final project finance

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A SUMMER INTERNSHIP PROJECT REPORT ON

NEW PRODUCT DEVELOPMENT FOR FINANCING SMEs UNDER

REGULATORY DEFINATION

A STUDY DONE FOR

SUBMITTED BY,

MR. DEEPAK G. VEER

SEM-III

IN PARTIAL FULFILLMENT OF THE REQUIREMENT OF THE

M.M.S. PROGRAMME FOR THE YEAR 2012-2013

SUBMITTED ON 11th JULY 2012

1

University of Mumbais

ALKESH DINESH MODY INSTITUTE FOR

FINANCIAL AND MANAGEMENT STUDIES


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ACKNOWLEDGEMENT

I am very grateful to Mr.Khajan Singh, Chief Manager, Panvel Branch Bank of

Baroda.I express my sincere gratitude to Mr.B.M.Chavan,Sr.Manager Credit, Panvel

Branch, Bank of Baroda, for guiding me through this project, sharing his knowledge

and experience. I also am very thankful to Mr.C.V.Raghavendra, Credit officer,

Panvel Branch, Bank of Baroda, for extending his support and resources for

completion of this project

Regards,

Deepak Veer

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Table of contents

SR. NO. Name of Topic Page No.

1 Executive Summary 4

2 List of Abbreviations 63 List of Tables 8

4 Overview of Banking Industry 9

5 About Bank of Baroda 17

6 Overview of SME sector 19

7 Baroda SME Product 24

8 Conclusion 55

9 Bibliography 56

Executive Summary

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The summer internship project deals with the New Product Development for

Financing SMEs under Regulatory definition.

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.

The technology has entered the scene almost as a natural corollary of

liberalization. Liberalized policies provide ample opportunities to IndianMarket

to compete with developed and developing countries The clearance of the

Micro, Small & Medium Enterprises Development (MSMED) Act, 2006 is a turning

point for the development of Indian industry, as it addresses and streamlines entire

framework along with key governance & operational issues being faced by the

SMEs.

The SME Loan Policy is framed with the following objectives:

To improve flow of credit to SME Sector so as to double the credit tothe Sector in 5 years, i.e. by the year 2012.

4

Particulars Investment in Plant &Machineries ofManufacturing Enterprises

Investment in Equipment of

Service Sector Enterprises

Micro

Enterprise

Up to Rs. 25 /- lacks Up to Rs.10/- lacks

Small

Enterprises

Above Rs. 25 /- lacks and

Up to Rs. 500/- lacks

Above Rs. 10/- lacks and

Up to Rs.200/-lacksMedium

Enterprises

Above Rs.500/- lacks and up to

Rs.1000/- lacks

Above Rs.200/- lacks and

Up to Rs.500/- lacks.


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To formulate liberal norms of lending to SME sector, to ensureavailability of adequate and timely credit to the sector.

To provide guidelines to the branches to dispense credit toSME Sector on liberalized terms.

To devise an organizational structure at all levels for handling SM

credit portfolio in a more focused manner.

SCOPE OF POLICYThis Policy will form a part of Banks Domestic Loan Policy and will interalia cover

following:

Composition of SME Sector

SME Loan Factory Model Pricing Policy

Identifying Thrust Industries

Broad guidelines on lending to SME Sector

List of Abbreviations

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TEV Techno-Economic Viability

TL Term Loan

WC Working Capital

NWC Net Working Capital

NFB Non Fund Based

MPBF Maximum Permissible Bank Finance

LC Letter of Credit

LOC Line of Credit

IRR Internal Rate of Return

FACR Fixed Asset Coverage Ratio

FB Fund Based

CASA Current Account/Savings Account

CR Current Ratio

DSCR Debt Service Coverage Ratio

DER Debt-Equity Ratio

DTL Deferred Tax Liability

DPG Deferred Payment Guarantee

DTA Deferred Tax Asset

BD Discount of Bills

BG Bank Guarantee

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CAGR Compounded annual growth rate

CC Cash Credit

PC Packing Credit

DP Drawing Power

SME Small and Medium Enterprises

LIST OF TABLES/CHARTS

SR NO. Particulars Page No.

1 Overview of Banking Sector. 9

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2 Bank of Baroda Organization Structure. 19

3 Total employee of SME 22

4 CGTMSE- Guarantee fees 36

5 Overdraft- Rate of interest 45

6 KVIC- Subsidy detail 48

Overview of the Banking Industry

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Figure 1: Overview of Banks

The banking system in India was established in 18th century. The first Indian bank

which came into existence in1786 was THE GENERAL BANK OF INDIA which is

followed by BANK OF HINDUSTAN. Although both these banks do not exists today

but these banks have made the foundation of banking system in India. The oldest bank

in existence in India is the state bank of India being established as "The Bank of

Bengal" in Calcutta in June 1806.The first fully Indian owned bank was the Allahabad

bank, which was established in 1865.

By the 1990s the market expanded with the establishment of banks such as Punjab

National bank in 1895 in Lahore and Bank of India in 1906, in Mumbai - both of

which were founded under private ownership. The Reserve bank of India formally

took on the responsibility of regulating the Indian banking Sector from 1935 After

India's independence in 1947, the Reserve Bank was nationalized and given broader

powers.

Nationalization

The nationalization of banks added a new chapter in the Indian banking system in

1969 when the Indira Gandhi Government nationalized the 14 largest commercial

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banks. A second phase of nationalization of banks took place in 1980 by the

nationalization of 6 more commercial banks. The stated reason for the nationalization

was to give the government more control of credit delivery.

Liberalizations In the early 1990s the Narasimha Rao government embarked on apolicy of liberalization and gave license to a small number of private banks, which

came tobe known as NEW GENERATION TECH-SAVVY BANK which included

banks such as UTI Bank, ICICI Bank and HDFC Bank. This move, along with the

rapid growth in the economy of India, kick started the banking sector in India, which

has seen rapid growth with strong contribution from all the three sectors of banks,

namely, government banks, private banks and foreign banks.

