2an+ o !ndia is ma+in# an all out e ort to .9

increase the role o the inancial institutions in the small scale sector. !t has as+ed the commercial ban+s to chal+ out their branch expansion strate#ies +eepin# in mind the #ro$th potential and the economic de%elopment needs o MSME. The *2! $ants that this expansion should be especially in the case o the under(ban+ed re#ions $here the population per branch is more than the Cational a%era#e o .:000 person per branch. 1olicy 1ac+a#e or Steppin# up -redit to Small and Medium Enterprises (SMEs), $as launched $ith the ob)ecti%e o doublin# the lo$ o credit to this sector $ithin a period o years. The main ob)ecti%es o this policy are as ollo$s4 i. 2an+s to achie%e a minimum 70% year(on(year #ro$th in credit to the MSME sector, and ii. -o%er on an a%era#e at least " ne$ MSMEs at each o their semi(urbanBurban branches per year. iii. !n order to ensure that credit is a%ailable to all se#ments o the Small Enterprises sector, ban+s should ensure that 4( 40 per cent o the total ad%ances to small enterprises sector should #o to micro (manu acturin#) enterprises ha%in# in%estment in plant and machinery up to *s. " la+h and micro (ser%ice) enterprises ha%in# in%estment in e3uipment up to *s. 7 la+h. 70 per cent o the total ad%ances to small enterprises sector should #o to micro (manu acturin#) enterprises $ith in%estment in plant and machinery abo%e *s. " la+h and up to *s. 7" la+h, and micro (ser%ice) enterprises $ith in%estment in e3uipment abo%e *s. 7 la+h and up to *s. .0 la+h. (Thus :0 per cent o small enterprises ad%ances should #o to the micro enterprises) i%e

SC0E(ES .N+E$ "0E #BO&E PO*IC- P#C%#,E

Scheme of Small Enterprises inancial Centres 3SE Cs4' 70

5s per announcement made by the ,o%ernor in the 5nnual 1olicy Statement 700"(0:, a scheme or strate#ic alliance bet$een branches o ban+s and S!02! located in clusters, named as OSmall Enterprises 8inancial -entresP has been ormulated in consultation $ith the Ministry o SS! and 2an+in# 0i%ision, Ministry o 8inance, ,o%ernment o !ndia, S!02!, !25 and select ban+s .S!02! has so ar executed MoI $ith ." ban+s so ar (2an+ o !ndia, I-< 2an+, QES 2an+, 2an+ o 2aroda, <riental 2an+ o -ommerce, 1un)ab Cational 2an+, 0ena 2an+, 5ndhra 2an+, !ndian 2an+, -orporation 2an+, !02! 2an+, !ndian <%erseas 2an+, Inion 2an+ o !ndia, State 2an+ o !ndia and 8ederal 2an+). +eposit by orei!n Banks )ith SI+BI to)ards shortfall in priority sector lendin! The orei#n ban+s ha%in# short all in lendin# to stipulate priority sector tar#ets Bsub( tar#ets $ill be re3uired to contribute to Small Enterprises 0e%elopment 8und (SE08) to be set up by Small !ndustries 0e%elopment 2an+ o !ndia (S!02!), or or such other purpose as may be stipulated by *eser%e ban+ o !ndia. The corpus o SE08 shall be decided by *eser%e 2an+ o !ndia on a year(to(year basis. The tenor o the deposits shall be or a period o three years or as decided by *eser%e 2an+ rom time to time. 8i ty percent o the corpus shall be contributed by orei#n ban+s ha%in# short all in lendin# to priority sector tar#et o A7 per cent o 5C2-. The balance i ty per cent o the corpus shall be contributed by orei#n ban+s ha%in# a##re#ate short all in lendin# to Small Enterprises sector and export sector o .0 per cent and .7 per cent respecti%ely, o 5C2- or credit e3ui%alent amount o < (2alance Sheet Exposure, $hiche%er is hi#her, on a pro(rata basis. The contribution re3uired to be made by orei#n ban+s $ould, ho$e%er, not be more than the amount o short all in priority sector lendin# tar#etBsub(tar#et o the orei#n ban+s. $ole of Small Industries +evelopment Bank of India 3SI+BI4 to be enhanced S!02! $as set up $ith the mission to empo$er the Micro, Small and Medium Enterprises (MSME) sector $ith a %ie$ to contributin# to the process o economic #ro$th, employment #eneration and balanced re#ional de%elopment. !t is the principal inancial institution responsible or promotion, inancin# and de%elopment o the sector. 5part rom extendin# inancial assistance to the sector, it coordinates the unctions o institutions en#a#ed in similar acti%ities.

7.

The our basic ob)ecti%es o S!02! or orderly #ro$th o industry in the small scale sector are4

8inancin# 1romotion 0e%elopment -o(ordination

Ta+in# into account the act that the ma)ority o such enterprises are at the lo$er(end o the sector and are outside the ambit o institutional inance. ?ence, concerted e orts ha%e been made by S!02! to promote micro inance across the country to enable the unemployed persons to set up their o$n %entures. There are more than .00 Micro 8inance !nstitutions (M8!s) de%eloped by S!02! that are en#a#ed in implementation o its micro inance pro#ramme. 5lso, -redit ,uarantee -o%er 8und Scheme or Small !ndustries $as launched )ointly by the ,o%ernment o !ndia and S!02! (on a 44. contribution basis) in 5u#ust 7000, $ith a %ie$ to ensure #reater lo$ o credit to the sector $ithout collateral security. !t pic+ed up durin# the last t$o years o the Tenth 1lan and till the end o March 700/, :;0:7 proposals $ere appro%ed and #uarantee co%ers or *s ./0" crore $ere issued. Common !uidelines:Instructions for *endin! to Small Enterprises by $BI ;< +isposal of #pplications 5ll loan applications or MSE units upto a credit limit o *s. 7"000B( should be disposed o $ithin 7 $ee+s and those upto *s. " la+h $ithin 4 $ee+s pro%ided, the loan applications are complete in all respects and accompanied by a @ chec+ list@. 5< Collateral The *2! has instructed that no collateral security is re3uired or obtainin# loans till *s." =ac by MSE (both manu acturin# or production and pro%idin# or renderin# o ser%ices, includin# those units inanced under the 1rime Minister Employment ,eneration 1ro#ramme o GJ!-). 2an+s may on the basis o #ood trac+ record and inancial position o the MSME units, increase the limit o dispensation o collateral re3uirement or loans up to *s.7" lac ($ith the appro%al o the appropriate authority).

77

=< Composite loan 5 composite loan limit o *s.. crore can be sanctioned by ban+s to enable the MSME entrepreneurs to a%ail o their $or+in# capital and term loan re3uirement throu#h Sin#le 'indo$. >< Specialised S(E branches 1ublic sector ban+s ha%e been ad%ised to open at least one specialised branch in each district. 8urther, ban+s ha%e been permitted to cate#orise their SME #eneral ban+in# branches ha%in# :0% or more o their ad%ances to SME sector in order to encoura#e them to open more specialised SME branches or pro%idin# better ser%ice to this sector as a $hole. ?< +elayed Payment Inder the 5mendment 5ct, .99; o !nterest on 0elayed 1ayment to Small Scale and 5ncillary !ndustrial Inderta+in#s, penal pro%isions ha%e been incorporated to ta+e care o delayed payments to MSME units $hich inter(alia stipulates a#reement bet$een seller and buyer shall not exceed more than .70 days 1ayment o interest by the buyers at the rate o one and a hal times the prime lendin# rate (1=*) o S2! or any delay beyond the a#reed period not exceedin# .70 days. 8urther, ban+s ha%e been ad%ised to ix sub(limits $ithin the o%erall $or+in# capital limits to the lar#e borro$ers speci ically or meetin# the payment obli#ation in respect o purchases rom SS!. 5 ter the enactment o the Micro, Small and Medium Enterprises 0e%elopment (MSME0), 5ct 700:, the existin# pro%isions o the !nterest on 0elayed 1ayment 5ct, .99; to Small Scale and 5ncillary !ndustrial Inderta+in#s, ha%e been stren#thened as under4 i. !n case the buyer to ma+e payment on or be ore the date a#reed on bet$een him and the supplier in $ritin# or, in case o no a#reement be ore the appointed day. The a#reement bet$een seller and buyer shall not exceed more than 4" days.

