Iob Project PPT 100221030155 Phpapp02

PANKAJ KUMAR(PGDM-FINANCE) ICBM-SBE,HYDERABAD(2008-10)
PROJECT REPORT ON
“STUDY OF LENDING PROCESS AND CREDIT SERVICES
OFFERED TO SMALL AND MEDIUM ENTERPRISES”
WITH
IOB
BY - PANKAJ KUMAR
R.NO:36

INTRODUCTION
q SMEs a part of PRIORITY sector

q GOVT. support has been started from 1967 -68 but attention given from
1971.

q RBI issued guide line modified


q All advances has been increasing year by year and contributes 40% of
gross mfg. to the Indian economy.
q
q Employment generates by SMEs in A.P is 7.5% (approx) of total
employments.

q
•
•
DIFINIATION OF SME
 Under the MSME act 2006,Enterprises has been classified into two
categories, namely – enterprises engaged in the mfg./production of goods
pertaining to any industry, & enterprises engaged in providing of services.

 Enterprise have been defined in term of investment in plant and

machinery/equipment(excluding land and building)

DIFINIATION
Investing in plant and machinery / equipment (excluding land and building)
MANUFACTURING SERVICES
ENTERPRISES ENTERPRISES
MICRO- Upto RS 25 lakhs Upto RS10lakhs
SMALL-More than RS 25L and More than 10 lakhs and upto RS
upto RS 5 2 crores
crores
MEDIUM- More than RS 5 crore More than 2 crores and upto 5
and upto RS 10 crores
crores

REVIEW OF LITERATURE
• BRAHMANANDAM, G, N., RAI, H.L., DAKSHINA MURTHY,

“Financing Small Scale Sector”. The Role of Banks” INDIAN
BANKING TODAY AND TOMORROW, MAY 1981-the above
article was prepared on the role of banks in financing the SMEs in the
year 1981. At those times the Indian banking was not all interested in
financing the SMEs, because of their credit worthiness. Later due to
changes in the industrial policy of India, the commercial banks come
forward made immense help to the growth of SMEs. This article was
written before the economic reforms taken place. Here is a gap for more
analysis about the role of the banks in the post economic reforms.
BRAHMANANDAM, G, N., RAI, H.L., DAKSHINA MURTHY,
has focused on role of banks in financing SMEs. He also focused on
how economic reforms have changed the bank role in extending credit
to SMEs. They also focused on the credit facilities available to the
SMEs in the wake of MSME act 2006.
•
•JAILAL SAAW,” Growth of small scale industries in India” JOURNAL OF
INDUSTRY AND TRADE, April -2005- The growth of small and medium
industries in India was discussed in the above article. The expected growth
was not there because of lot of root causes to sickness and under
development in the SME sector. This article discussed about the slow
growth rate of SMEs, dues to several problems. This article is focusing on
the one problem that is financial problems faced by the SME segment.


PROBLEMS
• SME is one of the growing sectors of the country even though they are facing
so many problems which restrict the growth

1.Under-utilization of Capacities.
2.Inadequate and Untimely Credit Flows.
3.Inability in Technology up gradation.
4.Inefficient raw material procurement.
5.Poor financial situations and low levels of R&D
6.Inability to Market Finished Goods.
7.Ineffective monitoring and feedback mechanism.
8.Shortage of power
9.Lack of awareness of credit facilities available
10.Lack of knowledge about various credit schemes
11.Overdependence on purchases by government etc…………

NO. OF SME UNITS

PRODUCTION GROWTH
The above dig. says that in FY 07 growth in production is by 18%

against 15.8% in the previous year

COMPANY PROFILE
• Chairman and Managing Director : Shri S.A.Bhat


• Established in 1937 in Chennai by Shri M..CT.M. Chidambaram Chettyar.


• 1847 branches in INDIA and 6 branches overseas and 500 ATMs all over

• AN ISO certified

• Rating for IOB – AA+/ stable (Based on the services offered and market
performance)
•
• Recent happening-Take over, Shree Suvarna Sahakari Bank LTD in May
2009.
•
• PANKAJ KUMAR(PGDM-FINANCE) ICBM-SBE,HYDERABAD(2008-10)

OBJECTIVE OF THIS STUDY
1. To examine the growth of SME industries.

2. The study about credit facilities offered to the SMEs by the banks.
3. To analyze government’s support in obtaining credit facilities.
4. To study about financial problems of SMEs regarding loan.
5. RBI guide line and SEBI guide line
6. How working capital financed to SMEs i.e. the main source of finance
available for SMEs.
7. To study about working capital.

