SME FINANCE

Submitted by:
AASHISH
PGDM-09004
 was founded on the 7th September ,1906

 3101 branches in India spread over all states/

union territories including 141 specialized
branches

 Number of shareholders : 2, 15,790.

 Study of SME sector In India at macro level ,
factors affecting the growth of SME, Problems
faced by SME.
 To know about the procedure of lending to SME.
 Ratio analysis for the manufacturing unit.
 DATA SOURCES:- In this report the data has been taken from
secondary sources.The data was mainly collected through
 Internal Sources: Company books, records provided by the
organization.
 External Sources: Other information is taken up from reliable
sources, magazines.
 Data analysis: Basically my report is mainly focused on the
complete procedure of lending to manufacturing units in SME
sector using
 Ratios
 Credit Rating Model
 MPBF Method
Enterprise Engaged in Engaged In
Manufacturing / Providing/
Preservation of Rendering of
Goods (incl. Services
Processing Units)
Micro Enterprise Not to Exceed Rs. 25 Not to Exceed Rs. 10
Lakhs. Lakhs.
Small Enterprise More than Rs.25 lakhs More than Rs.10 lakhs
but does not exceed but does not exceed
Rs. 5 Crores. Rs. 2 Crores.
Medium Enterprise More than Rs.5 Crore More than Rs. 2 Crore
Rupees but does not Rupees but does not
exceed Rs. 10 Crore. exceed Rs. 5 Crore
 Manufacturing- Service sector-
 Micro Enterprises
( manufacturing) are
 Small Road and Water
known as tiny industries. Transport operators.
 Small enterprises  Professional and self
( manufacturing ) are employed
known as small scale
industries.  Small business
 Medium enterprises
( manufacturing) are
known as medium
industries.
 Creation of new enterprises
 Employment creation
 Increasing utilization of domestic products
 Linked with the business of large enterprises
 Development for the various types of skills
As per 2009 data
• 11.85 million small scale units in India
• 1.63 million are registered
• Only 14.26 % of the units in registered sector and 3.09 % in
unregistered sector have access to institutional finance
• 99 % units falls in the category of tiny.
(source:- smenetwork.net )
 Purpose of the loan
 Liquidity
 Safety
 Profitability
 Risk diversification
 Fund based lending
 Non-fund based lending

Fund based lending is popular in SME sector

FUND BASED LENDING:
 Cash credit

 Overdraft

 Loan System
 Risk Profile

 Transaction Costs

 Lack of Collateral
COMPANY PROFILE
 M/s S.square, the manufacturer of readymade
garments
 applied for the cash credit limit of twenty lakh on
25.02.2010 against hypothication of the stock.
INITIAL DOCUMENTS:-
 APPLICATION FORM
 Borrower profile
 Three previous year financial statements and one
provisional financial statement
 Id proofs like pan card, voter id, pan card of the
firm, registration of the firm
 INSPECTION
 CURRENT ACCOUNT DETAILS
 CIBIL REPORT
 Analysis of Balance sheet and rating sheet
 Methods of granting the working capital credit
Analysis of Balance sheet and rating sheet
In the rating sheet for the small enterprises,
following scores are calculated:-
 Financial Risk Score

 Management Risk Score

 Business/ Industry Risk Score

Financial Risk Score Management Risk Score
 SALES GROWTH  Management Character

 PROFITABILITY  Management Capacity

 LIQUIDITY  Management Succession

 LEVERAGE  Management Reputation

 Interest Service Coverage

Ratio Business/ Industry Risk Score
 Customer Quality and
Concentration
 Supplier Quality and
Concentration
 Sales Trend (product)
 Sales growth = (current sales- previous sales)/
previous sales *100 = (71.87-38.58)/38.58 * 100
= 86.28 %
 Profitability = (Profit before tax)/ sales * 100 =
4.42%
 Interest coverage ratio = (Net profit (after taxes)
+ Interest on long term debt + Depreciation)
/Annual interest on long term debt
= 3.18+2.3+0.07 = 3.79
 LIQUIDITY ratio = Current assets/ Current liability
=40.47/14.33 = 2.82
 Liverage ratio = Debt ( long term)/ equity
= 15.39 / 11.12
=1.38
 CUSTOMER RATING Final Risk Credit Rating
SCORE =136 Score Rating
Grade
(A) FINANCIAL RISK 0 SBS1 AAA
SCORE =28
120 SBS2 AAA
(B) MANAGEMENT RISK 140 SBS3 AAA
SCORE =76
( C ) BUSINESS/ 160 SBS4 AA
INDUSTRY RISK
SCORE =32 180 SBS5 AA
FINAL RISK SCORE
(A+B+C)=136 213 SBS6 AA
SBS 3 AAA
247 SBS7 A

268 SBS8 B
 METHODS OF GRANTING THE WORKING
CAPITAL CREDIT
1 Turnover method:- 25 % of the projected turnover.
projected turnover in the year 2009-10 is 225 lakh
25 % of 225 is 56 lakhs.
2. Bank use to give loan 50 to 75 percent of the stock
in case if stock is hypothecated. in this case 40 lakh
is kept as stock hypothecated.
3.Maximum permissible bank finance:-
maximum limit to be granted is75 % ( CA – CL)Which
comes out to be 21 lakh
 On the basis of the above findings, the cash credit of
20 lakhs has been sanctioned with the applicable
interest and other charges .
THANK YOU