7A

ii. !n case the buyer ails to ma+e payment o the amount to the supplier, he shall be liable to pay compound interest $ith monthly rests to the supplier on the amount rom the appointed day or, on the date a#reed on, at three times o the 2an+ *ate noti ied by *eser%e 2an+. iii. 8or any #oods supplied or ser%ices rendered by the supplier, the buyer shall be liable to pay the interest as ad%ised at (ii) abo%e. i%. !n case o dispute $ith re#ard to any amount due, a re erence shall be made to the Micro and Small Enterprises 8acilitation -ouncil, constituted by the respecti%e State ,o%ernment. 7< ,uidelines on rehabilitation of sick SSI units 3based on %ohli /orkin! !roup recommendations4 5s per the de inition, a unit is considered as sic+ $hen any o the borro$ed account o the unit remains substandard or more than : months or there is erosion in the net $orth due to accumulated cash losses to the extent o "0% o its net $orth durin# the pre%ious accountin# year and the unit has been in commercial production or at least t$o years. The criteria $ill enable ban+s to detect sic+ness at an early sta#e and acilitate correcti%e action or re%i%al o the unit. 5s per the #uidelines, the rehabilitation pac+a#e should be ully implemented $ithin six months rom the date the unit is declared as potentially %iableB%iable. 0urin# this six months period o identi yin# and implementin# rehabilitation pac+a#e ban+sB8!s are re3uired to do Oholdin# operationP $hich $ill allo$ the sic+ unit to dra$ unds rom the cash credit account at least to the extent o deposit o sale proceedsB *2! has ramed broad parameters or #rant o relie and concessions or re%i%al o potentially %iable sic+ SS! units. The 8!s and commercial ban+s ha%e been ad%ised to put in place loan policies #o%ernin# extension o credit acilities, *estructurin#B*ehabilitation policy or re%i%al o potentially %iable sic+ unitsBenterprises and nondiscretionary <ne Time Settlement scheme or reco%ery o non(per ormin# loans or the MSE sector, $ith the appro%al o

74

the 2oard o 0irectors and implement recommendations $ith re#ard to timely and ade3uate lo$ o credit to the MSE sector. @< State *evel Inter Institutional Committee !n order to deal $ith the problems o co(ordination or rehabilitation o sic+ micro and small units, State =e%el !nter(!nstitutional -ommittees (S=!!-s) ha%e been set up in all the States. The meetin#s o these -ommittees are con%ened by *e#ional < ices o *2! and presided o%er by the Secretary, !ndustry o the concerned State ,o%ernment. !t pro%ides a use ul orum or ade3uate inter acin# bet$een the State ,o%ernment < icials and State =e%el !nstitutions on the one side and the term lendin# institutions and ban+s on the other. !t closely monitors timely sanction o $or+in# capital to units $hich ha%e been pro%ided term loans by S8-s, implementation o special schemes such as Mar#in Money Scheme o State ,o%ernment, Cational E3uity 8und Scheme o S!02!, and re%ie$s #eneral problems aced by industries and sic+ness in MSE sector based on the data urnished by ban+s. A< Empo)ered Committee on (S(Es 5s part o the announcement made by the Inion 8inance Minister, at the *e#ional < ices o *eser%e 2an+ o !ndia, Empo$ered -ommittees on MSMEs ha%e been constituted under the -hairmanship o the *e#ional 0irectors $ith the representati%es o S=2-(State =e%el 2an+ers -ommittee) -on%enor, senior le%el o icers rom t$o ban+s ha%in# predominant share in MSME inancin# in the state, representati%e o S!02! *e#ional < ice, the 0irector o !ndustries o the State ,o%ernment, one or t$o senior le%el representati%es rom the MSMEBSS! 5ssociations in the state, and a senior le%el o icer rom S8-BS!0- as members. The -ommittee $ill meet periodically and re%ie$ the pro#ress in MSME inancin# as also rehabilitation o sic+ Micro, Small and Medium units. !t $ill also coordinate $ith other ban+sB inancial institutions and the state #o%ernment in remo%in# bottlenec+s, i any, to ensure smooth lo$ o credit to the sector. The committees may decide the need to ha%e similar committees at clusterBdistrict le%els. B< +ebt $estructurin! (echanism for S(Es

7"

5s part o the policy or steppin# up credit to small and medium enterprises, a debt restructurin# mechanism or units in SME sector has been ormulated by 0epartment o 2an+in# <perations 6 0e%elopment o *eser%e 2an+ o !ndia and ad%ised all commercial on 700"(0:. These detailed #uidelines ha%e been issued to ensure restructurin# o debt o all eli#ible small and medium enterprises. ;6< Cluster #pproach :0 clusters ha%e been identi ied by the Ministry o Micro, Small and Medium Enterprises, ,o%ernment o !ndia or ocused de%elopment o Small Enterprises sector. 5ll S=2- -on%enor ban+s ha%e been ad%ised to incorporate in their 5nnual -redit 1lans, the credit re3uirement in the clusters identi ied by the Ministry o Micro, Small and Medium Enterprises, ,o%ernment o !ndia. 5s per ,an#uly -ommittee recommendations ban+s ha%e been ad%ised that a ull( ser%ice approach to cater to the di%erse needs o the MSE sector may be achie%ed throu#h extendin# ban+in# ser%ices to reco#ni&ed MSE clusters by adoptin# a 4(approach namely, -ustomer ocus, -ost control, -ross sell and -ontain ris+. 5 cluster based approach to lendin# is considered to be bene icial4 a. b. c. in dealin# $ith $ell(de ined and reco#ni&ed #roupsE a%ailability o appropriate in ormation or ris+ assessment and Monitorin# by the lendin# institutions.

-lusters may be identi ied based on actors such as trade record, competiti%eness and #ro$th prospects andBor other cluster speci ic data. 5part rom the abo%e, the Ministry o Micro, Small and Medium Enterprises has appro%ed a list o clusters under the Scheme o 8und or *e#eneration o Traditional !ndustries (S8I*T!) and Micro and Small Enterprises -luster 0e%elopment 1ro#ramme (MSE(-01) located in .7. Minority -oncentration 0istricts.

7:

5ccordin#ly, appropriate measures ha%e been ta+en to impro%e the credit lo$ to the identi ied clusters o micro and small entrepreneurs rom the Minorities -ommunities residin# in the minority concentrated districts o the country. ;;< Continuation of the Credit *inked Capital Subsidy Scheme 3C*SS4 for

"echnolo!y .p!radation of (icro and Small Enterprises ,o%ernment o !ndia, Ministry o Micro, Small and Medium Enterprises has appro%ed -=SS or the R! Th 1lan $ith the condition o ceilin# on the loan under the scheme is *s. . crore. 'ith the rate o subsidy bein# ."% or all units o micro and small enterprises. -alculation o admissible subsidy $ill be done $ith re erence to the purchase price o plant and machinery instead o term loan disbursed to the bene iciary unit and S!02! and C525*0 $ill continue to be implementin# a#encies o the scheme. Thou#h the !ndian ,o%ernment alon# $ith the *eser%e 2an+ o !ndia it has come to the conclusion that non(a%ailability o timely and ade3uate unds at reasonable cost is one o the most important problems acin# the MSME sector. Ta+e, or instance, credit. Since the nineties the share o commercial ban+ credit that #oes to the SS! sector is allin# (thou#h #ro$in# in absolute terms). Some o the ma)or causes or lo$ a%ailability o ban+ inance to this sector are the hi#h(ris+ perception, inade3uate data and usa#e o external credit ratin# (there is need to scale up external ratings), $ea+ corporate inancial systems, early sta#e hi#h transaction cost or small loans and hi#h costs o the ban+s in lendin# to MSMEs. The lac+ o ade3uate collateral urther hampers a%ailability o unds to the sector.

