A Project report on

Finance to SMEs
At

State Bank of India

As a part of partial fulfillment of the curriculum of MBA-I Submitted

By Utpal Mankad Roll no.-21

To

AES Post Graduate Institute of Business Management, Ahmedabad

PREFACE
Today is an era of competition. Existence in todays dynamic world requires some doing. Skills of different kinds are required to excel in ones corporate career. Mere studying theories, models and definitions will not help in the day-to-day functioning. The practical application of the theory is required. And for management students, it is must. So the industrial training from the practical study point of view is very important for MBA student. Every year First year MBA students have to undergo industrial training as per the curriculum of Gujarat University before entering into the second year of MBA Course. Industrial training makes a student enough aware of how, where, when and up to what extent theoretical knowledge can be used to solve problems in practice etc. In MBA, students study the management and administration of business and get knowledge about handling of the routine operations and decision-making. Since, there is a vast difference between theoretical knowledge and practical implication this training helps the individual to know what he or she is supposed to do when entering into the corporate world.

AKNOWLEDGEMENT

I am heartily thankful to the GUJARAT UNIVERSITY, which has given me the golden opportunity to under go the industrial summer training and a chance to prepare the project report of an industry after taking the training for a period of 2 months. I am also thankful to the authorities and the staff of STATE BANK OF INDIA Regional Business Office, Main Branch and Commercial Branch for spending their valuable time in giving me the summer training and for giving me all the information and suitable guidance whenever I required. I am heartily thankful to all the faculty members without whose guidance and support this work would have been an impossible task to complete. Their inspiration and encouragement has led me to get through the task successfully. I would be failing my duty, if I will not mention my family and friends for the help and encouragement provided by them.

TABLE OF CONTENTS
Sr. No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Particulars Executive Summary Objective of Study Scope Of Study Introduction to SBI Introduction to SME sector Finance to SME sector Procedure of financing SMEs at SBI Services provided to SMEs Research Methodology Introduction to the industrial areas of Rajkot Charts and their interpretations Findings SWOT analysis Suggestions \ Recommendations Limitation Of Study Conclusion Bibliography Glossary Annexure Page No. 01 02 03 04 07 10 14 15 18 21 25 35 37 42 43 44 45 46 47

EXECUTIVE SUMMARY
SME sector in India and especially in Gujarat is getting the momentum and is spreading its wings across the globe in terms of growth. It has a vital role to play in the development of the Indian economy as a whole. SMEs contribute in the fields of increased production, export promotion and employment generation. State Bank of India, the largest Indian bank has realized the importance and potential of the SME sector. Though it is putting lots of efforts in financing to SMEs, it has a long way to go. Speeding up the marketing efforts in the industrial areas of Rajkot will definitely prove to be fruitful in the years to come. In the dynamic era of growing globalization and service sector, fine tuning the services will help SBI tremendously. The marketing efforts implemented through this project have helped State Bank of India in earning the business of 18 Crores.

OBJECTIVE OF THE STUDY

The main objective of preparing this report and conducting the survey is to know about the procedure of financing SMEs and finding out the probable reasons of association and nonassociation of SMEs located at Rajkot city, with SBI whereby persuading the SMEs to take the finance from SBI.

Moreover, the study was undertaken with the secondary objectives of knowing the perceptions of the industrialists of SMEs about SBI and finding out the current bankers for SMEs and services provided by them so as to improve the services of SBI.

SCOPE OF THE PROJECT

The project has been carried out under the State Bank of India, Rajkot. So, the study is limited to the Rajkot city only. The study has been confined to the industrial area visited, as all the industrial areas were not covered due to time constraint. In total, 350 SMEs have been surveyed from two industrial areas visited, namely; GIDC (Lodhika) Industrial Estate and GIDC AJI Vasahat. The study is limited to the convenient sample taken for the survey. The analysis is based upon the responses and information given by the respondents.

INTRODUCTION TO SBI
This project report has been prepared based on the information collected during the summer training taken with STATE BANK OF INDIA. SBI is a world-class nationalized bank. It is considered as one of the best bank through out the nation. The Gujarat head office of SBI is situated at Ahmedabad. SBI is Indias largest bank and currently ranks amongst Asia's top 20 commercial banks. With over 9500 branches in India , 54 foreign offices in 28 countries and advanced technology at fingertips, State Bank of India is one of the most extensive commercial bank networks worldwide. SBI is a one-stop shop providing financial products and services of a wide range for large, medium and small customers, both domestic and international. Core Banking: The Core Banking Solution provides the state-of-the art anywhere anytime banking for the customers. The facility is available at 2704 branches of SBI covering 49% of the Banks business at 612 centers and at all the 4715 branches of the Associate Banks covering 100% of their business at 2341 centers. HISTORY AND DEVELOPMENT The origin of the State Bank of India goes back to the first decade of the nineteenth century with the establishment of the Bank of Calcutta in Calcutta on 2nd June, 1806.