Classification of Banking Industry in India.

Indian banking industry has been divided into two parts, organized and unorganized

sectors. The organized sector consists of Reserve Bank of India, Commercial Banks

and Co-operative Banks, and Specialized Financial Institutions (IDBI, ICICI, IFC

etc.). The unorganized sector, which is not homogeneous, is largely made up ofmoney lenders and indigenous bankers.

An outline of the Indian Banking structure may be presented as

follows:-

1) Reserve banks of India.

2) Indian Scheduled Commercial Banks.

a) State Bank of India and its associate banks.

b) Twenty nationalized banks.

c) Regional rural banks.

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d) Other scheduled commercial banks.

3) Foreign Banks

4) Non-scheduled banks.

5) Co-operative banks.

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Current Trends in the Sector

The growth drivers of the Indian Banking Industry

High growth of Indian Economy: The growth of the banking industry is closely

linked with the growth of the overall economy. India is one of the fastest growing

economies in the world and is set to remain on that path for many years to come. This

will be backed by the stellar growth in infrastructure, industry, services and

agriculture. This is expected to boost the corporate credit growth in the economy and

provide opportunities to banks to lend to fulfill these requirements in the future.

Rising per capita income: The rising per capita income will drive the growth of retail

credit. Indians have a conservative outlook towards credit except for housing and

other necessities. However, with an increase in disposable income and increased

exposure to a range of products, consumers have shown a higher willingness to take

credit, particularly, young customers. A study of the customer profiles of different

types of banks reveals that foreign and private banks share of younger customers is

over 60% whereas public banks have only 32% customers under the age of 40. Private

Banks also have a much higher share of the more profitable mass affluent segment.

New channel Mobile banking is expected to become the second largest channel

for banking after ATMs: New channels used to offer banking services will drive the

growth of banking industry exponentially in the future by increasing productivity and

acquiring new customers. During the last decade, banking through ATMs and internet

has shown a tremendous growth, which is still in the growth phase. After ATMs,

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mobile banking is expected to give another push to this industry growth in a big way;

with the help of new 3G and smart phone technology (mobile usage has grown

tremendously over the years). This can be looked at as branchless banking and so will

also reduce costs as there is no need for physical infrastructure and human resources.This will help in acquiring new customers, mainly who live in rural areas (though this

will take time due to technology and infrastructure issues). The IBA-FICCI-BCG

report predicts that mobile banking would become the second largest channel of

banking after ATMs.

Financial Inclusion Program: Currently, in India, 41% of the adult population

doesnt have bank accounts, which indicates a large untapped market for banking

players. Under the Financial Inclusion Program, RBI is trying to tap this untapped

market and the growth potential in rural markets by volume growth for banks.

Financial inclusion is the delivery of banking services at an affordable cost to the vast

sections of disadvantaged and low income groups. The RBI has also taken many

initiatives such as Financial Literacy Program, promoting effective use of

development communication and using Information and Communication Technology

(ICT) to spread general banking concepts to people in the under-banked areas. All

these initiatives of promoting rural banking are taken with the help of mobile banking,

self-help groups, microfinance institutions, etc. Financial Inclusion, on the one side,

helps corporate in fulfilling their social responsibilities and on the other side it is

fueling growth in other industries and so as a whole economy.

Opportunities:-

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Where there are challenges, there must be opportunities. Following are the

opportunities for the Nationalized and commercial banks.

1) Rural area customers:-

Contributing to 70% of the total population in India is a largely untapped

market for banking sector. In all urban areas banking services entered but only few

big villages have the banks entered. So, That the banks must reach in remaining all

villages because majority of Indian still living in rural areas.

2) Offering various Channels:-

Banks can offer so many channels to access their banking and other services

such as ATM, Local branches, Telephone/mobile banking, video banking etc. to

increase the banking business.

3) Good Customer Services:-

Good customer services are the best brand ambassador for any bank forgrowing its business. Every engagement with customer is an opportunity to

develop a customer faith in the bank. While increasing competition customer

services has become the backbone for judging the performance of banks.

4) Internet Banking:-

It is clear that online finance will pickup and there will be increasing

convergence in terms of product offerings banking services, share trading,

insurance, loans, based on the data warehousing and data mining technologies.

Anytime anywhere banking will become common and will have to upscale, such

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up-scaling could include banks launching separate internet banking services apart

from traditional banking services.

5) Retail Lendings:-

Recently banks have adopted customer segmentation which has helped in

customizing their product folios well. Thus retail lendings has become a focus

area particularly in respect of financing of consumer durables, housing,

automobiles etc., Retail lendings has also helped in risks dispersal and in

enhancing the earnings of banks with better recovery rates.

6) Indian Customers:-

The growing Indian banking sector with its strong home country linkages,

seek a unique combination of Indian ethnicity and global standards that offers a

valuable nice opportunities for Indian banks. The biggest opportunity for the Indian

banking sector today is the Indian costumers. Demographic shifts in terms of

income level and cultural shifts in terms of life style aspirations are changing the

profile of the Indian customer. This is and will be a key driver of economic growth

going forward. The Indian customers now seek to fulfill his lifestyle aspirations at

a younger age with an optimal combination of equity and debt to finance

consumption and asset creation. The consumer represents a market for a wise range

of products and services he need a mortgage to finance his house, an auto loan for

his car, a credit card for ongoing purchases, a bank account, a long term investment

plan to his childs higher education, pension plans for his retirement, a life

insurance policy the possibilities are endless and this consumer does not live just in

Indias top ten cities. He represents across cities, towns and villages i.e. in rural

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areas. Consumer goods companies are already tapping this potential it is for the

banks to make the most of the opportunity to deliver solutions to this market.