Innovative inancin! The small enterprises ha%e, so ar, depended mostly on ban+s and traditional modes o inancin# namely term loan and $or+in# capital o rom ban+s. Micro inance throu#h M8!s (Micro 8inancin# !nstitutions) and S?,s, (Sel (?elp ,roups) is an inno%ati%e means inancin#, but is its initial sta#e and at best only an indirect orm o ban+ inance. Inli+e lar#e enterprises $hich raise inance rom capital mar+et and external sources li+e orei#n

7/

inancial in%estors besides commercial ban+s, small enterprises and other non( arm enterprises are solely dependent on ban+s. 'ith the #ro$in# inancial need, emer#ence o ne$ product lines, emer#ence o ris+y and untried %entures, it is hi#h time that some inno%ati%e means o inancin# or the non( arm unor#ani&ed enterprises are explored. S!02!, the premium institute in the country, dealin# $ith alle%iatin# the problems o the MSME sector is explorin# all the possibility o lin+in# SMEs, $ith capital mar+et. 8inancial instruments ha%e to be desi#ned to lin+ SMEs $ith the hu#e amount o money o capital mar+et. The emer#ence o clusters and $ith emphasis on ma+in# them as the strate#y o SME de%elopment, $ould ma+e it possible to rope in capital mar+et to SME inancin#. This $ill brin# ne$ capital to this sector. Ma+in# %arious $iskCcapital options a%ailable to the MSME sector is essential and a lot o them are bein# tried internationally and no$ in !ndia. They may be summarised as ollo$s4 $isk Capital Options Some o the ma)or ris+ capital options a%ailable or MSME sector internationally and in !ndia are #i%en belo$. These need to be introduced andBor stren#thened4 &enture Capital Jenture unds typically pro%ide e3uity and may or may not also pro%ide tied credit. ,ood 3uality %enture undin# can impro%e the credit ratin# o the company allo$in# it to access commercial loans or other orms o inance. ?o$e%er, there are some expected problems $ith exit that can impact unds entry into these areas. 8or the MSME, it has possible disad%anta#es o reduced operational lexibility, etc. Jentures li+e bio(tech, ood processin#, !T, pharmaceutical and other +no$led#e based sectors in !ndia need creation o %enture capital unds to meet the e3uity re3uirements. !n the initial phase o their $or+in#. Gno$led#e sector includin# 21<, G1<, =i e sciences,

7;

on(line business, technolo#y(enabled desi#n and manu acturin# as $ell as in emer#in# areas o Cano(technolo#y and en%ironmental technolo#y. actorin! Service Third area o inno%ati%e de%elopment o inancin#, $hich needs populari&ation in !ndia, is the 2an+s inancin# actorin# ser%ices. This is necessary since a ma)or problem aced by

MSMEs, is delayed payment rom the units to $hom they ha%e supplied #oods. discountin# the bills at nominal ser%ice char#e. =i+e$ise, other means o

can $or+ as actors on behal o MSMEs, to collect the dues on their behal by SMEs, such as lease inance, hire(purchase inance and propa#ation o incubation centres could be underta+en to in)ect additional und to the MSMEs in order to brid#e the inancial #ap. #n!el Investors 5n#els are typically hi#h net $orth indi%iduals $ho $ish to in%est some o their surplus unds in ne$ %entures. They can pro%e to be a #ood source o capital and ad%ice at an early sta#e in the de%elopment o the company. 8or the in%estor, they brin# opportunity to ma+e hi#h returns rom in%estin# at an early sta#e in an MSME. The problem areas are un$illin#ness o MSME to brin# in an external in%estor in case o e3uity sale, the hi#h ris+ or in%estor and ris+ o relationship bet$een the in%estor and the MSME mana#er brea+in# do$n. Public *istin! MSMEs $ith a #ood trac+ record can access undin# rom the public throu#h the public listin# process irst throu#h the initial public o er (!1<). 5 unctionin# !1< re#ime or MSMEs $ill enable the entry o other types o ris+ capital in the earlier sta#es. ?o$e%er, the !1< route is limited to bi##er MSMEs ha%in# an established stron# record o past per ormance and reputation in the mar+et. ollo)in! supplements to risk capital can also be explored4 *oan unds 5 pure loan und supported by the Structural 8unds can be le%era#ed by usin# pri%ate capital. 'hile =oan schemes are a ma)or source o capital or MSMEs, usually lenders

79

$ill re3uire collateral or $ill #o throu#h a credit scorin# process $hich may discriminate a#ainst start(up companies. A ,uarantee #ssociations ,uarantee 8unds or ,uarantee 5ssociations issue #uarantees to MSMEs in order to acilitate access to external inance (mainly loan(based, but also e3uity) in return or a ee to co%er both the ris+ and administrati%e and processin# costs. They acilitate access to loan inance on impro%ed inancial terms or MSMEs and reduce the de#ree o ris+ or the lendin# institution. ?o$e%er, they co%er only part o the credit ris+ and o ten apply to only a limited ran#e o operationali&e. (icro inance Micro inance is typically desi#ned or businesses $ith small inancin# re3uirements. !t can meet the mar+et ailure in startin# and de%elopin# micro businesses. ?o$e%er, apart rom hi#h cost o settin# and administerin# loans, it caters to only small re3uirements and #enerally re3uires the presence o a homo#enous and $ell net$or+ed social #roup. inancial instruments. *e3uires the creation andBor existence o stron# associations $hich typically ta+e many years to set(up and

Chan!es re8uired in the I:Bankin! System to implement the schemes of SI+BI To enable the 8!! or the 2an+s to brin# about these inno%ati%e tools o inno%ati%e inancin# a ris+(credit ecosystem needs to ha%e the ollo$in# elements4 L 5%ailability o ris+ capital at e%ery sta#e. L 5%ailability o #ood 3uality entrepreneurs. L Mentorin#Bad%isory credit $ith hand holdin#. L 5ppropriate and ade3uate exit options or all sta+eholders. L 5ppropriately incenti%isin# ris+(capital pro%iders. L *educin# in ormational imper ections. L 5bility to accept ris+s ailure in early sta#e inancin#.

A0

To enable the supply o #ood >3uality> entrepreneurs and pro)ects, ollo$in# areas need to be ocused upon4 Incubators 2usiness incubators need to be set in partnership $ith technical and hi#her educational institutions to help the potential entrepreneur in the early sta#es. They aid the creation o hi#her >3uality> pro)ects or later sta#e undin#. *eco#nition o incubators as a priority sector acti%ity can help in spreadin# incubators both in the public and pri%ate sectors. The incubators in !ndia primarily pro%ide the in rastructure setup $ith hand holdin#. There is need to lin+up to ris+ capital or incubate companies, particularly start(ups, to ta+e care o expenses relatin# to manpo$er, !1*, initial mar+etin#, product de%elopment etc. 8urther, the incubators need to de%elop stron# lin+a#es $ith 5n#el Cet$or+s and Jenture -apital 8unds to pro%ide e3uity at start(up sta#e. #n!el Net)orks !nternationally, these ha%e been hi#hly success ul in pro%idin# both ris+(capital as $ell as mentorin# or buddin# entrepreneurs, many o them at the seed sta#e itsel . There are certain taxation and exit issues a ectin# the #ro$th o this sector in !ndia. 5ppropriate and ade3uate policy action aimed speci ically at this source o unds is re3uired. Small Cap Exchan!e 5s the characteristics o small companies do not match the re3uirements o the stoc+ exchan#es ser%icin# lar#er companies, there is a need to accelerate the settin# up o a small cap exchan#e, either independently or as a part o the established exchan#es. E3ually important is ensurin# easier !1<s or MSMEs as exit $ill ma+e it easier or J-s and other types o ris+ capital pro%iders to unloc+ their in%estment in the units. Incentives for institutional and individual riskCcredit providers The ris+ capital in early sta#e in%estment particularly in small companies ha%e a hi#h ris+ hi#h return port olio $ith a small number o %entures succeedin#. 5ppropriate tax and other incenti%es need to be desi#ned or di erent types o ris+(capital pro%iders. !ncenti%es o *is+ capital ha%e been de%ised in some countries to encoura#e

A.

entrepreneurship and start(up %entures. Such models can be studied or possibility o replication in !ndia. Publishin! Success Stories 1ublishin# success stories particularly o irst #eneration entrepreneurs, is a hi#h moti%ator or )ob see+ers to ta+e ris+ and set up %entures.

