a project report on financing ssi

8/2/2019 A Project Report on Financing Ssi

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A Project Report on

SMALL SCALE INDUSTRY FINANCING WITH REFRENCE TO J&K BANK

Submitted to

PUNJAB TECHNICAL UNIVERSITY

JALANDHAR

In partial fulfillment of the requirement for the

award of the degree of

Masters of Business Administration (MBA)

Submitted By: Project Guide:

Touseef Ahmad Nath Miss Anjali Sharma

100222243691 Assistant Professor in

Management

Session (2010-2012

CT INSTITUTE OF MANAGEMENT

SHAHPUR


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CERTIFICATE

This is to certify that the project report entitled Small Scale Industries Financing

submitted by Touseef Ahmad Nath is a bona fide piece of work conducted under my direct

supervision and guidance. No part of this work has been submitted for any other degree of any

other university. The data sources have been duly acknowledged. It may be considered for

evaluation in the partial fulfillment of the requirement for the award of the degree of Masters of

Business Administration.

Date:

Miss Anjali Sharma

Assistant Professor in Management

CT Institute of Management Studies

Jalandhar


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PREFACE

A professional course like MBA is a launch pad for the management career. It is not just oriented at

congregation of the vast spread knowledge written by many great authors from management field but

this esteemed course aspires for building managerial intelligence and the innovative capability among

its aspirants. Moreover it helps in realizing the welded realities of existing corporate world outside the

classroom. This is the great reason that every management student requires the supplementation of

their academic knowledge through practical exposure with corporate world. In todays competitive

and dynamic world it has become very difficult for any organization to survive in the market. Banks are

striking hard for making a place for themselves in the market & to overcome their competitors these

days countless studies & researches are conducted in various fields to contract a policy, which can

lead a company a head of its competitors.

In the present era of due to completion a lot of financial institutions and innovative financial

instruments are emerging to attain satisfaction of customers. Banks are widening their coverage by

adopting various strategies like Mergers and Acquisition. It is sincerely hoped that the discrepancies

noted must be viewed in the light of limitations that exist in the way of study done by student of

degree course.


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It is gratefully acknowledged the kindness and assistance of all those who helped in completing the

project. The Management of CT Institute of Management Studies, Jalandhar is applauded with

gratification for the much needed support in carrying out the project report. It is the matter of privilege

to bestow deep sense of gratitude and thanks to miss Anjali Sharma Assistant Professor, CT Institute of

Management Studies, Jalandhar for her constructive criticism, valuable suggestions and constant

encouragement at all the stages of development of the project. I thank all the employees of J&K Bank

for providing a conducive environment for the development of the project and for extending the

necessary facilities for the completion of the project. Without the constant support and guidance of

the above people, this project have not been a success

Date:

TOUSEEF AHMAD NATH


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REPORT CONTENTS:

1. Cover & Title page

2. Introductory pages: Certificate Acknowledgement Preface

3. Introduction

4. Need, Scope and Objective(s) of the study:a. Need of the studyb. Scope of the studyc. Objectives of the study

5. Review of Literature:Research Methodology:

6. Data Analysis & Interpretation : Findings of the study: Recommendations:

7. Conclusion:a. References

8. Annexure:


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COMPANY PROFILE

Jammu & Kashmir Bank is the only Bank in the country with majority ownership vested with a

state government the Government of Jammu & Kashmir.

J&K Bank functions as a universal bank in Jammu & Kashmir and as a specialised bank in the

rest of the country. It is also the only private sector bank designated as RBIs agent for banking

business, and carries out the banking business of the Central Government, besides collecting

central taxes for CBDT.

J&K Bank follows a two-legged business model whereby it seeks to increase lending in its home

state which results in higher margins despite modest volumes, and at the same time, seeks to

capture niche lending opportunities on a pan-India basis to build volumes and improve margins.

J&K Bank operates on the principle of socially empowering banking and seeks to deliver

innovative financial solutions for household, small and medium enterprises.

The Bank , incorporated in 1938, and is listed on the NSE and the BSE. It has a track record of

uninterrupted profits and dividends for four decades. The J&K Bank is rated P1+, indicating the

highest degree of safety by Standard & Poor and CRISIL.


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HISTORY OF THE ORGANISATION

Till 1920-30, traditional money lenders performed entire banking in the State of Jammu

and Kashmir too, at exorbitant rates. At the same time, some banks functioned but at a very

limited scale, such as Punjab National Bank, Grindlays Bank, and Imperial Bank of India. The role

of these banks was reduced to the acceptance of deposits, as they not grant loans and

advances to the people of the State owing to the statutory limitations. Under this scenario,

banks could not ameliorate the financial and social position of the State. To overcome this

critical situation the then Maharaja of State conceived an idea of setting up of a State Bank in

the State. After prolonged exercises and deliberations the assignment for establishment of

The Jammu and Kashmir Bank Limited was given to the late Sir Sorabji N.Pochkhanwala, the

then Managing Director of the Central Bank of India. Mr. Pochkhanwala formulated a scheme

on 24-09-1930,suggesting establishment of a semi State bank of India with participation in

capital by State and the public under the control of State Government. Thus, the bank was

formally incorporated on 1st

of October 1938 and commences its business from 4th

of July 1939

at its Registered Office, Residency Road, Srinagar, Kashmir.The Jammu and Kashmir Bank

Limited has been the first of its nature and composition as a State owned bank in the country.

The State Government besides contributing half of the issued capital also appointed it as its

bankers for general banking and treasury business. In its formative years, the Bank had to

encounter several serious problems, particularly around the time of independence, when out of

its total of 10 branches two branches of Muzaffarabad and Mirpur fell to the other side of Line

of Control (now Pakistan Administrated Kashmir) along with cash and other assets in 1947.

However, the State Government came to its rescue with the assistance of Rs.6 lakhs to meet

the claims. However, the Bank steadily overcame its difficulties and kept growing. Following the

extension of Central laws to the State of Jammu and Kashmir the bank was defined as a

Government Company as per the provisions of Indian Companies Act 1956. The bank had its

first full time Chairman in 1971, following the social central measures in banks. The year 1971

was a turning point for the Bank on conferment of scheduled bank status and witnessed

remarkable progress in all the vital fields of operations. Reserve Bank of India (RBI) declared the


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bank as A class bank. In recognition of dominant role and exalted performance. RBI appointed

the bank as its agent for performing the general banking business of the Central Government

especially in maintaining currency chest and collection of taxes.

INTRODUCTION TO SMALL SCALE INDUSTRIES

Small scale industrial units are those engaged in the manufacture, processing or preservation

of goods and whose investment in plant and machinery (original cost) does not exceed Rs. 1

crore. (except in respect of certain specified items under hosiery, hand tools, drugs and

pharmaceuticals, stationery items and sports goods where this investment limit has been

enhanced to Rs.5.00 crore. However loan to SSI sector will be categorized under priority

sector.)

owned, controlled or subsidiary of any other

industrial undertaking)

Explanation: For the purpose of this note:- the expression "controlled by any other industrial

undertaking" means as under:-

i. where two or more industrial undertakings are set up by the same person as a proprietor,each of such industrial undertakings shall be considered to be controlled by the other industrial

undetaking or undertakings,

ii. where two or more industrial undertakings are set up as partnership firms under the Indian

Partnership Act, 1932 (1 of 1932) and one or more partners are common partner or partners in

such firms, each such undertaking shall be considered to be controlled by other undertaking or

undertakings,

iii. where industrial undertakings are set up by companies under the Companies Act, 1956 (1 of

1956), an industrial undertaking shall be considered to be controlled by other industrial

undertaking if:-


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a. the equity holding by other industrial undertaking in it exceeds twenty four percent of its

total equity; or

b. the management control of an undertaking is passed on to the other industrial undertaking

by way of the Managing Director of the first mentioned undertaking being also the Managing

Director or Director in the other industrial undertaking or the majority of Directors on the

Board of the first mentioned undertaking being the equity holders in the other industrial

undertaking in terms of the provisions of the following items (a) and (b) of sub-clause (iv);