7) Other Opportunities:-

a) To enter new business and new markets

b) To develop new ways of working

c) To improve efficiency

d) To deliver high level of customer services.

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About Bank of Baroda

The Maharaja of Baroda, a princely state of British India, by name Sir Sayyajirao

Gaekwad III, had the same vision in establishing a bank for servicing the public at

large and the citizens of Baroda State, a Gujarathi population in particular. On 20th

July 1908, Bank of Baroda was established under the rules of Companies Act 1897, in

a small building at Baroda, by the Maharaja with a paid up capital of Rs.10 lacks. The

guidelines set by the Maharaja for the bank was to serve the people of the State of

Baroda as well as the neighboring regions with money lending, saving, transmission

and encouraging the development of arts, science, commerce and trade for the people.

Even during the worst financial disaster caused by the First World War, during the

period 1913 to 1917, when as many as 87 banks closed their shutters, Bank of India

survived the turbulence with its clear vision, ethical standards and financial prudence

to grow from strength to strength. There were heroes to sustain the development of

this bank to its present glory, from ordinary people as customers and the heirs of the

Royal family of Baroda.

The success story of the Bank of Baroda is studded with many a leaps and strides it

made in the International presence, apart from establishing branches all over the

Indian nation, by acquisition of already popular banking entities, as also commencing

new commercial banking establishments, in the unique Gujarathi style. During the

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years of 1908 to 2007 (and the century year being round the corner) Bank of Barodas

growth owes to the excellence in rendering financial products and services to the

national and international population. Countries beginning from America to Zambia,

in the alphabetical order have been enjoying the services of Bank of Baroda as oftoday.

Mission statement

To be a top ranking National Bank of International

Standards committed to augmenting stake holders' value

through concern, care and compete.

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Overview of the SME Sector

The MSME sector is a significant contributor to the Indian economy. Based on

official figures from the Ministry of MSME, November 2008, this sector contributes 8%

of National GDP, comprises 50% of Indias total manufactured exports, 45% of Indias

total industrial employment and 95% of all industrial units. The SME sector in India,

however, has been changing over time, mostly through changes in government policy. In

this section we will highlight the definition, profile, size, composition and performance of

this sector.

Despite its relevance, the MSME sector has for long faced various obstacles to growth.

In recognition of these difficulties and succumbing to a long sustained lobbying, the

Government of India passed the MSME Development Act of 2006 which brought about

major changes in this sector. The basic achievement was a clear and decisive definition of

units that fall under micro, small and medium category. The definitions are based on total

investment in plant and machinery for manufacturing units and investment in equipments

for service units. The new definitions have expanded the plant and machinery limits and

now each enterprise level includes larger investments than before. There are also

allowances for smaller investments in service enterprises.

Major Industries

In spite of their limitations, the SMEs have made a significant contribution

towards technological development and exports. They are established in almost all

major sectors in the Indian industry such as:

Food Processing

Agricultural Inputs

Chemicals & Pharmaceuticals

Engineering , Electricals , Electronics

Electromedical equipment

Textiles and Garments

Leather and leather goods

Bioengineering

Sports goods

Plastics products

Computer Software, etc

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Current Scenario: SMEs In India

Small & Medium industries definition laid down by Govt. in terms of investment in

Plant & Machinery:

SSI : Up to INR 1 million (USD 22,000 )

MSI : above INR 1mn and up to INR 10 million (USD 220,000)

13 million plus SME units.

Employment generation in SSI: 42 Million people.

Share in Industrial Value Added: 39%

Total No. of items Produced: Over 8000, No. of Reserved items: 675

Production : USD 100 billion , Exports : USD 27 billion

SSIs account for 45% of industrial production, 40% of exports, around

17% share in GDP

Ownership pattern : 78% proprietorships, 16% partnerships, 6%

Corporate & others

96% industrial units, 3% service enterprises, 1% ancillary units

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Fig.(2)- Total employment of SMEs.

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SWOT Analysis:

Strengths: Contribution to National Economic Growth.

Generating Employment and Vitalizing Indian brand to the world. Regional Development.

Technological Innovation.

Export Market Expansion.

Weakness Lack of Funds Lack of Marketing Skill Lack of Information.

Poor adaptability to changing trade trends.

Nonavailability of technically trained human resources.

Lack of management skills. Lack of access to technological information and

consultant service

Opportunity

WTO regime

Bilateral & Multilateral trade agreements.

Enhanced credit support.

Support for technological up

gradation.

Comprehensive support for cluster development.

Marketing assistance and export promotion support.

Growing domestic and international markets.

Threats

Dumping from developed countries.

Distrust between SMEs and Financial Institutions.

Poor incentive structures for entrepreneurs. Virtual absence of Enterprise Education.

Nontariff barriers from developed countries.

Slow improvement in quality to meet the internationalstandards.

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BARODAS SMEs POLICIES -

Baroda SME Loan Pack

Baroda SME Loan Pack provides single line of credit for meeting SME borrowers

working capital as well as long term requirements within the overall limit approved by

the bank.

PURPOSE -

To provide hassle free credit for working capital (fund based and non-fundbased) as also long term requirements, taking into account nature of business,

cyclical trends, cash flow projections, peak time requirements and any

eventuality of unforeseen spurt in the business.

ELIGIBILITY

All Enterprises, i.e. Micro, Small & Medium Enterprises, as defined under

MSMED Act, 2006, and other entities with annual sales turnover of Rs. 1/-

crore to Rs. 150/- crores exclusively banking with our bank/new borrowers

desirous of having sole banking arrangement with our bank.

COMPOSITE LIMIT:

4.5 times of borrowers tangible net worth as per last audited Balance Sheet,

or, Rs. 5.00 Crores, whichever is lower.

MARGIN: 25%.

RATE OF INTEREST:

As per credit rating of the borrower.