GUIDE LINES FOR BANKS REGARDING SME
FINANCING
• Financial decisions are taken at various levels from the branch to

Management Committee of the Board.
• if it falls under their powers and if it is beyond their powers forward the
same to the Regional Offices for their consideration and regional office
will take decision
• Same with regional office – than transfer to central office
•
• If decision not taken by the central office then RBI rules is followed by the
banks is mandatory


RBI GUIDE LINE
• Every Bank is required to set up its own policies for providing monetary
assistance to the SME

• Bank should adopt a transparent rating system by which eligible SME

should get the credit facilities.

• Credit facilities must be offered to an average of at least 5 micro, small

and medium enterprises in every quarter

• To some extent bank can grant collateral free loans to SMEs

•

RESEARCH METHODOLOGY
RESEARCH DESIGN:

1. Study is all about the research & analysis of credit services offered to
small and medium enterprises
2. Study is being made for the purpose of analysis of credit services and relief
to the borrowers by the bank (IOB) that predicts the future growth of
the bank by providing better services by bank can earns more profit
3. Study will be carried out at Hyderabad.
4. Secondary data is required for analysis of report.
5. Period of the study is limited to 45 days.


METHOD OF DATA COLLECTION
• PRIMARY DATA - Information has also been gathered through

discussions with the employees of IOB and visiting the IOB branches
(R.P. ROAD branch, HIMAYATNAGER branch and REGIONAL
OFFICE.)
 SECONDARY DATA
• The secondary data collected from the already sanctioned loan files.
• Collection of secondary data from Management journals.
• Bank and Borrower’s Annual Report.
• Project proposal.
• Respective Banks Web Sites other sites
• Reference from Management Books.
• Newspapers and Articles
• Already researched data (Which turned into information based on analysis)


LIMITATIONS
1. The study is limited to the period of 45 days. Due to time constraints we

covered only limited no. of SMEs
2. Since banks have some confidential reports which cannot be handover to
the outsiders, so in-depth research and analysis is not possible.
3. There is lots of no. of SMEs which is unregistered; due to this proper
data’s are not covered.
4. The financials of the firms, were not available, as most of the firms are
worried about disclosing their financials, thus for the industry analysis
and other qualitative research, we had to rely on the secondary data
sources.

•
GOVT. SUPPORT
• The way forward would be to create an environment of risk -taking by the

government for providing a start-up capital to SMEs and to
facilitate technology transfers and training in skill development.
The Micro, Small and Medium Enterprises Act, 2006 is a legal
framework for more capital investment in the SME sector.

 Under this Act -The Credit Guarantee Fund Scheme for Micro and Small
Enterprises (CGMSE) was launched by the Government of India to make
available collateral-free credit to the micro and small enterprise sector.
Both the existing and the new enterprises are eligible to be covered under
the scheme.

• The scheme was formally launched on August 30, 2000 and is operational
with effect from 1st January 2000. The corpus (principle sum) of
CGTMSE is being contributed by the Government and SIDBI in the
ratio of 4:1 respectively and has contributed Rs.1346.54 crore till
2007,
 After it is raised to RS2500 crores, which is provided by SIDBI and other
specialized Govt. banks.

GOVT.SUPPORT WITH STATE GOVT.
•Small scale industries need credit support on a continuous basis for running
the enterprise as well as for its diversification and modernization.
Recognizing the need for a focused financial assistance to such
industries, the Government of India, together with the State
Governments, has formulated several policy packages including
schemes and funds for their growth and development.
•
•
Most of these programmes of the Central Government are
implemented through two principal organizations are as followes:

1. SMALL INDUSTRIES DEVELOPMENT ORGANIZATION (SIDO) is an apex body for
promotion and development of small scale industries in the country. SIDO promotes
axillaries units to public sectors enterprise ,acts like model agencies for coordinating,
monitoring policy and programme.

 2. NATIONAL SMALL INDUSTRIES CORPORATION LTD (NSIC), has been

established with the objective of promoting, aiding and fostering the growth of small
scale industries in the country. It has been assisting small enterprises through a
set of specially tailored schemes which facilitate marketing support, credit support,
(Equipment financing , Financing for procurement of raw material , Financing for
marketing activities , Financing through syndication with banks ) , technology support etc.

1.

•
SEVEN POINT ACTION PLAN ANNOUNCED BY GOVT.
OF INDIA
1. Time bound action for setting up specialized SSI branches in 85

identified districts of high small industry density.
2. Adequate delegation of powers at the branch and regional level.
3. Banks to conduct sample surveys of their performing SSI accounts
to find out whether they are getting adequate credit.
4. Steps to be taken to see that as far as possible composite loans
(covering both term loans and working capital) are sanctioned to
SSI entrepreneurs.
5. Regular meetings by banks at Zonal and Regional levels with SSI
entrepreneurs.