(iv) the extent of equity participation by other industrial undertaking or undertakings in the

undertaking as per sub-clause (iii) above shall be worked out as follows:-

a. the equity participation by other industrial undertaking shall include both foreign and

domestic equity;

b. equity participation by other industrial undertaking shall mean total equity held in an

industrial undertaking by other industrial undertaking or undertakings, whether small scale or

otherwise, put together as well as the equity held by persons who are Directors in any other

industrial undertaking or undertakings even if the person concerned is a Director in other

Industrial Undertaking or Undertakings;

c. equity held by a person, having special technical qualification and experience, appointed as a

Director in a small scale industrial undertaking, to the extent of qualification shares, if so

provided in the Articles of Association, shall not be counted in computing the equity held by

other industrial undertaking or undertakings even if the person concerned is a Director in other

industrial undertakings or undertakings;

(v) where an industrial undertaking is a subsidiary of, or is owned or controlled by, any other

industrial undertaking or undertakings in terms of sub-clauses (i); (ii); or (iii) and if the total

investment in fixed assets in plant and machinery of the first mentioned industrial undertaking

and the other industrial undertaking or undertakings clubbed together exceeds the limit of

investment specified in paragraphs (1) or (2) of this notification as the case may be, none of


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these industrial undertakings shall be considered to be a small scale or ancillary industrial

undertaking.

Tiny Enterprises:

The status of Tiny Enterprises is given to all small scale units whose investment in plant &

machinery is upto Rs. 25 lakhs, irrespective of the location of the unit.

Ancillary Industrial undertaking:

An industrial undertaking which is engaged or is proposed to be engageg in the manufacture or

production of parts , components , sub-assemblies , tooling or intermediates , or the rendering

of services is termed as Ancillary industrial undertaking. The Ancillary industrial undertaking

has to supply or render or propose to supply or render not less than 50% of production or

services , as the case may be , to one or more other industrial undertakings. The investment in

plant and machinery , whether held on ownership terms or on lease or on hire purchase,

should not exceed Rs10 million .

Small Scale Service & Business Enterprises (SSSBEs):

Industry related service and business enterprises with investment upto Rs. 10 lakhs in fixed

assets, excluding land and building will be given benefits of small scale sector. For computation

of value of fixed assets, the original price paid by the original owner will be considered

irrespective of the price paid by subsequent owners.

Small Scale Industries may sound small but actually plays a very important part in the overall

growth of an economy. Small Scale Industries can be characterized by the unique feature of

labor intensiveness. The total number of people employed in this industry has been calculated

to be near about one crore and ninety lakhs in India, the main proponents of Small scale

industries.

The importance of this industry increases manifold due to the immense employment

generating potential. The countries which are characterized by acute unemployment problem


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especially put emphasis on the model of Small Scale Industries. It has been observed that India

along with the countries in the Indian continent have gone long strides in this field.

In calculating the value of plant and machinery, the following shall be excluded, namely:- (i) the

cost of equipments such as tools, jigs, dies moulds and spare parts for maintenance and the

cost of consumable stores; (ii) the cost of installation of plant and machinery; (iii) the cost of

research and development equipment and pollution control equipment; (iv) the cost of

generation sets and extra transformer installed by the undertaking as per the regulations of the

State Electricity Board; (v) the bank charges and service charges paid to the National Small

Industries Corporation or the State Small Industries Corporation; (vi) the cost involved in

procurement or installation of cables, wiring ,bus bars, electrical control panels(not those

mounted on individual machines), oil circuit breakers or miniature circuit breakers which are

necessarily to be used for providing electrical power to the plant and machinery or for safety

measures; (vii) the cost of gas producers plants' (viii) transportation charges(excluding of sales-

tax and excise) for indigenous machinery

Advantages associated with Small Scale Industries

This industry is especially specialized in the production of consumer commodities.

Small scale industries can be characterized with the special feature of adopting the labor

intensive approach for commodity production. As these industries lack capital, so they utilize

the labor power for the production of goods. The main advantage of such a process lies in the

absorption of the surplus amount of labor in the economy who were not being absorbed by the

large and capital intensive industries. This, in turn, helps the system in scaling down the extent

of unemployment as well as poverty.

It has been empirically proved all over the world that Small Scale Industries are adept in

distributing national income in more efficient and equitable manner among the various

participants in the process of good production than their medium or larger counterparts.

Small Scale Industries help the economy in promoting balanced development of industries

across all the regions of the economy.


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This industry helps the various sections of the society to hone their skills required for

entrepreneurship.

Small Scale Industries act as an essential medium for the efficient utilization of the skills as

well as resources available locally.

Small Scale Industries enjoy a lot of help and encouragement from the government through

protecting these industries from the direct

competition of the large scale ones, provision of subsidies in the form of capital,lenient tax

structure for this industry and many more

Need and Scope of Small-Scale Industries

All industrial units with a capital investment of not more than Rs. one crore are, at present,

treated as small-scale units. For ancillary units i.e., those supplying components etc., to large-

scale industries and the export-oriented units, the limit of capital investment is also Rs. one

crore. Industrial units with an investment of up to Rs. 25 lakhs belong to the tiny sector. It may

be noted that capital investment covers only investment in plant and machinery, land andfactory buildings are excluded. As per this classification all industries with capital investment

higher than specified for small-scale units are large-scale industries.

The small-scale industries contribute a lot to the progress of the Indian economy. They have

also a great potential for the future development of the economy. Let us discuss their role in

detail.

Large Scope for Employment: The small-scale industries provide large scope for employment

on a massive scale. In 2001 the employment generated in this sector was 19.2 million. This is of

great significance for a country like India which is a labour-surplus economy, and where labour-

force is increasing at a very rapid rate. Moreover, the small-scale industries being labour-

intensive they employ more labour per unit of capital for a given output compared to the large-scale industries. This is evident from the fact that the small-scale sector accounts for as much as

80% of the total employment in the industrial sector.

The small-scale industries are also specially suited for overcoming various types of

unemployment in the rural and semi-urban areas. With little capital and other resources,

mostly available locally, these industries can be set-up everywhere in the country, even at the

very door-step of the workers. For this reason the small farmer and agricultural worker can


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combine their work in agriculture with that in these industries. Further, these industries provide

part-time as well as full time work to rural artisans, women, and poor of the backward classes.

Large Production: The small-scale industries also contribute a sizeable amount to the industrial

output of the country. Out of the total output of the manufacturing sector, as much as 40%

comes from these industries. And out of the total supplies of industrial consumer goods a majorpart originates in the small-scale sector. Almost all the products of this sector are in the nature

of consumer goods, with a significant part consisting of luxury goods. The adequate availability

of consumer goods plays an important role in stabilizing and developing the economy.

Large Exports: Many products of the small-scale industries like handloom cotton fabrics, silk

fabrics, handicrafts, carpets, jewellery, etc. are exported to foreign countries. Their share in the

total exports is as much as 40%. In this way the small-scale sector makes a very valuable

contribution to the accumulation of foreign exchange resource of the country.

Use of Latent (domestic) resources: The small-scale industries used resources which are

available locally which would otherwise have remained unused. These resources are, the

hoarded wealth, family-labour, artisans skills, native entrepreneurship, etc. Being thinly spread

throughout the country, these resources cannot be used by large-scale industries which need

them in big amounts and at a few specified places.

Besides using these resources, the small-scale industries provide an environment for the

development of forces of economic growth. Using the hoarded wealth, these industries put into

circulation savings which propel investments in the economy. These industries also provide

opportunities to the small entrepreneurs to learn, to take risks, to experiment, to innovate and

to compete with others.

Promoting Welfare: The small-scale industries are also very important for welfare reasons.

People of small means can organize these industries. This in turn increases their income-levelsand quality of life. As such these industries help in reducing poverty in the country. Further,

these industries tend to promote equitable distribution of income. Since income gets

distributed among vast number of persons throughout the country, this help in the reduction of

regional economic disparities.