SECURITY:

1. Exclusive charge on the assets of the enterprise.

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2. Personal Guarantees of all promoter Directors / Partners.

3. Charge on the unencumbered personal properties of the partners, promoter

Directors, wherever applicable.

4. Third party guarantee in case of credit line above Rs.100.00 lacks to Micro& Small Enterprises as per Regulatory definition.

5. Any other collateral for the credit line above Rs. 25.00 lacks in case of other

Enterprises, i.e. Medium Enterprises and Enterprises based on the turnover

criteria to maintain asset coverage ratio above 1.25.

OTHER FEATURES:

Loans up to Rs. 100/- lacks to Micro & Small Enterprises will be covered

under Credit Guarantee Fund Trust Scheme.

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Baroda Vidyasthali Loan

Baroda Vidyasthali Loan is a special scheme for financing Educational

Institutions.

PURPOSE

To meet the financial requirements for setting up the institutions which

includes construction of building, purchase of equipment etc. for the new set

up as also renovation of the existing facilities, purchase of instruments for

imparting education training to the students.

ELIGIBILITY

Educational institutions, Schools, Colleges and other education bodies

running education activities

Note: HUF are not eligible.

LIMIT

Minimum Rs.25 lacks

Maximum Rs.10 crores

SECURITY

Equitable mortgage of Land & Building (not agricultural land).

Hypothecation of Instruments & Equipment acquired out of the loan and

other assets of the Educational Institution.

Personal guarantees of the Promoters of the Institution.

MARGIN

25% of the cost of the project.

RATE OF INTEREST

Base rate plus 3.50% p.a

REPAYMENT PERIOD

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Maximum 84 months including moratorium period of 1 year, depending

upon the projected cash flow.

Baroda Arogyadham Loan

PURPOSETo meet the financial requirements for setting up of new Nursing

Home/Hospital including Pathological Laboratory,

Expansion/renovation/modernization of existing Nursing Home/ Hospital including

Pathological Laboratory, Purchase of medical diagnostic equipments as also office

equipments, viz. computers, air conditioners, office furniture, Purchase of

ambulance etc and to meet working capital requirements.

ELIGIBILITY

All entities, i.e. MSMEs, Enterprises other than individuals like Proprietorship,Partnership firms, Private Limited Companies and Trusts engaged in providing

medical/pathological diagnostic services to the Society and with turnover up to Rs.

150/- crores.

Note: The Promoters should have requisite qualification in any branch of medical

science from a recognized University and should have minimum 2 years of work

experience.

LIMIT

Rural Centers - Rs. 0.50 crores

Semi-Urban Centers - Rs. 6.00 crores

Urban & Metro Centers - Rs. 12.00 crores

Note:

Working Capital limits up to 10% of the annual sale or gross income, subject

to 20% of the above ceiling limit in case of borrowers requiring both Term

Loan and working capital facilities. In case of borrowers requiring only working capital limit, 20% of the above

ceiling limit.

SECURITY

Equitable mortgage of Land & Building/premises of Nursing Home/Hospital

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Hypothecation of medical equipment/office equipment acquired out of loan

amount.

Personal guarantee of Promoter Directors in case of Limited Companies and

Trustees in case of Trusts.

Hypothecation of medicines, receivables and other chargeable current assets.

Charge on unencumbered assets of Promoter Directors in case of Private

Limited Companies, or any other collateral by way of FDR, mortgage of

properties in the personal name of the relatives of Promoters, etc.

MARGIN:

25%. Higher margin if collaterals are inadequate

RATE OF INTEREST:

As per credit rating of the borrower.

REPAYMENT PERIOD:

35 months to 84 months including moratorium depending upon the projected cash

flow.

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Baroda Laghu Udhyami Credit Card

PURPOSE

To provide hassle free credit facilities to Small business units, retail traders,artisans, village industries, small scale industrial units and tiny units,

professionals and self employed persons etc.

ELIGIBILE BORROWERS:

All existing customers in the categories of Small Business, Retail Trade,

Artisans, Village Industries, Small Scale and Tiny Units, Professional & Self

Employed persons etc. having satisfactory track record / dealing with the

bank for last 3 years.

LIMIT:

Maximum up to Rs. 10/- Lacks per borrower.

PERIOD / VALIDITY:

The limit fixed under the scheme will be valid for a period of three years

subject to internal annual review based on the conduct / operations of the

account.

SECURITY:

Hypothecation of stock in trade, receivables, machinery, office equipment

etc. as specified for existing limit.

MARGIN:

25%.

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Baroda Artisans Credit Card (BACC)

PURPOSE

To provide adequate and timely assistance to the artisans to meet their credit

requirements - both investment needs as well as working capital - in a flexible and

cost effective manner. The scheme is implemented in rural and urban areas.

ELIGIBILE BORROWERS:

All artisans involved in production / manufacturing process.

Preference given to artisans registered with Development Commissioner

(Handicrafts).

Beneficiaries of other Government Sponsored loan schemes will NOT beeligible for coverage under BACC scheme.

LIMIT:

Maximum Rs. 2/- Lacks per borrower.

MARGIN:

For limits up to Rs. 25,000/- No margin

For limits above Rs. 25,000/- but up to Rs. 2 Lacks 15% to 25% margin. Margin is subject to change as per RBI guidelines from time to time or the

bank's policy in this regard.

SECURITY:

Hypothecation of assets financed under the scheme..

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Baroda Weavers Credit Card (BWCC)

Baroda Weavers Credit Card is promoted by Ministry of Textiles which aims at

providing adequate and timely assistance to weavers to meet their credit

requirements.

All weavers and ancillary workers involved in weaving activities would be

eligible.