6. Simplification of procedural formalities by banks for SSI


entrepreneurs.
•
IOB CREDIT FACILITIES FOR ELIGIBLE SMEs
• In this regard they need to submit some documents are as

follows:
1.SSI Registration Certificate

2.Partnership Deed / Memorandum & Article of Association


3.Authority letter to sign the application


4.List of all partners / directors with their age, address, certified Net Worth / Income

Tax returns, qualifications and experience



5.Copy of the audited accounts for the last three years (where accounts for the last year

have not been audited, provisional accounts duly certified by a Chartered

Accountant, along with two years audited accounts, are to be submitted)

6.In case of new project/expansion, copy of the project report containing a brief project

profile, cost of project, source/means of finance


7.Brief write-up about the products manufactured, end users, marketing tie-up and

orders in hand

8.Details of subsidy, tax concession available to the applicant


9.Quality certificates, export awards won, membership of any associations



10.Any other information that would enable us to understand your business better

11.Details about group companies (names, constitution, net worth, turnover etc.)

12.Contact details of Bankers, key suppliers & key customers


13.Insurance details of plant & machinery


14.Rating report

15.Clear vision of the customers


16.Project proposal report



BASIC NEED OF SMEs
• WORKING CAPITAL-Working capital refers to the funds invested in

current assets, i.e. investment in stocks, sundry debtors, cash and other
current assets. Current assets are essential to use fixed assets profitably.
For example, a machine cannot be used without raw material capital.
The investment on the purchase of raw material is identified as working
capital.
•Working Capital Management, also known as short-term financial
management involves the management and control o f the Gross
current assets so that a satisfactory level of Working Capital (Net
Working Capital requirement), needed to carry out day -to-day
activities, is maintained and the current liabilities are discharged as and
when they fall due. Working Capital Management involves cash
flows within the Operating Cycle of the Company, usually not
exceeding the period of one year, unlike long -term financial
management where cash flows extend for more than one year.
•
 PANKAJ KUMAR(PGDM-FINANCE) ICBM-SBE,HYDERABAD(2008-10)
•Theoretically, there are two concepts of Working Capital
(1) Gross working capital: The gross working capital refers to investment in
all the current assets taken together. The total of investments in all the
current assets is known as gross working.
(2) Net working capital: The term net working capital refers to excess of
total current assets over total current liabilities. It may be noted that the
current liabilities refers to these liabilities which are payable with in a
period of 1 year.

 And also there are two types of working capital are as follows :

PERMANENT & TEMPORARY WORKING CAPITAL:

•The overall Working Capital requirement does not stay constant and keeps
fluctuating. However, to carry on business, a certain minimum level of
Working Capital is required on a regular basis which is referred to as
“Permanent or Fixed Working Capital”

•Any amount over and above the permanent Working Capital is known
as the “Temporary or seasonal Working Capital” requirement. It is
also known as variable working capital.


•The Operating Cycle creates the need for Current Assets or Working
Capital. The Working Capital need of a Company does not come to an end
once an Operating Cycle is completed. As it is a cyclical process, the need
continues to exist even after the Company has realised cash against its
credit sales. Thus, there should be continuous supply of Working
Capital for the Company to carry on its business activity.

SOURCE OF FINANCE FOR SMEs
SMES are basically depends on the 2 types of source of finance


(1) Internal and (2) external


•INTERNAL:-
a) Paid up capital: Ordinary share, Preference share, deferred shares, and
Forfeited shares.
b) Reserve surplus: Capital reserve, Development rebate reserve, Other
sources
c) Provisions: Taxation (Net on advances on income tax), Depreciation, Bad
debts


•EXTERNAL:-
a) Borrowings: From Banks, from term lending institutions like IDBI, IFCI,
b)
SIDBI, ICICI, INDUSTRIAL DEVELOPMENT CORPORATION, etc.
b)Trade dues and current liabilities: Sundry creditors, Other sources



OTHER INSTITUTIONS IN MARKET FOR SME’S LOAN
•As the small and medium enterprises (SME) sector is one of the fastest growing
industrial sectors all over the world, initiatives are being taken by national, private
and financial institutions. Among them are:-
(1) Indian overseas bank (IOB)
(2) State bank of India (SBI)
(3) Bank of Baroda (BOB)
(4) HDFC bank
(5) ICICI bank
(6) Small industries development organization (SIDO)
(7) National small industries corporation (NSIC)
(8) SIDBI
(9) NABARD
(10) IDBI

