A Report On: SME Credit Appraisal: A Study AT Bank OF India

6/16/2011
A REPORT ON
BANK OF INDIA
SME CREDIT APPRAISAL : A STUDY AT BANK OF INDIA
Submitted to
Bank of India
In Partial fulfilment of Master of Finance and Control Programme (2010-2012)
UNDER THE GUIDANCE OF
Mr. Milan Kumar Sinha
Dr. Prabodha Kumar Hota
Manager, Credit
Bank Of India, SME Branch Bhubaneswar
Reader, MFC
Utkal University Bhubaneswar
Submitted by | SOUMITRA PANDA Roll No. 10MFC005
ACKNOWLEDGEMENT
I express my deep sense of gratitude and indebtedness to my organization guide Mr Milan Kumar Sinha, Manager Credit, Bank Of India, SME Branch, My department guide Dr. Prabodha Kumar Hota, Reader, P.G Department Of Commerce, Utkal University for their time, able guidance, valuable suggestions and constant inspiration to carry out and complete this study on the topic SME CREDIT APPRAISAL- A STUDY AT BANK OF INDIA I would also like to thank my organization co-guide for his time and guidance. I cannot forget the timely help that my friends have rendered for the completion of this project. I am also thankful to all the persons related to this project directly or indirectly.
Place: Bhubaneswar Date: ___/___/____ (Soumitra Panda)
CERTIFICATE
This is to certify that the project entitled SME
CREDIT APPRAISAL-
A STUDY AT BANK OF INDIA is a record of bonafide research work carried out

by Soumitra Panda under my supervision and guidance. It embodies the result of his original contribution. The project has reached the standard of fulfilling the requirements of the regulation relating to the degree of Master of Finance and Control. No part of this project has been submitted to any other institution for the award of any degree and diploma.
Place: Bhubaneswar Date: ___/___/____ (Dr. Probadha Kumar Hota) Reader, P.G dept. of Commerce, Utkal University
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CERTIFICATE
This is to certify that the project entitled SME
CREDIT APPRAISAL-
A STUDY AT BANK OF INDIA is a record of bonafide research work carried out

by Soumitra Panda under my supervision and guidance. It embodies the result of his original contribution. The project has reached the standard of fulfilling the requirements. No part of this project has been submitted to any other institution for the award of any degree and diploma. The conduct of the intern is good and satisfactory during the period.
Place: Bhubaneswar Date: ___/___/____ (Mr Milan Kumar Sinha) Manager, Credit SME Branch, Bank of India
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DECLARATION
I do hereby declare that the project entitled SME
CREDIT APPRAISAL-
A STUDY AT BANK OF INDIA is submitted by me for the final fulfilment of the

requirements of the degree of Master of Finance and Control, Utkal University. The project is an original piece of work done by me under the guidance of Mr Prabodha Kumar Hota, Reader, P.G Department of Commerce and has not been submitted for award of any degree to any other university, academy, institutions nor published in magazine or anywhere else in part or full.
Place: Bhubaneswar Date: ___/___/____ (Soumitra Panda)
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EXECUTIVE SUMMARY
This project is based on the study of Small and Medium Enterprises and their Financial Requirements. Worldwide, the wind has been changing in the finance sector in general, and
banking-investment sector in particular. Such a panorama teaches us that now is the time of cooperation rather than a competition, now its a time of convergence rather than cutting each others neck over customers and markets, now its a time of consolidation rather than antagonism. Curing the fatal disease requires the doses of small pills; impressive thoughts come out from the small brain, similarly, India requires prominence of small and medium enterprises for curing its problem of low economic growth vis--vis developed nations. To cure the overall disease of lack of appropriate growth of Indian SMEs Small and Medium Enterprises, India needs several small pills such as adequate credit delivery to SMEs, better risk management, technological up gradation of banks especially. Public Sector Banks, attitudinal change in bankers and so on. Among them, the major problem of inadequate financing to SMEs needs an urgent attention. Having said this, it is pertinent to mention that Small Industrial Development Bank of India has achieved landmark results in the domain of small and medium enterprise financing and fulfilling their credit requirements time to time in various forms such as long term project finance, working capital finance, bill discounting etc. However considering the level of appetite for credit facilities of Indian small and medium enterprises, private and public sector banks in India need to work out a unique and innovative model of financing to this vital sector (SME) of Indian Economy. In todays changing world, retail trading, SME financing, rural credit and overseas operations are the major growth drivers for Indian banking industry. The scene has changed since the adoption of financial sector restructuring programme in 1991. The reform in the financial sector in India along with the overall second generation economic reforms in Indian economy has transformed the landscape of banking industry and financial institutions. GDP growth in the 10 years after reforms averaged around 6 %.
The SMEs sector is considered to be an untapped market for financial institutions in India. We just need to combat certain obstacles. The hurdles which need to be removed are:1. Minimization of probabilities of skewed returns from SMEs by better risk management

2. Eradicate inconsistency in the knowledge of SMEs business. For example, entrepreneurs may possess more information about the nature and characteristics of their products and processes than potential financiers. 3. Absence of managerial and technical expertise of intermediaries whose role is to evaluate and monitor companies 4. Lack of international infrastructure and expertise in SME financing.
The scope of the study is limited to the SMEs of Bhubaneswar region, especially those falling under BOIs SME branch. The diagnostic study report of the SMEs has been conducted with an objective to find out the present requirements of such sector, availability of institutional support with regard to credit, capacity building etc and to identify the problems being faced by them which hinders the process of development/ growth of the SMEs. The project also tries to evaluate the scope for credit growth in these enterprises for Bank of India. It is done by analysing the financial as well as the non financial performance report of small enterprises under this branch to get an overall view of the performance and growth of this sector all over the country though this is not a conclusive study. Only two enterprises have been taken for sample study from the population.
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SME CREDIT APPRAISAL : A STUDY AT BANK OF INDIA CONTENTS

1. Chapter1: Introduction 1.1 Introduction 1.2 Rationale of Study 1.3 Objectives of Study 1.4 Research Methodology 1.5 Limitations of the Study SUMMARY 2. Chapter 2: INDUSTRY AND BANK PROFILE 2.1 Introduction 2.2 Challenges faced by Indian Banking Industry 2.3 Emerging scenario in the Industry 2.4 Industry Profile 2.5 BOI Profile 2.6 Performance Highlights 2.7 SME scenario of BOI SUMMARY 3. Chapter 3: MSME PROFILE IN INDIA 3.1 Evolution Of SME 3.2 SME a Global Scenario 3.3 SME- An Indian Scenario 3.4 CGTMSE Scheme 3.5 SWOT Analysis of SMEs in India 3.6 Analysis of an SME 3.7 Financing Requirements of An SME SUMMARY 4. Chapter 4: CASE STUDY 4.1 Case Study
Page No.
1 1 7 7 8 8 8 10 10 10 13 13 14 15 19 20 22 23 27 30 32 33 34 34 38 40
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5. Chapter 5: MY VIEWS 5.1 Findings 5.2 Suggestions 5.3 Conclusion 6. Questionnaire 7. References 53 54 56 57 58 59
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1. INTRODUCTION
SME CREDIT APPRAISAL : A STUDY AT BANK OF INDIA 1.1 Introduction

SMALL and MEDIUM ENTERPRISES (SMEs) play a catalytic role in the development of any country. They are the engines of growth in developing and transition of economies. In India they account for a significant proportion in manufacturing, exports and employment, and are major contributors to GDP. Definition of Micro, Small and Medium Enterprises (a) Enterprises engaged in the manufacture or production, processing or preservation of goods as specified below:
(i) A micro enterprise is an enterprise where investment in plant and machinery does not exceed Rs. 25 lakh;
(ii) A small enterprise is an enterprise where the investment in plant and machinery is more than Rs. 25 lakh but does not exceed Rs. 5 crore; and
(iii) A medium enterprise is an enterprise where the investment in plant and machinery is more than Rs.5 crore but does not exceed Rs.10 crore. In case of the above enterprises, investment in plant and machinery is the original cost excluding land and building and the items specified by the Ministry of Small Scale Industries vide its notification No.S.O. 1722(E) dated October 5, 2006 (Annex I). (b) Enterprises engaged in providing or rendering of services and whose investment in equipment (original cost excluding land and building and furniture, fittings and other items not directly related to the service rendered or as may be notified under the MSMED Act, 2006) are specified below.
(i) A micro enterprise is an enterprise where the investment in equipment does not exceed Rs. 10 lakh;

(ii) A small enterprise is an enterprise where the investment in equipment is more than Rs.10 lakh but does not exceed Rs. 2 crore; and
(iii) A medium enterprise is an enterprise where the investment in equipment is more than Rs. 2 crore but does not exceed Rs. 5 crore. These will include small road & water transport operators, small business, retail trade, professional & self-employed persons and all other service enterprises. Lending by banks to medium enterprises will not be included for the purpose of reckoning of advances under the priority sector 1.1.1 SMEs Financing The Rising India
The only way out of the mire is that the Indian manufacturing sector could be strengthened by the existing rural systems and making them self-sufficient. This could take place only by helping Small and Medium Enterprises and the rural artisans (people with innate skills and talents) in becoming effective and competitive enough to face the future. A number of issues and business practices of global players and markets can be observed, learnt and adapted for ensuring competitiveness of Indian SMEs
Let us take an anecdote, which is a part of the school days about the meaning of domestic and global competition. It is about two friends who while walking through a dense forest suddenly hear the roar of a bear. One of them immediately changes his shoes that he is wearing in, to the one, he uses for running. His friend asked him: If you change your shoes, do you think you can out beat the bear? The other one replied: The idea is not to beat the bear, but you. The moral of the story is that the Indian SME sector should be strong enough to out beat the other players in the economy and not the competition itself. 1.1.2 Micro, Small & Medium Enterprises Development (MSMED) Act, 2006 The Government of India has enacted the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 on June 16, 2006 which was notified on October 2, 2006. With the enactment of MSMED Act 2006, the paradigm shift that has taken place is the