Three years later, the bank received its charter and was redesigned as the Bank of Bengal (2nd January, 1809). A unique institution, it was the first joint-stock bank of British India sponsored by the Government of Bengal. The Bank of Bombay (15th April, 1840) and the Bank of Madras (1st July, 1843) followed the Bank of Bengal. These three banks remained at the apex of modern banking in India till their amalgamation as the Imperial Bank of India on 27th January, 1921. When India attained freedom, the Imperial Bank had a capital base (including reserves) of Rs.11.85 crores, deposits and advances of Rs.275.14 crores and Rs.72.94 crores respectively with the network of 172 branches and more than 200 sub offices extending all over the country. In 1951, when the First Five Year Plan was launched, the development of rural India was given the highest priority. The commercial banks of the country including the Imperial Bank of India had till then confined their operations to the urban sector and were not equipped to respond to the emergent needs of economic regeneration of the rural areas. In order, therefore, to serve the economy in general and the rural sector in particular, the All India Rural Credit Survey Committee recommended the creation of a state-partnered and statesponsored bank by taking over the Imperial Bank of India, and integrating with it, the former state-owned or state-associate banks.

An act was accordingly passed in Parliament in May, 1955 and the State Bank of India was constituted on 1st July, 1955. More than a quarter of the resources of the Indian banking system thus passed under the direct control of the State. Later, the State Bank of India (Subsidiary Banks) Act was passed in 1959, enabling the State Bank of India to take over eight former State-associated banks as its subsidiaries (later named Associates). The State Bank of India was thus born with a new sense of social purpose aided by the 480 offices comprising branches, sub offices and three Local Head Offices inherited from the Imperial Bank. The concept of banking as mere repositories of the community's savings and lenders to creditworthy parties was soon to give way to the concept of purposeful banking sub serving the growing and diversified financial needs of planned economic development. The State Bank of India was destined to act as the pacesetter in this respect and lead the Indian banking system into the exciting field of national development. SBI is a one stop shop providing financial products / services of a wide range for large, medium and small customers both domestic and international. State Bank of India's linkages with Government business, are widespread. No wonder that out of 9500 branches in India, about 7200 branches are conducting Government business. The large network of our branches provides easy access to the common man to deposit their Government dues such as Income Tax, Corporation Tax, Central Excise and Customs Duty, etc.

INTRODUCTION TO SMEs
Small and Medium Enterprises or SMEs refer to the companies whose headcounts or turnover falls below certain limit. The abbreviation SME started commonly being used in EU and other international organizations such as the World Bank, United Nations, and WTO.

Definition of SME:
There is no universal definition of small and medium enterprises.

In some countries, there are certain objective standards, which classify the units as micro, small or medium enterprises depending on the number of employees. In some other countries, annual turnover of the company determines the size of an enterprise. The concept of size is also a relative phenomenon with reference to the local economies, since a large company in a small country could possibly be considered as a small company in a larger country.

In India, the small-scale industry has been conventionally defined in terms of the quantum of investment. Globally, the sector has had more flexibility and has been termed the Small and Medium Enterprise or SME sector. Certain parameters tend to characterize them: the entities are likely to be unquoted; ownership of the business is restricted to few individuals, typically a family group; and they are micro to medium sized businesses that have an objective larger than self-employment.

Over the years, the process of graduation of several SSI units into medium enterprises has been witnessed. Therefore, the Working Group on Flow of Credit to SSI Sector, appointed by the Reserve Bank of India, recommended for the creation of a separate category of Medium Enterprises (ME). While Medium Enterprise may not qualify for priority sector lending, they must be seen as closest with SSI. As per the recommendation of Working Group on Flow of Credit to SSI Sector, Small and Medium Enterprises (SME) comprising of tiny, small and medium enterprises are defined as follows: (A) Tiny Industries: Turnover being up to the financial limit of Rs.2 crores. (B) Small Industries: Turnover being above Rs. 2 crores but less than Rs. 10 crores. (C) Medium Industries: Turnover being between Rs. 10 crores and Rs. 50 crores.

Contribution of SMEs to the Economy:

There is a growing worldwide appreciation of the fact that Small and Medium Enterprises (SMEs) play a catalytic role in the development process of most economies. This position gets reflected in the form of their increasing number and rising proportion in the overall product manufacturing, exports,

manpower employment, technical innovations and promotion of entrepreneurial skills.