PROBLEMS OF SMEs-FINANCIAL PROBLEMS OF SMEs
REGARDING LOAN

FROM THE BAR DIG. ANALYSIS
1. RELUCTANCE TO LEND BY BANK: Sometimes banks are hesitating in giving the

loan. Due to this nearly 27% SMEs are not getting the finance facilities. This is
happening mostly with the new clients.
2. COLLATERAL REQUIREMENTS OF BANK/ FINANCIAL INSTITUTIONS:
Because of the collateral requirements of bank nearly 54% SMEs are not getting the
loan facilities. They are not able to show the collateral money or assets.
3. BANK/ PAPERWORK BUREAUCRACY: Due to huge demand of documentations
43% SMEs are not getting loan facilities.
4. HIGH INTEREST RATES: Due to high competition with the big firms small firms are
not able to make a sufficient profits and they are not able to pay the interest rate
properly. So considering these banks are not providing the loan to the new clients.
Due to this nearly 55% SMEs are not able to get the loan from the banks.

•
5. TIME TAKEN BY BANKS TO CLEAR LOAN APPLICATION: Due to some

verifications banks are taking time in clearing the loan. This time constraints are
big obstacles for them in production parts which restrict the 42% SMEs growth.
6. DELAYED PAYMENT: 38% growth is less because of delayed payment from the

market which affect the whole process of the SMEs like production to interest and
till loan payment.


TYPES OF INDUSTRIAL FINANCE PROVIDED BY IOB
1. SHORT TERM: Less than 1 year to meet variable, seasonal or temporary capital
requirement.
2. MEDDIUM TERM: 1 to 5 year for permanent working capital, small expansion
replacement, modification etc.
3. LONG TERM FINANCE: Period more than 5 years. It is required for procuring

Fixed Assets for establishing new branches or new business for substantial
expansion of existing business modernization

AT THE OF LENDING SOME RELEVANT RATIOS ARE
COVERED BY THE BANK
1. Liquidity Ratios: Current Ratio=(current Assets / current liabilities)


 Acid Test Ratio (quick ratio) = (Current Assets- Inventory / Current Liabilities)

 According to this ratio bank is testing the liquidity position of the client by the liquidity ratio
because that they are able to pay or not their short term liabilities.

2.
 Activity ratios: Average Collection Period= (A/c Receivable/ Daily Average Sales)
 Capital turnover ratio= (Sales/ Capital Employed)
 Fixed Assets turnover Ratio= (Sales/ Capital Assets)

 Activity ratios are also called Turnover ratios or performance ratios. These ratios are to
evaluate the efficiency with which firm manages and utilizes its assets. These ratios usually
indicate the frequency of sales. It is helpful for the bank that they can estimate the paying
capacity of the borrowers.

•
3.Leverage Ratios: Debt Ratio= (Total liabilities/ Total Assets)

Debt Equity = (Total liabilities/ Share Holders Equity)


Banks are very keen to know about this ratio because it shows relative weights of debt

and equity. These ratios indicate the proportion of debt fund in relation to equity. It
covers share holders fund (equity) and long term borrowed fund (debt).
4.Net Profit Margin: (Net Profit/ Net Sales)

This ratio measures the profitability of the firm in terms of assets employed in the

firm. Banks are also keen interested to know the profits of the borrowers that they are
able to pay their interest and dues on time.

5.Debtors’ Turnover Ratio:
 Credit Sales
 Average Accounts receivable

For the cash cycling banks wants to know about the collection and credit policies of the firm. The

speed with which credit receivables are collected affects the liquidity position of the firm.

6.Return On Investment: (ROi)= (Net Profit/ Total Assets)


It measures the profitability or the operational efficiency of the firm. This is very essential for the

banks.

7.Dividend Per Share =(Total profits available to Equity Share Holders/No. of Equity Shares)

This ratio indicates the amount of profit distributed to shareholders per share.


RATE OF INTEREST CHARGED ON AMOUNT
SANCTIONED BY IOB FOR SMEs
FOR MICRO AND SMALL ENTERPRISES:


•For credit limits up- to RS 2 lakhs - 9.50%

•Above RS2 lakhs and up- to RS 25 lakhs -10.50%
•Above RS 25 lakhs and below RS 1 crore-11.00%
 1 crore and above up-to RS 10 crore:
• For mfg. units (depending on ratings)-11.00% to 13.50%
• Other then mfg.(depending on ratings)-12.25% to 15.50%


MEDIUM ENTERPRISES

•For credit limits up-to RS 25,000/- --9.50%

•Above RS 25,000/- and up-to RS 2 lakhs--11.00%
•Above Rs2 lakhs and upto Rs25 lakhs(based on ratings)--11.75% to 15%
•Above Rs25lakhs and below Rs1crore(based on ratings)-12.25% to 15.50%
 1 crore and above upto Rs 10crores
• For mfg. units(depending on ratings)--12.25% to 14.75%
• Other than mfg. units(depending on ratings)--12.25% to 15.50%


FINANCING OF WORKING CAPITAL BY IOB IN THE FOLLOWING
FORM:
1. CASH CREDIT: This type of credit is provided mainly to individuals or enterprises


engaged in manufacturing & trading activities to enable them to carry on their

activities. The amount of cash credit facility to be sanctioned to a units need based
and is worked out as per well defined parameters in each bank. The guide line of
RBI may also affect the quantum of facility in some cases. This facility is generally
granted against the security of stocks of goods, bills/ book debts representing sales.