inclusion of the services sector in the definition of Micro, Small & Medium enterprises, apart from extending the scope to medium enterprises. The MSMED Act, 2006 has modified the definition of micro, small and medium enterprises engaged in manufacturing or production and providing or rendering of services. The Reserve Bank has notified the changes to all scheduled commercial banks. Further, the definition, as per the Act, has been adopted for purposes of bank credit vide RBI circular ref. RPCD.PLNFS. BC.No.63/ 06.02.31/ 2006-07 dated April 4, 2007 Considering the growth potential of Indian SMEs, the Government of India has asked public sector banks to achieve a minimum 20 per cent year-on-year growth in the funding of SMEs that will lead to double the flow of credit to the sector from Rs 67,000 crore in 20042005 to Rs 1, 35,000 crore by 2009-2010. A small-scale unit is defined as one having original investment in plant and machinery not exceeding Rs 1 crore. While recognizing the needs for larger investment in some of the more important segments of small scale industries (SSIs), the Government has enhanced this to Rs 5 crore for specified industries. The Government felt that a separate category of medium enterprises (MEs) needs to be recognised and, accordingly, the new policy package clearly defined the medium enterprises as those units having investment in plant and machinery above the small-scale industry limit and up to Rs 10 crore, as recommended by the Working Group on Flow of Credit to the SSI sector, headed by Mr A. S. Ganguly. The Importance of Small and Medium Enterprises (SMEs) in any economy cannot be overlooked as they form a major chunk in the economic activity of nations. They play a key role in industrialization of a developing country like India. They have unique advantages due to: their size their comparatively high labour-capital ratio need a shorter gestation period focus on relatively smaller markets need lower investments

ensure a more equitable distribution of national income facilitate an effective mobilization of resources of capital and skills which might otherwise remain unutilized and Stimulate the growth of industrial entrepreneurship.
According to a UNIDO report, for SMEs are generally based on three assumptions. it sustains a broad and diversified private sector and creates employment and thus benefits the country as a whole a strong SME sector will not emerge without support from the state, but they suffer disadvantages in the markets because of their size the programs aimed at smallest enterprises, have been justified more in terms of their welfare impact than their economic efficiency.
1.1.3 Indian SME at a Glance
In India, SME sector accounts for around 95% of the industrial units, 40% of the value added in the manufacturing sector output, 34% of exports and provides direct employment to 20 million persons in around 3.6 million registered SME units. The SME sector in India contributed to about 8% of Indias GDP during 2010-11. Now, the question is, Can it overtake the invasion of foreign companies through their innovative, quality, affordable/reasonable and readily available products?
In developing countries like India, making the SMEs more competitive is particularly pressing as trade liberalization and deregulation increase the competitive pressures and reduce the direct subsidies and protection that Governments offer to SMEs

1.1.4 Problems of SMEs in India They are unable to capture market opportunities, which require large production facilities and thus could not achieve economies of scale, homogenous standards and regular supply. They are experiencing difficulties in purchase of inputs such as raw materials, Machinery and equipments finance, consulting services, new technology, highly skilled labour etc. Small size hinders the internalization of functions such as market research, market intelligence, supply chain, technology innovation, training, and division of labour that impedes productivity Emphasis to preserve narrow profit margins makes the SMEs myopic about the innovative improvements to their product and processes and to capture new markets. They are unable to compete with big players in terms of product quality, range of products, marketing abilities and cost. And most importantly, absence of a wide range of Financing and other services those are available to raise money and sustain the business. Poor IT and Knowledge infrastructure.
To overcome all these difficulties, Indian SMEs and rural artisans deserve all the policy support the Government can offer. What they need is, not protection but institutional support to fund modernization and technology up gradation, infrastructure support and adequate working capital finance. Also they have to have professional inputs and knowledge about various happenings in their own industries in and around the country. This brings in the concept of SME networks and clusters that stimulate innovative and competitive SMEs. These concepts (are not something new, but can be traced back to Alfred Marshalls analysis of industrial districts in Britain in 1890s) essentially bring together various stakeholders like technology providers, labour force, financing arms, consultants, marketing arms, and others, for a common good that will help in enhancing the strength of SMEs

The Indian SME (small and medium enterprise) market seems to be emerging as a promising hunting ground for banks and financial institutions because it poised for tremendous growth. As the access of SMEs to capital markets is very limited, they largely depend on borrowed funds from banks and financial institutions. In majority of the economies, while the investment credit to SMEs was being provided by financial institutions, commercial banks extended working capital. In the recent past, with growing demand for universal banking services, the term loan and working capital are becoming available from the same source. Besides the traditional needs of finance for asset creation and working capital, the changing global environment has generated demand for introduction of new financial and support services by SMEs.
1.2 Rationale of the Study

SME is one of the important sectors of our country. It contributes around 9 % to the countrys growth story and employs around 20 million people. The concept of Micro, Small and Medium Enterprises was set up in the year 1948 and has been developing since its inception. Developing SMEs is not only a means to improve the competitiveness but also for alleviation of poverty, generation of sustainable employment, fostering innovation, infusing technology, enabling better credit flow and sustenance of environment issues more effectively and sustainably. SMEs in India are in its developing stage and the Government is taking steps enough to bring it in lines with other sectors like finance, education, military, etc.
1.3 Objectives of the Study

In view of the above backdrop, the present study has been undertaken with the following specific objectives:1. To examine the profit of BOI and its growth over the years. 2. To study the SME sector in India and the credit appraisal scene. 3. To analyse the credit appraisal operations in BOI.
1.4 Research Methodology

The study has been done about the development and growth of SMEs and their financial requirements. The Scope for Credit Growth for Bank of India in the SME, by collecting information about them and having a thorough study on the topic through questionnaire and journals.
1.4.1 Scope of the Study

This study covers various aspects of SME and their financial requirements. All the aspects that are necessary for the growth, development and future financial requirements of such SMEs have been considered. The study also includes the credit appraisal, risk rating and post sanction monitoring of the two enterprises taken into consideration. Thus this project will act as a learning device for finance students.
1.4.2 Sources of Data

The project includes data that has been collected both from primary and secondary sources. Primary sources Primary source includes first hand data from the people in the practical field visit. They are the employees of Bank of India, SME branch. The method of collection of such data includes personal interaction and interview through unstructured questionnaire. Secondary sources Valuable information was collected from secondary sources like magazines, journals, books, newspapers, annual reports of certain rice mills, circulars, and internet websites.
1.5 Limitations of the Study

Time was a limiting factor in this study. The area of study considered was quite vast field of study and lack of sufficient time was also a constraint. The study required personal interrogation with the owners. The owners were non-cooperating and did not provide much of their financial data. Number of enterprises in Orissa being very large and spread in different parts of the district, it was not possible to interrogate the owners of each and every enterprise.
2. INDUSTRY AND BANK PROFILE