SMEs contribute to around 56% of manufactured products, 35.8% of the exports and ranks second in providing employment next only to agriculture. They have been identified to possess the unique strength of innovation and have served as incubators for new technologies and practices. Within the SME sector, the small sector serves as a green field for nurturing of entrepreneurial talent and helping the units to grow into medium and large size. The promotion of SMEs, therefore, becomes a major area for policy focus, both in developed as well as developing countries. For the recently announced Small and Medium Enterprises Fund, the Government of India has approved the limit of investment in plant and machinery above Rs.10 million and up to Rs.100 million for defining a unit as a Medium Enterprise. Amongst the developing countries, India has been the first to display special consideration to SSIs and basic focus has been to make economical use of capital and absorb the abundant labor supply in the country.

FINANCE TO SME SECTOR

In recognition of the contribution and vast potential of the sector in

the economy as well as its inherent infirmities, provision of adequate credit to this sector has continued to be an element of banking policy, even though economic and financial policies themselves have undergone significant transformation, particularly after the initiation of structural reforms in 1991. The Indian private sector banks and foreign banks have an additional outstanding SME portfolio of more than Rs.100 billion. In the policy context, the Government of India introduced a comprehensive policy package for SMEs, which included fiscal, credit, infrastructural and technological measures. The Government in 1999, to provide more focused attention to the sector, created an exclusive Ministry dedicated to small industries.

The financial sector needs to step up lending to the sector. Depending on the requirements of each niche market segment and sectors, credit delivery would vary from pure debt finance to providing risk capital or a hybrid of both. While this kind of funding is readily available, it comes with the downside of high servicing costs. There in lies the opportunity for the financial sector. If it can provide credit in small buckets at rates that are more remunerative than the industrial sector, but competitive when compared with the unorganized sector, then it has an attractive new segment to tap.

While this may appear attractive on paper, there are several challenges that need to be circumvented successfully, before this business model becomes viable. Critical among these would be the management of transaction costs. Since the number of transactions required to deliver a certain amount of credit will increase substantially, the financial sector will need to devise innovative methods of risk appraisal and credit delivery. Of paramount importance will be the availability of local knowledge.

Measures to promote SMEs:

There exists a well-structured institutional set up both in the public and private sectors to cater to the credit needs of SMEs. The Small Industries Development Bank of India (SIDBI) was set up in April 1990, as the principal financial institution for financing and development of SSIs and coordination of institutions engaged in similar activities. A fair code of practices has been adopted by the Bank in its daytoday operations while functioning as an apex financial institution for the sector. Various steps taken by the GOI / RBI to enhance the flow of credit to SMEs in the recent past include: (I) Increase in the loan limit of composite loan scheme for SSIs upto Rs.5 million, (II) Providing loans to SSIs within the interest rate band of 2 percent above and below the respective bank's PLR,

(III) Setting up of Technology Bureau for Small Enterprises to address the technology related needs of SSIs and proposal to convert TBSE into a full fledged Technology Bank, (IV) Opening of specialized SSI branches throughout the country, presently numbering 417, (VI) Introduction of Laghu Udyami Credit Card for SME borrowers with satisfactory track record, (VII) Identification of 60 clusters for focused development by including their credit requirements in the respective State Credit Plans, and (VIII) Setting up of a Credit Guarantee Fund Trust for Small Industries. In order to boost investment in SSI sector, the benefits of exemptions of capital gains arising from the transfer of long term capital assets are allowed, if such capital gains are invested in the bonds issued by SIDBI.

Issues involved in financing to SMEs:

The business of lending to SMEs can potentially be a highly profitable initiative. While regulated lending through SIDBI and other entities has been able to satisfy the demands of this sector to a certain extent, there is a significant gap between demand and supply of SME finance. This gap is generally plugged by the unorganized sectorlocal money lenders and cash in the economy.

The issues related to the provision of finance to SMEs are as follows: 1) 2) Non-availability of bank credit to the SME sector is a major issue. Inadequate credit sanction, and
3) Delays in credit sanction. Inadequate sanction takes place

(i) (ii) (iii) (iv) (v) (vi)

Lack of understanding of business and requirements of genuine needs, Lack of transparency on the part of borrowers, Lack of information made available by borrowers to banks for credit appraisal, Lack of appreciation on the part of the borrower regarding bank formalities, Diversion of funds by borrowers which prevents bankers from being liberal in credit sanction, Lack of coordination between banks and financial institutions in carrying out a joint appraisal,

(vii) Lack of skills in appraising hi-tech projects, and (viii) Inadequate support from controlling office and legal / technical cells in banks.