2. LETTER OF CREDIT: A letter of credit is the guarantee provided by the buyer’s


banker to the seller that in the case of default or failure of the buyer, the bank shall
make the payment to the seller.

3.
 BILLS FINANCE: The bank extend assistance to the borrowers against the bills.
The finance against bills is meant to finance, the actual sale transactions. The
finance against bills can take three forms.
- Purchase of bills by the bank if these are payable on demand.
- Discounting of bills by bank if these are usance bills (or time) bills.
- Advance against bills under collection from the drawees, whether sent for
realization through the bank or sent directly by the drawer to the drawees.

4.
 WORKING CAPITAL DEMAND LOAN: In compliance of RBI directions ,
banks presently grant only a small part of the fund- based working capital facilities
to a borrower by the way of running case credit account ; a major portion is in the
form of working capital demand loan. This arrangement is presently applicable to
borrowers having working capital facilities of RS. 10crores or above. The minimum
period of working capital demand loan which is basically non- operable account
keep on changing. The working capital demand loan is granted for a fixed term
on the carrying of which it has to be liquidated, renewed of rolled over.
•
 5. OVERDRAFT FACILITY: Under this arrangement the borrower is
allowed to withdraw the amount upto a certain limit from this current
account over and above his actual credit balance. Within the stipulated
limits any numbers of withdrawals are permitted by the bank.


DATA ANALYSIS THROUGH BAR DIAGRAMES
(All data taken from discussion with employees and customers)
PERCENTAGE OF BANK CREDIT INVESTED IN PRIORITY

SECTORS

IN T E R PR E TA T IO N :
Fro m th e a b o ve g ra p h w e o b se rve th a t IO B ra te o f in ve stm e n t in to Prio rity
se cto rs is 4 0 %
a cco rd in g to th e g u id e lin e s p ro vid e d b y th e R B I, w h ich a lso co ve rs th e
a d va n ce s to
A g ricu ltu re , S H G , E d u ca tio n , h o u sin g a n d S S I. T h e b a sis o f 4 0 % is b a se d o n
th e b a n k
N O . O F SM Es TH AT A R E
R E G IS T E R E D
R P R E TA T IO N :
e a b o ve d ia g ra m it ca n b e o b se rve d th a t o n ly a sm a ll n o . o f S M E s a re re g iste re d
. M a xim u m n o . o f u n its a re still u n re g iste re d i. e . 1 0 . 8 0 m n , b e ca u se th e y h a ve p ro
n cin g a n d th e y a re n o t a b le to m a in ta in p ro p e r d o cu m e n ta tio n . T h e re a so n fo r n o
stra tio n o f S M E ’ s is th e n o tio n th a t th e co sts w o u ld b e in cre a se d .

C O N T R IB U T IO N O F S M E ’ s IN T O T A L E X P O R T
P R E TA T IO N :
e cto r p la ys a m a jo r ro le in In d ia 's p re se n t exp o rt p e rfo rm a n ce . Fro m th e a b o ve f

n o w a b o u t th e co n trib u tio n p a rt o f S M E s in th e to ta l exp o rt ie
. . 3 5 % . W h o le se cto
ib u tin g 6 5 % a n d S M E se cto rs a lo n e a re co n trib u tin g 3 5 % , w h ich a lso h e lp s in g e
re ig n re ve n u e

E R C E N TA G E O F S M E s P R E F E R R E D T O T A K E L O A N F R O M V A R IO U S B A N K S
IN T E R PR E TA T IO N :
Fro m th e a b o ve a n a lysis w e kn o w th a t S M E s g ive 1 st preference to the Govt .

fo r ta kin g th e lo a n b e ca u se o f e a sy p ro ce ss ra th e r th a n th e p riva te se cto r b a
S M E s le ss p re fe rs th e p riva te se cto r b a n ks b e ca u se o f th e h e a vy d o cu m e n ta t
is n e e d e d .