2.1 INTRODUCTION Currently, India has 96 scheduled commercial banks (SCBs) - 27 public sector banks (that is with the Government of India holding a stake), 31 private banks (these do not have government stake; they may be publicly listed and traded on stock exchanges) and 38 foreign banks. They have a combined network of over 53,000 branches and 49,000 ATMs. According to a report by ICRA Limited, a rating agency, the public sector banks hold over 75 percent of total assets of the banking industry, with the private and foreign banks holding 18.2% and 6.5% respectively. The growth in the Indian Banking Industry has been more qualitative than quantitative and it is expected to remain the same in the coming years. Based on the projections made in the "India Vision 2020" prepared by the Planning Commission and the Draft 10th Plan, the report forecasts that the pace of expansion in the balance-sheets of banks is likely to decelerate. The total assets of all scheduled commercial banks by end-March 2010 is estimated at Rs 40, 90,000 crore. Unfortunately public sector banks are burdened with excessive Non Performing assets (NPAs), massive manpower and lack of modern technology. On the other hand the Private Sector Banks are making tremendous progress. They are leaders in Internet banking, mobile banking, phone banking, ATMs. As far as foreign banks are concerned they are likely to succeed in the Indian Banking Industry. 2.2 CHALLENGES FACED BY INDIAN BANKING INDUSTRY
The banking industry in India is undergoing a major transformation due to changes in Economic conditions and continuous deregulation. The multiple changes happening one after other has a ripple effect on a bank. Now-a-days Banks are trying to graduate from completely regulated seller market to completely deregulated customers market.
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Deregulation:
This continuous deregulation has made the Banking market extremely competitive with greater autonomy, operational flexibility and decontrolled interest rate and liberalized norms for foreign exchange. The deregulation of the industry couple with decontrol in interest rates has led to entry of a number of players in the banking industry. At the same time reduced corporate credit off take thanks to sluggish economy has resulted in large number of competitors batting for the same pie.
New rules:
As a result, the market place has been redefined with new rules of the game. Banks are transforming to universal banking, adding new channels with lucrative pricing and freebees to offer. Natural fall out of this has led to a series of innovative product offerings catering to various customer segments, specifically retail credit. Efficiency:
This in turn has made it necessary to look for efficiencies in the business. Banks need to access low cost funds and simultaneously improve the efficiency. The banks are facing pricing pressure, squeeze on spread and have to give thrust on retail assets.
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Diffused Customer loyalty:
This will definitely impact Customer preferences, as they are bound to react to the value added offerings. Customers have become demanding and the loyalties are diffused. There are multiple choices; the wallet share is reduced per bank with demand on flexibility and customization. Given the relatively low switching costs; customer retention calls for customized service and hassle free, flawless service delivery.
Misaligned Mind-set:
These changes are creating challenges, as employees are made to adapt to changing conditions. There is resistance to change from employees and the Seller market mindset is yet to be changed coupled with Fear of uncertainty and Control orientation. Acceptance of technology is slowly creeping in but the utilization is not maximized.
Competency Gap:
Placing the right skill at the right place will determine success. The competency gap needs to be addressed simultaneously otherwise there will be missed opportunities. The focus of people will be on doing work but not providing solutions, on escalating problems rather than solving them and on disposing customers instead of using the opportunity to cross sell.
2.2.1
Strategic Options with Banks to Cope with the Challenges
Leading players in the industry have embarked on a series of strategic and tactical initiatives to sustain leadership. The major initiatives include: Investing in state of the art technology as the back bone to ensure reliable service delivery. Leveraging the branch network and sales structure to mobilize low cost current and savings deposits. Making aggressive forays in the retail advances segment of home and personal loans. Implementing organization wide initiatives involving people, process and technology to reduce the fixed costs and cost per transaction. Focusing on fee based income to compensate for squeezed spread, (e.g. CMS, trade services)
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Innovating Products to capture customer mind share to begin with and later the wallet share. Improving the asset quality as per Basel II norms.
2.3 EMERGING SCENARIO IN THE BANKING SECTOR The Indian banking system has passed through three distinct phases from the time of inception. The first was being the era of character banking, where you were recognized as a credible depositor or borrower of the system. This era come to an end in the sixties. The second phase was the social banking. Nowhere in the democratic developed world, was banking or the service industry nationalized. But this was practiced in India. Those were the days when bankers has no clue whatsoever as to how to determine the scale of finance to industry. The third era of banking which is in existence today is called the era of Prudential Banking. The main focus of this phase is on prudential norms accepted internationally.
2.4 INDUSTRY PROFILE Since the nationalization of banks in 1969, the public sector banks or nationalized banks have acquired a place of prominence and since then has seen tremendous progress. The need to become highly customer focus has forced the slow moving public sector banks to adopt a fast track approach. The unleashing of products and services through the net has galvanized the players at all level of banking. The Indian banking has finally worked up to the competitive dynamic of the new Indian market and is addressing the relevant issue to take on the multifarious challenges of globalization. Banks that employs IT solutions are perceived to be futuristic and proactive players capable of meeting requirements of the large customer base. Private Banks has been fast on the uptake and is re-orienting their strategies using the internet as a medium. The Internet has emerged as the new and challenging frontier of marketing. The Indian banking has come from a long way from being a sleepy business institution to a highly proactive and dynamic entity. This transformation has been largely brought about by the large dose of liberalization and economic reforms that allow banks to explore new business opportunities rather than generating revenue from conventional streams(i.e. borrowing and lending ) Indian nationalized banks to be the major lender in the economy due to their sheer size and penetrative networks which assures them high deposit mobility.
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2.5 BANK OF INDIA PROFILE Bank of India was founded on 7th September, 1906 by a group of eminent businessmen from Mumbai. The Bank was under private ownership and control till July 1969 when it was nationalized along with 13 other banks. Beginning with one office in Mumbai, with a paid-up capital of Rs.50 lakh and 50 employees, the Bank has made a rapid growth over the years and blossomed into a mighty institution with a strong national presence and sizable international operations. In business volume, the Bank occupies a premier position among the nationalize banks. The Bank has 3101 branches in India spread over all states/ union territories including 141 specialized branches. These branches are controlled through 48 Zonal Offices. There are 29 branches/ offices (including three representative offices) abroad. The Bank came out with its maiden public issue in 1997 and follow on Qualified Institutions Placement in February 2008. Total number of shareholders as on 30/09/2009 is 2, 15,790. While firmly adhering to a policy of prudence and caution, the Bank has been in the forefront of introducing various innovative services and systems. Business has been conducted with the successful blend of traditional values and ethics and the most modern infrastructure. The Bank has been the first among the nationalized banks to establish a fully computerized branch and ATM facility at the Mahalaxmi Branch at Mumbai way back in 1989. The Bank is also a Founder Member of SWIFT in India. It pioneered the introduction of the Health Code System in 1982, for evaluating/ rating its credit portfolio.
The Bank's association with the capital market goes back to 1921 when it entered into an agreement with the Bombay Stock Exchange (BSE) to manage the BSE Clearing House. It is an association that has blossomed into a joint venture with BSE, called the BOI Shareholding Ltd. to extend depository services to the stock broking community. Bank of India was the first Indian Bank to open a branch outside the country, at London, in 1946, and also the first to open a branch in Europe, Paris in 1974. The Bank has sizable presence abroad, with a network of 29 branches (including five representative offices) at key banking and financial centres viz. London, New York, Paris, Tokyo, Hong-Kong and Singapore. The international business accounts for around 17.82% of Bank's total business.
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Banks Mission "To provide superior, proactive banking services to niche markets globally, while providing cost-effective, responsive services to others in our role as a development bank, and in so doing, meet the requirements of our stakeholders". Banks Vision "To become the bank of choice for corporate, medium businesses and up market retail customers and to provide cost effective developmental banking for small business, mass market and rural markets" Banks Quality Policy We, at Bank of India, are committed to become the Bank of Choice by providing SUPERIOR, PROACTIVE, INNOVATIVE STATE OF THE ART Banking Services with an attitude of Care and Concern for the Customers and Patrons. 2.5.1 PERFORMANCE HIGHLIGHTS of BOI (2011) 1. Business Growth: Total business (Deposits + Advances) reached at Rs.5,15,040 crore recording a growth of Rs.1,13,961 crore (28.41%).Domestic business grew by 26.02% to reach the level of Rs.4,18,110 crore. TABLE # 1
Business Mix
515040 600000 400000 200000 0 Global Domestic March'10 401079 334440 274841 418110 331779 96930 69300
59599
Foreign March'11
March'09
Source : BOIs Annual Report 2009-10 and As Provided by My Guide
2. Total Deposits: Total deposits increased by Rs.69, 124 crore reached the level of Rs.2, 98,886 crore, a growth of 30.08%. Domestic deposits increased by 28.68% to
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reach the level of Rs.2, 52,963 crore. Share of low cost deposits in the domestic deposits is 29.18% as on 31.03.2011. TABLE # 2
298886 300000 200000 100000 0 Global March'09 Domestic March'10 March'11 Foreign 229762 189708
Deposits
252963 196585 159487 30221 33177 45923
3. Gross Advances: Gross credit touched Rs.2,16,154 crore, recording a growth of 26.17% with domestic credit recording a growth of 22.16% to reach level of Rs.1,65,147 crore.
TABLE # 3
Advances
250000 200000 150000 100000 50000 0 Global March'09 Domestic March'10 March'11 Foreign 29378 36123
216154
171317 144732 165147 135194 115354 51007
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4. Profits: Operating profit and net profit showed a marked increase over the previous year. Net profit recorded a 42.94% increase as compared to last financial year. TABLE # 4
2488.71 March'11 5384.23
1741.07 March'10 4704.77
3007.35 March'09 5456.81
1000
2000
3000
4000
5000
6000
Net Profit
Operating Profit
Source : BOIs Annual Report2009-10 and As Provided by My Guide
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5. Priority Sector Lending: Priority Sector lending constituted 46.27% of Net Adjusted Bank Credit and the share of Agricultural Credit to Net Adjusted Bank Credit was 16.76%. TABLE # 5
2010
3% 12% 35%
Agriculture
Small Enterprise Education
50%
Housing
TABLE
2011
3% 9% Agriculture 36% Small Enterprise Education 52% Housing
2.5.2 Some More Financial Parameters: Capital Adequacy Ratio at 12.17% as against 12.94% in previous year (Basel-II). Net Worth at Rs.15, 500 crore grew by 24.43% over March 2010. Book Value per share Rs.283.24 (Rs.236.84 previous year). Gross NPA ratio at 2.23% as on 31.03.2011. Net NPA ratio at 0.91% as on 31.03.2011. Retail Credit grew by 5.70% from Rs.15, 750 crore to Rs.16, 649 crore. Export Credit registered a growth of Rs.898 crore (13.53%) growth over previous year
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2.6 SME SCENARIO OF BOI The Bank has created a new SME vertical headed by a General Manager to cater to the specific business needs of the segment. A more inclusive definition has been given for SME business to include all business activities with a turnover of up to Rs. 100 crore. The vertical will look for growth not only on credit, but CASA, retail business, fee based income and third party products in the SME segment. Strategies for SME business growth, as enunciated by the Bank are: All the zones grouped into 5 National Banking Groups All the 5 National banking Groups are headed by General Managers with adequate delegation for business growth SME City Centres being rolled out to act as processing hubs for all SME credit business of limits above Rs.1 crore 12 SME City Centers have become operational before 31-03-2011. Credit origination and processing segregated in the City Centres as a risk management measure Dedicated team for credit processing and outbound sales team for lead generation and follow up for business acquisition put in place. Credit processes de-layered and delegation revised upward to ensure shorter TAT. Four new products launched to customize Banks offering to SME customers. Pre-disbursement risk mitigation processes simplified to ensure faster disbursement. Simplified Application Form introduced for all SME customers irrespective of the size and of limit. Master Check List formulated for obtaining information required for processing customer requests in one go. Tracking and Performance Management Systems introduced in the SME City Centres to bring about greater transparency in business processes.
2.6.1 NEW OPENINGS DURING 2011-12 It has been planned to launch 23 more SME City Centres during 2011-12 across the zones. 2.6.2 Performance so far under MSME 1. 2. 3. 4. 5. 6. Advances to Micro & Small Sector as on 31-03-2011 is Rs.31,297 crore Growth over FY-2009-10 is more than 21% Advances to MSME (including Medium Industries) is Rs.35,586 crore This represents a growth of about 20% over 2010 Growth has mainly been in Micro & Small segments in the MSME space Yield on MSME portfolio at 11.15% continues to be more than the yield on advances as a whole 7. NPA at 6.50% as compared to overall NPA of 3.88% continues to be an area of concern
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8. The Bank has put in place an OTS scheme and exhort the zones/branches to make effective use of the scheme to reduce the NPA in the current year 2.6.3 BOI plan map for growth in MSME sector: 1. Formation of clusters for cluster based lending. Each Zone to identify at least 2 clusters and formulate cluster specific schemes to increase credit flow to MSME sector 2. Sensitizing Branch Managers with high potential for MSME lending in order to boost credit flow to MSME sector, especially Micro and Small sectors 3. Sensitizing Managers and second line functionaries about CGTMSE cover 4. Incentivizing CGTMSE coverage so as to ensure accelerated credit flow to Micro sector 5. Conducting workshops for sales officers of SME City Centres. 2.6.4 Various products under SME by the Bank:

Laghu Udyami Trade Card (LUTC) Artisan Credit Card (ACC) Laghu Udyog Subidha (LUS) Solar Water Heater Akshay Urja Shops PKVIC-REGP (PMEGP) CICSS (Technology up gradation) Traditional Industry (SFURTI) Dhanvantri Subidha Priyadarshani Yojana Cluster Financing Energy Efficiency Project
2.7 SUMMARY The Indian banking has finally worked up to the competitive dynamic of the new Indian market and is addressing the relevant issue to take on the multifarious challenges of globalization. Since the nationalization of banks in 1969, the public sector banks or nationalized banks have acquired a place of prominence and since then has seen tremendous progress. The need to become highly customer focus has forced the slow moving public sector banks to adopt a fast track approach. The unleashing of products and services through the net has galvanized the players at all level of banking.
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BOI is the pioneer in lending to SMEs. Bank of India remains committed to the customer and has taken several new initiatives to expand the bouquet of choices for its customers. Over the last four years, the Bank has been seeking out new growth opportunities and has successfully forayed into related areas. India remains among the fastest growing countries of the world and is poised to play a greater role in the global economy in the years to come. Bank of India sees this as an opportunity and a challenge and assures that the Bank will try to capitalize on this and blaze a new trail of growth in future.
References:
Annual Report of BOI, 2009-10 www.bankofindia.com Loan Policy of BOI www.wikipedia.com
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SME AN OVERVIEW
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SME CREDIT APPRAISAL : A STUDY AT BANK OF INDIA 3.1 Evolution of SME