Preference would be given to weavers identified under the Third Census of

Handloom Weavers as well as to weavers identified by the State

Governments

Primary Weavers Co-operative Societies/ Self Help Groups (SHGs)/

Consortia/ Producer Companies/ Joint Liabilities Group (JLGs) would be

preferred

All existing weaver borrowers of the Bank enjoying credit facilities andhaving satisfactory dealings with the bank will also are eligible.

The beneficiaries under the scheme will be issued with a Photo Weaver Credit

Card (WCC) indicating sanctioned limit and validity period of credit facility.

FIXATION OF CREDIT LIMIT

The maximum limit to individual weavers will be up to Rs 2/- Lacs

The Credit Card would normally be valid for 3 years

The limits sanctioned will be secured by way of primary charge over the assets

financed. No collateral security is required. All amounts would preferably be

covered CGTMSE

DOCUMENTATION

D P Note

Hypothecation of assets financed out of the loan under the Scheme

Letter of installment, in case of loan availed for purchase of tools and

equipments Undertaking that the borrower would maintain a minimum required margin

Any other relevant documents as per extant guidelines

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Akshaya Mahila Arthik Sahay Yojna

The new age woman seeks opportunities and challenges to be able to support

herself and her family.

Key Benefits

Enables financial assistance to women in setting up/engaged in:

o Retail Trade.

o Village or Cottage/Small Scale Industries.

o Allied agricultural activities.

Focus on women business entrepreneurs and their credit requirements.

The interest rate is fixed on the credit rating system at reasonable terms.

Simple application procedures.

Avail of loans at all branches of Bank of Baroda. To get a detailed list of all

the Bank of Baroda branches,

All complaints and grievances can be reported to the regional zone offices or

directly to the Central office.

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Technology Upgradation Fund Scheme (TUFS) For Textile andJute Industries

Bank of Baroda grants loans under Technology Up-gradation Fund Scheme

launched by Government of India as per guidelines received from time to timefrom Ministry of Textiles. Bank of Baroda is a nodal agency for determining

eligibility and releasing of subsidy for the cases financed by the bank under the

scheme.

OBJECTIVE

To provide encouragement to textile industrial units for taking up technology up

gradation and to modernize their production facilities.

The scheme envisages 5% interest reimbursement (4 percentage for spinningindustry) of the normal interest charged by the bank on the loans availed by the

units from the bank for undertaking technology up-gradation/modernization.

New units set up with technology as per guidelines of the scheme would also be

eligible for the above benefit, or, 15% Credit Linked Capital Subsidy for Small

Scale Sector and 20% for Power-loom Sector, or, 5% interest reimbursement plus

10% capital subsidy for specified processing machinery, technical textiles

machinery, garmenting machinery and for CAD, CAM, Design Studio, etc.

The scheme also provides 25% capital subsidy on purchase of new machinery andequipments for the pre-loom and post-loom operations, handlooms/up-gradations

of handlooms and testing and quality control equipments for handloom production

units.

PROMOTERS CONTRIBUTION

Minimum 20% of the project cost.

AMOUNT OF LOAN

Need based.

PROGRAMME PERIOD

The scheme is in operation for a period upto 31.3.2012.

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Credit Linked Capital Subsidy Scheme (CLCSS)

OBJECTIVE

To facilitate Technology Upgradation of Tiny and SSI units in the specified

products/sub-sectors as notified by Govt. of India by providing 15% capital

subsidy for induction of proven technologies approved under the scheme.

LIMIT

Maximum eligible loan under the scheme is Rs. 1/- crore.

RATE OF SUBSIDY

15% or Rs. 15/- Lacks, whichever is higher (Subsidy is calculated with

reference to the purchase price of eligible Plant and Machinery approved

under the scheme)

The Scheme is in operation for the period up to 31.3.2012.

Eligible units must apply for subsidy support at the time of loan application

itself.

Term Loans sactioned under the CLCSS scheme are only eligible for

subsidy.

Claims are to be reached in the Ministry as per the time-frame stipulated bythem. That is, within the next quarter of last loan disbursement (Reference

date).

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Composite Loans

ELIGIBILITY:

Small Enterprises (Manufacturing Sector) including artisans, village andcottage industrial units and Micro Enterprises in Small Enterprises Sector,

and

Micro/Small (Service Sector) Enterprises engaged in industrial activities

only.

PURPOSE:

Fixed capital investment and / or working capital requirement.

TYPE OF FACILITY: Composite loans.

AMOUNT OF LOAN: Up to Rs. 100/- Lacks.

MARGIN:

Nil in case of composite loan up to Rs. 25,000/-.

15% - 25% in case of composite loans above Rs. 25000/- and up to Rs. 100/-

Lacks.

SECURITY:

Charge on assets created out of loan amount and other collateral securities as

determined on the merits of each case.

PERIOD OF REPAYMENT:

Minimum 3 years and maximum of 10 years (which can be extended), with

initial holiday of 12 months to 18 months.

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Coverage of Collateral Free Loans under Credit Guarantee Fund

Trust Scheme for Micro & Small Enterprises (CGTMSE):

PURPOSE:

To provide collateral free loans up to Rs. 100/- lacks to Micro & Small

Enterprises, as defined under MSMED Act, 2006.

ELIGIBILITY:

The coverage of the Scheme is extended to all new and existing Micro and

Small Enterprises (both in the Manufacturing Sector as well as in the Service

Sector) as defined under MSMED Act, 2006.

LIMIT:

The eligible loan limit under the Scheme is Rs.100 lacks. A borrower, who

has availed certain credit facilities secured by collaterals and/or third party

guarantees and is sanctioned distinct/separate credit facility without

collateral security/third party guarantee, can be covered under CGTMSE

scheme.

SECURITY:

"Primary security" in respect of a credit facility shall mean the assets createdout

of the credit facility so extended and/or existing unencumbered assets which

are directly associated with the project or business for which the credit

facility has been extended. This means if a borrower is sanctioned working

capital facility only, a charge can be created on the fixed assets of the unit

even though the same are not financed by the Bank and the same will not be

treated as collateral security. Similarly in case of sanction of Term/Demand

loan on standalone basis, charge taken on current assets will not be treated as

collateral security.