P E R C E N T A G E O F L O A N S A N C T IO N
B A SED O N A R EA
PR E TA T IO N :
b o ve a n a lysis sh o w s th e lo a n sa n ctio n e d p e rce n ta g e a re a w ise . T h is sh o w th a t th
cu sin g m o re o n u rb a n a re a i. e . 6 0 % a n d se m i u rb a n it is 3 9 % . T h e y h a ve n e g le ct
a re a . It is b e ca u se th a t m o st o f th e S M E s a re in u rb a n a re a a n d it is e a sy fo r th e
in to u ch w ith th e m . La ck o f a w a re n e ss a m o n g ru ra l S M E ’ s is th e re a so n fo r n o n s
n s in th is a re a .

A W A R E N E S S A B O U T T H E L E N D IN G FA C IL IT IE S
P R E TA T IO N :
u m n o . o f S M E s a re a w a re a b o u t th e fa cilitie s p ro vid e d b y th e b a n k b u t n o . o f S
a re ta kin g lo a n fro m th e b a n k is q u ite ve ry le ss o n ly b e ca u se o f h u g e p a p e r w o rk
a n k sid e . T h e y a re n o t in te re ste d to m a in ta in th e m a xim u m n o . o f p a p e r w o rk w h
u lt fo r th e m a n d h ig h in te re st ra te w ill co st th e m , a n d ca n n o t a ffo rd b e ca u se it in
p ro d u ct p rice s.

D IT S E R V IC E S O F F E R E D T O S M E s IN T E R M S O F W O R K IN G C A P ITA L R E Q U
E R P R E TA T IO N :
k is o ffe rin g 5 typ e s o f fin a n ce s to S M E s w o rkin g ca p ita l n e e d s. Fro m th e a b o ve
o b se rve d th a t ca sh cre d it is ve ry p o p u la r so u rce fo r ta kin g w o rkin g ca p ita llo a n
a u se in ca sh cre d it fa cilitie s th e re is in te re st ch a rg e d b y th e b a n k o n ly o n th e w i
o u n t b y th e p e rso n o r b o rro w e r. T h e a m o u n ts a re w ith d ra w n o n ly w h e n it is re q u
th e in te re st is p a id o n ly o n e n jo yin g p a rt o f th e a m o u n t.
e r fa cilitie s a re o n ly u tilise d b y th e m a lo n g w ith th e ca sh cre d it w h e n th e y re q u i
itio n a lm o n e y fo r th e ir b u sin e ss.

T E R M O F LO A N
E R P R E TA T IO N :
d iscu sse d e a rlie r th a t m o stly le ss th e n 5 cro re s o r 5 cro re s a m o u n t lo a n is ta ke n b
h e S M E s . T h is a m o u n t is u se d b y th e m fo r w o rkin g ca p ita lre q u ire m e n ts. A n d th e
w h ich th e lo a n a m o u n t is ta ke n b y th e m is fo r lo n g te rm . It ca n b e re n e w e d b y th
tim e to tim e .
ks a re p ro vid in g th e lo a n o n lo n g te rm cre d it b a se d o n th e g o in g co n ce rn co n ce p
o u n tin g ie
. . th a t th e firm w ill ru n fo r a n in d e fin ite p e rio d o f tim e a n d a lso th e firm
se n t a n d fu tu re p ro je ctio n o f th e ir a cco u n tin g p ro ce d u re s a re ta ke n in to co n sid e r
te rm o f lo a n .
R C E N TA G E O F C R E D IT FA C IL IT IE S S A N C T IO N E D T O S M E ’ s
T E R PR E TA T IO N :
o m th e a b o ve a n a lysis w e o b se rve th a t 8 2 % o f S M E s a re sa n ctio n e d th e cre d it fr

B a n d re st 1 8 % a re n o t a va ilin g th e se fa cilitie s o n ly b e ca u se o f n o t fu lfillin g th e
n d th e crite ria o f th e b a n k a s d iscu sse d e a rlie r in list o f d o cu m e n ts re q u ire d b y th
n d o th e r q u a lita tive p a rt w h ich m u st b e fu lfille d b y th e b o rro w e rs.

IM E TA K E N B Y T H E B A N K F O R S A N C T IO N IN G O F T H E L O A N
R P R E TA T IO N :
th e a b o ve a n a lysis it ca n b e o b se rve d th a t 4 9 % o f S M E s a re sa n ctio n e d th e lo a n

m o n th b e ca u se o f fu lfillin g a ll th e re q u ire m e n ts a n d n o rm s o f th e b a n k in tim e .
a re d e la ye d d u e to fa ilu re in co m p lyin g w ith th e d o cu m e n ta tio n , fo r w h ich th e sa
d ta ke s m o re th a n o n e m o n th .
re th o se w h o a p p lie d fo r th e b ig a m o u n t fo r w h ich so m e tim e s it ta ke s m o re th a n
n th s b u t n o t a lw a ys.
P E R C E N TA G E O F IN V E S T M E N T IN V A R IO U S S E C T O R S
R P R E TA T IO N :
is sa n ctio n in g lo a n s m o re to th e m a n u fa ctu rin g se cto rs fo r th e in ve stm e n t a s