Corporatisation 5$areness needs to be created amon# MSMEs about ad%anta#es o con%ersion rom 1roprietorship B 1artnership to a corporate entity (a ter reachin# a certain si&e o stature). The corporate structure $ith #reater transparency enables lo$ o capital Jis(a Jis 1artnership B 1roprietorship concerns Insolvency !n early sta#e inancin#, the ailures due to technolo#y, mar+etin# etc are hi#h. This re3uires a re#ime that allo$s or second chance options in case o #enuine ailures. Information:Skill ,aps !nstitutional solutions as outlined abo%e $ould be much more e ecti%e i they are also accompanied by capacity impro%ements. Moreo%er, there are also #aps in in ormation and s+ill a%ailability both or entrepreneurs as $ell as inance pro%iders. Some examples discussed $ere4 Entrepreneurship de%elopment pro#rams at #raduate le%el <r#ani&in# o 2usiness 1lan -ompetitions in colle#es *60 centres and technical institutions !nstitute re erral ser%ices, laboratory acilities 1rocess certi ications %ia technical institutions and uni%ersities 1romotion o #reater aculty and industry interaction by buildin# in appropriate lexibilities and incenti%es or research sta in research and academic institutions

A7

Stren#thenin# the entrepreneurs accessibility to expertise in a ran#e o areas such as assistance $ith !1* ilin#s Enable access to mar+etin#, ?* and other business de%elopment ser%ices etc Ensurin# ris+(capital pro%ider>s easy access to multiple sources o in ormation on the industry, acti%ity and the entrepreneur (,o%ernment support is re3uired or such in ormation to be made a%ailable on a lar#e enou#h scale)

$esearch (ethodolo!y
AA

DATA COLLECTION METHOD

Primary data' 1rimary data collected throu#h studyin# the case o the enterprise. Secondary +ata' Secondary data collected rom ban+ circulars, ban+ #uidelines boo+ and internet. 2rie 8indin#s -urrent system o MSME 8inance. -anara 2an+ has a system o chec+s and balance in place o extension o credit. The aspect co%ered under the present system is multiple credit appro%als, independent audit and ris+ re%ie$ and ris+ ratin# system or %arious cate#ories o system and correspondin# pricin# mechanism. The ban+ maintains a di%ersi ied port olio o ris+ assets, and ensures on #oin# control o ris+ considerations .5ll credit exposures abo%e *S " -rores are assi#ned ris+ $aitin# assi#ned by domestic credit ratin# a#encies reco#ni&ed by *2!. The data or the present study has been used rom Secondary source. !n consonance to the ob)ecti%es o study, the secondary data shall be used rom the published 5nnual *eports o the 2an+ and rom -redit 1lans o the 2an+s. The primary data in the orm o case study and a representati%e SME population o %arious sub se#ments on random samplin# basis. The case study $as collected rom micro, small and medium enterprises randomly representin# all sectors and acti%ities o SMEs. The tabulated data as per the re3uirements o the ob)ecti%es o the study has been analysed $ith appropriate ratio analysis method.

+ata #nalysis 1 Interpretation

A4

Canara Bank approach to)ards (S(E inance'

SMEs are #ro$th en#ines or de%elopment o Economy. <ur ban+ has there ore or internal purposes #i%en ocused attention to inance all -ommercial enterprises i.e. enterprises $hich may be outside the pur%ie$ o re#ulatory de inition o SME but ha%in# turno%er upto *s ."0.00 crores and ne$ in rastructure and real estate pro)ects )here the project cost is upto $s< ?6:C crores by treatin# them as part o SME se#ment. SME 2an+in# business $ill thus include the ollo$in# across the ban+4 Micro, Small and Medium Enterprises H as per re#ulatory de inition irrespecti%e #eo#raphical location, i.e. rural, semi(urban, urban, metro areas. 5ll other entities $ith their annual sales turno%er o *s. .B( crore to *s. ."0B( crores and ne$ in rastructure and real estate pro)ects, $here the pro)ect cost is upto *s. "0B( crores. SMEs $hich are 5ssociateBsister concerns o 'holesale 2an+in# customers. -lubs, Trusts, etc. 8inancin# under %arious ,o%ernment schemes launched or MSME Sector. ?o$e%er, such units, $hich are outside the pur%ie$ o re#ulatory de inition $ill not orm part o 1riority Sector lendin#.

Case Study on the (S(E inance at Canara Bank

!n accordance to$ards the secrecy o the ban+, the actual name o the enterprise $as chan#ed to OMBs. RQS limited -ompanyP. To ha%e a detailed study and real li e experience ! in the #uidance o my mentor did this case analysis. ?ere is the brie details o the learnin#4 0etails o the Enterprise4 MBs. RQS =imited -ompany !t is a Manu acturin# -ompany $hich manu actures sports$ear, shoes and apparels 1roprietorship. 5ccount holder in -anara 2an+ ,T *oad 2ranch

The abo%e enterprise approached the ban+ and demanded the 8ollo$in#4 To #et inancial aid rom the ban+ under MSME 8inance

A"

 0ra$in# 1o$er o *s. A000000

The ban+ in order to #i%e a boost to this priority sector did the ollo$in# action4 The borro$er $as as+ed to irstly ill the application orms $hich depend upon the type o sector The ban+ irstly identi ied the business i.e. its under micro, small or medium The duration o the proprietors in the ield o the business is also chec+ed so as to see their experience and #ood$ill in the business Then the ban+ demanded or the proo s o the business that is the income tax paid by the enterprise and the proprietors, also the -!2!= (-redit in ormation 2ureau (!ndia) =imited) ratin# is chec+ed to a%oid the raud and misuse o the #i%en amount The hypothecation o stoc+s in trade (ra$ material T inished products T $or+ in pro#ress) 5lso decide $hether the rate o interest $ould be compounded

MonthlyBNuarterlyBQearly

#dvanta!es of the above parameters' "o Investors Short Term source o inance <utside the pur%ie$ o Section A/0 o !ndian -ompanies 5ct .9": Co tax deducted at source 8lexibility

"o Banks Sa ety o unds -ertainty o payment 1ro itability

Credit #ppraisal Process

A:

*eceipt o application rom applicant Receipt of documents(Balance sheet, KYC papers, Different govt. registration no., MOA, AOA, and properties documents 1re(sanction %isit by ban+ o icers -hec+ or *2! de aulters list, $ill ul de aulters list, -!2!= data, E-,-, -aution list etc itle clearance reports of the properties to !e o!tained from empanelled Advocates Jaluation reports o the properties to be obtained rom empanelled %aluerBen#ineers 1reparation o inancial data 1roposal preparation 5ssessment o proposal SanctionBappro%al o proposal by appropriate sanctionin# authority 0ocumentations, a#reements, mort#a#es 0isbursement o =oan "ost sanction activities such as receiving stoc# statements, revie$ of accounts, rene$ of accounts, etc (On regular !asis% C$E+I" P$OCESS PreCSanction Process !ndicati%e list o 5cti%ities in the 5ppraisal 8unction #< Preliminary appraisal <btain the ollo$in#4 i. 5pplication or $or+in# capital 8inance

A/

ii. 5udited inancial or the pre%ious three years iii. 0etails o existin# borro$in# arran#ements i%. *eports rom existin# 2an+er on the application copy %. 8inancial statements, borro$in#s relationship o 5ssociate irmB#roup companies %i. 1ro ile o promoters Bsenior mana#ement personnel ! re3uest includes pro)ect inancin#, obtain additional4 i. 1ro)ect report ii. 5ppraisal report orm inancial institutions in case 5ppraisal has been done by them iii. C<- orm term lenders i already inanced by them i%. *eport orm Merchant ban+ers in case capital mar+et is bein# accessed Examine the ollo$in#4 i. 2an+s lendin# policyB*2! #uidelines, policies ii. 1rudential Exposure norms iii. !ndustry Exposure restrictions i%. ,roup Exposure restrictions %. !ndustry related ris+ actor =ist o de aulters %i. -aution lists %ii. -ompliances re#ardin# trans er o borro$er accounts rom one ban+ to another, it applicable %iii. ,o%. re#ulationBle#islation impactin# on the industry ix. 5cceptability o the promoters x. 5pplications status %is(U(%is other units in the industry xi. 8inancial status in broad term and $hether it is acceptable xii. Examine also the ollo$in# in case o re3uest o pro)ect inance xiii. 'eather the pro)ect cost is prima acie acceptable xi%. 0ebtBe3uity #earin# proposed and $hether acceptable