MARGIN:

The credit guarantee cover is available up to 75% of the amount in default in

respect of credit facilities up to Rs. 50/- lacks extended by the Lending

Institution to an eligible borrower subject to maximum guarantee cover of

Rs. 37.50 lacks and 50% for the facilities over Rs. 50/- lacks and up to a

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limit of Rs. 100/-, i.e. maximum of Rs. 62.50 lacs. In case of following

categories of borrowers, guarantee cover is available up to 80% of the

amount in default. a) Loans to Micro enterprises up to Rs. 5 lacks(85%). b)

Loans to Micro and Small enterprises operated and/ or owned by women. c)

All loans in North East Region including the State of Sikkim.

GUARANTEE FEE:

Guarantee fee has been reduced as under, depending on the size of the limit

as against the original fee structure of 2.5% (one time fee) and 1% Annual

Service Fee.

Particulars One time

Guarantee fee

Annual Service fee

Credit facility up to Rs. 5/- lacks 1.00% 0.50%

Credit facility above Rs. 5/- lacks. 1.50% 0.75%

Loans in North East Region

including the State of Sikkim.

0.75% Applicable as per the borrowing

limit as stated above.

SME Short Term Loans

PURPOSE:

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To meet temporary shortfall / mismatch in liquidity, for meeting genuine

business requirements only.

ENTERPRISES GROUP:

Micro, Small & Medium Enterprises as per Regulatory definition and allother entities with annual sales turnover of Rs. 1/- crore to Rs. 150/- crores.

ELIGIBILITY CRITERIA

Satisfactory credit rating for the last three years

Latest Balance Sheet etc. should be available.

Satisfactory financial performance in terms of sales / turnover and profits.

Negative variance, if any, should not be more than 10%.

Satisfactory dealings with the Bank for at least three years.

LOAN AMOUNT:

Up to 25% of the existing Fund based Working capital limits (depending on

the Credit Rating), subject to a minimum of Rs. 10 Lacks and maximum of

Rs. 250 Lacks.

PERIOD:

Not exceeding 180 days minimum 90 days

SECURITY

First charge / Equitable mortgage of fixed assets of the company / firm or

extension of existing first charge / equitable mortgage of fixed assets,

ensuring that there is a minimum asset cover of 1.25.

Extension of Charge on current assets for the additional facility ensuring thatadequate drawing power is available.

Extension of all existing guarantees of Directors / Third party guarantees to

cover the additional facility.

RATE OF INTEREST:

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As applicable to existing working capital facilities.

PROCESSING CHARGES:

25% concession in applicable charges.

SME Medium Term Loans

PURPOSE:

To augment enterprises working capital gap and to help in improvement of

current ratio and also for meeting genuine business requirements. The

facility will also be available for repayment of secured and unsecured Loans

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of other banks or institutions, but not for any purpose, which is not related to

the enterprises activity.

ENTERPRISES GROUP:

Micro, Small & Medium Enterprises as per Regulatory definition and allother entities with annual sales turnover of Rs. 1/- crore to Rs. 150/- crores.

ELIGIBILITY CRITERIA

Satisfactory credit rating for the last three years

Latest Balance Sheet etc. should be available.

Satisfactory financial performance in terms of Sales/turnover and profits.

Negative variance, if any, should not be more than 10%.

Total Debt-equity ratio should not be higher than 4.5:1 and total Term

Liability and equity ratio should not be more than 3:1.

Average DSCR should not be less than 1.75:1

Satisfactory dealings with the Bank for at least Three years.

LOAN AMOUNT:

Up to 25% of the existing fund based Working capital limits (depending on

the Credit Rating), subject to a minimum of Rs. 25 Lacks and maximum of

Rs. 500 Lacks.

PERIOD:

Not exceeding 36- months, to be repaid in equal quarterly or half-yearly

installments.

SECURITY

First charge / Equitable mortgage of fixed assets of the Company / firm or

extension of existing first charge/ equitable mortgage of fixed assets,

ensuring that there is a minimum asset cover of 1.25

RATE OF INTEREST:

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As per credit rating for the additional loan

Prepayment penalty of 1%, if loan is prepaid within -24- months of

drawdown

PROCESSING CHARGES / UPFRONT FEE:

25% concession in applicable charges.

Baroda SME Gold Card

Baroda SME Gold Card envisages provision of additional limit of 10% of the

assessed eligible bank finance for Working Capital to Micro, Small & Medium

Enterprises as per Regulatory definition and all other enterprises with annual sales

turnover of Rs. 1/- crore to Rs. 150/- crores, on request along with regular

application for Working Capital limits to meet emergent requirements.

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PURPOSE:

To provide hassle free on the spot assistance to take care of borrowers

emergent requirements and tie up temporary mismatch in liquidity arising

out of delayed payment by buyers, tax payment, execution of bulk orders,

etc.

ELIGIBILITY

Accounts in Standard Category for last 2 years, with credit rating of BOB-4

and above and enjoying working capital limits of Rs. 25/- Lacks and above.

Accounts having sole banking arrangement with our bank/proposed to be

financed under Sole Banking arrangement.

RATE OF INTEREST

As per Credit Rating and as applicable for regular Cash Credit facility.

PERIOD

12 months to be allowed on 4 occasions during the year for a maximum

period of 2 months on each occasion with a minimum gap of 15 days

between two drawls.

SECURITY

As applicable to regular Cash Credit facility.

DOCUMENTATION

No additional documentation/formalities required at the time of availing

facility every time as the 10% additional limit will be a part of the regular

sanction.