u fa ctu re rs a p p ro a ch th e b a n k fo r th e ir cre d it re q u ire m e n ts ie
. . 8 5 % a n d o n ly 1 5 %
lo a n is sa n ctio n e d to se rvice se cto rs a s p e r th e re q u ire m e n ts.
e r th e R B I g u id e lin e b a n ks h a ve ta ke n ca re o f th e m a n u fa ctu rin g u n its b e ca u se
titu te th e 3 5 % o f to ta l exp o rt a n d a lso p ro vid in g th e m a xim u m n o . o f e m p lo ym e
try. S e rvice se cto rs a re ve ry le ss in n u m b e r.

FINDINGS
1. IOB is offering loan to priority sectors like housing, education, working capital
loan, etc.
2. By whole study it is clearly state that cash is vital component for the firms
operating cycle. If cash is not generating properly in the firm it will be harmful
for the firm i.e. they should maintain the appropriate liquidity.
3. It is observed that SMEs are suffering from many other problems which hamper
their growth.
4. Time of peak season small industry have to keep their inventory at the optimum
level for making good profit by maintaining the demand level. Which also need
more working capital
5. At the same time of sanctioning loans bank need huge no. of documents for safety
of their bank.

6.Bank is taking maximum no. of days for sanctioning the loan.
7.IOB is strictly followed the rules and regulations for sanctioning.
8.Bank employees are using their exceptional powers regarding loan sanctioning.
9.Bank mostly providing the loan to their well known customers.
10.The entrepreneurs are lack of knowledge regarding the credit facilities.
11.For promoting SMEs govt. also supporting them by providing schemes.
12.The capital base of SMEs is very poor.
13.The growth of SMEs in A.P. has been significant.
14.IOB is encouraging the SME finance because they feel that they are able to repay
their loan.
15.A big no. of SME units are still unregistered Which is showing loss of Indian
economy. But on the other part SMEs are big source of employments.
16.At last shortage of finance is considered to be most important problem responsible
for a host (maximum) of problems in SMEs.



SUGGESTIONS
1. The bank should take care of the well being of SMEs and they should
initiate such measures which would result in further promotion of
SMEs.
2. Timely finance should be provided to units keeping in view their needs.
3. The borrowing should be made cheaper by lowering the rate of interest on
lending of banks, which help the SMEs for coping with the high risk
and costs to compete with their competitors.
4. Bank should also provide consultancy services and professional guidance
at the time of setting up for considering the long term and short term
financial requirements of a small unit for lending purpose.
5. Bank has to increase their credit limit and also decrease the installment
amount.


6.SMEs are big source of revenue for banks, so bank should encourage
also the unregistered units by providing more facilities like less
paper work.
7. The best way to encourage lending to SMEs is to improve the
ability of existing institution to construct profitable and efficient

lending programmes.
8.Building awareness among small business people about the financial
sources offering by bank. Especially in the case of SMEs is must. So

there is mutual benefits are possible.
9.While granting the loans the bank does not adhere with the margin.

10. The process followed by the bank in sanctioning the loan is
cumbersome (unmanageable), hence it is suggested to make the
process easier in sanctioning the credit facilities to the SMEs.


CONCLUSION
In recent years some initiatives have been taken by both govt. and banks of India to

make more acceptable for funding by banks.

 My project report mainly involved the problems, opportunity, credit facilities to
SMEs by the bank. The main purpose of the analysis is to know that how bank is
providing loan to SMEs.
We know that today SMEs are growing and profitable sectors for banks in terms of
money investment. And IOB system of loan sanctioning is quite good. But it is very
true, in terms of the paper work that most of the SMEs are enable to submit proper
documents for approval of loan. It is also found that after sanctioning the credit
facilities bank has maximum no. of paper works, which is creating problems for SMEs
to maintain all of them.
In regard to rate of interest industrial owners feel that the rate of interest for working

capital is high. It is manageable at the time of pick season but not at all time.


It also found that some SME owners are not educated, so they are not aware about the

benefits of the registration. Due to this they are not eligible for the financing, and lack
of finance they cannot grow.
 Nower days credit guaranty and rating institutions have floated to support banks to
assume risk unhesitatingly in financing SMEs. And also more appropriate credit
instruments have been developed to help SMEs to have easy credit with less cost and
collaterals.
SMEs have other problems like underutilization of capacity which is happening of
improper training and also less market share of their products. The reason for less
market share is competition with the big firms in the market which also cuts their profit
margin.