A;

x%. 1romoters ability to access capital mar+et or debtBe3uity support x%i. 'hether critical aspect o pro)ect Hdemand, product cost pro itability etc. are prima acie in order x%ii. 5rri%ed at a preliminary decision to support or not to support the re3uest. B< +etailed appraisal -arry out a detailed appraisal alter a pre(sanction %isit to applicant -ompanyBtheir o iceBpro)ect site. /orkin! capital facilities ExamineB5naly&eB5ssessE i. 8inancials (in the prescribed orm) ii. 8inancial ratio and other ratios rele%ant to the pro)ect( 0i%idend policy iii. <ther aspects %i&. 0epreciation method and *e%aluation method *ecord o de aults (tax duties etc.) 1endin# suits ha%in# inancial implications (custom excise etc.) Nuali ication o balance sheets, 5uditor remar+s etc.

i%. Trends in sale and probability %. 1ast de%iation in sale and pro it pro)ections %i. 1roduct capacity 6 use(past and pro)ected %ii. EstimateB pro)ections o sales %alues %iii. Estimated $or+in# capital #ap $ith re erence to acceptable buildup o

in%entoryBrecei%ableBother current asset. ix. 1ro)ect le%els $hether acceptable By sourcin! information )here necessary from'

A9

Stoc+ Exchan#e 0irectory inancial )ournalsB publications, pro essional entities li+e !C85-, -M!E etc. $ith emphasis on ollo$in# aspects4 Mar+et share o the units under comparison Ini3ue eatures 1ro itability actors 8inancial pattern o the business !n%entory recei%able le%els -apacity utili&ations 1roduction e iciency and costs 2an+ borro$in# patterns 8inancial ratio 6 other rele%ant ratio

Credit ratin! 0ra$ up tradin# or4 'or+in# capital Term inance

Opinion reports -ompile opinion report on partnersBpromoters and the proposed #uarantors $evie) of the proposal Stren#th and $ea+ness o the exposure proposed *is+ actor and steps proposed to miti#ate them 0e%iations proposed rom usual norms o the ban+ and the reasons

Proposal of sanction' 1repare a dra t proposal in prescribed recommendations or sanction 40 ormat $ith re3uired bac+(up details and $ith

Sanction !ndicati%e list o 5cti%ities !n%ol%e in the sanction 8unction 1eruse the proposal to see i the report prima acie presents the proposalE remit it bac+ to the 5ssessor or the re3uired dataBclari ications. Examine critically the ollo$in# aspect o the proposed exposure

.. 2an+s lendin# policy 7. 2orro$ers status in the industry A. !ndustry aspect 4. Experience $ith units in similar industry ". <%erall stren#th o the borro$er :. 1ro)ect le%el o operation /. *is+ 8actors critical to the exposure and ade3uacy o sa e#uards there a#ainst proposed. ;. Jalue o existin# connection $ith the borro$er 9. -redit ris+ ratin# .0. Security pricin# char#es and concessions proposed or the exposure and co%enants stipulated %is(U(%is the ris+ perception POS" S#NC"ION P$OCESS ;< ollo) up The ollo$(up unctions $ill co%er the ollo$in#4 (a) Ensurin# on an on#oin# basis compliance $ith terms and conditions o sanction throu#h the system o control measuresB eedbac+ %i&. !nspection %isits, prescribed inancialB operation statements rom the borro$er interaction $ith borro$er etc. (b) Trac+in# per ormance o the borro$er, ensurin# sa ety and reco%erability o the ad%ances (c) Ensurin# compliance $ith all the internal and external reportin# re3uirements co%erin# the ad%ances.

4.

!ndicati%e list o the acti%ities in%ol%ed in the 8ollo$(up unction is as ollo$s4 -on%eyin# sanction o ad%ances to the borro$er detailin# the terms and conditions and obtainin# acceptance thereo 1reparation(submission o control returns or sanction -M5 reportin# o sanction $here applicable -ompletion o applicable documentationE maintainin# custody and %alidity o the documents. -reation o char#e o%er security and completion o all rele%ant and applicable ormalities, includin#4 .. -reation o *e#istered or E3uitable mort#a#e 7. -reation o second char#e A. *e#istration o char#e $ith *<4. 1eriodical search o char#e $ith *<<n#oin# scrutiny o transaction in the %arious accounts by perusal o leaders, re#isters, %ouchers etc. to $atch or proper conduct o the accounts, healthy turno%er therein and proper( end use o unds. <n#oin# %eri ication o assets char#ed as security, to ensure a%ailability and sa ety o the assets. Maintainin# on#oin# contact $ith the borro$er and co(leaders and +eepin# abreast o de%elopments in the borro$er entities and business en%ironment. 1reparation o re%ie$s o !*5-, identi ication o deterioration assets and initiations o correcti%e action $here $arranted. 5ccount $ise Supervision !. Super%ision unction should primarily ensure that the e ecti%e allo$ o ad%ances is in the place o the asset 3uality o #ood order is maintained. Super%isor should loo+ out or early $arnin# si#nals, identity Mincipient sic+ness and initiate proacti%e remedial actions. !!. !ndicati%e list o acti%ities in%ol%ed in super%ision unction is as ollo$s ollo$ up o C15s or reco%ery Brehabilitation, preparation o related recommendations to appropriate authority or appro%al.

47

Ensurin# proper lo$(up o ad%ances and obser%ations at the operatin# le%el o the system laid do$n by the ban+. 1eriodic and random examination o statements recei%ed, control re#ister and ilesBrecord co%erin# the ad%ance $ill assist this process.

Ensurin# the security documents are +ept current and that all related documentation ormalities are obser%ed by the o icials responsible.

Ensure that the unction at the ollo$(up le%el are per ormed dili#ently and as per extant instructions o the ban+.

(onitorin! and Controllin! !. Monitorin# and controllin# unction ensures that e ecti%e super%ision is maintained on ad%ance and appropriate responses are initiated $hene%er early $arnin# si#nals are seen. The unction also trac+s customer satis action and pro%ides responses $here necessary. !!. !ndicati%e list o acti%ity in%ol%ed in monitorin# control unction are as ollo$s4 Ensure that the e ecti%e super%ision id maintained on ad%ance by the lo$er le%el unctionaries responsible or ollo$(up and super%ision scrutiny o returns B reports recei%ed rom these line unctionaries, interaction $ith them, eedbac+ rom the customer, commentary in inspectionBaudit reports etc. $ill assess this process. Monitorin# hi#h %alue ad%ances throu#h speci ic ocus on these in the returnBreport recei%ed on ad%ance and by +eepin# $atch on the de%elopments in the borro$er companyBindustry Ensurin# non(recurrence at the operatin# le%el o the company noticed

lapsesBirre#ularities pointed out in %arious audit reports. <n#oin# monitorin# o asset port olio by trac+in# chan#es rom time to timeE chal+ out and arran#e or carryin# out speci ic action to ensure hi#h standard asset content. Extendin# #uidelines to do$n the line unctionaries on the ollo$(up and Msuper%ision o the exposures at ris+. #ssessment of $isk2 Profitability and Efficiency' .. !ndustry *is+s

4A

7. Mana#ement *is+s A. <perational *is+s 4. -ollateral Security ". 8inancial *is+s Industry $isks' !. i. ii. iii. i%. %. !!. i. ii. iii. 1roduction sta#e *a$ materials 1o$er, 8uel, =abor Technolo#y !n rastructure *60 1ost 1roduction 1rocess 0emand -ompetition Mar+etin# arran#ements

(ana!ement risks' 1romoters i. ii. iii. i%. i. ii. iii. i%. Experience o the #roup Mana#ement pro iciency Experience o promoters Employed executi%es Supply o in ormation to ban+s *ecord o irre#ularity =imit mana#ement -ompliance o sanction stipulations

c4 Operational risks'

d4 Collateral security' 44

-ollateral co%er e4 inancial risks' !. i. ii. !!. i. ii. iii. !!!. i. ii. iii. i%. =i3uidity -urrent ratio Con($or+in# capital 1ro itability <perational pro it *eturn o capital employed Cet pro it !nterest co%era#e 120!T B !nterest Term indebtness <%erall indebtness E iciency in utili&ation o current assets

Interpretation' 5bo%e tables sho$s ho$ 2an+s assess the ris+, pro itability and e iciency. !n order to a$ard loan to the business entity ban+s has to loo+ in to the ris+, return and e iciency by usin# the past and present in ormation a%ailable about the company. 2an+s consider the ollo$in# actors to assess the ris+. Industry $isk ?ere the ban+s $ill loo+ in to the all ris+ actors that related to an industry. !nclude the production sta#e ris+ and post production ris+. 1roduction sta#e ris+ assessed by considerin# the actors li+e ra$ materials, technolo#y, !n rastructure etc and post production ris+ in%ol%es demand, competition and mar+etin# challen#es. (ana!ement $isk 1romotes experience, mana#ement pro iciency, employed executi%es are the actors $hich comes here. Operational risk ?ere ban+s loo+ in to the past records o the customers transactions. Supply o in ormation to the ban+, record o the irre#ularities and compliance o sanctions and stipulations are considered here.