Scheme for Financing Energy Efficiency Projects

PURPOSE:

Financing SMEs for acquisition of equipments, services and adopting

measures for enhancement of energy efficiency/conservation of energy.

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ELIGIBILITY

SME units financed by bank as also other units desirous of shifting their

account to Bank of Baroda.

LIMIT:

Up to 75% of the total project cost, subject to maximum of Rs. 1/- crore.

(Minimum amount of loan Rs. 5/- Lacks).

Project cost may include the following:

Cost of acquisition/modification/renovation of equipment/software.

Cost of alterations to existing machinery.

Cost of structural / layout changes.

Cost of energy audit/consultancy.

Preparation of Detailed Project Report (DPR).

RATE OF INTEREST:

Base rate plus 4.00% p.a

REPAYMENT:

Maximum 5 years, including moratorium, if any.

SECURITY:

a. For Sole Banking accounts:

Extension of first charge on all fixed assets.

b. For Consortium/Multiple Banking accounts:

first charge on equipments acquired out of loan and collateral, if any, with

the total security coverage being not less than 1.25.

Grant from IREDA:

IRDEA, at present, gives a grant of Rs. 25,000/- for projects costing Rs. 1/-

crore or below to meet partial cost of Energy Audit. This grant is available

for the first 100 projects (SME Sectors only) approved by them.

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Baroda Overdraft Against Land and Building

Baroda Overdraft against land and building is a unique product for financing

working capital requirements/long term margin requirements of SME borrowers

against the security of unencumbered land and building belonging to the unit or

Promoters of the unit, or, close relatives of the promoters.

PURPOSE:

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To provide hassle free credit to SME borrowers to meet working capital

requirements/augment long term margin requirements.

ELIGIBILITY

All Enterprises, i.e. Micro, Small & Medium Enterprises, as defined underMSMED Act, 2006, and other entities with annual sales turnover of Rs. 1/-

crore to Rs. 150/- crores exclusively banking with our bank/new borrowers

desirous of having sole banking arrangement with our bank.

LIMIT:

Minimum :Rs. 25.00 lacks(for Rural/Semi-Urban/Urban/Metro branches)

Maximum: Rs. 50.00 lacks(for Rural branches)

Rs. 200.00 lacks(for Semi-urban branches)

Rs. 500.00 lacks(for Urban & Metro branches)

SECURITY:

1. Mortgage of factory land and building and/or any other property (Land &

Building) belonging to the unit, promoters of the unit, or close relatives of

the promoters, (viz. father, mother, wife, son and daughter only provided

they stand as guarantors).

Note: In case of residential/commercial building, age of property should notbe more than 25 years at the time of sanction).

2. Personal guarantees of all Promoter Directors/owners of property.

3. Third party guarantee, if available.

4. Charge on unencumbered personal properties of the Promoter Directors, if

available.

5. Hypothecation of stocks/book debts.

MARGIN:

40% of the market value of property mortgaged (valuation of the property will be

carried out by the value on banks approved panel/Government approved value)

RATE OF INTEREST:

For Micro & Small Enterprises in Manufacturing & Base rate plus

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Service Sector (As per Regulatory definition) 3.25% p.a.

For Medium Enterprises in Manufacturing &

Service Sector (As per Regulatory definition)

Base rate plus

4.00% p.a.

For other Enterprises, i.e. with annual sales

turnover of Rs. 1/- crore to Rs.150/- crores.

Base rate plus

4.50% p.a.

PERIOD:

12 months.

OTHER FEATURES:

Simplified assessment methods.

Submission of stock/book debts statements on half yearly basis.

Annual inspection of securities.

Non-fund based facilities like LCs, Guarantees, allowed by earmarking

Overdraft facility.

Valuation of properties once in 3 years.

Prime Minister's Employment Generation Programme (PMEGP)

Prime Ministers Employment Generation Programme (PMEGP) is a credit linked

subsidy programme administered by the Ministry of Micro, Small and Medium

Enterprises, Government of India. Khadi & Village Industries Commission

(KVIC), is the nodal agency at national level for implementation of the scheme. At

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state level the scheme is implemented through KVIC, KVIB and District Industries

center.

Objective:

To generate employment opportunities in rural as well as urban areasthrough setting up of self employment ventures.

To provide continuous and sustainable employment to a large segment of

traditional and prospective artisans and unemployed youth, so as to help

arrest migration of rural youth to urban areas.

Scope:

The scheme is applicable to all viable (technically as well as economically)

projects in rural as well as urban areas, under Micro enterprises sector.

The maximum cost of the project admissible under manufacturing sector is

Rs.25 lacks and business/services sector is RS.10 lakhs.

Only one person from family is eligible for obtaining financial assistance

under the scheme.

Assistance under the Scheme is available only for new projects

The assistance under the scheme will not be available to activities indicated

in the negative list under the scheme.

Eligible Entrepreneurs / Borrowers:

Any individual, above 18 years of age

The beneficiaries should have passed at least VIII standard, for setting up of

project costing above Rs.10 lacks in the Manufacturing Sector and above Rs.

5 lacks in the business /Service Sector,

Self Help Groups (including those belonging to BPL provided that they have

not availed benefits under any other Scheme).

Institutions registered under Societies Registration Act,1860

Production Co-operative Societies

Charitable Trusts.

Note:

Existing units (Under PMRY, REGP or any other scheme of Government of India

or State Government) and the units that have already availed Government Subsidy

under any other scheme of Government of India or State Government are not

eligible.

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Selection of beneficiaries:

The beneficiaries will be identified & selected at the district level by a Task Force

consisting of representatives from KVIC/State KVIB/ State DICs and Banks and

headed by the District Magistrate / Deputy Commissioner / Collector concerned.