Another advantage of great significance of these industries is the upgrading of the lives of the

people in general. The freedom to work, self-reliance, self-confidence, enthusiasm to achieve

and all such traits of a healthy nation can be built around the activities performed in these

industries. It also becomes possible to preserve the inherited skill of our artisans which would

otherwise disappear. Moreover, many ills of urbanization and concentration inherent in large-

scale industries can be avoided by setting up of small industries. All these benefits flow fromthe fact that these industries are highly labour-intensive, and that these can be set up

anywhere in the country with small resources.


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Problems Faced by Small-Scale Industries

The small-scale industries, despite their importance for the economy, are not contributing to

their full towards the development of the country. It is because these industries are beset with

a number of problems in regard to their operations. These problems are discussed below.

Inadequate Finance: A serious problem of these industries is in respect of credit, both for long-term and short-term purposes. This is evident from the fact that the supply of credit has not

been commensurate with their needs associated with fixed and working capital. Very often the

credit has not been timely. Its delayed availability has been a major factor in causing much of

industrial sickness in this sector. The credit situation is particularly hard for the very small or

tiny units.

Difficulties of Marketing: The small-scale industries also faced the acute problem of marketing

their products. The problems arises from such factors as small scale of production, lack of

standardization of products, inadequate market knowledge, competition from technically more

efficient units, deficient demand, etc. Apart from the inadequacy of marketing facilities, thecost of promoting and selling their products too is high. The result is large and increasing

subsidies which impose heavy burden on the government budgets.

Shortage of Raw Materials: Then there is the problem of raw materials which continues to

plague these industries. Raw materials are available neither in sufficient quantity, nor of

requisite quality, nor at reasonable prices. Being small purchasers, the producers are not able

to undertake bulk buying as the large industries can do. The result is taking whatever is

available, of whatever quality and at high prices. This adversely affects their production,

products, quality and costs.

Low-Level Technology: The methods of production which the small and tiny enterprises use are

old and inefficient. The result is low productivity, poor quality of products and high costs. The

producers for lack of imformation, know very little about modern technologies and training

opportunities which concerns them. There is little of research and development in this field in

the country.

Competition from Large-Scale Industries: Another serious problem which these industries face

is that of competition from large-scale industries. Large-scale industries which uses the latest

technologies with access to many facilities in the country can easily out-priced and out-sell the

small producers. With the liberalization of the economy in recent years, this problem has

become all the more serious.For all these reasons, the small producers in the small-scale industries find themselves in a very

precarious position


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Objectives of the Research

.

1 To study the Marketing needs of the J & K Bank Ltd to finance SMALL SCALE INDUSTRIES in KASHMIR.

2. To know about the RBI guidelines to banks regarding financing SSIs.

3 . To identify the awareness of people & employees of SSIs regarding finance schemes/products of J

& K Bank for SSIs.

4 To study the level of satisfaction of SSIs employees towards J and K Bank

REVIEW OF LITERATURE

A thorough review and survey of related literature forms an important part of research. It deals

with the critical examination of various published and unpublished works related to the present

study. Knowledge of related research enables the researcher to define the frontiers of his

fields; it helps in comparing the efficiency of various procedures and instruments used. Further

review of literature avoids unintentional replication of previous studies and also places the

researcher in a better position to interpret the significance of his own results.

In the early literature on economic growth and development, industrialization as a source of

employment and capital accumulation has been recognized by various economists. Here I

highlight the review of works by various authors as well as different committee reports related

to the small scale and cottage industries at international, national and local levels.

For the first time, J.M. Keynes (1936) has focused his attention on the forces that determine

employment policy followed in industrialization. He propounded the theory that

entrepreneurs will offer the amount of employment which maximizes their output and profit.

Here he stressed the productivity of labour as the determining factor of the level of

employment. There is a positive relationship among productivity of labour, output and

employment. According to Keynes employment can only increase pari-pasu with an increase in

investment.

W.A. Lewis (1954) has strongly advocated the application of labour intensive techniques of

production to have a steady and smooth economic growth. He opined that many important

works can be done by human labour with very little capital. Efficient labour could be used to

make even capital goods without using any scarce factors. In this sense, small scale and

cottage industry should be developed and promoted especially in an economy where capital is


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scarce. He recommends the use of capital intensive techniques only when they are

necessary.

Leibenstein and Galenson (1955) took an opposite stand and tried to show that labour intensive

techniques might generate immediate output but little surplus since the wage bill would

be large. Economic development preceded investment but the use of labour intensive

techniques leaves little surplus for investment. Hence, according to them, use of capital

intensive techniques in the process of production will increase the re-investible surplus by

minimizing the wage bill.

Dhar and Lydall (1961) made their study on the data collected from Census of Indian

Manufactures, 1956 and the study prepared by the Perspective Planning Division of the

Planning Commission in respect of capital, labour and output relations in various industries.

They concluded that the issue of choice between large and small industries for the purpose of

an employment-oriented industrialization strategy is largely irrelevant, and it should aim atmaking the best use of scarce resources, instead of aiming at creating employment for the

sake of employment.

Professor Gunnar Myrdal (1968) the recommends the adoption of a strategy based on

predominantly labour-intensive techniques in less developed countries on the ground that the

large volume of unutilized labour possessed by these countries has a productive potential,

capable of creating capital and increasing production.

The National Committee on Science and Technology report on Khadi and Village Industries

(1975) gave a gloomy picture of these industries as a source of employment inindustrialization. The report shows that the compounded rates of growth of employment in

these industries, as compared to growth of output, are very meager.

A World Bank Study (1978) has shown that all important requirements of more jobs and higher

incomes are met by rural non-farm activities. The study suggests that these activities, which

have capital- labour ratio of less than $50 at 1969 prices, deserve a high place in any

employment oriented industrial strategy.

Ruddar Datt and Sundaram (1979) strongly advocated the small scale and house hold

enterprises as an important component of an employment-oriented strategy ofindustrialization. They found that employment-output ratio is the lowest in the small scale

sector while that employment generation capacity is eight times higher than that of large

sectors.

Ruddar Datt and Sundaram (1979) strongly advocated the small scale and house hold

enterprises as an important component of an employment-oriented strategy of


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industrialization. They found that employment-output ratio is the lowest in the small scale

sector while that employment generation capacity is eight times higher than that of large

sectors.

K.M. Rastogi (1980) has made a case study of Madhya Pradesh, which he calls a unique case of

growing unemployment and poverty amidst plenty. He is in favour of only small scale and

village industries, which made optimum use of indigenous techniques and local resources.

According to him, there are hundreds of items which can be produced in cottage and small

scale industries more economically than in large industrial sector.

Prasad (1983) in his study found that the small scale industrial sector is an integral part of not

only the industrial sector, but also of the countrys economic structure as a whole. If small

scale industries are properly developed, they can provide a large volume of employment, can

raise income and standard of living of the people in lower income group and can bring about

more prosperity and balanced economic development.

Small scale industrial sector has vast potential in terms of creating employment and output,

promotion of export, expansion of base for indigenous entrepreneurship and dispersal of

industries and entrepreneurship skills in both rural as well as backward areas.

Desai (1983) also stated that rapid industrialization in India depends on the growth of

small scale industries. Most of the small scale industries are operating under certain

handicaps like shortage of raw materials, low levels of technical knowledge and counseling,

poor infrastructure, inadequate capital and credit facilities, improper distribution system, lack

of facilities for market analysis, research and development. They are also weak in marketingtheir products beyond their localities especially in international markets.

B.K. Sharma (1985) suggested that the programme of rural industries would require constant

support.The training and marketing infrastructures would therefore, have to be developed

suitably for the sustenance and healthy growth of the rural industries programme.

Nayak Committee (1992) set up by the Reserve Bank of India to examine the adequacy of

institutional credit to the Small Scale Industrial sector and the related aspects. The Committee

found that banks has insufficiently serviced the working capital needs of the sector particularly

that of cottage and tiny enterprises. Moreover, there is a need for the setting up of specializedbank branches for small scale industries, the absence of which has led to serious bottlenecks.

Further, the system of providing term loan and working capital by two kinds of institutions, viz.

Banks and State Financial Corporations (SFCs) has given rise to a host of problems of co-

ordination among them.