4"

Collateral security The collateral co%er o ered by the customer re%ie$ comes here. inancial risk =i3uidity, pro itability and interest co%era#e ratios are assessed here to determine short term and lon# term sol%ency o the company.

4:

C$E+I" #PP$#IS#* S"#N+#$+S'

D.#*I"#"I&E' 5t the outset, the proposition is examined rom the an#le o %iability and also rom the ban+ prudential le%els o exposure to the borro$er, #roup and industry. Therea ter, a %ie$ is ta+en about ban+s past experience $ith the promoters, i there is a trac+ record to #o by. 'here it is a ne$ connection or the ban+ but the entrepreneurs are already in business, opinion reports rom existin# ban+ers and published data i a%ailable are care ully perused. !n case o a maiden %enture, in addition to the drill mentioned hereto ore, an element o sub)ecti%ity has to be per orce introduced as scant historical data $ould be a%ailable and $ei#hta#e has to be placed on impressions #ained out o the serious dialo#ues $ith the promoters and his business contacts. D.#N"I"#"I&E' /orkin! capital4 the basic 3uantitati%e parameters underpinnin# the 2an+s credit appraisal are as ollo$s4 .. *i8uidity4 current ratio (-*) o ..AA $ill #enerally be considered as a benchmar+ le%el o li3uidity. ?o$e%er, the approach has to be lexible. -r o ..AA is only indicati%e and may not be deemed mandatory. !n cases $here the -r is pro)ected at a le%el lo$er than the benchmar+ or a slippa#e in the -* is proposed, it alone $ill not be a reason or re)ection o the loan proposal or or sanction o loan. !n such cases, the reasons or lo$ -* should be care ully examined and in deser%in# cases the -* as pro)ected may be accepted. !n cases $here pro)ected -* is ound acceptable, $or+in# capital inance as re3uested may be sanctioned. 7. Net )orkin! capital' althou#h this is a corollary o current ratio, the mo%ements in Cet $or+in# capital are $atched to ascertain $hether there is a mismatch o lon# term sources %ia(a(%is lon# term uses or purposes $hich may not be readily acceptable to the 2an+ so that correcti%e measures can be su##ested. A. inancial Soundness4 this $ill be dependent upon the o$ners sta+e or the le%era#e. ?ere a#ain the benchmar+ $ill be di erent or manu acturin#, tradin#, hire purchase and leasin# concerns. 8or industrial %entures "otal outside *iability:"an!ible Net /orth ratio o :.0 is reasonable but de%iations in selecti%e cases or understandable reasons may be accepted by the sanctionin# authority.

4/

4. "urn Eover' the trend in turn(o%er is care ully #one into both in terms o 3uantity and %alue as also mar+et share $here%er such data are a%ailable. 'hat is more important is to establish a steady output i not a risin# trend in 3uantitati%e terms because sales reali&ation may be %aryin# on account o price luctuations. ". Profits' $hile net 1ro it is the ultimate yardstic+, cash accruals, i.e. pro it be ore depreciation and taxation con%eys the more comparable picture in %ie$ o chan#es in rate o depreciation and taxation $hich may ha%e ta+en place in the inter%enin# years. ?o$e%er, or the sa+e o proper assessment, the non(operatin# incomes are excluded, as these are usually one time or extraordinary income. -ompanies incurrin# net losses consistently o%er 7 or more years $ill be #i%en special attention, their accounts closely monitored, and i necessary, exit options explored. :. Credit $atin!4 $here%er a -redit *atin# 5#ency or any instrument has rated the company, this $ill be ta+en into account $hile arri%in# at a inal decision. ?o$e%er, as the credit ratin# in%ol%es additional expenditure, ban+ $ould not normally insist on this tool i such an a#ency had already loo+ed into the company inances. /. Capital (arket' $here the companys shares are listed in stoc+ exchan#es, the mo%ement o the price o its share, the mar+et %alue o shares li+e those o competitors in the same industry, response to publicBri#ht issues are also +ept in %ie$ as these are re lecti%e o the corporate ima#e in the eyes o the in%estors community. "erm *oan : +eferred Payment ,uarantees rom the customer, $hich may ha%e been compiled either in(house or by a irm or consultantsB merchant ban+ers. The technical easibility and economic %iability is %etted by the 2an+ and $here%er it is elt necessary. 1romoters contribution o at least 70% in the total e3uity is $hat ban+ normally expects. 2ut the promoter contribution may %ary lar#ely in me#a pro)ects. There ore, there cannot be a de initi%e benchmar+. The sanctionin# authority $ill ha%e the necessary discretion to permit de%iations<

.. !n case o term loans and de erred payment #uarantees, the pro)ect report is obtained

inancial tools used in credit assessment'

4;

inancial performance2 the tool in its current orm uses %arious parameters or ratin# a borro$er on its inancial stren#th. These %arious parameters #i%e us an idea o the di erent sources o ris+ bein# aced by a company in di erent areas. Sl<No< . 7 A Parameter Mana#ement *is+ 2usiness *is+ 8inancial *is+ /ei!hta!e 3F4 4" A0 4"

(ana!ement $isk4 These are the ris+s constitutes about the details o the customers i.e. $hether the promoters are pro essionally 3uali ied and hi#hly experienced in the business or $ell supported by experienced pro essional employees or not or the promoters are ha%in# hi#h indi%idual net $orth and has extreme capability to raise resh unds and not purely dependent on ban+ unds. The customers are #raded $ith the parameters #i%en in the 5nnexure !. Business $isk' This ris+ is measured on the basis o competitors, a%ailability o ra$ material and inished #oods. The 1arameters are #i%en in the 5nnexure !!. inancial $isk' The inancial ris+ in%ol%es the ratio analysis o the balance sheet o the enterprise i.e. current *atio, total net $orth, net pro it mar#in, etc. The parameters are #i%en in the 5nnexure !!!.

49

#nalysis of the Balance Sheet as per the case study' (:s< G-H *imited Company for endin! year =;<6=<56;=
Liabilities Partner Capital a/c #$C%&$D L'A( Canara )an* "91962.9" C%&&$(+ L,A),L,+,$# Creditors #alar- Pa-able .a/es Pa-able $lectricit- Pa-able Audit Fee Pa-able C#+ Pa-able C01 issued but not cleared +'+AL !2"7997.9" Details Amount Assets 1556917.51 Fixed Assets C%&&$(+ A##$+# Closin/ #toc* #undrDebtors Cas3 ,n 0and Details Amounts 8 !"87.85

2571728 2 "52 "5198.6

"662126.6

9525 "26 "958! "25 12 155 "98516

66 699. 5"6561"."5 +otal 5"6561"."5

(:s< G-H *imited Company "radin! 1 Profit 1 *oss #ccount or the Endin! -ear =;<6=<56;=
Particulars +o 'penin/ #toc* +o Purc3ase +o Pac*in/ +o $lectricit+o F'C +o .a/es +o 4P +otal +o )an* C3ar/es 5 ,nst. +o A/c C3ar/es +o #alar- to Partners ,(++. +o Partners +ra6ellin/ +o Petrol 5 Diesel +o Audit Fee +o Printin/ 5 #tationer+o &epair 5 &eplacement +o Posta/e 5 Courier +o +elep3one $xp. +o ,nsurance $xp. +o 7isc. $xp. +o #alar+o C3aritAmount 255"7!1. 9 ! 8 .55 2! 5 . 2125 . 1258 595 1!71116."5 1" 7228. !!!966."5 185 . 96 . 1 5961. 558 . 895 . 7 . 287 . !"!9 . 89 . !85 . !89 . "56 . 2852 . 51 . 5 . 1"5169. 6997 . Particulars )- #ales )- Closin/ #toc* Amount 11"!55 . 2571728.