Subsidy Entitlement & Bank Finance:

Subsidy from KVIC and the bank finance depends on the cost of project as per

details given below:

Bank finance

Subsidy from KVICPromoter's

contributionUrban area Rural area

General Categorybeneficiary /

institution

90% 15% 25% 10%

Special category

beneficiary/institution95% 25% 35% 5%

Rate of Interest: As applicable to MSE Sector.

Repayment: 3 to 7 years with an initial moratorium not exceeding 6 (six) months.

Security:

1. Assets created out of the bank's finance.

2. Personal guarantee of the proprietor / promoter.

3. No collateral security up to Rs. 5 lacks.

4. Eligible units will be covered under Credit Guarantee Fund scheme for

Micro & small Enterprises CGMSE. (excluding Margin Money / subsidy

component

Loans under Interest Subsidy Eligibility Certificate Scheme of

Khadi & Village Industries Commission (KVIC-ISEC)

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Purpose

To finance institutional financing agencies for lending to Khadi & Village

Industries

Eligibility

Institutional financing agencies Khadi & Village Industries Commission,

State Khadi & Village Industries Boards, Registered Institutions, Co-

operative Societies

Subsidy

Interest subsidy limited to the difference between the actual rate of interest

charged by the Bank and 4% borne by the borrowers

Note:

Bank Finance Cell of KVIC will issue Interest Subsidy Eligibility

Certificate. On the strength of these Certificates, the eligible institutions may

negotiate with Bank for finance assistance. However, the final decision to

accept or reject any loan to the eligible borrower is vested with the Bank.

Claims should be commuted on the loan amount indicated in the ISEC or an actual

availment whichever is less based on the day to day transactions.

Schemes for Professionals and Self Employed

Best suited for individuals conducting business independently, with or without

hired labor. Enables them to purchase equipment (including PC for professional

use), acquiring new or repair existing business premises, tools and working capital

requirement.

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Key Benefits

Can be used for the purchase of any necessary equipment, like a personal

computer (PC) for professional use.

Repair and renovation of existing equipment.

Acquisition and repairs to business premises, or tools.

To generate working capital.

All the accounts rated as A+ will be entitled for loans at a lower interest rate.






Small Roads and Water Transport Operators

This product is primarily targeted at Road Transport Operators who may be

individuals or an association of not more than six individuals.

Key Benefits

Assists in the purchase of any vehicle, such as:

o Human driven like handcart, cycle rickshaw etc.

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o Animal driven like bullock cart, camel cart, Tonga, etc.

o Power driven like mechanized cycle rickshaw, auto-rickshaw, taxies,

mini buses, tempos, trucks, & motor Lorries.

o Fishing boats, barges etc. to be used as public transport carrier fortransport of goods or passengers.



the Bank of Baroda branches.



Scheme for Business Enterprises

This product is primarily for service providing business enterprises and not a

professional services unit.

Software development centers, X-Ray Clinics, Photographic Labs, Operators of

Cable TV Networks, Crches, and Beauty Parlors can avail of facilities under this

plan.

Key Benefits

Loans can be availed of:

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o For purchase of necessary equipment.

o For repairing or renovation of existing equipment.

o For acquiring or repairing business premises.

o For purchase of tools and

o For working capital requirements.






Working Capital Finance

A firm's working capital is the money it has available to meet current obligations

(those due in less than a year) and to acquire earning assets.

Bank of Baroda offers corporations Working Capital Finance to meet their

operating expenses, purchasing inventory, receivables financing, either by direct

funding or by issuing letter of credit.

Key Benefits

Funded facilities, i.e. the bank provides funding and assistance to actually

purchase business assets or to meet business expenses.

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Non-Funded facilities, i.e. the bank can issue letters of credit or can give a

guarantee on behalf of the customer to the suppliers, Government

Departments for the procurement of goods and services on credit.

Available in both Indian as well as Foreign currency.

Term Finance

Under Term Finance, Bank of Baroda, offers the following:

Fund Based Finance for capital expenditure / acquisition of fixed assetstowards starting / expanding a business or industrial unit or to swap with

high cost existing debt from other bank / financial institution.

Non-Fund Based Finance in the form of Deferred Payment Guarantee for

acquisition of fixed assets towards starting / expanding a business or

industrial unit.

Conclusion:

SME is fast growing sector in the Indian Economy. Every Bank has given

highest importance to financing SMEs in their strategically growth plan.

SMEs contribution to national GDP is projected to go up to by a minimum of 5% and touch 22% share of Indias GDP by 2012, since over 55% of

SME aggressively upgrading themselves technologically to reduce their

input costs and increase production and exports.

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The World Bank has approved 400 million dollar additional financing loan

to the Small Industries Development Bank of India (SIDBI), which is aimed

at improving access to finance for Small and Medium Enterprises (SMEs).

SMEs continue to be the thrust area for Government policies.

The growing economy and the tremendous market potential of the country

augur well for the sustained growth of SMEs in the country.

Panacea for employment and decentralized industrial development.

With the enactment of MSME Act, the sector is all set to emerge as the most

significant player in national economy.

SIDBI as the apex institution will continue to play its key role in facilitatingtimely and adequate credit besides meeting the developmental needs of the

sector.

BIBLIOGRAPHY

1) Ministry of Micro, Small And Medium Enterprises(www.msmse.gov.in)

2) Reserve Bank of India Website (www.rbi.org.in).

3) Bank of Baroda Website (www.bankofbaroda.com).

4) Investment Information and Credit Rating Agency of India Limited

(www.icra.in).

5) Money Works For Me Website (www.moneyworks4me.com)

6) Panvel Branch, Bank of Baroda.

55
http://www.rbi.org.in/http://www.bankofbaroda.com/http://www.icra.in/http://www.moneyworks4me.com/http://www.rbi.org.in/http://www.bankofbaroda.com/http://www.icra.in/http://www.moneyworks4me.com/


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7) First Post.Com (www.firstpost.com).
http://www.firstpost.com/http://www.firstpost.com/

final project finance

Documents