Federation of Indian Small & Medium Enterprise (FISME):

FISME is an institution, which works for the growth and development of SMEs in INDIA. FISME is a network that reaches to more than 100,000 SMEs through state level SME associations and sectorial associations.

PROCEDURE OF FINANCING SMEs IN SBI

The procedure followed by SBI to finance SMEs involve following steps: (1) First of all the proposal comprising of all the details regarding the project from the SME is sought. The proposal should be prepared in the Performa prescribed by RBI. (2) if the project is of below Rs. 2 crores, it is handled by Central Processing Cell (CPC). For projects above Rs. 2 Crores, Retail Asset Centre for Small Enterprise (RACSE) works on it. (2)Then the background of the promoter is examined by the concerned authority of the bank. (3) If the project is of expansion, the financial statements of the unit are asked for and the analysis is performed. But if the project is for establishment of new unit, the economic and technical viability of the project is checked through experts. (4) For existing units, various ratios are calculated to use them as performance parameters. Commonly used ratios are Return on Capital Employed (ROCE), Inventory holding ratio, Current ratio; Debt- equity ratio etc. asset- liability check is also exercised.

(5) The SMEs are then given the State Bank Ranking (SBR) from SB 1 to SB 7 but SBI does not consider the SMEs with

ranking above SB 4. This ranking helps in deciding the rates over and above the SBAR or PLR. (5) Then, the project including all the results is prepared by the Chief Manager of the processing cell of the respective branch. (6) The presentation is made by the processing cell in front of the Credit Circle Committee (CCC). (7) If it is found satisfactory and as per the standards set, the proposal is accepted and the fund is dispersed to the party.

SERVICES PROVIDED TO SMEs

Except some portion of the SME cluster, most of the SMEs need finance from outside to run their business. Finance is the life blood of business. The same applies here also. SMEs require fund not only at the time of inception but also at some other point of time. SMEs require finance mainly for three reasons, namely; 1) At the time of commencement of the business,
2) At the time of expansion of business, i.e.: acquiring

new unit, acquiring new machinery etc. 3) For day to day requirements i.e.: Purchasing raw materials, Repairs and maintenance of machinery, Transportation, etc. Banks provide variety of services to SMEs to match with their needs and to increase the ease of operation with a view to provide services which are beneficial mutually. Varieties of services provided to SMEs by bank mainly involve the following: 1) 2) 3) 4)
5)

Cash credit Term loan Current account Letter of credit discounting Export Packing Credit (EPC)

6) 7)

At par cheques and drafts Outstation clearing Brief description of each service provided to SMEs is as follows: (1) Cash credit: Cash credit is the amount allowed to the customer for use for a stipulated time period at a specified rate. This amount is given by the bank mainly for the purpose of purchasing goods from suppliers. The rate of CC is decided based on the size of the CC limit. The interest is charged only on the unpaid amount. Generally the CC is used to fulfill working capital requirements. CC is given to the customers who have good credit in the market. (2) Term loan: The loan given for acquiring any fixed asset or to renovate or to repair the existing ones is called Term loan. The SMEs are segregated in categories like SB-1 SB-2, SB-3, etc. based upon the ranking given to the SME by the concerned examiner. The interest rate for the term loan is decided over and above the SBAR (State Bank Advance Rate) or PLR (Prime Lending Rate) based on the category of the SME. Current SABR/PLR is 12.75%. (3) Current account: Current account refers to the account from which any number of withdrawals can be made by the account holder. This facility is generally availed by a merchant or a businessman, who has to

withdraw money frequently. No interest is given on the current account deposit. (4) L/C discounting: L/C is a short form of letter of credit. Banks provide L/C discounting for purchasing of goods, in case the person wants to purchase on credit. The bank takes the responsibility of paying the amount of purchase in case the customer defaults. This is exercised through issuing letter of credit to the customer by bank. The bank charges the commission for providing this service. (5) Export Packing Credit (EPC): Export Packing Credit (EPC) is same as Cash Credit but the only difference is that it is provided for an export purpose. The rates of EPC are less than Cash Credit as a part of promoting exports. (6) At par cheques and drafts: This is a facility whereby the cheques are transferable and drafts are both issuable and transferable without any commission. These facilities were chargeable earlier by banks. (7) Outstation clearing: In this service, outstation cheques are accepted and cleared in the bank. This service is chargeable.