THANK YOU

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PANKAJ KUMAR(PGDM-FINANCE) ICBM-SBE,HYDERABAD(2008-10)

PANKAJ KUMAR(PGDM-FINANCE) ICBM-SBE,HYDERABAD(2008-10)

q RBI issued guide line modified

 Enterprise have been defined in term of investment in plant and

PANKAJ KUMAR(PGDM-FINANCE) ICBM-SBE,HYDERABAD(2008-10)

PANKAJ KUMAR(PGDM-FINANCE) ICBM-SBE,HYDERABAD(2008-10)

• BRAHMANANDAM, G, N., RAI, H.L., DAKSHINA MURTHY,

PANKAJ KUMAR(PGDM-FINANCE) ICBM-SBE,HYDERABAD(2008-10)

3.Inability in Technology up gradation.

4.Inefficient raw material procurement.

5.Poor financial situations and low levels of R&D

6.Inability to Market Finished Goods.

7.Ineffective monitoring and feedback mechanism.

9.Lack of awareness of credit facilities available

10.Lack of knowledge about various credit schemes

11.Overdependence on purchases by government etc…………

PANKAJ KUMAR(PGDM-FINANCE) ICBM-SBE,HYDERABAD(2008-10)

PANKAJ KUMAR(PGDM-FINANCE) ICBM-SBE,HYDERABAD(2008-10)

The above dig. says that in FY 07 growth in production is by 18%

PANKAJ KUMAR(PGDM-FINANCE) ICBM-SBE,HYDERABAD(2008-10)

• Chairman and Managing Director : Shri S.A.Bhat

• Established in 1937 in Chennai by Shri M..CT.M. Chidambaram Chettyar.

• PANKAJ KUMAR(PGDM-FINANCE) ICBM-SBE,HYDERABAD(2008-10)

1. To examine the growth of SME industries.

PANKAJ KUMAR(PGDM-FINANCE) ICBM-SBE,HYDERABAD(2008-10)

• Financial decisions are taken at various levels from the branch to

PANKAJ KUMAR(PGDM-FINANCE) ICBM-SBE,HYDERABAD(2008-10)

• Bank should adopt a transparent rating system by which eligible SME

• Credit facilities must be offered to an average of at least 5 micro, small

• To some extent bank can grant collateral free loans to SMEs

PANKAJ KUMAR(PGDM-FINANCE) ICBM-SBE,HYDERABAD(2008-10)

PANKAJ KUMAR(PGDM-FINANCE) ICBM-SBE,HYDERABAD(2008-10)

• PRIMARY DATA - Information has also been gathered through

PANKAJ KUMAR(PGDM-FINANCE) ICBM-SBE,HYDERABAD(2008-10)

1. The study is limited to the period of 45 days. Due to time constraints we

• The way forward would be to create an environment of risk -taking by the

PANKAJ KUMAR(PGDM-FINANCE) ICBM-SBE,HYDERABAD(2008-10)

PANKAJ KUMAR(PGDM-FINANCE) ICBM-SBE,HYDERABAD(2008-10)

PANKAJ KUMAR(PGDM-FINANCE) ICBM-SBE,HYDERABAD(2008-10)

 2. NATIONAL SMALL INDUSTRIES CORPORATION LTD (NSIC), has been

1. Time bound action for setting up specialized SSI branches in 85

6. Simplification of procedural formalities by banks for SSI

• In this regard they need to submit some documents are as

2.Partnership Deed / Memorandum & Article of Association

3.Authority letter to sign the application

Tax returns, qualifications and experience

PANKAJ KUMAR(PGDM-FINANCE) ICBM-SBE,HYDERABAD(2008-10)

have not been audited, provisional accounts duly certified by a Chartered

profile, cost of project, source/means of finance

8.Details of subsidy, tax concession available to the applicant

9.Quality certificates, export awards won, membership of any associations

PANKAJ KUMAR(PGDM-FINANCE) ICBM-SBE,HYDERABAD(2008-10)

12.Contact details of Bankers, key suppliers & key customers

13.Insurance details of plant & machinery

15.Clear vision of the customers

16.Project proposal report

PANKAJ KUMAR(PGDM-FINANCE) ICBM-SBE,HYDERABAD(2008-10)

• WORKING CAPITAL-Working capital refers to the funds invested in

PANKAJ KUMAR(PGDM-FINANCE) ICBM-SBE,HYDERABAD(2008-10)

PANKAJ KUMAR(PGDM-FINANCE) ICBM-SBE,HYDERABAD(2008-10)

PANKAJ KUMAR(PGDM-FINANCE) ICBM-SBE,HYDERABAD(2008-10)

SMES are basically depends on the 2 types of source of finance