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Lianzelas (1994) work is based on the economic development of Mizoram as a whole. He

focused on various sectors of the economy and their development purely from the economic

point of view. Although he put valuable suggestions and policy recommendations for the future

development of the state, he did not give any specific strategy for the development of small

scale and cottage industries in the state.

According to Aruna Devi (1995)Industrial development is a pre condition for the economic

development of an underdeveloped region. She is of the opinion that industrial development

in general and development of small scale and cottage industries in particular is bound to play

an active role in connection with the economic development of an underdeveloped state, like

Manipur.

Rualkhuma (1997)focused on the industrial development of Mizoram, which is indeed a

geographical interpretation of the existing bottlenecks and problems rather than economic

analysis. He laid stress on the development of small scale and village industries to boostthe over all economic development of the region. His work did not give any concrete

solutions on the existing problems and drawbacks of industrial development from economic

perspective.

Abid Hussain Committee (1997) Report on small enterprises has examined and suggested

institutional arrangements, policies and programmes for meeting long term and short term

requirements of the small scale industries. The Committee found that the reservation policy of

specific products for exclusive manufacture by small scale industries had not served much

purpose as most industrialization had occurred in items not reserved for small scale industries.

Moreover, it had resulted in low efficiency and productivity and restricted the expansion

and export potential of important industries like light engineering, food processing, textiles and

others. Credit to small scale industrial sector had become more and more expensive especially

after interest rate deregulation. Institutions and regulatory policies responsible for

technical assistance, human resources development, industrial standardization etc. expected to

play a provocative role in halting technological obsolescence particularly among tiny units did

not proved so effective.

Mali (1998) in his study has observed that small and medium enterprises (SMEs) and micro

enterprises have to face increasing competition in the present scenario of globalization, theyhave to specifically improve themselves in the fields of management, marketing, product

diversification, infrastructural development, technological up gradation. Moreover, new small

and medium enterprises may have to move from slow growth area to the high growth area

and they have to form strategic alliance with entrepreneurs of neighbouring

countries. Data bank on industries to guide the prospective entrepreneurs including investors

from abroad is also needed.


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Professor A.M. Khusro (1999) holds that if you attempt to create only employment without

regard to efficiency, output and surplus, you will soon end up with neither employment nor

output or surplus. Accordingly, Khusro suggests formulation of a strategy that

depends on self-financing surplus generating schemes.

Agarwal (1999) mentioned that the entrepreneurs of small scale industries are generally

lacking in knowledge of various aspects as how to set up an industry. Owing to the

predominance of agricultural background of the region, the infrastructure for industrial

development has not developed properly. Apart from lack of industrial tradition and managerial

class, the state is handicapped by difficult terrain and disturbed socio-political conditions

are also adversely affecting industrialization in the state.

Rajendran (1999) made a study to examine the various kinds of assistance given to small scale

industries with the prime objective of identifying institutional assistance for the development of

small scale industries and the problems faced by these industries in Tiruchirapalli district ofKerala. He concluded that the greatest problem faced by the small entrepreneurs was non

availability of adequate financial assistance. Moreover, the small enterprises also face problems

relating to the acquisition of raw material, marketing of products and technological and

administrative problems. There were complicated procedures in availing loans from financial

institutions and there is no coordination between the promotional institutions and government

agencies.

Indian Institute of Entrepreneurship, Guwahati (2001) conducted a study on the performance

of small scale industries in Greater Guwahati area. The study revealed that large number of SSI

units (30 percent) in the study area did not avail any financial assistance from banks or any

other financial institutions. State Bank of India (SBI) is the major money lender to the small

scale industrial sector followed by the United Bank of India (UBI), Assam Financial

Corporation (AFC) etc. All other financial institutions played more or less the same role i.e.

providing loan to only 1 percent to 3 percent of units by each bank.

So far as the case studies are concerned, they are seldom wholesome studies and that they

provide information, in general of one aspect or the other of the sector. Many studies have

been undertaken by various scholars relating to the small scale industrial sector at

international, national, regional and even district level, but a few studies have been foundrelating this sector in backward and hilly regions like Mizoram and highlighting the problems

and prospects of these industries in such areas.Due to the non-existence of medium and large

scale industries in the present study area of Mizoram, the Government of India has declared

this region as No Industry Area. As such no fruitful research work has been done here in the

field of industrial development. It is only since Mizoram got statehood status in 1987; it

attracted the attention of few scholars which is revealed in their writings on various issues


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concerning the socio-economic aspects of the state.Though the available literature on the

present topics Small Scale and Cottage Industries in Mizoram in the state is scanty, the works

of Professor A. K. Agarwal, Professor Lianzela, Professor R. N. Prasad, Dr. R. Colney,

Thangmawizuala etc. are worth mentioning.

RESEARCH METHODOLOGY

The Financing Small Scale Industries will be an exploratory research ,because the area of survey is new

and various variables which affect the survey are also not known to us, Exploratory research provides

insights into and comprehension of an issue or situation. It should draw definitive conclusions only with

extreme caution. Exploratory research is a type of research conducted because a problem has not been

clearly defined. Exploratory research helps determine the best research design, data collection method

and selection of subjects. Given its fundamental nature, exploratory research often concludes that a

perceived problem does not actually exist.

Exploratory research often relies on secondary research such as reviewing available literature and/or

data, or qualitative approaches such as informal discussions with consumers, employees, management

or competitors, and more formal approaches through in-depth interviews, focus groups, projective

methods, case studies or pilot studies. The Internet allows for research methods that are more

interactive in nature: E.g., RSS feeds efficiently supply researchers with up-to-date information; major

search engine search results may be sent by email to researchers by services such as Google Alerts;comprehensive search results are tracked over lengthy periods of time by services such as Google

Trends; and Web sites may be created to attract worldwide feedback on any subject.

The results of exploratory research are not usually useful for decision-making by themselves, but they

can provide significant insight into a given situation. Although the results of qualitative research can give

some indication as to the "why", "how" and "when" something occurs, it cannot tell us "how often" or

"how many."

Exploratory research is not typically generalizable to the population at large.

A defining characteristic of causal research is the random assignment of participants to the conditions of

the experiment; e.g., an Experimental and a Control Condition.. Such assignment results in the groups


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being comparable at the beginning of the experiment. Any difference between the groups at the end of

the experiment is attributable to the manipulated variable. Observational research typically looks for

difference among "in-tact" defined groups. A common example compares smokers and non-smokers

with regard to health problems. Causal conclusions can't be drawn from such a study because of other

possible differences between the groups

TOOLS FOR CONDUCTING STUDY

1. Primary Data

Questionnaires

Direct interaction with SSI unit employees

Structural observation

Projective Techniques

2. Secondary data

Company broachers

Pamphlets

Internet

RBI Guidelines To Banks For Financing SSIs

Brief introduction on Priority Sector Lending:

At a meeting of the National Credit Council held in July 1968, it was emphasised that

commercial banks should increase their involvement in the financing of priority sectors, viz.,

agriculture and small scale industries. The description of the priority sectors was later

formalised in 1972 on the basis of the report submitted by the Informal Study Group on

Statistics relating to advances to the Priority Sectors constituted by the Reserve Bank in May

1971. On the basis of this report, the Reserve Bank prescribed a modified return for reporting


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priority sector advances and certain guidelines were issued in this connection indicating the

scope of the items to be included under the various categories of priority sector. Although

initially there was no specific target fixed in respect of priority sector lending, in November

1974 the banks were advised to raise the share of these sectors in their aggregate advances to

the level of 33 1/3 per cent by March 1979.The need for primary (urban) co-operative bank

(UCBs) for providing credit to priority sectors had been examined by the Standing Advisory

Committee for UCBs constituted by Reserve Bank in May 1983. The recommendations of the

committee were accepted by Reserve Bank and accordingly the targets for lending to priority

sector and weaker sections by the UCBs were stipulated. 2. On the basis of the

recommendations made in September 2005 by the Internal Working Group (Chairman: Shri C.