RESEARCH METHODOLOGY

Data Sources:
It refers to the ways of collecting the information or data. There are mainly two types of data sources available like: Primary Data Secondary Data

(1) Primary data: Primary data means the data generated for the first time for a particular purpose. The data about SMEs has been collected through survey. 350 SMEs have been personally visited and the questionnaires are filled up. (2) Secondary data: Secondary data refers to the data which has already been generated and is available for use. The data about some of the SMEs visited has been extracted from the book of GIDC Lodhika Industrial Association (GLIA). Other data has been extracted from websites and links mentioned in the bibliography.

Research Approach:
Research approach refers to the way of conducting the study. In this study, analytical approach has been used.

Research instrument:
Research instrument refers to the tools available with the surveyor for the survey. The mainly used research instruments are: Questionnaires Interviews Observation etc. The instrument used for conducting the survey is questionnaire. The questionnaire is made up of open-ended questions.

Sampling unit:
Small & Medium Enterprises (SMEs) of two industrial areas, namely; GIDC (Lodhika) Industrial Estate and GIDC AJI Vasahat, are used as a sampling unit.

Sampling size:
In total, 350 SMEs were visited and surveyed. Out of which 250 units were from GIDC (Lodhika) Industrial Estate and 100 units were of GIDC AJI Vasahat.

Sampling Procedure:
Sampling Procedure refers to the type of sampling method used to conduct a survey. Various sampling methods can be Simple random sampling, Stratified random sampling, Convenient Sampling etc. Sampling Procedure used in preparing this project is convenient sampling

Contact Methods:
It refers to the method used for contacting the sampling units. There are various contact methods available namely: Personal contact Telephonic contact Contact though mail E-mail, etc. Here, personal contact method is used to conduct a study. Each and every SME has been visited personally and the data has been gathered.

INDUSTRIAL AREAS OF RAJKOT

Rajkot is an industrial hub of Saurashtra. The first industrial estate in India was established in AJI area of Rajkot in the year 1955. There are many industrial areas in and around Rajkot city including 17 GIDC areas. As per the scope of this project, two major industrial areas namely, GIDC-Lodhika and GIDC-AJI are covered to conduct a study. The brief introduction of both the areas is as follows:

(1) GIDC-Lodhika (Metoda):

GIDC (Lodhika) Industrial Estate is located at the distance of 15 kms from Rajkot city on Kalawad Road. This Industrial Estate is spread in over 421 hectares of land. As information furnished, it has been divided into 1200 plots. At present, there are 750 SMEs engaged in industrial production of various items. All the plots of industries of this Estate are allotted and are in various stages of development of starting the industrial activity. Status of plots allotted and operational units in the Industrial Estate Status of plots/units No of plots allotted Operational units Merged plots Non-operational plots Total plots No of plots 1200 750 400 50 1200

GIDC (Lodhika) Industrial Estate is one of the well planned Industrial Estates of the GIDC. This industrial association was established in 1995. The estate has three portals on the entry points namely; Kranti Gate Almighty Gate Kisan Gate The facilities like bank, telephone exchange, post office are available. The estate is connected with the city and is served by the State Transport buses. The roads and buildings department of the government of Gujarat has undertaken the job of widening the Rajkot-Kalawad state highway no. 23 to four lane highway. This will facilitate the transportation between the city and the industrial area. The following table gives industry wise classification of units in the estate: Product wise break up of operating industries
Type of industry Machine tools Casting Forging Cement product Cold storage Marble Granite Medicine Plastic industries Packaging Food products Others Total No. of units 220 50 45 30 10 20 10 115 45 35 160 750

Inherent strengths of GIDC (Lodhika) Industrial Estate: Pollution free environment Availability of labor
Availability of power

Four lane link road with Rajkot city Availability of water from Narmada canal system The following table shows the economic performance of the SMEs operating at GIDC (Lodhika) Industrial Estate. Economic aggregates for SMEs operating in GIDC (Lodhika) Industrial Estate Investment Annual Turnover Annual export Employment Rs.313.2 Cr. Rs. 800 Cr. Rs. 250 Cr. 12,000 employees

GIDC (Lodhika) Industrial Estate has an excellent track record of social service. The association has donated 2000 Sq. m. of land to the Rotary Club of Rajkot for construction of 175 houses, a hospital and a school building for the earth quake affected people of Kutch. Upgradation of infrastructure at GIDC (Lodhika) Industrial Estate would help SMEs in the estate to leapfrog in terms of investment, turnover, export and employment.

(2) GIDC- AJI Vasahat:

GIDC- AJI Vasahat is situated on the bank of the river AJI. It is spread in 90acres of land with around 250 plots and sheds. It has been developed in two phases. The Phase-I was developed in 1973 and the Phase-II was developed in 1980. Most of the SMEs situated here are operating in following areas: Casting Machine tools Corrugated box Forging Furniture The inherent strengths of the area are as under: The area is located in the city itself thereby getting all the facilities needed. There are many banks located on the 80ft link road, providing all the needed banking facilities very easily. Being situated in the city, labour and transportation facilities are available at a lower cost along with other amenities.