Evolution of SME can be broadly grouped into three periods:
Phase I between 1948-1991:

Recognition to the M & S Enterprises; To expand employment, equitable distribution of the national income, etc., The Micro, Small and Medium Enterprises Development Organisation was set up in 1954 as an apex body for sustained and organised growth of micro, small and medium enterprises. In 1956 -National Small Industries Corporation, Khadi and Village Industries Commission and the Coir Board set up. The supportive measures like reservation of items for their exclusive manufacture, access to bank credit on priority through the Priority Sector Lending, etc., MSME Development Institutes set up all over India to train youth in skills/entrepreneurship. German and Danish assistance for providing technical skilltraining to MSMEs.
Phase II between 1991 - 1999

The new Policy for Small, Tiny and Village Enterprises of August ,1991. To replace protection with competitiveness to infuse more vitality and growth to MSEs in the face of foreign competition and open market. Measures concentrated on improving infrastructure, technology and quality. The Small Industries Development Bank of India (SIDBI) and a Technology Development and Modernisation Fund were created to accelerate finance and technical services to the sector. A Delayed Payment Act was enacted to facilitate prompt payment of dues to MSEs (Maximum period upto 45 days).
Phase III 1999 onwards

The Ministry of MSME created in 1999 to provide focused attention to the sector The new Policy Package -August, 2000 to address the persisting problems relating to credit, infrastructure, technology and marketing more effectively.
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A Credit Linked Capital Subsidy Scheme was launched to encourage technology up gradation Credit Guarantee Scheme to provide collateral-free loans to micro and small entrepreneurs. In 2006, enactment with the passage of the MSME Act. In March, 2007 - a third Package for the Promotion of Micro and Small Enterprises was announced for the promotion and development of the sector 3.1.1 Traditionally defined as Small Scale Industries (SSIs) Small Scale Enterprises (traders and services) Small Road Transport Organisation Professionals Focus primarily on manufacturing and less on servicing Concentration on traditional industry - textile, engineering, jute, auto ancillary
3.1.2
Characteristics of SME The growth recorded by SSI in India is 2% more than any other sector The sector accounts for 9% of the countrys GDP The sector employs more than 20 million people It has been estimated that a lakh rupees of investment in fixed assets in the small scale sector generates employment for four persons Among the large PSBs, state bank of Indias SMEs exposure grew by 24% in 2008 All banks are targeting SMEs credit growth of 25% It has been estimated that a lakh rupees of investment in fixed assets in the small scale sector produces 4.62 lakhs worth of goods or services with an approximate value addition of ten percentage points Public sector banks overall credit to SME sector grew by 26% in 2006-2007, which amounted to Rs.1,85,000 cores Reserve Bank of India has advised all commercial banks to
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achieve 20% annual growth in SME lending till 2010 Non-traditional products constitute a massive 95% of the SSI exports SIDO, SIDBI, NABARD, NSIC, export promotion authorities are actively involved in the development of SMEs in India 45%-50% of the Indian Exports is being contributed by SSI sector
3.1.3
Business Environment of SMEs units These units are mainly dependent on larger customers for business SMEs do not have very good reach for marketing that restricts their volumes and makes them too dependent on large units (in spite of SME expertise in niches) SMEs are generally starved for funds and have to spend too much time for collections of Accounts Receivable & external funding arrangements Banks are not very keen on supporting these units for working capital due to uncertain business cycles and growth Too much time required to be spent with Govt. / Semi Govt. Agencies
3.1.4
Challenges Faced by SMEs Lack of adequate Management Training and Bandwidth amongst promoters of such units resulting in lack of: Non-availability of Business plan leading to ad hoc decision making Lack of Business & Financial discipline Lack of Forward planning resulting in unforeseen situations Lack of cognizance to even appreciate that there is a better way to manage the projects Lack of inadequate internal systems
Inability to attract & retain highly trained manpower in this segment since there is lot of poaching from larger units / MNCs Lack of succession plans and new generation not available for such causes Lack of awareness of modern Management practices and specifically Project Management practices and methodologies amongst them
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Inadequate attention to financial disciplines and cash flow control (controllable & uncontrollable) affecting even the sheer existence of these units. This leads to: Lack of available funds (perpetually caught up in this vicious cycle) Inability to pay competitive wages / salaries to trained professional in working classes Need for training of the leadership and Promoters of such units
3.1.5
Risks Faced by SMEs
Management Risks General Management skills / methods / training / attitudes Perpetuation of the units as an ongoing concern
Financial Risks
Lack of Financial Plans (Too many surprises & ad hoc decisions)
Funds & Cash Flow planning
Marketing Risks Reach & Net working Dependence on few customers
Technology Risks (Scope / Costs / Quality) Need for perpetual R&D Technology obsolescence
Human Resource Risks
Need for formally trained manpower

Ability to pay competitive wages Support Structure & Associates
3.1.6 Sectors of SME There are basically three sectors of SME. The are : Manufacturing Servicing
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3.1.7 A glimpse of the sectors contribution in India
Contribute about 9% of Indias GDP Amounts to about 45% of manufactured output in India Contributes to about 40% of total exports Employees about 6 Cr of population next only to Agriculture
3.1.7 Some vital statistics

Number of enterprises in this sector- 2.6 Cr Number of Manufacturing enterprises 70 lakh Number of Service enterprises 1.8 Cr Number of Women enterprises 20 lakh (8%) Number of rural enterprises 54.5%
3.2 SME- A Global Scenario

SMEs are one of the principal driving forces in the economic development of every nation. They stimulate private ownership and entrepreneurial skills, they are flexible and can adapt quickly to changing market demand and supply situations, help diversify economic activity and make a significant contribution to exports and trade. Many transition economies have acknowledged that SMEs are crucial for industrial restructuring and have formulated national SME policies, programmes and enterprise development policies. Most governments have policies that encourage the growth of SMEs because they facilitate in alleviating poverty by increasing income levels and creating jobs. The underlying table gives a global comparison of SMEs.
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TABLE # 6 Country Definition Number SMEs units) China Defined on the basis of fixed assets and number of employees India Defined on the basis of limit of historical value of investment in plant & machinery, as per the MSMED Act of 2006. European Union Defined on the basis of number of people employed in the enterprise. Japan Defined on the basis of capital size and number of employees USA Defined by the number of employees
( Source: Government websites of SMEs of respective countries)
of Employment (in generated SMEs 75% of the country's Employment
Percentage
of
by total business
0.43 crore
99.0%
1.30 crore
4.1 crore
99.7%
2.30 crore
8.5 crore
99.0%
0.57 crore
2.9 crore
99.2%
Not Available
Not Available
Not Available
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China
In China there are two definitions being used: one, on the basis of fixed assets that is, the level of fixed assets(small industry is up to $1.8 million in book value of fixed assets); and the other definition is in terms of the number of employees (small enterprises are between 10 and 50 employees). The actual industrial census shows that the average size for small enterprises is about 15 employees; that of medium enterprises are 893 employees; and that of large enterprises is 3,755.
India
SMEs form the backbone of the Indian Economy. The SME segment in India has come into the limelight, with increased focus from several government institutions, corporate bodies and banks, and is viewed as agents of growth. Apart from the policy focus and government's thrust towards promoting the SME segment, globalisation and India's robust economic growth has opened several latent business opportunities for this segment. The classification of SMEs in India is discussed in the next section.
The European Union (EU) SMEs play a central role in the European economy. They create wealth, foster new ideas and are a key source of new jobs. According to the EU definition, an SME is defined as a company, which Employs fewer than 250 people Has a turnover of less than 40 million per annum or net balance sheet assets of less than 27 million Must be less than 25 percent owned by larger company/companies which do not qualify as an SME themselves
Japan SMEs are the economic base of the industrial value chain and the underpinning of the Japanese economy. 99.2% of all businesses are SMEs and these enterprises have provided a safety net by covering 70-80% of total employment. 60% of SMEs in Japan have direct or indirect transactions with large enterprises in the manufacturing industry.
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United States In the US, a Government Department called SmallBusiness Administration (SBA) sets the definition of small business. In the United States, small business is defined by the number of employees and it refers to those businesses with less than 100 employees, while mediumsized business often refers to those with less than 500 employees
3.3 SME- An Indian Scenario

The Small and Medium Enterprises (SMEs) constitute an important segment of the Indian economy in terms of their contribution to the country's industrial production, exports, employment and creation of an entrepreneurial base. According to a World Bank study, there are said to be more than 60 definitions of small and medium industries used in 75 countries surveyed. In some other countries, annual turnover of the company determines the size of an enterprise, whereas certain countries define SMEs on the basis of number of Employees. In the Indian context an SME is defined on the basis of limit of historical value of investment in plant & machinery, as per the MSME Act 2006
(Investment in plant & micro enterprise
Does n
3.3.1 Total Bank Credit to SMEs TABLE # 7

Year March 2007 2008 2009
2010 2011
ended Public Banks 102550 151137 191307

251156 284659
Sector Private Sector Foreign Banks Banks 13136 46912 47916

50347 52778
All SCBs
11637 15489 18138

19220 21003
127323 213538 257361

317568 336549 (Source: RBI)
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3.3.2 Growth And Development of SMEs TABLE # 8 1948-1991

Recognition given to micro and small enterprises SIDO set up in 1954 NSIC established in 1955 SISI set up for entrepreneuria l and skill DICs set up at state level
1991-1999
SIDBI set up in 1990 IID scheme introduced in 1994 Introduction of technology development and modernization fund in 1995
1999-2006
Ministry of MSME came into being in 1998 CLCSS launched to encourage technology upgradation CGS started to provide collateral free loans to entrepreneurs Performance and credit rating Scheme introduced in 2005
2006 Ards
MSMED Act introduced in 2006 The Act defines medium enterprise for the first time The Act provided the first ever legal framework for recognition of the concept of enterprise which comprises both manufacturi ng and service entities
(Source: Ministry of Small and Medium Enterprises, GOI)
A. Indian SMEs future trends