S. Murthy), set up in Reserve Bank to examine, review and recommend changes, if any, in the

existing policy on priority sector lending including the segments constituting the priority sector,

targets and sub-targets, etc. and the comments/suggestions received thereon from banks,

financial institutions, public and the Indian Banks Association (IBA), it has been decided to

include only those sectors as part of the priority sector, that impact large sections of the

population, the weaker sections and the sectors which are employment-intensive such as

agriculture, and tiny and small enterprises. Accordingly, the broad categories of priority sector

for UCBs will be as under:

Under a scheme to be drawn up by the RBI, banks will be encouraged to establish mechanisms

for better co-ordination between their branches and branches of SIDBI which are located in 50

clusters that have been identified by the Ministry of Small Scale Industries, Government of

India. Under the scheme of strategic alliance (i) the existing branches of SIDBI redesignated as

'Small Enterprises Financial Centres' (SEFC) will take up co-financing of term loan requirements

of SSI units along with the bank branches and the working capital requirements of these units

will be met by the banks; (ii) the expertise of the SIDBI in appraisal of credit requirements of SSI

units will be leveraged by the branches of commercial banks, by payment of a nominal fee; (iii)

SIDBI will provide other expert services to help the banks in simplifying the application forms,

documentation and disbursement procedures, etc.; and (iv) the working of the scheme may be

monitored and modified to suit the local conditions by the State Level Bankers Committee


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(SLBC) and, depending on the experience, the coverage of the scheme may be extended to

more clusters. The services of SEFCs will be available for tiny industrial units also.

I. CATEGORIES OF PRIORITY SECTOR

(I) Agriculture (Direct and Indirect finance): Direct finance to agriculture shall include short,

medium and long term loans given for agriculture and allied activities (dairy, fishery, piggery,

poultry, bee-keeping, etc.)directly to individual farmers without limit for taking up

agriculture/allied activities. Direct finance may be limited to regular members and not to

nominal members or to agencies like primary agriculture credit societies (PACS), primary land

development banks etc. Indirect finance to agriculture shall include loans given for

agriculture and allied activities as specified in Section I appended.

(ii) Small Enterprises (Direct and Indirect Finance): Direct finance to small enterprises shall

include all loans given to micro and small (manufacturing) enterprises engaged in manufacture/

production, processing or preservation of goods, and micro and small (service) enterprises

engaged in providing or rendering of services,and whose investment in plant and machinery

and equipment (original cost excluding land and building and such items as mentioned therein)respectively, does not exceed the amounts specified in Section I, appended. The micro and

small (service) enterprises shall include small road & water transport operators, small business,

professional & self-employed persons, and all other service enterprises, as per the definition

given in Section I appended.

Indirect finance to small enterprises shall include finance to any person providing inputs to or

marketing the output of artisans, village and cottage industries, handlooms and to cooperatives

of producers in this sector.

(iii) Retail Trade shall include retail traders/private retail traders dealing in essential

commodities (fair price shops) as per the definition given in Section I appended.


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(iv) Micro Credit: Provision of credit and other financial services and products of amounts not

exceeding Rs. 50,000 per borrower or the maximum permissible limit on unsecured advances

whichever is lower.

(v) Education loans: Education loans include loans and advances granted to only individuals for

educational purposes up to Rs. 10 lakh for studies in India and Rs. 20 lakh for studies abroad,

and do not include those granted to institutions;

(vi) Housing loans: Loans up to Rs. 20 lakh to individuals for purchase/construction of dwelling

unit per family, (excluding loans granted by banks to their own employees)and loans given for

repairs to the damaged dwelling units of families up to Rs. 1 lakh in rural and semi-urban areas

and up to Rs. 2 lakh in urban and metropolitan areas .

* Family for this purpose means and includes the spouse of the member and the children,

parents, brothers and sisters of the member who are dependent on such member, but shall

not include legally separated spouse. .

II OTHER IMPORTANT FEATURES OF GUIDELINES

The targets under priority sector lending would be linked to Adjusted Bank Credit (ABC) (total

loans and advance plus investments made by UCBs in non-SLR bonds) or Credit Equivalent

amount of Off-Balance Sheet Exposures (OBE), whichever is higher, as on March 31 of the

previous year. Existing investments, as on the date of this circular, made by banks in non SLR

bonds held in HTM category will not be taken into account for calculation of ABC. However,

fresh investments by banks in non-SLR bonds will be taken into account for the purpose. For the

purpose of calculation of credit equivalent of off-balance sheet exposures, banks may use

current exposure method. Inter-bank exposures will not be taken into account for the purpose

of priority sector lending targets/sub-targets.


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III.TARGETS/SUB-TARGETS

(i)

The targets and sub-targets set under priority sector lending for UCBs are furnishedbelow:

(ii) Targets and sub-targets setunder priority sector lending

Total Priority Sector advances 60 per cent of Adjusted Bank Credit (ABC) or credit equivalent

amount of Off-Balance Sheet Exposure, whichever is higher.

Agriculture Advances No target.

Small Enterprise advances Advances to small enterprises sector will be reckoned in

computing performance under the overall priority sector target of 60 per cent of ABC or credit

equivalent amount of Off-Balance Sheet Exposure, whichever is higher.

Micro enterprises within Small Enterprises sector (i) 40 per cent of total advances to small

enterprises sector should go to micro (manufacturing) enterprises having investment in plant

and machinery up to Rs 5 lakh and micro (service) enterprises having investment in equipment

up to Rs.2lakh;

ii) 20 per cent of total advances to small enterprises sector should go to micro (manufacturing)

enterprises with investment in plant and machinery above Rs 5 lakh and up to Rs. 25 lakh, and

micro (service) enterprises with investment in equipment above Rs. 2 lakh and up to Rs. 10

lakh. (Thus, 60 per cent of small enterprises advances should go to the micro enterprises).

Advances to weaker sections Of the stipulated target for priority sector advances, at least 25%

(or 15% of the ABC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is

higher) should be given to weaker sections.


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Advances to Minorities. Within the overall target for priority sector lending and the sub- target

of 25 per cent for the weaker sections, sufficient care may be taken to ensure that the minority

communities also receive an equitable portion of the credit.

Salary Earners' Banks: The stipulation regarding priority sector lending is not applicable to the

Salary Earners' Banks.

Credit Flow to Minorities: UCBs should initiate steps to enhance/ augment flow of credit under

priority sector to artisans and craftsmen as also to vegetable vendors, cart pullers, cobblers,

etc. belonging to minority communities. The minority communities notified in this regard are

Sikhs, Muslims, Christians, Zoroastrians and Buddhists. Within the overall target for priority

sector lending and the sub- target of 25 per cent for the weaker sections, sufficient care may be

taken to ensure that the minority communities also receive an equitable portion of the credit.

IV. REPORTING /MONITORING UNDER PRIORITY SECTOR:

UCBs should take effective steps to achieve the above recommended targets and monitor the

priority sector lending, keeping in view the quantitative as well as qualitative aspects. In order

to ensure that due emphasis is given to lending under priority sector, it is considered desirable

that the performance is reviewed periodically. For this purpose, apart from the usual reviews,which the banks are periodically undertaking, specific reviews by the Board of Directors of the

respective banks may be made on half-yearly basis. Accordingly, a memorandum may be

submitted to the Board of Directors at half-yearly intervals i.e. as on September 30 and March

31 of each year giving a detailed critical account of the performance of the bank during the

period showing increase/decrease over the previous half-year (Statement I). Further, annual

review of the performance under priority sector advances as on March 31 may also be placed

before the Board.

A copy of the annual review as on March 31 may be forwarded to the concerned Regional

Office of the Reserve Bank with the Board's observations, indicating the steps taken/proposed

to be taken for improving the bank's performance. The report should reach the Regional Office

within a month from the end of the period to which it relates.


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The banks should submit a half yearly statement as on March 31/ September 30 within 15 days

of the close of the relevant half year, showing the progress made in deployment of credit to

Minority communities, to the concerned Regional Office of this department under whose

jurisdiction they function, in the given format.

In order to facilitate compilation of the relative figures, banks may maintain a register to

indicate all the items of priority sector advances and also another register for weaker section

advances showing particulars, with separate folios to each activity so that the total of advances

to priority sector and weaker sections under each activity and to each type of beneficiary may

be available at any given point of time. The proforma of these registers may be on the lines of

the annual return to be submitted to RBI.