Interpretation: From among the SMEs visited, 75% of the industries cater to the local market or the inland market. 21% of the industries are into exports and some of them are availing the benefits of operating as a 100% Export Oriented Unit (EOU). 4% of the SMEs are not exporting directly but are involved in the indirect export through agents. The inability of the SMEs to export is due to their scale of operation, lack of capital and sufficient margin available in local market.

Interpretation:
From among the industries visited, the highest 48% of the

SMEs follow the Partnership format of the organization. As the people dont have enough capital to operate as a sole proprietor, they indulge in forming up the partnership concern. 30% of the units are following Private Limited format. Most of the industries operating on a fairly vast scale are of this nature. 21% of the industries are of the Sole Proprietorship nature. They are operating at a very low scale and can be included in the category of tiny units. Most of them are involved in the process like casting, machining, fabrication etc.
The percentage of units following the Public Limited format is

meagerly 1%.

Interpretation: 10% of the industries visited are associated with Central Bank of India and Bank of India each. The reason for Central Bank of Indias highest exposure is existence of their branch at the GIDC (Lodhika). It is the only nationalized bank situated at GIDC (Lodhika). 9% of the market is shared by State Bank of Saurashtra (SBS), Corporation Bank and HDFC Bank each. The major reason for more exposure covered by these banks is the level of service. Bank of Baroda and ICICI each cover 6% of the market share.
State Bank of India surprisingly gets only 5% of the market

share. The figure is an eye-opener for SBI for deciding the future course of action. The category Others include several banks, the data of which can be referred from the annexure at the end of the project.

Interpretation: The reason given, for selecting the present bank, by 25% of the SMEs is that they are dealing with the particular bank from a long time. They can change the bank only if they get substantial benefit in terms of interest rates. They would not like to change the bank for a minor interest rate difference. 23% of the SMEs have selected and continued to deal with the banks on the basis of services provided by banks. As per them the present bank is providing satisfactory services and they have no reason to change the bank in near future. 16% of the SMEs have given importance to the PROXIMITY factor at the time of selecting the bank. Especially, in GIDC (Lodhika), there are only two banks, namely; Central Bank of India and District Commercial Co-operative Bank. So, even if their services are not satisfactory, SMEs have to choose these banks for ease of operation. 14% of SMEs have selected the banks without considering any particular factor, while 4% industries have reasons like good relations with the bank or with the bank staff and fast processing each. Only 3% of the industries have considered lower interest rate as a criterion of selection. This shows that customers can not be retained only on the basis of interest rate benefits, good

quality of the services have also to be present to back up other things.

Interpretation: Hefty 63% of the industries have not opted State Bank of

India for dealing because State Bank of India has never approached them. So, State Bank of India needs to market itself aggressively to have substantial market share in Rajkot. 15% of SMEs have not selected State Bank of India

considering the proximity factor. State Bank of Indias nearest branch is situated at almost 15 kms from GIDC (Lodhika) Industrial Estate; however the project of opening up the branch at the link road is in process. This will bring considerable business to the bank. Higher interest rate charged and delayed services of

State Bank of India as well as satisfactory services rendered by the present banks of SME contribute to the extent of 3% as a reason for not selecting State Bank of India.

FINDINGS
The findings, based on the customer responses, are as under:

The major reason for non-association of SMEs with SBI is lack of marketing efforts by SBI. Hefty 63% of the SMEs visited, have not been approached by SBI.

From among the SMEs visited, 75% of the industries cater to the local market or the inland market.

The highest 48% of the SMEs follow the Partnership format of the organization. As the people dont have enough capital to operate as a sole proprietor, they indulge in forming up the partnership concern.

State Bank of India surprisingly gets only 5% of the SME market share. The figure is an eye-opener for SBI for deciding the future course of action.

The reason given, for selecting the present bank, by 25% of the SMEs is that they are dealing with the particular bank from a long time. They can change the bank only if they get substantial benefit in terms of interest rates. They would not like to change the bank for a minor interest rate difference. Many customers are not satisfied with the quality of services provided by the SBI staff. I.e. Rude behavior, not attending the customers properly, delays in providing services like monthly statements, approving the proposals.

Another problem is frequent transfers of the authorities and the subordinate staff. It results in customers having to start from the scratch.