With the growth of SMEs the business environment have now started demanding improved servicing standards and a faster cycle time for achieving business success. The future of SMEs can be briefly explained as follows: SMEs in future aim to concentrate on lean manufacturing systems in order to keep up with the rising competition. National Manufacturing Competitiveness Programme (NMCP) plans to launch a lean manufacturing project worth Rs 2,30,000 crore. The project is scheduled to a turnover of 7,000 to 10,000 units by 2012. 10 new tool rooms are to be set up under Public Private Partnership (PPP) as training needs of SMEs are rapidly rising.
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Policies that create an enabling environment for SME growth are devised for the future. Cluster based financing approach and encouragement to credit ratings, are some of the initiatives to be undertaken to double the flow of institutional credit towards SMEs by 2010.
3.4 CGTMSE
One of the major causes for low availability of bank finance to this sector is the high risk perception of the banks in lending to MSEs and consequent insistence on collaterals which are not easily available with these enterprises. The problem is more serious for micro enterprises requiring small loans and the first generation entrepreneurs. 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 Ministry of Micro, Small and Medium Enterprises and Small Industries Development Bank of India (SIDBI), established a Trust named Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) to implement the Credit Guarantee Fund Scheme for Micro and Small Enterprises. The scheme was formally launched on August 30, 2000 and is operational with effect from 1st January 2000. The corpus of CGTMSE is being contributed by the Government and SIDBI in the ratio of 4:1 respectively and has contributed Rs.1346.54 crore to the corpus of the Trust up to September 30, 2007. Based on the future requirement, the corpus is likely to be raised to Rs.2500 crore.
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SME CREDIT APPRAISAL : A STUDY AT BANK OF INDIA 3.5 SWOT analysis of SMEs in India
Strengths
Self reliance Flexible and self managed business Manufacturing flexibilityProduction as per requirement Availability of cheap labour Extensive use of unskilled labour which is easily available in India
Weaknesses
High cost of input material Concentration on high quality raw material to keep up with intense competition Lower productivity Lack of specialization and skilled work force resulting in poor efficiency Technological obsolescence Deployment of outdated technology and excessive dependence on manual operations
Opportunities
End of quota regime End of quota regime replaced protection with competitiveness to infuse more vibrancy and growth to SMEs in the face of foreign competition and open market Shift in domestic market -Due to globalisation and liberalization, manufacturers can increase production and export surplus, thereby increasing overall profitability Increased disposable income - Resulting in an increase in purchasing power and consequently an increased demand for goods and services Emerging economy and expansion - Growth in sectors like manufacturing, retail, automobile etc resulting in higher domestic and international trade
Threats
Stiff competition from developing economies China poses as a serious threat as they manufacture in bulk and enjoy large scale economies in manufacturing and distribution of goods and services Pricing pressure SMEs are forced to sell at lowest possible prices in order to keep up with competition from other SMEs as well as from established players in the industry. Locational disadvantage Compelled to set up manufacturing units in rural areas, due to high cost of land and labour in urban areas International labour and environmental laws - These laws pose restrictions on functioning of SMEs
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SME CREDIT APPRAISAL : A STUDY AT BANK OF INDIA 3.6 Analysis of an SME

To have a detailed analysis about how a SME performs we need to have a good study about the following aspects:
Industry analysis- Government regulations and policies, availability of

infrastructure, facilities, industry rating, scenario and outlook, technology up gradation,
Business analysis- operating efficiency, competition faced from the units engaged in
similar products, demand and supply position, cost of labour, cost of raw material
Management analysis- background, integrity and market standing, reputation of

promoters, organisational set up and management hierarchy, track record in execution of projects, track record in debt repayment, track record in industrial relations etc.
Financial analysis- financial strength, reliability and reasonableness of projections,

past financial performance, reliability of operational data and financial ratios, qualifying remarks of auditors/inspectors etc.
3.7 Financial Requirements of an SME

To understand the financial requirements of the firm, we need to have an intensive study of the firm. For this purpose, a comparison of the need based requirements and demand of the enterprise has been done and their future expansion and diversification plans have been taken into consideration. To get a quantitative study of the need based requirement of the firm, three methods of calculations have been used(a) Simplified Turnover Method (b) MPBF (c) Cash Credit System
3.7.1 Simplified Turnover Method

Under this method, bank credit for working capital purposes for borrowers requiring fund based limits upto Rs 5 crore for Micro, Small and Medium enterprises borrowers and Rs 2 crore in case of other borrowers, may be assessed at minimum of 25% of the projected
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annual turnover of which 1/5th should be provided by the borrower(i.e. minimum margin of 5% of the annual turnover to be provided by the borrower) and the balance 4/5th (i.e. 20% of the turnover) can be extended by way of working capital finance. Since in terms of Nayak Committee norms the banks are required to have minimum 20% of turnover of the business enterprises as the bank finance and 5% is to be obtained as margin, the current ratio comes to 1.25. Therefore while considering working capital limits to SMEs where working capital requirement is computed based on simplified turnover method (Nayak Committees norms), the maintenance of current ratio at the minimum level of 1.33 may not be insisted. Since the bank finance is only intended to support need based requirement of a borrower, if the available net working capital is more than 5% of the turnover the former should be reckoned for assessing the extent of bank finance.
3.7.2 MPBF
Assessment of WC limits in respect of borrowers not eligible to be provided fund based WC limits under Simplified Turnover Method, is to be done as per MPBF, except in case of tea, sugar, construction companies, film industry and service sector where credit requirement is assessed as per cash budget system. Under this method, for assessment of borrowers WC needs, the projections submitted by the borrower in the various forms for the following year are relevant. The first step in assessing the quantum of WC finance is to find out whether the projections given by the borrower are reasonable. Any optimism or pessimism in accepting projections is neither desirable for the bank nor for the borrower as it may lead to over financing or under financing. To assess the reasonableness of borrowers projections, the following factors should be kept in view: The branches can use with advantage the past data given by the borrower as well as the data available with it. The comparison has to be made between the past performance and the future projections. If the future projections are markedly different from the past trend in relation to projected rate of growth, the reasons for the same have to be ascertained before accepting the various projections.
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The projections given by the borrower are normally based on certain assumptions such as market demand, cost of raw materials, price, availability of inputs, and other environmental factors. The bank has to assess how far these assumptions are realistic and likely to materialise. How limits already sanctioned by the bank, have been utilized by the borrower in the past, has the conduct of the account been as per terms of sanction or these have been frequently violated. While accepting the borrowers projections, it has to be ensured that the projections do not go beyond the Choking Factor (i.e. the level beyond which the operations start giving negative results), as this will inhibit the further expansion Critical analysis of sales projections the most important area to be looked into is sales. All other aspects are directly related to the projected level of sales. Therefore, determining the projected level of sales is the first step in assessing the working capital needs of the borrower. Once the level of sales has been determined, the other data can be easily determined in relation to sales. A higher than normal sales for the following year can be accepted only after the bank is satisfied on the basis of the above scrutiny that the projected level of sales can be achieved and the available past data and future plans give positive indications in this regard. The bank has also to ensure that the borrower is willing to create the necessary support to achieve the sales target. The branch having satisfied itself to the projected level of sales, can determine the other data in relation to sales. The following steps can be taken for finalising other data: The relationship between different items constituting cost of production can be studied in relation to sales and cost of sales. It is to be ensured that the projected increase in respect of any items is not out of proportion to the past relationship. Valuation of various items should be based on current costs. After finalising the above mentioned projections, the holding period of current assets is to be determined. The holding period of current assets is to be determined. The holding period of chargeable current assets can be determined based on the rule that the projected holding should be preferably lower of norms or past practice.
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The levels of other current assets can also be estimated on the basis of the borrowers past trend. The bank is to bridge the gap between current assets and current liabilities after ensuring the borrowers contribution. Therefore, the quantum of bank finance is very much dependent upon availability of short term credit from other sources i.e. other current liabilities. The bank should ensure that the level of other current liabilities is projected properly. The projected level of NWC should at least be 25% of total current assets under second method of lending. Once the borrowers overall projections for the following year have been accepted by the bank, the actual requirement of working capital and banking finance can be worked out on the basis of steps given in HO circulars relating to computation of MPBF, mainly as follows: The actual requirement of working capital can be arrived at on the basis of position of current assets and other current liabilities. The bank is to partly meet the difference between the current assets and the other current liabilities. If the available NWC is more than the minimum stipulated working capital under the second method of lending, the available NWC is to be taken into account for arriving at the permissible level of bank finance i.e. permissible bank finance will be reduced accordingly.
3.7.3 Cash Credit System