THE DETAILED GUIDELINES IN THIS REGARD ARE GIVEN AS UNDER.

Small ENTERPRISES

DIRECT FINANCE

1 Direct Finance in the small enterprises sector will include credit to:

1.1 Manufacturing Enterprises

(a) Small(manufacturing) Enterprises

Enterprises engaged in the manufacture/production, processing or preservation of goods and

whose investment in plant and machinery [original cost excluding land and building and theitems specified by the Ministry of Small Scale Industries vide its notification no. S.O. 1722 (E)

dated October 5, 2006]does not exceed Rs. 5 crore.

(b) Micro (manufacturing) Enterprises


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Enterprises engaged in the manufacture/production, processing or preservation of goods and

whose investment in plant and machinery [original cost excluding land and building and such

items as in 2.1.1 (a)]does not exceed Rs. 25 lakh, irrespective of the location of the unit.

1.2 Service Enterprises

(a) Small (service) Enterprises

Enterprises engaged in providing/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) does not

exceed Rs. 2 crore.

(b) Micro (service) Enterprises

Enterprises engaged in providing/rendering of services and whose investment in equipment

[original cost excluding land and building and furniture, fittings and such items as in 2.1.2 (a)]

does not exceed Rs. 10 lakh.

(c) The small and micro (service) enterprises shall include small road & water transport

operators, small business, professional & self-employed persons, and all other service

enterprises.

1.3 Khadi and Village Industries Sector (KVI)

All advances granted to units in the KVI sector, irrespective of their size of operations, location

and amount of original investment in plant and machinery. Such advances will be eligible for

consideration under the sub-target (60 per cent) of the small enterprises segment within the

priority sector.

INDIRECT FINANCE


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2 Indirect finance to the small (manufacturing as well as service) enterprises sector will include

credit to:

2.1 Persons involved in assisting the decentralized sector in the supply of inputs to and

marketing of outputs of artisans, village and cottage industries.

2.2 Existing investments as on March 31, 2007, made by banks in special bonds issued by

NABARD with the objective of financing exclusively non-farm sector may be classified as

indirect finance to Small Enterprises sector till the date of maturity of such bonds or March 31,

2010, whichever is earlier. Investments in such special bonds made subsequent to March 31,

2007 will, however, not be eligible for such classification.

2.3 Loans granted by scheduled UCBs to NBFCs for on-lending to small and micro

enterprises (manufacturing as well as service).

Indirect finance in the small-scale industrial sector include:

Indirect finance to SSI includes the following important items:

i. Financing of agencies involved in assisting the decentralised sector in the supply of

inputs and marketing of outputs of artisans, village and cottage industries.

ii. Finance extended to Government sponsored Corporation/organisations providing funds

to the weaker sections in the priority sector.

iii. Advances to handloom co-operatives.

iv. Term finance/loans in the form of lines of credit made available to State Industrial

Development Corporation/State Financial Corporations for financing SSIs.

v. Funds provided by banks to SIDBI/SFCs by way of rediscounting of bills

vi. Subscription to bonds floated by SIDBI, SFCS, SIDCS and NSIC exclusively for financing SSI

units.


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vii. Subscription to bonds issued by NABARD with the objective of financing exclusively non-

farm sector.

viii. Financing of NBFCS or other intermediaries for on-lending to the tiny sector.

ix. Deposits placed with SIDBI by Foreign Banks in fulfilment of shortfall in attaining priority

sector targets.

x. Bank finance to HUDCO either as a line of credit or by way of investment in special

bonds issued by HUDCO for on-lending to artisans, handloom weavers, etc. under tiny sector

may be treated as indirect lending to SSI (Tiny) Sector.

Type of investments made by banks are reckoned under priority sector:

Investments made by the banks in special bonds issued by the specified institutions could

be reckoned as part of priority sector advances, subject to the following conditions:

i. State Financial Corporations (SFCs)/State Industrial Development Corporations (SIDCs)

Subscription to bonds exclusively floated by SFCs & SIDCs for financing SSI units will be

eligible for inclusion under priority sector as indirect finance to SSI.

ii. Rural Electrification Corporation (REC)

Subscription to special bonds issued by REC exclusively for financing pump-set energisation

programme in rural and semi-urban areas and the System Improvement Programme under its

Special Projects Agriculture (SI-SPA) will be eligible for inclusion under priority sector lending as

indirect finance to agriculture.

iii))NABARD : Subscription to bonds issued by NABARD with the objective of financing

exclusively agriculture/allied activities and the non-farm sector will be eligible for inclusion

under the priority sector as indirect finance to agriculture/ SSI, as the case may be.

iii. Small Industries Development Bank of India (SIDBI)


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Subscriptions to bonds exclusively floated by SIDBI for financing of SSI units will be

eligible for inclusion under priority sector as indirect finance to SSIs.

iv. The National Small Industries Corporation Ltd. (NSIC) Subscription to bonds issued by

NSIC exclusively for financing of SSI units will be eligible for inclusion under priority sector as

indirect finance to SSIs.

National Housing Bank (NHB)

Subscription to bonds issued by NHB exclusively for financing of housing, irrespective of the

loan size per dwelling unit, will be eligible for inclusion under priority sector advances as

indirect housing finance.

v. Housing & Urban Development Corporation (HUDCO)

a. Subscription to bonds issued by HUDCO exclusively for financing of housing, irrespective of

the loan size per dwelling unit, will be eligible for inclusion under priority sector advances as

indirect housing finance.

b. Investment in special bonds issued by HUDCO for on-lending to artisans, handloom weavers,

etc. under tiny sector will be classified as indirect lending to SSI (Tiny) sector.

Actions taken in the case of non-achievement of priority sector lending target by a bank :

i. Domestic scheduled commercial banks having shortfall in lending to priority sector /

agriculture are allocated amounts for contribution to the Rural Infrastructure Development

Fund (RIDF) established in NABARD. Details regarding operationalisation of the RIDF such as the

amounts to be deposited by banks, interest rates on deposits, period of deposits etc., are

decided every year after announcement in the Union Budget about setting up of RIDF.

ii. In the case of foreign banks operating in India which fail to achieve the priority sector lending

target or sub-targets, an amount equivalent to the shortfall is required to be deposited with

SIDBI for one year at the interest rate of 8 percent per annum.

Rate of interest for loans under priority sector :


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As per the current interest rate policy, in the case of loans upto Rs 2 lakh, the interest rate

should not exceed the prime lending rate (PLR) of the bank, while in the case of loans above Rs

2 lakh, banks are free to determine the interest rate

J&K Bank Financing For SSI

Guidelines for financing of Small & Medium Enterprises (SMEs) The small-scale industries

produce about 8000 products, contribute 40% of the industrial output and offer the largest

employment after agriculture. The sector presents an opportunity to the nation to harness local

competitive advantages for achieving global dominance. In recognition of these aspects Govt.

of India has decided to give greater technological, investment and marketing support to small-

scale industry. A comprehensive legislation, which would enable the paradigm shift from small-

scale industry to small and medium enterprises is under consideration of Parliament. The

Honble Finance Minister Government of India has announced certain measures in the

Parliament on August 10, 2005 for stepping up of credit to small and medium enterprises.

Accordingly the Reserve Bank of India has issued detailed guidelines to the banks for increasing

finance, debt restructuring mechanism and one time settlement (OTS) for the SME sector. Up

till now there was no definition of Medium Enterprises. In order to segregate the small and

medium enterprises the Reserve Bank of India has come out with a definition of Medium

Enterprises till enactment of Small and Medium Enterprises Development bill. As per the

definition given by RBI, the units with investment in plant and machinery in excess of SSI limit

and upto Rs.10.00 crore shall be treated as Medium Enterprises (ME). Till out come of

parliamentary bill definition of SSI will remain unchanged. At present, a small-scale industrial

unit is an industrial undertaking in which investment in plant and machinery does not exceed

Rs.1.00 crore except in respect of certain specified items under hosiery, hand tools, drugs and

pharmaceuticals, stationery items and sports goods where this investment limit has been

enhanced to Rs.5.00 crore. However loan to SSI sector will be categorized under priority sector.