 The problems faced by customers are as follows: Lack of professionalism. Delay in attending the customers and providing services like providing monthly statements, passbook printing. Getting the finance from SBI is a very time-consuming process. Greater amount of documentation is involved in taking finance from SBI, which makes customers prefer other banks.
Most of the customers are not ready to change their

dealings from present bankers because of the reasons like family relations, rapid services, convenience and association with the present bank from commencement. Some customers find the behavior of the staff undisciplined and rude. People are not yet ready to change their mindsets and attitude towards the functioning of the government organizations and so towards SBI.

SWOT ANALYSIS
The overall evaluation of companys strengths, weakness, opportunities and threats is called SWOT Analysis. The external environmental analysis and the internal environmental analysis are conducted to arrive at SWOT analysis.

Internal environmental analysis helps to find out the strengths and weaknesses of an institution. While, external environmental analysis helps to find out the opportunities and threats prevailing in the market. Depending on the analysis, the company can build up its future strategies and goals.

STRENGTHS:
As the SBI is the nationalized and famous bank of the India, running successfully all over the India, it is very much obvious that the bank will have quite a number of strengths but some of the main strengths of SBI can be described as under. Brand name and goodwill: SBI is a world class nationalized bank and it is considered as one of the best bank through out the nation. Moreover, it is Indias largest bank and currently ranks amongst Asia's top 20 commercial banks. So, its goodwill and the brand name attract the customers.

World class products:

SBI provides world class products to satisfy the basic, crucial, and all the essential needs of the customers.

 Strong customer base: As SBI is serving the nation from a very long time, it has gained a strong customer base over a period of time. This is the reason why SBI is still running successfully, even after establishment of private banks. Nationalized bank: SBI is the nationalized bank. It is spread through out the nation through 9500 branches. So, it is more trustworthy and more reliable for the customers. This is one of the most crucial strengths of the bank. Wide network: SBIs network is very widespread. It serves the customers not only nation wide but also on the global horizons. The customers can use the ATM card of SBI in any of its subsidiary and associate banks. In the subsidiary banks, SBI ATM can be used without any additional charge. Sound financing procedure: The procedure for deciding whether SBI should finance a particular SME or not, is very sound and flawless. This ensures that no loopholes are left for SMEs.

WEAKNESSES:
More documentation: There is a great amount of documentation involved in all the procedures of SBI compared to other banks. Industrialists dont have time to go through these formalities every time he asks for the services. So, they prefer the banks where less documentation and formalities are required so as to save time and ensure ease of operation.

Delayed services: There is slowness in the functioning of SBI. Delay in attending the customers and providing services like providing monthly statements, passbook printing keep many customers away from coming to SBI.

Frequent transfers: Another problem is frequent transfers of the authorities and the subordinate staff. It results in customers having to start from the scratch. This becomes very time consuming process.

Lack of co-operation from staff : The co-operation from staff of SBI is missing. They are not customer-oriented whole heartedly. Their attitude has to change to bring more customers to the bank.

OPPORTUNITIES:
Technological advancements: Constant innovations in the field of information technology can help SBI to serve its customers with a greater efficiency. Various banking software are being developed. This can increase the service level of SBI. Core banking system has already benefited the customers as well as the bank and has increased the operational ease. Commencement of new SMEs: As per the data given by the GIDC association, Lodhika, almost 250 industries are under construction. SBI can contact them and convince them for a deal. Moreover, some industries are planning to expand themselves in near future. SBI can finance them by catering to their needs. SBI branch in nearness to industrial area: As mentioned earlier in the project, the nearest branch of SBI from GIDC (Lodhika) Industrial Estate is almost 15 kms away. There is only one nationalized bank i.e. Central Bank of India situated at the GIDC (Lodhika) Industrial Estate. So, opening up the branch in the nearer area can bring many customers to the bank.

THREATS:
Basel-2 contract: As per the Basel-2 contract of WTO, India will be opening up the economy for the foreign banks to enter along with several other institutions. So, to keep pace with their performance, SBI will have to increase its efficiency tremendously. Threat from private banks: Because of the sloppy services of nationalized banks and customer friendly environment created by private banks, customers have developed more preference towards dealing with private banks. Establishment of other banks near SMEs: Dena Bank, Bank of India and several other banks are planning to open up their branches near GIDC (Lodhika) Industrial Estate. If SBI does not take action quickly, it will miss out on the market share.

SUGGESTIONS

47% of the industries visited are associated with the banks like Bank of India, Central Bank of India, HDFC, State Bank of Saurashtra & Corporation Bank, mainly on the basis of the good services and their co-operation, whereas SBI has only 5% of the market. So, SBI need to look into these aspects to tap the market of SMEs in the concerned industrial areas.