In case of tea, sugar, construction companies, film industries and service sector requirement of finance may be at the peak during certain months while the sale proceeds may be realised throughout the year to repay the outstanding in the account. Therefore, credit limits are fixed on the basis of the projected monthly cash budgets to be received before beginning of the season. Branches should follow the procedure/guidelines issued from time to time through various circulars for financing these types of enterprises.
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3.8 SUMMARY
The overall scenario is very good in this sector. PSUs should know the various sourcer of growth that these entreprises throw ta them, the standard of Indian SMEs is also at par with the global standards so the need of the hour is to see the financial and managerial requirements of the sector and guide them in order to get good returns out of there investments. All the responsible PSUs should take an initiative to tap this untapped market which is good from banks point of view and economy point of view.
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The credit appraisal at BOI is a multi stage affair. The Manager,Credit first of all evaluate the viability of the project through the projected balance sheet of the customer and formal talkings, and then based on certain weightage a sheet is prepared to evaluate the riskiness and the amount of CC and TL to be sanctioned. After this it is sent to the Zonal Office for further evaluation and final sanction. All these take about a week to complete. Proper Investigation like the market condition, experience of the executing people etc. is considered before sanctioning a loan. To get a clear view of the process a case study is presented here for reference.
CASE STUDY
4.1.1 INTRODUCTION The promoter of the company name XYZ Private limited approached Bank of India with the following request: 1. Sanction of fresh term loan of Rs. 62.50 lakh 2. Sanction of working capital cc line of Rs. 30 lakh 3. Approval of credit rating of SBS-4 4.1.2 Company Profile: A company named XYZ Private Limited involved in manufacturing of Tiles and Trading approached Bank of India for a term loan and working capital loan under MSME category. The company was newly formed and has not started its operations. It needed term loan for setting up the factory shed and buying the machineries. Working capital loan was required for the purchase of raw materials and for the day to day working of the unit. 4.1.3 Promoter Profile: The Company is floated by Mr X, a resident of Kolkata. He is an MBA in marketing and has 12 years of experience in sales and marketing of building materials. He already owns a company in the same field and has been running it successfully for the past 5 years. 4.1.4 Product Description: Designer tiles also known as exterior tiles are used in various constructions. They are made of cement and concrete. 4.1.5 Product Applications: Designer tiles are used in bath tubs, pools and fountains, parks, pathways, platforms, petrol pumps, cinema halls, commercial buildings exteriors, hospitals etc. 4.1.6 Market Analysis: The very first company in exterior tiles in India was established in the year 1992-1993 as a small unit in Chennai. At present there are hundreds of companies that manufacture various types of exterior tiles. Over the last five years companies like Dazzle, Ultra, Eurocon etc. have expanded their capacity and established new units which
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shows that the market demand has been rising at a very fast pace. With the infrastructure growing at a very fast pace, the demand for designer tiles is on an ever increasing trend. The market holds a lot of potential for these tiles. 4.1.7 Location Profile: Orissa has been slowly turning into the steel hub of India. Hence it has gained importance and the city of Bhubaneswar and Cuttack has been developing at a very rapid pace. Orissa is also a mineral rich state and have all the required raw materials available for setting up designer tiles manufacturing unit. The location of the proposed plant is in a district which has abundant supply of all the raw materials required. The demand for designer tiles in the Cites coupled with easy availability of raw materials at competitive prices and good infrastructure offers a very lucrative business opportunity in this segment. 4.1.8 Industry Perception (SWOT Analysis): Strength 1. 2. 3. 4. The promoters and the employees are young, dedicated and energetic. The promoters have an industry experience of 12 years. They have 1st hand knowledge in manufacturing and trading of designer tiles. The already have a rich clientele base and have access to raw materials at competitive prices.
Weakness 1. There are lots of other players present in this market. The competition by national and international market is a challenge. They are many large scale units. They have an advantage over small scale units. 2. Heavy dependency of the business on the availability of raw materials. A disrupt in supply chain of raw materials procurement can affect production and hence sales. 3. The promoters with their expertise and contacts can tide over these difficulties. Opportunity 1. The boom in the infrastructure sector of Tier-II and Tier-III cities has left a large gap in the supply and demand of exterior tiles. 2. Increasing acceptability of designer tiles due to its aesthetic looks has increased its demand. 3. The thrust of the Government in development of infrastructure, development and beautification of township etc. have resulted in demand for exterior tiles to rise at a very fast rate. 4. The opportunity seems huge with lots of offices, hospitals, educational institutions etc. being set up in nearby cities and towns. Threat 1. Increasing competition in the market. 2. Presence of national and international brands on a large scale.
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3. The promoters have a sound industry experience and then can easily overcome the competition in the market. 4.2.1(A) TECHNICAL REPORT AND FEASIBILITY STUDY OF THE LOAN APPLICATION: Table # 18
Projected Balance Sheet of XYZ Private Limited FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Serial No. Particulars 1 Paid Up Capital Equity Reserve and Surplus Intangible assists 2 Tangible Net Worth (TNW) Investment in companies 3 4 5 6 7 8 9 10 11 12 13 14 Adjusted TNW Capital Employed Net Block Net Sales: Domestic Exports Total Other Income EBIDTA/PBIDTA Interest Gross Profit/Loss (PBDT) Taxes Cash Accruals Depreciation
Rupees In Lakhs 50 11.51 0.4 61.91 61.91 156.51 105.25 156.46 156.46 41.31 11.32 29.99 5.14 24.85 13.34 50 28.87 0.4 79.27 79.27 163.07 93.48 230 230 46.79 10.01 36.78 7.77 29.01 11.65 50 50.06 0.4 100.46 100.46 164.97 83.22 270 270 49.36 8.52 40.84 9.47 31.36 10.18 50 72.35 0.4 122.75 122.75 168.27 74.22 270 270 47.98 6.83 41.15 9.97 31.18 8.89 50 97.24 0.4 147.64 147.64 177.24 66.46 270 270 48.69 4.89 43.8 11.13 32.67 7.78
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15 Net Profit/Loss 11.51 17.36 21.19 22.29 24.89
16 17 18
Net Profit/Capital Employed 7.35 (%) Current Assets Current Liabilities 50.86 40.8
10.65 69.19 42.29
12.84 81.35 43.99
13.25 90.1 45.92
14.04 93.38 30
4.2.1(B) Financial Statement Analysis: 1) Paid Up capital/TNW: The Company has not started its commercial production though it was started in November 2009. Its authorized capital stands at Rs 10 lakh which will be increased to Rs 50 lakh in 2011. Paid up capital is Rs 1 lakh and need to be mopped up to Rs 50lakh by FY 2012 end. Some points to note are: a. Total net worth of the company is to increase due to retention if profits. b. Branch has to obtain ROC search report to ensure that the authorized capital and paid up capital has been increased to the projected value. 2) Net Sales: Projected Sales turnover for FY 2012 is Rs.154.50 lakh and for FY 2013 is Rs.230 lakh. Beyond 2014 the projected sales is constant at Rs. 270 lakh as the company is expected to achieve 100% utilization then. Given the experience and goodwill of the promoters of this company, the projected sales seem achievable. The past records of the group companies and the client base are sufficient to justify the sales figure. The location of the plant is also very apt considering the rising demand in nearby Cities. 3) Other Income: Nominal. 4) Profits/Profitability: For 2011-201 the profits are projected at Rs. 7.36 lakh. The projected margin of profit is around 7-8 percent. The profits of the company are justified with increase in sales figure over the years. 5) Investment: The Company is not going to undertake any kind of investment for the next 5 years. 6) Net Block: The Company will follow WDV method for depreciation. 7) Contingent Liability: No liability against the company as per the projections provided by the company. 8) Statutory Audits/Remarks/Qualifications: The loan application is for a new account and hence there are no remarks in this section.
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9) Inter Company Comparison: The bank didnt find it necessary to conduct an intercompany comparison as the figures are projected for forthcoming years only.
4.2.2(C) Financial Ratio Calculation and Analysis: TABLE # 18 Ratios Current ratio Debt/Equity Term Liability/Adj TNW TOL/Adj TNW Profitability % PAT/Net Sales DSCR Interest Coverage Inventory + Receivables /Sales DAYS FY 2012 1.25 0.69 1.56 7.46 1.64 3.20 118 FY 2013 1.64 0.38 1.07 7.55 1.75 3.90 107 FY 2014 1.85 0.13 0.65 7.85 1.77 4.68 108 FY 2015 1.96 0 0.38 8.26 1.67 5.57 104 FY 2016 3.11 0 0.2 9.22 7.68 7.68 109
1) Current Ratio: The current ratio is above the benchmark of 1.25 and shows an increasing trend over the years. Hence the company seems to increase its current assets faster than its current liabilities. 2) Debt/Equity ratio: The D/E ratio is above benchmark and its around 2.2:1 in the starting years due to high net worth in the projected period. Over the years it is expected to reduce due to repayment of term loans. The financial statement projects the company to be debt free in 4 years time which seems achievable going by the projected profits the unit will generate in these 4 years. 3) Debt Service Coverage Ratio (DSCR): DSCR is above the benchmark and hence acceptable. The Company will be in a healthy position to service the debt on time as per the audited financial statement submitted by the company. TABLE # 20 DSCR FY 2012 Net PAT 11.51 Add Depreciation 13.34 Add Interest on Term 11.32 Loan Total (A) 36.17 Instalment on Term Loan 10.8 Interest on Term Loan 11.32 Total (B) 22.12 FY 2013 17.36 11.65 10.01 39.02 12.29 10.01 22.3 FY 2014 21.19 10.18 8.52 39.89 13.99 8.52 22.51 FY 2015 22.29 8.89 6.83 38.01 15.92 6.83 22.75 FY 2016 24.89 7.78 4.89 37.56 4.89 4.89
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DSCR(A/B) 1.64 1.75 1.77 1.67 7.68
4) Interest Service Coverage Ratio (ISCR): ISCR is also well above the cut-off level. The Company will be able to generate profits which are nearly 3-4 times the interest payable by it in that year.
TABLE # 21 ISCR Net PAT Add Depreciation Add Interest on Term Loan Total (A) Interest on Term Loan Total (B) DSCR(A/B) FY 2012 11.51 13.34 11.32 36.17 11.32 11.32 3.20 FY 2013 17.36 11.65 10.01 39.02 10.01 10.01 3.90 FY 2014 21.19 10.18 8.52 39.89 8.52 8.52 4.68 FY 2015 22.29 8.89 6.83 38.01 6.83 6.83 5.57 FY 2016 24.89 7.78 4.89 37.56 4.89 4.89 7.68
4.2.3(D) Working Capital Assessment of the Unit: a) Projected Turnover: The projected turnover (in lakhs) is as given below: Particulars FY 2012 Turnover 156.46 FY 2013 230 FY 2014 270 FY 2015 270 FY 2016 270
The turnover is found to be reasonable enough by taking into consideration the expertise of the founders in this field and the existing client base that they have. Also location and the demand are also in the positive side. b) Utilization: The Company plans to be in full steam i.e. using 100% of its capacity in 2 years time. Particulars FY 2012 Utilization 60% % FY 2013 85% FY 2014 100% FY 2015 100% FY 2016 100%
c) Total Installed Capacity: The installed capacity of the plant is 30 lakh sq. ft. of tiles per year.
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Plant Production Capacity Per Day Working Days Per Month Per Month Capacity Working Months Total Capacity Per Annum 10000 sq. ft. 25 Days 25000 sq. ft. 12 30 lakhs sq. ft.
d) Projected Production and Turnover: Year FY 2012 Utilization % 60% Production (in sq. ft.) 18 Sales (in sq. ft.) 18 Selling Rate (Per sq. 9 ft.) FY 2013 85% 25.5 25.5 9 FY 2014 100% 30 30 9 FY 2015 100% 30 30 9 FY 2016 100% 30 30 9
e) Maximum Permissible Bank Finance (MPBF): As the holding period of the company is more than 90 days, the MPBF method is used for calculation of working capital requirement. The company expects the holding period to be 118 days in 2012 and 108 days in 2013 which appears to be reasonable enough considering the nature of the business which is marked by a high holding period. From the MPBF method the working capital limit will be fixed. Turnover method is not used in this case. We see that the proposed working capital limit of Rs. 30 lakh is less than the MPBF, hence the limit of Rs. 30 lakh is accepted. TABLE # 21 Year FY 2012 50.86 a) Total Current Assets b) Other Current Liabilities 50.86 c) Working Capital Gap (a-b) d) Minimum Stipulated Working Capital (25% 12.71 of c) 10.06 e) Total Projected Working Capital 38.15 f) c-d 40.8 g) c-e 38.15 h) MPBF (Lower of f & g) 30 i) Proposed Limit FY 2013 69.19 69.19 17.30 26.9 51.89 42.29 42.29 30 FY 2014 81.35 81.35 20.34 37.36 61.01 43.99 43.99 30
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f) Non Fund Based Limit Assessment: No NFB limit has been proposed.
4.2.4(E) Risk and Credit Rating: a) Risk Factor and Mitigates: The promoters are in the same business for the last 12 years and have a good cliental base. They can overcome competitions in the market by their expertise and hence the projected figures look achievable. b) Borrowers Exposure (Existing): The borrower has not taken any previous loan either from Bank of India or from any other bank or financial institutions. c) Group Exposure: The promoters group has the following exposure. The group has taken a term loan and working capital loan for one of their companies (ABC). They have also availed a working capital loan for one of their existing company (PQR). All group accounts were analysed and were found to be standard and satisfactory.
TABLE # 22 Group Exposure Company Name XYZ XYZ PQR ABC ABC Total Type TL CC CC TL CC Loan Sanctioned/Disbursed Fund Non Fund Based Based 62.5 30 9.5 45 35 119.5 Outstanding Fund Based 9.21 41.65 29.09 79.95 Non Based Fund
d) Utilization/Value of Account: TABLE # 23 Utilization FY 2012 FY 2013
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Term Loan Working Capital Non Fund Based Export Turnover Import Turnover Earnings Fund Based Interest Other Income Bills Purchase/Collected LC's Opened Guarantees Issued Any Other Income Total Yield (%) 62.5 30 52.5 30
FY 2012 10.5
FY 2013 9.5
0.6 11.1 13.5
0.57 10.07 13.75
e) Audit/Inspection/Meetings/LPA (In respect of property): All the audits and inspection done by the bank has been satisfactory. All properties declared by the company are found to be registered in the correct name. f) Bank Rating: As per the banks scoring method the Company has been awarded a rating of SBS-4. It is equivalent to a rating of AA in normal terms. External rating was not necessary in this case as the loan amount was less than Rs. 1 crore and the unit was a small unit and not a medium one. g) Raw Materials: The cost of project depends on the following raw materials: a. White cement b. Grey cement c. Sands d. Granules e. Plasticizer f. Pigments g. Top load chemicals h. Rubber moulds i. Plywood The points on favour of the company are: 1. Raw materials are available in abundance in nearby locality. 2. The company can procure the raw materials at competitive prices. 3. There is no problem as procurement is concerned.
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4.3 Security, Interest And Loan Disbursement/Repayment Schedule: 4.3.1 Primary Security: The primary security for the company will be by way of hypothecation of the proposed plant and machinery, raw materials and finished goods of the unit. The land and building will also be held as mortgage thus giving additional cover to the bank. The details are as given below
1. 2. 3. 4.
Hypothecation of plant and machinery Mortgage of land and building (0.998 acre) Hypothecation of stock of raw materials and finished goods Total
69 lakh 52.40 lakh 39.40 lakh 160.80 lakh
4.3.2 Collateral Security: The loan is covered under the CGTMSE scheme of the Government, hence no co-lateral is required. 4.3.3 Non Fund Based Security: The Company has also not availed any non-fund based limits. 4.3.4 Interest: The proposed loan will be available at an interest rate of 3.5% over the base r ate. This rate has been decided taken into consideration the rating and the repayment capability of the proposed unit. The present rate comes to around 13% per annum. 4.3.5 CGTMSE Charges: The Bank is required to pay for the CGTMSE cover on an annual basis. The charges will subsequently be passed over to the borrower who has to bear an additional 0.75% per annum over the interest rate for CGTMSE cover. This is over and above the onetime payment of guarantee fee of 1.5% of the loan amount which needs to be paid after sanctioning of the loan. 4.3.6 Loan Disbursement Schedule: The term loan will be disbursed as per the schedule p rovided by the company for the construction of the factory shed and purchase of materials. Within 6 months from the sanction the full term loan will be disbursed and the factory will be operational immediately after 6 months of sanction. The working capital loan will be released as and when needed and will be financed only for purchase of raw materials or for acquiring other current assists. 4.3.7 Load Repayment Schedule: The repayment schedule will span 5 years starting from January 2012. An EMI of Rs. 142207 will be paid per month for a period of 60 months from Jan 2012.
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4.4 Bank Assessment, Diligence, Justifications and Observations: 4.4.1 Banks Assessment: a) Purpose: For manufacturing of designer tiles (exterior tiles). Loan is required for building the factory shed, for machinery and working capital requirements. b) Bank Ratings: 1. Borrowers risk grade 2. Adjusted borrowers risk grade 3. Borrowers Pricing grade 4. External credit rating 5. Risk Weight c) Consortium Loan d) Multiple Banking Arrangement e) Pricing: 3.5% above BR (present 13%) f) Cost Of Project and Means of Finance: Particulars Land From IDCO Building/Shed Plant and Machinery Total Owner contribution Proposed Loan Amount (In Lakhs) 10.5 41.9 65.79 118.19 55.69 62.5
SBS-4 SBS-4 SBS-4 Not Done 100% No No
g) Project Implementation Schedule: The project will be implemented within 6 months from the disbursement of term loan. h) Computation of DSCR : The average DSCR turns out to be 2:01 which is above benchmark and hence acceptable by the bank.
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i) Pollution Certificate: Application has been submitted to the pollution control board for pollution control certificate. The same will be obtained before commercial production starts. j) Repayment Schedule: Repayment to be done in 60 EMIs of Rs. 142207 from October 2011. The door to door tenor will be 66 months. 4.4.2 Due Diligence Done By Bank (Full Process): a) b) c) d) e) f) g) h) i) j) Applicant- Interviewed personally Pre-Sanction Inspection- Done at the factory site and found to be satisfactory. Verification of R/O facts at Bhubaneswar- Done Inspection of Properties to be Mortgaged Done Search with ROC To be obtained Status Report from Existing Banker Not applicable CIBIL/ECGC/RBI Wilful Defaulters List Checked and found to be satisfactory Market Enquires Satisfactory Pollution control Board Clearance To be obtained Any Other Not Applicable
4.4.3 Justification Points The factors in favour of the borrower are: 1. 2. 3. 4. The promoters of the company are reputed and credit worthy people. They have been in this business for the last 12 years with a good track record. They have a good reputation in the industry. All there group accounts are in order.
4.4.4 My Observations a) Loan Application Period: As the total loan amount was Rs. 92.50 lakh, the period of sanction was 7-8 weeks. It covered a period of 2 months from the application to the final sanction. I had a first-hand experience in interacting with the clients and understanding their financing needs. b) MSME Credit Process: The overall process of sanctioning loans for MSME sector was studied in details. The bank follows all the guidelines laid down by the Government and RBI for MSME sector. c) Documentation: The bank has a systematic way of maintaining all the documents related to the particular loan case. All documents as per the checklist in the application forms are verified and filled with the proper dates and signature.
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d) Loan disbursement: Amount sanctioned in loan is disbursed only when proper application is received with the required bills of purchase of machinery or raw materials. e) Rating/Risk Assessment: The technical and financial assessment done by the bank is quite good and the Bank looks at all aspect of financing before considering the proposal. The Banks internal rating methodology captures all the necessary risk information and hence the loan process becomes quite simple once the probably risk is known to the bank.
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SME CREDIT APPRAISAL : A STUDY AT BANK OF INDIA 5.1 Findings