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In order to increase the outreach of formal credit to SME sector, RBI has issued policy package

for financing, debt restructuring and one time settlement in respect of SMEs. RBI has advised

the Banks as under:

1 To 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 of enterprise.

SIDBI has developed a Credit Appraisal and Rating Tool as well as a Risk Assessment Model and

a comprehensive rating model for risk assessment of proposals for SMEs. The banks have been

advised to consider to take advantage of these models as appropriate and reduce their

transaction costs.

National Small Industries Corporation has recently introduced credit rating scheme for

encouraging SME units to get themselves credit rated by reputed agencies. Banks may consider

these rating models for rating the SME borrowers.

2 To make concerted efforts to provide credit cover on an average to at least 5 new

small/medium enterprises at each of their semi urban/ urban branches per year.

3. To formulate a comprehensive and more liberal policy with the approval of their Board of

Directors in respect of loans to SME sector.

4.To consider cluster based approach for financing SMEs as it offers possibilities of reduction in

transaction cost, mitigation of risks and also provide an appropriate scale for improvement in

infrastructure.

J&K Bank Financing For SSI

Guidelines for financing of Small & Medium Enterprises (SMEs)


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The small-scale industries produce about 8000 products, contribute 40% of the industrial

output and offer the largest employment after agriculture. The sector presents an opportunity

to the nation to harness local competitive advantages for achieving global dominance. In

recognition of these aspects Govt. of India has decided to give greater technological,

investment and marketing support to small-scale industry. A comprehensive legislation, whichwould enable the paradigm shift from small-scale industry to small and medium enterprises is

under consideration of Parliament. The Honble Finance Minister Government of India has

announced certain measures in the Parliament on August 10, 2005 for stepping up of credit to

small and medium enterprises. Accordingly the Reserve Bank of India has issued detailed

guidelines to the banks for increasing finance, debt restructuring mechanism and one time

settlement (OTS) for the SME sector. Up till now there was no definition of Medium Enterprises.

In order to segregate the small and medium enterprises the Reserve Bank of India has come out

with a definition of Medium Enterprises till enactment of Small and Medium Enterprises

Development bill. As per the definition given by RBI, the units with investment in plant and

machinery in excess of SSI limit and upto Rs.10.00 crore shall be treated as Medium

Enterprises (ME). Till out come of parliamentary bill definition of SSI will remain unchanged. At

present, a small-scale industrial unit is an industrial undertaking in which investment in plant

and machinery does not exceed Rs.1.00 crore except in respect of certain specified items under

hosiery, hand tools, drugs and pharmaceuticals, stationery items and sports goods where this

investment limit has been enhanced to Rs.5.00 crore. However loan to SSI sector will be

categorized under priority sector.

In order to increase the outreach of formal credit to SME sector, RBI has issued policy package

for financing, debt restructuring and one time settlement in respect of SMEs. RBI has advised

the Banks as under:

1.To 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 of enterprise.

SIDBI has developed a Credit Appraisal and Rating Tool as well as a Risk Assessment Model and

a comprehensive rating model for risk assessment of proposals for SMEs. The banks have been

advised to consider to take advantage of these models as appropriate and reduce their

transaction costs.

National Small Industries Corporation has recently introduced credit rating scheme for

encouraging SME units to get themselves credit rated by reputed agencies. Banks may consider

these rating models for rating the SME borrowers.

2. To make concerted efforts to provide credit cover on an average to at least 5 new

small/medium enterprises at each of their semi urban/ urban branches per year.


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3. To formulate a comprehensive and more liberal policy with the approval of their Board of

Directors in respect of loans to SME sector.

4. To consider cluster based approach for financing SMEs as it offers possibilities of reduction in

transaction cost, mitigation of risks and also provide an appropriate scale for improvement in

infrastructure.

PROCESSING OF APPLICATIONS:

Viability:

The borrowers should invariably provide a detailed project report prepared by a reputed

project Consultant covering all aspects of its viability. The borrower should provide all the

necessary details and required information regarding the proposal.

Issue of Acknowledgement of Loan Applications:Branches should give acknowledgement for loan applications received from the Borrowers.

Disposal of Applications:

All loan applications received under SME Sector shall be disposed Off by the branches

within a maximum period of 4 weeks provided the loan applications are complete in all

respects. In case the proposal of the borrower does not fall within the competence of branch,

the branch should send one advance copy of the proposal to the sanctioning authority followed

by final copy with recommendations from the branch.

Proposal received register:

A register should be maintained at branch wherein the date of receipt,

sanction/rejection/disbursement with reasons therefore etc., should be recorded. The register

should be made available to all inspecting agencies.

i) Rejection of applications for fresh limits/enhancement of existing limits should

not be done without the approval of the next higher authority.

ii) Sanction of reduced limits should be reported to the next higher authority immediately

with full details for review and confirmation.

Security:

Branches should not insist for any tangible collateral security for limits upto Rs 5.00 lacs. For

limits beyond Rs 5.00 lacs branches may obtain adequate tangible collateral security.

Debt Equity ratio:


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Debt equity ratio of 2:1 is desirable. However in well-managed SME units ratio of 3:1 can

be considered on merits.

Rate of Interest:

Sector Rate of InterestAgriculture &

Allied activities

1% below the rate prescribed for each Rating

Grade

SMEs 0.50% below the rate prescribed for each Rating

Grade

B. Interest rate structure for loans and advances with aggregate

limits up to Rs.20.00 lacs and those under Special Schemes.

Rate of Interest (%

p. a.)

w. e. f. 01.05.2009

1. Micro & Small Enterprises (Manufacturing)

a) Up to Rs.0.50 lacs XXX

b) Above Rs.0.50 lacs & upto Rs.2.00 lacs XXX

c) Up to Rs.2.00 lacs PLR- 2.00

d) Above Rs.2.00 lacs & up to Rs.5.00 lacs PLR- 1.50

e) Above Rs.5.00 lacs & uptoRs.20.00 lacs PLR- 1.00

Loans under Craft Development Scheme


b) Above Rs.0.25 lacs & up to Rs.0.50 lacs XXX

c) Up to Rs.0.50 lacs 10.00

d) Above Rs.0.50 lacs & up to Rs.1.00 lacs 11.00

2 Other Micro and Small Services Sector


b) Above Rs.0.50 lacs & up to Rs.2.00 lacs XXX

c) Up to Rs.2.00 lacs PLR- 2.00

d) Above Rs.2.00 lacs & up to Rs.5.00 lacs PLR-1.50

e) Above Rs.5.00 lacs & uptoRs.20.00 lacs PLR-1.00


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Loans and Advances W.E.F. 01.08.2008

PRIME LENDING RATE (PLR) 12.75% W.E.F. 01.05.2010

13.

S.No Sector Rate of

Interest

(% per

annum)

w.e.f.

01.05.2010

A. Interest rate structure for loans and advances with aggregate limits

exceeding Rs. 20.00 lacs and other than those under Special Schemes

Rating Grade 1 (SME Sector) PLR- 1.00

Rating Grade 1 (Small Business & Trade ) PLR- 1.00

Rating Grade 2 (SME Sector) PLR - 0.50

Rating Grade 2 (Small Business & Trade ) PLR - 0.50

Rating Grade 3 (SME Sector) PLR

Rating Grade 3 (Small Business & Trade ) PLR

Rating Grade 4 (SME Sector) PLR + 0.50

Rating Grade 4 (Small Business & Trade ) PLR + 0.50

Rating Grade 5 (SME Sector) PLR+ 1.25

Rating Grade 5 (Small Business & Trade ) PLR+ 1.25

Rating Grade 6 (SME Sector)

TYPES OF LOANS:

1)Term loans :

The bank loan to the industry , with a fixed maturity and often featuring amortization of

principal.

2) Working capital loans: The bank provides loan whose purpose is to finance everyday

operations of a company.


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Cash Credit :

This account is the primary method in which Banks lend money against the security of

commodities and debt. It runs like a current account except that the money that can be

withdrawn from this account is not restricted to the amount deposited in the account. Instead,

the account holder is permitted to withdraw a certain sum called "limit" or "credit facility" in

excess of the amount deposited in the account.Cash Credits are, in theory,payable on demand.

