A Research Proposal On Granting Loan to the SME Submitted By: Manisha B. Prajapati [Batch: 2011-13, Enrollment No.

: 117460592058] Krunal J. Luhar [Batch: 2011-13, Enrollment No.: 117460592103S] Submitted to: Mr.Nikunj R. Thakkar MBA SEMESTER III R.B.Institute of Management Studies MBA PROGRAMME Affiliated to Gujarat Technological University Ahmedabad

PREAMBLE
SME is fast growing sector in the Indian Economy.

Every Bank has given highest importance to financing SMEs in their strategically growth plan. It has become necessary to bring policy shift and create free market environment from regulations & interventions in economic activity. Growth resulting from globalization and liberalization is visible most profoundly in the SME segment. The relationship between the banker and the customer has become most crucial and competitive.

Particulars

Investment in Plant & Machineries of Manufacturing Enterprises

Investment in Equipments of Service Sector Enterprises

Micro Enterprises

Up to Rs. 25/- lacs

Up to Rs.10/- lacs

Small Enterprises

Above Rs. 25/- lacs and up to Rs.500/lacs

Above Rs.10/- lacs and up to Rs.200/lacs

Medium Enterprises

Above Rs.500/- lacs and up to Rs.1000/lacs

Above Rs.200/- lacs and up to Rs.500/lacs

COMMON GUIDELINES/INSTRUCTIONS FOR LENDING TO SME SECTOR: 1. Application Forms for Financial Assistance:
I II III IV

Application form for credit facilities up to Rs.10/- lacs. Application form for credit facilities of over Rs. 10/lacs and up to Rs.50/- lacs. Application form for credit facilities of over Rs. 50/lacs and up to Rs. 2/- crore Application form for credit facilities over Rs. 2/crore.

2. Receipt of applications and acknowledgment: An acknowledgment with the date of receipt for credit application received to be given. A definite date to be intimated to the applicant for discussions, clarifications etc. if considered necessary.
The banks decision regarding credit assistance to be

communicated to the applicant within the prescribed period.

3. Register of Credit Applications Received: All applications received should be entered in a Register of Loan Applications Received for recording therein the complete particulars such as date of sanction, rejection, reasons for rejection etc.

4. Time norms for disposal of loan applications: In respect of loans up to Rs.25,000/- within a maximum period of one week of receipt of loan applications complete in all the respects and duly accompanied by a check list.
In

respect of other cases for loans above Rs.25,000/- and up to Rs.5.00 lacks, within a maximum period of two weeks on receipt of duly completed loan applications in all the respects and accompanied by a checklist.

5. Types of Facilities:
(a) Term Loan / Demand loan / Deferred Payment Guarantee (b) Working Capital by way of Cash Credit, Overdraft etc

(c) Bills Purchase / Discounting under L/C or outside L/c.

(d) Export Credit facilities like Packing Credit. (e)Letter of Credit on sight/usance basis for purchase of raw material/capital goods (f) Bank Guarantees 6. Assessment of Working Capital Limits: Limits up to Rs. 5.00 crores: Limits above Rs. 5.00 crores:

Financial Ratios for Credit Appraisal

Sr. Ratio Norms Micro & Small Enterprises Medium Enterprises under under manufacturing sector and Service Sector manufacturing sector and falling under regulatory Service Sector falling guidelines under regulatory guidelines 1 2 3 Current Ratio Debt Equity Ratio Average DSCR for Term Loan 1.17& above 3:1 1.20 & above 3:1

1.75 With a condition that 1.75 with a condition that in any one year it should in any one year it should not be below 1.00 instead not be below 1.25 of 1.25 as per extant guidelines.

Current Ratio:
While a benchmark current ratio of 1.33:1 is always

desirable, it is felt that some relaxations are provided to SMEs in their Current Ratio. They may be permitted to maintain a minimum current ratio of 1.20:1 as against 1.25-1.33:1 stipulated for others. Deviation for this range is not this range are not to be allowed (expected by one level above the sanctioning authority), particular if the rating gets below AA. Borrower has to improve the position by building up the current assets through infusion of more capital/funds.

Current Ratio= Current Assest

Current liability

Debt: Equity Ratio:

The following may be accepted as the benchmark in this regard: W/C limits over Rs.5Crores to micro& small enterprises: 3:1. W/C limits to medium enterprises: 3:1. W/C limits up to Rs.5Crores to micro & small enterprises: 4:1. Credit Rating Model Govt./RBI had advised that banks initiate necessary steps to rationalize the cost of loans to SME sector by adopting a transparent rating system with cost of credit being linked to the credit rating enterprise. The banks board had already of the following credit risk models Debt Equity Ratio= Total Long term Debt Net Worth Net Worth= Equity Share Capital + Reserve & Surplus Misc. Expences

SMALL BUSINESS LOANS

The Bank grants to its customers, falling into the

category of small business, loans with the following purposes: Facing of irregular needs of operational funds; Facing of short-term needs of operational funds; Purchase of professional equipment; Purchase, construction or improvements of business offices; Participation in investment projects; Participation in specific national or European programs.