The Bank resort to its name and fame and is not concerned upon extensive marketing which could have increased the banks business. The Banks office structure is unorganised and its not customer friendly. There is only one person who is meeting prespective loanees and others have to wait for their turn. Proper field inspections is being conducted by the manager, credit himself and comanager. The credit appraisal for working capital finance and term loan system of BOI has been devised in a systematic way. SME are interested in lower rate of interest and less demanding guarantee. BOI has developed a wide range of SMEs financial products corresponding to the needs in different stages of enterprises. Easy Mode of Credit Payment: The study made showed that the Credit payment mechanism of the bank is comparatively easier and that is the reason why a large number of SMEs have been attracted towards the bank for this purpose. Hassel Free Paper Work: Borrowers generally get confused when they see bundles of papers in a simple credit taking process and this makes them avoid the process. Bank has been trying to made the credit payment as easier as possible and for this bank make it easier for the borrowers to understand their terms which means less of paper work for the borrower. Decreasing the amount of paper work has made the bank one of the most sought after banks of the city for providing credit to SMEs. Bank of India adopts Projected Balance Sheet (PBS) Method for estimation of working capital in which the SMEs are asked to project their balance sheet including the requirements for bank finance. The Bank validates these requirements through time-series and ratio analysis and sanctions the limits, if the level of finance projected by the corporate is found acceptable. Otherwise, the corporate is requested to alter its business plans and funding pattern.
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Interest Rate as Per Defined Norms of RBI: RBI has defined certain norms and rate of interest for different types of loans. Various banks do not follow those norms and try to negotiate with the borrowers on the interest rates. This makes the borrower infidel towards the bank. Bank of India strictly sticks to the norms of RBI and hence there is no negotiation between the borrowers and the bank. This activity gives the bank their loyal customers and feeling of people as being cheated is eliminated.
Strict Evaluation Process:The Bank takes into consideration strict evaluation process of the borrowers account to ascertain that the account should not turn into an NPA Account (Non-Performing Assets Account). The larger the number of NPA accounts, the more is the loss of the Bank. For this purpose the Bank officials take a through study of the financial statements of the borrowers and also the collateral securities are also thoroughly checked.
Credit Payment below BPLR:The Bank makes the credit payment below BPLR (Basic Prime Lending Rate) to some where it finds that the borrower is in urgent need and that he or she has been loyal to the Bank in the past. The basic criteria of the Bank states that the borrower should have to have a good past record and that the borrower should fulfil all the criteria of the credit process.
Small and Medium Enterprises (SME), particularly the tiny segments of the small enterprises have inadequate access to finance due to lack of financial information and non-formal business practices. SMEs also lack access to private equity and venture capital and have a very limited access to secondary market instruments. BOI formulates Credit Risk Assessment Model. Proper risk assessment right at the beginning is extremely important to ensure asset quality. That is why Credit Risk Assessment system is an essential ingredient of the Credit Appraisal exercise. It considers
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important parameters like profitability, repayment capacity, and efficiency of the unit, historical / industry comparisons etc. which were not factored in other models. The credit flow to the SME sector is not sufficient and the government will have to initiate necessary steps for making the required funds available easily on convenient terms. The Banks usually provide finance against security. Usually, the banks ask for collateral security / guarantee from a third party even when the project has been assessed as viable and primary security is adequate. In the assessment of SMEs, BOI should take into account of SMEs inherent limitations besides gauging their credit rating and financial statements. A very unique scheme for settlement by BOI as follows. .
5.2 Suggestions
A spacious office is a must requirement. Proper furniture for the waiting customers. Proper marketing required by the branch, because most of the customers I met are only known to someone who has an account in the bank no neutral people are there. A partnership should be established between the bank and the firm so that the risk can be minimised and both parties have a share in the profit. Lack of formal training of staff can be managed if right from the beginning the enterprises have planned for such exercises and training programs for technology plus leadership skills as part of the on-going activity. The bank should be more liberal in providing funds to these enterprises as the countys development depends on the development of these enterprises. At the same time bank should also improve on its monitoring system to check whether their funds are being used effectively or not. MDPs should be organised for enhancing the knowledge of the entrepreneurs. Brick and Mortar support mandatory for developing SME business.
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Creating partnership relationship of micro financing institutions with SMEs for risk sharing. Developing equity market and venture capital for SMEs Evolving credit cards to maintain required liquidity in operation of SMEs Building kiosks at village centres to disseminate market intelligence and data on technological up gradation and climate. Providing facilities for securitization of debts for improving liquidity of financing.
5.3 Conclusion
After a detailed analysis of some of the small enterprises, we observe that there are still a number of flaws in the sector. To cite a few- the various risks attached like technological, marketing, human resources, support structure etc.- various challenges to be met like nonavailability of Business plan leading to ad hoc decision making, lack of Business & Financial discipline, lack of Forward planning resulting in unforeseen situations, lack of cognizance to even appreciate that there is a better way to manage the projects, lack of inadequate internal systems, inability to attract & retain highly trained manpower in this segment since there is lot of poaching from larger units / MNCs etc. This research study on financing of SMEs have highlighted the need to link availability of finance to SMEs to the delivery of business development to improve its viability. It is therefore necessary to evolve a model that shall provide for a partnership in between SMEs and banks. The partnership concept takes care of sharing of risk in business proportionate to their respective financial involvement. Moreover, if we extend the partnership concept further, it would also help borrower to get more acceptable rate of interest. In fact, such partnership concept may lead to sharing of earnings instead of charging interest on loan as is prevalent in Islamic sharing of earnings instead of charging interest on loan as is prevalent in There is also an urgent need to develop equity market for SMEs. It has been the 71 findings of many research studies that SMEs mostly depend upon external capital and this should not be only loans from banks but should be partly equity raised from the market besides the nominal equity held by the promoter. In this the supportive role of mutual funds and venture capitals could be of great help in developing capital market for SMEs. Further, securitization is another area to be developed to take care of nonperforming assets (NPAs) that are blocking regular flow of funds to credit institutions catering to SMEs. However the challenge is to decide where do we start and what is the way to promote such thinking for this vital sector.
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QUESTIONNAIRE
Q1- Why did you choose Bank of India? a) Popularity b) trust worthiness & customer care c) proximity Q2- Did you prefer other sources to fund your project. ? a) Yes b) No. If yes please specify d) public sector
Q3 - What is currently the most pressing problem you are facing? a) Competition d) Regulation Q4 - What do you see as the most important limiting factor to get this financing? a) There are no Obstacles b) Insufficient Collateral c) Interest rates to high b) Access to Finance c) Availability of skilled staff
d) Financing not available at all. Q5 - what amount of financing did you aim to obtain? a) Less than 10 lakhs b) 10 20 lakhs c) 20 30 lakhs d) 30 lakhs and above.
Q6- Did you get the sanctioned amount of loan requested? a) Yes b) No Q7- Did you effectively utilize your funds for business prosperity? a) Yes below . b) No, if yes please choose from the parameters mentioned
i) Technological advantage funds. iv) Others. ..
ii) Marketing skill
iii) judicious allocation of
Q8- Did you face any problem during the sanctioning of your loan proposal? a) Yes b) No if yes please specify
Q9- Are you satisfied with the service provided by Bank of India? a) Yes totally b) Fairly c) Reliable d) Prompt Cooperation
Q10- Did you face any problem for repayment schedule? a) Yes b) No
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REFERENCES
Books S. K. Dash: Tit Bits of General Banking, TMC James C. Van Horne and John M. Wachowicz, Jr.: Fundamentals of Financial Management, HPH Journals SME Times- http://smetimes.tradeindia.com/ MSME Dossier By Economic times (India MSME Summit New Delhi)
Annual Reports and Other Publications Annual Report 2010-2011 by Ministry of Micro, Small and Medium Enterprises Annual Report 2010-2011 of Bank of India RBI Circulars Bank of India SME Policy Handbook Micro Finance and Poverty Eradication: Indian and Global Experiences - Edited by Daniel Lazar & P.Palami Chamy. Small & Medium Enterprises in Global Perspectives: Employment Generation and WTO Vision 2012 Chandrasekhar Prasad. Development Economics Entrepreneurship Development Indian Economy & Its Problems The Economic Times N.T.Soma Shekar Badi & Badi P.K.Dhar
Websites http://msme.gov.in/ http://www.rbi.org.in/home.aspx http://www.cgtmse.com/ http://www.bankofindia.com/ http://www.sidbi.com/ http://www.smera.in/
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6/16/2011