+otal )- 4ross Pro8it

1" 7228 1!71116."5

"0

+o ConsultancFees +o Depreciation +o (et Pro8it +otal

1!71116."5

+otal

1!71116."5

Net Profit (ar!in' Importance of this ratio 5 ratio o pro itability calculated as net income di%ided by re%enues, or net pro its di%ided by sales. !t measures ho$ much out o e%ery dollar o sales a company actually +eeps in earnin#s. 1ro it mar#in is %ery use ul $hen comparin# companies in similar industries. 5 hi#her pro it mar#in indicates a more pro itable company that has better control o%er its costs compared to its competitors. 1ro it mar#in is displayed as a percenta#e. ormula Cet 1ro itBSales =oo+in# at the earnin#s o a company o ten doesn>t tell the entire story. !ncreased earnin#s are #ood, but an increase does not mean that the pro it mar#in o a company is impro%in#. 8or instance, i a company has costs that ha%e increased at a #reater rate than sales, it leads to a lo$er pro it mar#in. This is an indication that costs need to be under better control.

"otal Net )orth' Importance of this ratio This ratio #i%es a holistic representation o total outside liabilities in relation to tan#ible net $orth o company. !t re lects the capacity o the business unit to assure the creditors o the security they ha%e or payment o both interest and instalment. !t indicates the extent to $hich the creditors are co%ered by asset. This ratio sho$s ho$ much outside borro$in#s are resorted to in comparison $ith o$ners unds ormula The total outside liabilities are di%ided $ith the tan#ible net $orth o the company. Total <utside =iabilities B Tan#ible Cet 'orth

".

L T<= V Total liabilities ( TC' L TC' as de ined in 0ebt E3uity ratio L 5lso calculate this ratio or ban+s, C28-s and other inancial institutions, as it $ill #i%e an indication o the capital ade3uacy o the company. Current $atio' Importance of this ratio -urrent assets o company are the assets that can be easily li3uidated and con%erted into cash. The current ratio measures short(Term li3uidity o the company and ability to meet its short(Term inancial obli#ations. 5 hi#h ratio is #ood rom the point o %ie$ o the ban+ but a %ery hi#h ratio may a ect pro itability throu#h a hi#h in%entory carryin# cost. ormula The ratio is $or+ed out by di%idin# the -urrent 5ssets $ith -urrent =iabilities -urrent 5ssets:-urrent liabilities (includin# installments due durin# the year) L To #et a meanin# ul current ratio, $e should account or the %ulnerability o a company to short Term insol%ency. The current ratio could be hi#h because o excess in%entory or slo$ reali&ation o debtors. There ore, current assets must not include in%entory $hich is older than the normal $or+in# cycle o company (say :(; month), recei%ables o%er : months, dies, spares re3uired or more than 9 months o production and disputed recei%ables. ! such Oexcess assetsP exist then please ma+e necessary notes in the remar+s column. !n such cases please indicate your assessment o the %alue o current ratio. L 5lso calculate this ratio or ban+s, C28-s and other inancial institutions, as it $ill #i%e an indication o the duration mismatch o the companys balance sheet.

Inventory 1 $eceivable +ays' Importance of this ratio 5 inancial measure o a company>s per ormance that #i%es in%estors an idea o ho$ lon# it ta+es a company to turn its in%entory (includin# #oods that are $or+ in pro#ress, i applicable) into sales. ,enerally, the lo$er (shorter) the 0S! the better, but it is important to note that the a%era#e 0S! %aries rom one industry to another.

"7

ormula'

This measure is one part o the cash con%ersion cycle, $hich represents the process o turnin# ra$ materials into cash. The days sales o in%entory is the irst sta#e in that process. The other t$o sta#es are days sales outstandin# and days payable outstandin#. The irst measures ho$ lon# it ta+es a company to recei%e payment on accounts recei%able, $hile the second measures ho$ lon# it ta+es a company to pay o its accounts payable +SC$ 3+ebt Service Covera!e $atio4 Importance of this ratio This ratio measures the capacity o the company to ser%ice its debt i.e. repayment o principal and interest. 0S-* measures the number o times a companys earnin#s co%er its total lon#( Term debt(ser%icin# re3uirement, includin# interest and principal repayments in Term =oans, o%er a period o one year. This ratio $ill help us to e%aluate i an ade3uate cash lo$ $ill be a%ailable to meet debt obli#ation and also or pro%idin# mar#in o sa ety to lenders. This ratio also helps to determine the time $hen repayment should commence and the pay(bac+ period o the =oan. This ratio is a #ood indicator o the lon#(Term sol%ency o a company. ormula The pro it be ore depreciation and interest (120!) is di%ided by installments due durin# the year plus interest. 1 2 0 !:!nstallments or the year T interest

Comments on the Balance Sheet 1 56;=4'

i) ii)

inancial Indicators 3#BS

The company has started commercial production $.e. . .A..7.700: and has made sales o *s. ..4A""00 durin# 8Q M.A. Cet $orth 6 C'-4 0urin# the 8Q 09, the company has inducted capital o *s...4"749/ lacs by $ay o Share 5pplication Money. 8urther, the company has

"A

retained their pro it into the system, resultin# in Cet $orth has increased by *s. :99/0 lacs durin# the 8Q.A. iii) i%) -urrent *atio4 -urrent *atio o the company is ..AA $hich is much better. -omments on T<=BTC'4 T<=4 TC' has impro%ed rom 7.9" to 7.": durin# the 8Q .A. 5t the time o ta+eo%er, the company $as sanctioned resh T= o *s. "0.00 lacs or their expansion plan. ?o$e%er, the company could not a%ail the same as the existin# operations could not streamline. %) %i) %ii) %iii) -omments on in%estment port olio4 The company has not made any in%estments in other companiesBallied sister concerns. -omments on 5uditors ad%erseBserious remar+s4 5s per 52S as on A..0A.70.A, there is no ad%erse obser%ation made by the auditor !n%entory 6 *ecei%ables 0ays4 The !n%entory 6 recei%ables days are ."0 days $hich is not that bad and is addin# up to the points o the enterprise 0ebt Ser%ices -o%era#e *atio ( or T= only)4 The debt e3uity ratio is A..7% $hich is also #ood or the company as $ell as the ban+ to lend to the company.

"4

Conclusion
'ith #reater emphasis on a mar+et based economy that addresses the re3uirements o rapid and e3uitable pro#ress, the role o MSMEs has only become more important. ?o$e%er, this also re3uires that there be #reater entry and spread o the MSME sector. This, in turn, re3uires their access to inancin# $ith minimal transaction costs. !t is $ell reco#ni&ed that unli+e in many de%eloped countries, !ndian MSMEs do not currently ha%e access to a $ell unded ecosystem o ris+(capital a%ailability. !ndia, there ore, needs a properly desi#ned and ade3uately resourced ris+(capital re#ime. !t $ill need to be a combination o many di erent routes. ?o$e%er, it $ill need to be based on !ndian realities and the reality o the !ndian MSME sector. Merely creation o #reater number o inancin# bodies is not the solution. The systems, rules, procedures, and practices #o%ernin# the #rantin# o capital, monitorin#, and exitin# $ill need to be thou#ht throu#h care ully. This, in turn, $ill re3uire a multi(dimensional and multi( departmental approach, $here human capital, expertise, inancin#, le#al re#imes, all need to be chan#ed to suit the re3uirements o !ndia>s ne$ MSMEs. These $ill not be dependent on #o%ernment lar#esse and subsidies, but on the entrepreneurs ability to harness all a%ailable technolo#ies and resources. 5lready $ith #o%ernment support, and also ne$er pri%ate initiati%es, such an ecosystem is emer#in#. The #o%ernment needs to cataly&e these acti%ities by remo%in# the bottlenec+s that pre%ent the mar+et or ris+ capital rom e%ol%in#.