 The minimum tenor of the granted by the Bank small

business loans is 1 (one) year, and the maximum 25 (twenty five) years. The tenor of each loan depends on the purpose of the loan and on the type and amount of the provided collateral. customer may provide:

As collateral for the granted by the Bank loan the

Guarantying the guarantors have to be active persons of full age with permanent residence in the country. The guarantors are jointly responsible with the Borrower before the Bank for the total amount of the debt as per the signed Loan Contract, including: principal, interests, fees, commissions and all other expenses for the collection of the debt until its full repayment, as well as when the Bank makes the total debt pre-term and fully payable.

 LC Discounting Cash Credit Bill Discounting Financial Guarantee

Base Rate:

Last Updated on November 28th, 2012

Bank DBS India South Indian Bank Limited State Bank of India ICICI Bank Kotak Mahindra Bank Standard and Chartered Bank HDFC Bank The Jammu and Kashmir Bank Limited Axis Bank Tamilnad Mercantile Bank Limited The Catholic Syrian Bank The Karur Vysya Bank Limited ING Vysya Bank State Bank of Hyderabad State Bank of Mysore United Bank of India Vijaya Bank Central Bank of India Bank of India Bank of Baroda Andhra Bank Allahabad Bank Corporation Bank Punjab National Bank Syndicate Bank Union Bank of India State Bank of Travancore

Base Rate(%) 9.00 9.60 9.75 9.75 9.75 9.75 9.80 10.00 10.00 10.00 10.00 10.00 10.20 10.25 10.25 10.45 10.45 10.50 10.50 10.50 10.50 10.50 10.50 10.50 10.50 10.50 10.50

ICICI BANK Features of ICICI Bank Secured SME Loan Eligible entities: Sole Proprietorship Firm, Partnership Firms, Private limited Companies, Public limited Companies
Lending Exposure : Up to Rs 50.0 million for working capital and capital

expenditure needs
Acceptable collaterals: Residential/Commercial/Industrial property, liquid

securities
Pre-requisites: Minimum one year business operation & audited financial. Also offers Term Loan for purchase of commercial assets & business

expansion needs.
ICICI Bank Secured SME Loan Interest Rates and Charges Pricing shall be linked to ICICI bank's base rate* for fund based facility ICICI Bank Base rate at present is 9.75%p.a Loan processing fees shall be charged based on loan amount sanctioned.

A. industry 2011 0.77 2010 0.79 2009 0.69

P. corporation 2011 0.38 2010 2009 0.48 0.78

current ratio : current assets

deposit/advance/investmen ts

current ratio : current assets deposit/advance/invest ments cash & bank bal debtors total current liabilities creditor/provision secured loan total TOL/TNW (quasi ) Total Outside Liabilities Total current lib. secured loans total

cash & bank bal debtors total current liabilities creditor/provision secured loan total TOL/TNW (quasi )

69.64 59.58 12.5 20.84 22.26 18.47 70.39 97.83 118.16 160.87 179.67 149.13 28.31 40.71 78.88 181.65 186.31 137.57 209.96 227.02 216.45 2.03 2.41 5.95

0.64 1.28 12.38 14.3 26.81 10.67 37.48 1.69

4.52 0.30 0.63 1.32 13.33 22.07 18.48 23.69 23.59 24.59 14.56 5.74 38.15 30.33 2.97 3.24

Total Outside Liabilities Total current lib. secured loans total Tangiable Net Worth capital

28.31 40.71 78.88 192.63 205.9 183.85 220.94 246.61 262.73

26.81 7.19 34

23.95 25.45 10.87 4.79 34.82 30.24

8.66

1.74

0.44

Tangiable Net Worth capital

9.81

7.05

5.79

S. Ind. Kalol 2011 current ratio : current assets deposit/advance/invest ments 1.21 2010 0.65 2009 0.00 current ratio :

S. Ind. Ahmedabad 2011 1.51 2010 1.46 2009 1.92

27.7

17.28

0.00

current assets deposit/advance/investme nts

59.25

0.00

0.00

cash & bank bal

debtors closing stock total current liabilities creditor/provision secured loan total TOL/TNW (quasi ) Total Outside Liabilities total current lib. secured loans Unsec total Tangiable Net Worth

11.64
53.88 67.71 160.93

9.59
25.43 30.9 83.2

0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

cash & bank bal

debtors closing stock total current liabilities creditor/provision secured loan total TOL/TNW (quasi ) Total Outside Liabilities total current lib. secured loans Unsec total Tangiable Net Worth