These are, therefore, counter part of demand deposits of the Bank .

Letter of Credit:

Letter of Credit, document issued by a bank authorizing the bearer to receive money from one

of its foreign branches or from another bank abroad. The order is nonnegotiable, and it

specifies a maximum sum of money not to be exceeded. Widely used by importers and

exporters, the letter of credit is also made available to tourists by their home banks so that they

may draw foreign currency while traveling abroad. When the instrument is directed to more

than one agent, it is called a circular letter of credit.

Similarly bank is alo providing facilities like BANK OF WARRANTEE, BILL PURCHASE

LIMIT Working capital term loans etc to the industry.

Disbursement:

The borrower shall provide an implementation schedule before hand and all the disbursement

of term loans shall be made as per the progress of implementation. As far as possible the

payments shall be made directly to the suppliers/contractors. In respect of working capital

loans, the branches shall first ensure completion/commissioning of unit. \

TYPES OF LOANS:

1)Term loans :

The bank loan to the industry , with a fixed maturity and often featuring amortization of

principal.


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2) Working capital loans: The bank provides loan whose purpose is to finance everyday

operations of a company.

Cash Credit :

This account is the primary method in which Banks lend money against the security ofcommodities and debt. It runs like a current account except that the money that can be

withdrawn from this account is not restricted to the amount deposited in the account. Instead,

the account holder is permitted to withdraw a certain sum called "limit" or "credit facility" in

excess of the amount deposited in the account.Cash Credits are, in theory,payable on demand.

These are, therefore, counter part of demand deposits of the Bank .

Letter of Credit:

Letter of Credit, document issued by a bank authorizing the bearer to receive money from one

of its foreign branches or from another bank abroad. The order is nonnegotiable, and it

specifies a maximum sum of money not to be exceeded. Widely used by importers and

exporters, the letter of credit is also made available to tourists by their home banks so that they

may draw foreign currency while traveling abroad. When the instrument is directed to more

than one agent, it is called a circular letter of credit.

Similarly bank is alo providing facilities like BANK OF WARRANTEE, BILL PURCHASELIMIT Working capital term loans etc to the industry.


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Code of Banks Commitment to Micro and Small Enterprises

TABLE OF CONTENTS

1 1.1 Objectives Of The Code

2 Key Commitments

2.1 Our Key Commitments To You

3 Information

3.1 If You Want To Become Our Customer

3.2 Interest Rates

3.4 Terms And Conditions

4 Privacy And Confidentiality

5 Lending

5.1 Application

5.2 Credit Assessment

5.3 Post Disbursement

5.4 Nursing Sick MSEs And Debt Restructuring

6 Collection of Dues

11 Advertising, Marketing And Sales

12 Monitoring


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Our _____________ Banks ,We______________Bank ,You ____________SMEs

1.1 Objectives Of The Code

The Code has been developed to

a.Give a positive thrust to the MSE sector by providing easy access to

efficient banking services.

b. Promote good and fair banking practices by setting minimum standards in dealing with you.

c. Increase transparency so that you can have a better understanding of what you canreasonably expect of the services.

d. Improve our understanding of your business through effective communication.

e. Encourage market forces, through competition, to achieve higher operating standards.

f. Promote a fair and cordial relationship between you and us and also ensure timely and quick

response to your banking needs.

g. Foster confidence in the banking system.

2. KEY COMMITMENTS

2.1 Our Key Commitments To You

2.1.1 To Act Fairly And Reasonably In All Our Dealings With You By

a. Providing minimum banking facilities of receipt and payment of cash/cheques at the banks

counter.

b. Providing speedy and efficient credit and service delivery.

c. Meeting the commitments and standards in this Code, for the products and services we

offer, and in the procedures and practices our staff follow.

d. Making sure our products and services meet relevant laws and regulations in letter and

spirit.

e. Ensuring that our dealings with you rest on ethical principles of integrity and transparency.

f. Operating secure and reliable banking and payment and settlement systems.

g. Considering cases of financial difficulty sympathetically

2.1.2 To Help You Understand How Our Financial Products And Services Work By


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a. Giving you information about them in any one or more of the following languages: Hindi,

English or the appropriate local language.

b. Ensuring that our advertising and promotional literature is clear.

c. Ensuring that you are given clear information about our products and services, the terms and

conditions and the interest rates/service charges, which apply to them.d. Ensuring that there is no mis-selling of our products.

e. Giving you information on what are the facilities provided to you and how you can avail

of these.what are their financial implications and whom you can contact for addressing your

queries.

2.1.3 To Help You Use Your Account Or Service By

a. Providing you regular appropriate updates.

b. Keeping you informed about changes in the interest rates, charges or terms and conditions.

2.1.4 To Deal Quickly And Sympathetically When Things Go Wrong By

a. Correcting mistakes promptly and cancelling any bank charges that we apply due to our

mistake.

b. Handling your complaints promptly.

c. Telling you how to take your complaint forward if you are still not satisfied (see paragraph

No. 10 below).

d. Providing suitable alternative avenues to alleviate problems arising out of technological

failures in the bank.

2.1.5 To Publicise The Code

We Will

a. Provide you (existing customer) with a copy of the Code on request free of cost.

b. Provide you (new customer) with a copy of the Code when you open your account.

c. Make available this Code for perusal at every branch and on our website.

d. Ensure that our staff are trained to provide relevant information about the Code and to put

the Code into practice.

3. INFORMATION

You can get information on interest rates, common fees and charges through any of the

following :

a. Phoning our branches or help-line.

b. Looking at our website.

c. Asking our designated staff/help desk.


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3.1 If You Want To Become Our Customer

We Will

a. Give you information on all schemes offered by us specifically for MSEs.

b. Give you information to explain the key features of our loan and products viz. cash credit,

term loans, guarantees, bill discounting/purchase, off balance sheet items including applicable

interest rate, methodology of calculation of interest and fees and charges.

c. Endeavour to customize the product and service that you choose, to suit your needs.

d. Tell you if we offer products and services in more than one way [for example, through ATMs,

on the Internet, over the phone, in branches and so on] and tell you how to find out more

about them.e. Tell you what information we need from you to prove your identity and address, for us to

comply with legal, regulatory and internal policy requirements.

3.2 Interest Rates

We will inform you of the change in interest rates on our products within seven days of the

decision by

a. Writing to you.

b. Notice at the branch.

c. Placing on website.

3.3 Terms And Conditions

a. When you become a customer or avail of a product/ service for the first time, we will advise

you the relevant terms and conditions for the service you have asked us to provide.

b. All terms and conditions will be fair and will set out respective rights especially with regard

to nomination facility, wherever applicable and liabilities and obligations clearly and as far

as possible in plain and simple language.

Changes to Terms and Conditions

a. When you become a customer, you can get information of changes to termsand conditions through any of the following channels

i) Account statements

ii) ATMs

iii) Written communication

iv) Notice Board at each branch


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v) Email/ website/ SMS

b. If we have made any change without notice we will notify the change within 30 days. If such

change

is to your disadvantage, you may within 60 days and without notice close your account or

switchit without having to pay any extra charges or interest.

c. If we have made a major change or a lot of minor changes in any one year, we will, on

request give you a copy of the new terms and conditions or a summary of the changes.

4. PRIVACY AND CONFIDENTIALITY

We will treat all your personal and business information as private and confidential [even

when you are no longer a customer], and shall be guided by the following principles and

policies. We will not reveal information or data relating to your accounts, whether provided by

you or otherwise, to anyone, including other companies/entities in our group, other than in the

following exceptional cases :

a. If we have to give the information by law.

b. If there is a duty towards the public to reveal the information.

c. If our interests require us to give the information (for example, to prevent fraud) but we will

not use this as a reason for giving information about you or your accounts [including your

name and address] to anyone else, including other companies in our group, for marketing

purposes.d. If you ask us to reveal the information, or if we have your permission.

e. If we are asked to give a bankers reference about you, we will need your written permission

a project report on financing ssi

Documents