Almost all the units have not been approached by SBI, so SBI need to market itself aggressively and approach these units.

GIDC (Lodhika) Industrial Estate authorities are compelling the owners of the vacant land plots to either use or sell the plot and thereby utilizing all the resources available at GIDC. Next 6 months will be of the inception of new units and expansion of the existing units. So, it is a good opportunity for SBI to tap the finances of these units.

Lack

of

co-operation,

professionalism,

discipline,

and

delayed approvals are major reasons for non-association with SBI, as given by the units visited. So, SBI should train the staff in the concerned areas. Today is the era of CUSTOMER SATISFACTION and no organization can afford to ignore them. Retaining the customers is more difficult then acquiring them. So, they are

to be attended properly and with due respect. Continuous customer follow up system should be incorporated. Delay of all types should be avoided. Efforts are required to be put in to create a convenient, cohesive, and customer-friendly environment.

LIMITATIONS OF THE STUDY

Some obvious barriers in conducting the study were as follows:
In many cases, the authority of the SME was reluctant to

provide the information required for the study. The responses of the people of both the industrial areas visited were different.
In some of the cases, people have disclosed the figures of

turnover as per their books of account and not the actual ones. Out of total industries existent, all have not been covered because of the time constraint, so the actual data may vary slightly from the results arrived at.

CONCLUSION
As it is known, SBI is the largest bank in Asia. But to retain its position, SBI needs to customize its services as per the needs of the society. As far as the future of cotton industry is concerned, it is bright. So, bank finance to cotton industry will help not only the banks but also the industry to a great extent. This will ultimately help in the export promotion, employment generation and growth of nation. Working with State Bank of India was a memorable and value adding experience. The practical learning from this project will surely help in the future.

BIBLIOGRAPHY
Books: The following study materials have been referred during the study. The directory of GIDC (Lodhika) Industrial Association (GLIA) The Critical Infrastructure Project (CIP) of GIDC (Lodhika)

Web sites: The web sites referred and links visited during the study are as follows:
www.statebankofindia.com http://en.wikipedia.org/wiki/Small_and_medium_enterprise http://www.fisme.org.in/introduction.aspx http://www.ficci.com/media-room/speeches presentations/2004/sep/banking/Session%205/V%20K %20Chopra.pdf http://www.financialexpress.com/fe_full_story.php? content_id=87939

GLOSSARY
CCC: Credit Circle Committee

FISME: Federation of Indian Small & Medium Enterprise

GIDC: Gujarat Industrial Development Corporation PLR: Prime Lending Rate

SBAR: State Bank Advance Rate

SME: Small and Medium Enterprise TBSE: Technology Bureau for Small Enterprises

ANNEXURE
The questionnaire used for conducting the study is as under:

STATE BANK OF INDIA

Commercial Branch, RAJKOT

1. Location: ________________________________________________ 2. Name of the unit: __________________________________________ 3. Address:___________________________________________________ ______________________________________________________ 4. Contact no.: ________________ 5. E-mail: ___________________________________ 6. Name of the promoters: _________________ _________________ 7. Contact no.: (M)_______________ (R)________________ 8. Type of industry: __________________________________ 9. Form of organization: _______________________________ 10. Line of activity: ____________________________________ 11. Do you export? Yes No 12. Approximate Turnover (p.a.) ___________________________ 13. Present Bankers:_____________________________________ 14. Facilities enjoyed with the present banks: ______________________ __________________________________________________________ 15. Reasons for selection of the present banks: _____________________ ___________________________________________________________ 16. Why not SBI? ____________________________________________ 17. Present requirement / Future plans: _____________________________ 18. Mode of salary payment:__________________________________ 19. If through bank, which bank? ______________________________ 20. Remarks: ________________________________________________ ___________________________________________________________

The break up of the category Others in case of the banks selected by the SMEs visited is as follows: Andhra Bank Bharat Co-operative Bank Canara Bank Citizen Co-operative Bank Dharti Co-operative Bank Federal Bank Gujarat Industrial Co-operative Bank IDBI Indian Bank Indian Overseas Bank Indus Bank ING Vysya Bank Jeevan Commercial Bank Karnataka Bank Karur Vysya Bank Kotak Mahindra Bank Nagrik Bank Oriental Bank of Commerce Peoples Bank Punjab National Bank RCC RDC Rajkot Nagrik Sahkari Bank Saurashtra Grameen Bank

 SIDBI State Bank of Hydrabad Syndicate Bank Union Bank of India UTI Bank Vijaya Bank Veraval Mercantile Co-operative Bank Vearaval Peoples Co-operative Bank Vijay Commercial Co-operative Bank