3.76

4.95

1.35

696.00 273.48 157.07 466.79 186.68 71.76 1225.80 465.11 230.18 71.99 9.29 11.77 741.78 309.44 108.35 813.77 318.73 120.12 3.47 2.25 3.66

53.89 23.49 78.73 104.53 132.62 128.02 10.12 7.30

53.89

23.49

0.00 0.00 0.00

71.99

9.29

11.77

169.4 161.13 52.5 16.49 275.79 201.11

741.78 309.44 108.35 162.78 28.96 111.00 976.55 347.69 231.12

om & co. Ahmedabad (Vasudev) 2011 2.99 2010 1.34 2009 1.46

W Industries 2011 1.24 2010 0.96 2009 3.52

current ratio : current assets deposit/advance/investments cash & bank bal debtors closing stock

current ratio : current assets

4.21 4.14 848.72 75.22

3.49 1.61 289.35 47.17

0.21 1.23 401.36 60.74

deposit/advance/investments cash & bank bal debtors closing stock

0.32 1.19 11.02 24.05

0.32 3.26 8.68 21.25

0.97 0.28 3.48 21.27

total
current liabilities

932.29

341.62

463.54

total
current liabilities

36.58

33.51

26.00

creditor/provision
secured loan total TOL/TNW (quasi ) Total Outside Liabilities Total current lib. secured loans Unsec total Tangiable Net Worth capital

76.09
236.13 312.22 2.77 76.09 236.13 117.88 430.10

57.94
197.69 255.63 2.96 57.94 197.69 26.25 281.88

106.80
209.67 316.47 4.43 106.80 209.67 77.98 394.45

creditor/provision
secured loan+OD total TOL/TNW (quasi ) Total Outside Liabilities Total current lib. secured loans Unsec total Tangiable Net Worth

6.09
23.46 29.55 8.13 11.02 19.56 40.63 71.21

6.44
28.64 35.08 7.77 6.56 25.76 39.38 71.70

4.06
3.32 7.38 8.45 4.47 2.05 35.47 41.99

155.00

95.20

88.99

capital

8.76

9.23

4.97

Bulk Pack 2012 1.51 2011 0.78 2009 0.84

ABC 2012 1.90 2011 1.92 2010 1.53

current ratio :

current ratio :

current assets deposit/advance/investment cash & bank bal debtors closing stock
total current liabilities creditor/provision secured loan total TOL/TNW Total Outside Liabilities Total current lib. secured loans Unsec total Tangiable Net Worth capital

59.25 3.76 696.00 466.79 1225.8

92.65 15.35 59.02 600.98 768.00

122.43 10.42 19.69 730.49 883.03

current assets deposit/advance/investments cash & bank bal debtors closing stock
total current liabilities creditor/provision secured loan total TOL/TNW Total Outside Liabilities Total current lib. secured loans Unsec total Tangiable Net Worth capital

0.08 0.00 3.95 13.62 1.9 1.50 71.90 36.71 15.46 21.89 23.1 15.58 107.49 61.71 36.49

71.99 741.78 813.77 12.26 936.69 22.19 41.26 1000.14

959.44 1040.85 30.62 8.87 990.06 1049.72 18.59 24.33 959.44 1040.85 30.62 8.87 0.40 18.24 990.46 1067.96

56.56 32.07 23.87 0.00 0.00 0.00 56.56 32.07 23.87 35.09 35.88 38.37 56.56 32.07 23.87 0.00 0.00 0.00 66.62 43.63 16.42 123.18 75.70 40.29

81.61

53.28

43.90

3.51

2.11

1.05

RESEARCH METHODOLOGY

Objectives: Primary Objective To know how capital investment loan is granted to SME To know creditworthiness of business units found out Secondary Objective To know what type of guarantee should be provided by the Bank while taking loan To know what type of credit facilities are provided to SME by the Bank. Sources of data collection: The study that is conducted being a descriptive one the research sources of data used by: Secondary data For concluding the detailed study of this topic it is necessary to have some of the secondary information which is collected from the Website Data Analysis: Tools and Techniques: Ratio Analysis by use of Excel or SPSS .

Limitation of the study

All the information needed for the project was not

available because of confidentiality issue.

Sometimes it was tough to get an appointment and

meet Kajal Maam.

We collect the data from Ms. Kajal (Assistant

Manager of Kumbhat Advisors Pvt. Ltd.) about the SME and Bank loan guarantee.

List of references
http://www.rbi.org.in http://www.just4uloan.com www.sme.com www.icici.com

Ms. Kajal (Assistant Manager of Kumbhat Advisors

Pvt. Ltd.) http://www.way2goals.com/BaseRate.php