""

*imitations of the study

This study is limited to only one &one o -anara 2an+, the #eo#raphical scope o the pro)ect $as limited to -anara 2an+ circle and the loans studied $ere o solely o businesses established ma)orly in Kalandhar. There are the constraints o time and cost. 2an+s are more con idential about their internal data. *2! internal #uidelines are not a%ailable

":

indin!s
Thou#h there are less number o borro$ers re#ardin# Medium enterprises, the inanced amount to$ards them is hi#h compared to Micro and Small enterprises borro$ers. -ustomers eel to pre er to deal only $ith 1ublic Sector 2an+s, the reason is they $ill be located in e%ery noo+ and corner o the city. =o$ rate o !nterest is the criteria, $hich the borro$ers most consider as important by the respondents in selectin# their ban+. 1roblem aced in raisin# inance rom public sector ban+s is 0elay in Sanction and its =en#thy process. The most common reason or re)ectin# an application or loan is( O!t is not a pro itable %entureP -ustomers are unable to capture mar+et opportunities, $hich re3uire lar#e production acilities and thus could not achie%e economies o scale, homo#enous standards and re#ular supply. L They are experiencin# di iculties in purchase o inputs such as ra$ materials, machinery and e3uipments, inance, consultin# ser%ices, ne$ technolo#y, hi#hly s+illed labor etc. L Small si&e hinders the internali&ation o impedes producti%ity. unctions such as mar+et research, mar+et intelli#ence, supply chain, technolo#y inno%ation, trainin#, and di%ision o labor that

"/

Su!!estion
The -redit department o -anara 2an+ is at its ull potential and the sta is hi#hly experienced and has a %ery stron# intuiti%e sense. So, there is no special recommendation on the entire process. ?o$e%er, the procedure startin# rom #ettin# loan application to disbursement ta+es around 7(A months and by the time disbursement is made, the mar+et scenario chan#es. So, the process o loan sanctionin# should be speedier. !n order to ma+e the process more lexible and e icient, an electronic database should be desi#ned carryin# all the a%ailable and important in ormation related to the proposals accepted, and it should be easily accessible to the credit department. This $ill help reduce paper $or+ and loss o in ormation.

";

Biblio!raphy
!!28. Small and Medium Enterprises in !ndia. Taxmann 1ublications 1%t. =td. -anara 2an+ 5nnual *eports -anara 2an+ 1ublications. Kalandhar 0istrict. -redit 1lans. !!28. W!2 Jision. !ndian !nstitute o 2an+in# and 8inance, Mumbai. !!28.2an+ Nuest. Kournals o the !ndian !nstitute o 2an+in# and 8inance, Mumbai !25.!ndian 2an+ers. !25 monthly )ournals. -anara 2an+ 1er ormance *eports. -anara 2an+ ,T *oad Kalandhar

"9

#nnexure I
score
1. MANAGEMENT RISK (Industrial accounts/ traders/service providers

Marks awarded

I. MANAGEMENT !"A#IT$ A. E%perience in t&e 'usiness( (i) Promoters are professionally qualified and highly experienced in the business or well supported by experienced professional employees. (ii) Promoters are fairly experienced or well supported by professionals and require support from other field people. (iii) Promoters are marginally experienced but is un familiar with the operating environment to ma e high quality decisions. (iv) "tart#up company with promoters having no prior experience in the sector and has to depend purely on staff. ). *redit +ort&iness (to ascertain net wort& ,ro- N. /01 (i) Promoters are having high individual net worth and has extreme capability to raise fresh funds and not purely dependent on ban funds. (ii) Promoters are having reasonable individual net worth and have ability to raise resources and not dependent on ban borrowings alone. (iii) Promoters have no past trac record of raising fresh resources and their personal net worth is low and dependent on ban borrowings to some extent. (iv) %o proven capability to raise funds in case of need and the combined net worth of promoters are extremely low and dependent on ban funds alone II. MANAGEMENT IN.2RMATI2N S$STEM a. "ubmission of &'"(P'") renewal papers(feedbac statements (i) "ubmission is within one month from the balance sheet date( one month earlier to expiry date(stipulated time. (ii) "ubmission is within * months from balance sheet date(expiry date(stipulated time. (iii) +elay in submission is within , months from balance sheet date(expiry date(stipulated time. (iv) -nordinate delay observed (more than , months) III. 3A$MENT RE*2R4 (a) .epayment of instalments( interest (+evelopment of /0(cheque(bill returns(frequent transgression (i) %o such irregularity during the review period (ii) %o such irregularity during the review period excepting for occasional over dues. (iii)+elay in payment of interest( inst. are observed during the review period (iv) +elay in payment of interest( instalment) devilment in /0 (b) Passing of turnover in the account (i) 1ntire turnover passed on to us(pro rata business t(o passed on to us (ii) "hortfall in turnover passed on in the account (prorate share is negligible(2ustifiable (iii) 3urnover passed on in the account is not satisfactory. 10 8 ! 10 8 ! $ 10 8 ! $

10 8 !

10 8 ! $

:0

(iv) 3urnover passed on in the account is poor. I5. TRA*K RE*2R4 (a Ac&ieve-ent o, sales esti-ates (i) 0onsistently meeting the pro2ections in the last * years (ii) 5et pro2ections last year but off pro2ections in previous year (iii) "hort of pro2ections by 106#$46 in the last * years (iv) "hort of pro2ections by more than $46#406 in the last * years. (' Ac&ieve-ent o, pro,it esti-ates (i) 0onsistently meeting the pro2ections in the last * years (ii) 5et pro2ections last year but off pro2ections in previous year (iii) "hort of pro2ections by 106#$46 in the last * years (iv) "hort of pro2ections by more than $46#406 in the last * years

4 ! $ 1 4 ! $ 1

:.

#nnexure II
6. )"SINESS RISK (A *2M3ETITI2N (i) Product is reserved(no competition from large manufacturers. %o import threats. (ii) %egligible competition from player7s imports and grey mar et. (iii) 0ompetition from large players and imports is medium. %o threat from grey mar et. (iv) 8igh level of competition from grey mar et and imports. () *"ST2MER )ASE (i) /ong term contracts with many customers and not dependent on single customer and customer base is very wide. (ii) 0ustomer base is spread but not very widely spread. (iii) +ependent on single customer (iv) "elling on &dhoc basis and targeted at 1 customer at a time. (* A5AI#A)I#IT$ 2. RA+ MATERIA# (i) 1nsure by long term tie ups(1asily available( &lternate processing sources available (less fluctuation in price (ii) .eliable supply ( less fluctuation in price (iii) 5oderately easily available(reasonable fluctuation in price (iv) 9ery erratic supply (fluctuation in price is very erratic :. #2*ATI2NA# A45ANTAGE (-n case of traders( service providers) (i) /ocated in an area with huge demand (ii) /ocated among competitors but standing is long (more than 10 years) (iii) /ocated among competitors but with a standing of 4 to 10 years (iv) %o locational advantage 10 8 4 $ 14 1$ 8 ! 14 1$ 8 ! 10 8 4 $

:7

Annexure III
7. .INAN*IA# RISK (&) ;rowth in sales. (i) 0onsistent growth in profit and sales for the past * years (ii) 0onsistent growth in profit and sales for the past * years with slight fluctuation in one or two years. (iii) ;rowth in sales is average and growth in profit is stagnant in the past * years. (iv) +ecline in sales and profit for the last * years. () Net pro,it -ar8in (i) 5ore than < (ii) 5ore than , but less than < (iii) 5ore than 4 but less than and equal to ! (iv) /ess than ! (* T2#/TN+ (i) $.4 and less (ii) 5ore than $.4 but less than and equal to *.0 (iii) 5ore than * but less than and equal to !.4 (iv) 5ore than !.4 (4 *urrent ratio (i) 1.** (ii) 5ore than 1.$4 but less than 1.** (iii) 5ore than 1.1! but less than 1.$4 (iv) /ess than 1.1! (E Inventor9 : Receiva'les da9s (i) /ess than =0 days (ii) 5ore than =0 days but less and equal to 1$0 days. (iii) 5ore than 1$0 days but less than and equal to 180 days (iv) 5ore than 180 days (. 4e't Service *overa8e ratio (,or T# onl9 (i) 5ore than 1.<4 (ii) 5ore than 1.40 but less than and equal to 1.<4 (iii)5ore than 1.$4 but less than and equal to 1.40 (iv) /ess than 1.40 , ! * 1 ! * $ 1 , ! * 1 4 ! * 1 , 4 * 1 8 < , *

:A