SME CREDIT APPRAISAL : A STUDY AT BANK OF INDIA

UNDER THE GUIDANCE OF

Mr. Milan Kumar Sinha

Dr. Prabodha Kumar Hota

Submitted by | SOUMITRA PANDA Roll No. 10MFC005

SME CREDIT APPRAISAL : A STUDY AT BANK OF INDIA

Place: Bhubaneswar Date: ___/___/____ (Soumitra Panda)

SME CREDIT APPRAISAL : A STUDY AT BANK OF INDIA

This is to certify that the project entitled SME

A STUDY AT BANK OF INDIA is a record of bonafide research work carried out

SME CREDIT APPRAISAL : A STUDY AT BANK OF INDIA

This is to certify that the project entitled SME

A STUDY AT BANK OF INDIA is a record of bonafide research work carried out

SME CREDIT APPRAISAL : A STUDY AT BANK OF INDIA

A STUDY AT BANK OF INDIA is submitted by me for the final fulfilment of the

Place: Bhubaneswar Date: ___/___/____ (Soumitra Panda)

SME CREDIT APPRAISAL : A STUDY AT BANK OF INDIA

SME CREDIT APPRAISAL : A STUDY AT BANK OF INDIA

SME CREDIT APPRAISAL : A STUDY AT BANK OF INDIA CONTENTS

SME CREDIT APPRAISAL : A STUDY AT BANK OF INDIA

SME CREDIT APPRAISAL : A STUDY AT BANK OF INDIA 1.1 Introduction

SME CREDIT APPRAISAL : A STUDY AT BANK OF INDIA

SME CREDIT APPRAISAL : A STUDY AT BANK OF INDIA

SME CREDIT APPRAISAL : A STUDY AT BANK OF INDIA

1.1.3 Indian SME at a Glance

SME CREDIT APPRAISAL : A STUDY AT BANK OF INDIA

SME CREDIT APPRAISAL : A STUDY AT BANK OF INDIA

1.2 Rationale of the Study

1.3 Objectives of the Study

SME CREDIT APPRAISAL : A STUDY AT BANK OF INDIA

1.4 Research Methodology

1.4.1 Scope of the Study

1.4.2 Sources of Data

1.5 Limitations of the Study

SME CREDIT APPRAISAL : A STUDY AT BANK OF INDIA

SME CREDIT APPRAISAL : A STUDY AT BANK OF INDIA

2. INDUSTRY AND BANK PROFILE

SME CREDIT APPRAISAL : A STUDY AT BANK OF INDIA

SME CREDIT APPRAISAL : A STUDY AT BANK OF INDIA

Strategic Options with Banks to Cope with the Challenges

SME CREDIT APPRAISAL : A STUDY AT BANK OF INDIA

SME CREDIT APPRAISAL : A STUDY AT BANK OF INDIA

SME CREDIT APPRAISAL : A STUDY AT BANK OF INDIA

Source : BOIs Annual Report 2009-10 and As Provided by My Guide

SME CREDIT APPRAISAL : A STUDY AT BANK OF INDIA

Source : BOIs Annual Report 2009-10 and As Provided by My Guide

Source : BOIs Annual Report 2009-10 and As Provided by My Guide

SME CREDIT APPRAISAL : A STUDY AT BANK OF INDIA

2488.71 March'11 5384.23

1741.07 March'10 4704.77

3007.35 March'09 5456.81

Source : BOIs Annual Report2009-10 and As Provided by My Guide

SME CREDIT APPRAISAL : A STUDY AT BANK OF INDIA

Source : BOIs Annual Report 2009-10 and As Provided by My Guide

SME CREDIT APPRAISAL : A STUDY AT BANK OF INDIA

SME CREDIT APPRAISAL : A STUDY AT BANK OF INDIA

SME CREDIT APPRAISAL : A STUDY AT BANK OF INDIA

Annual Report of BOI, 2009-10 www.bankofindia.com Loan Policy of BOI www.wikipedia.com

SME CREDIT APPRAISAL : A STUDY AT BANK OF INDIA

SME CREDIT APPRAISAL : A STUDY AT BANK OF INDIA 3.1 Evolution of SME

Phase I between 1948-1991:

Place: Bhubaneswar Date: _/_/____ (Soumitra Panda)

Place: Bhubaneswar Date: _/_/____ (Soumitra Panda)