IMPACT OF INDUSTRIAL SLOWDOWN ON CREDIT FLOW AND QUALITY OF SMEs<br />Aman Mehra<br />Presented By<br />
d<br />Mr. U.K Ghosh<br />(Chief Manager, Credit department)<br />Brig. S.K.Gaur, <br />(Director- FMS-IRM)<br />Prof. P.S. Sali<br /> (Officiating Director FMS-IRM) <br />Prof . Dr.Susmit Jain <br /> Prof. Asha Sharma<br />(FACULTY-FMS-IRM )<br />And all those who have directly or indirectly helped<br /> me in the successful completion of the project.<br />
BJECTIVES<br /><ul><li>To understand SMEs in Indian economy.
To understand the overall slowdown and its impact on Indian economy.
Analyzing the overall flow of credit toward SMEs over recent years in Rajasthan.
Analyzing the number of proposals coming up for financing new project over recent years.
Analyzing the flow of credit by SBBJ toward SMEs over recent years in Rajasthan.
To analyze the impact of slow down on the health of SMEs.</li></li></ul><li>Primary Data –<br /><ul><li>Discussions with concerned persons.</li></ul>Secondary Data – <br /><ul><li>Internal Secondary Data- Annual Reports, Circulars & reports Files and office documents.
Descriptive and Diagnostic research Design</li></ul>Data Collection<br />Research Type<br />
LIMITATIONS<br /> OF<br />RESEARCH<br />The results in the analysis are approximate percentages and might vary to some extent. <br />My research was totally based on secondary data so it is assumed that information published is verified.<br />Cost and time<br /> constraints. <br />Due to lack of information available it is assumed that –<br />Reluctance on the part of SBBJ employees to share information<br /><ul><li>The increase in the number of account symbolizes increment in the proposals from MSMEs for development or growth purpose.
The increase in the amount of loan disbursed to this sector is assumed to be for the expansions and development</li></li></ul><li>FINANCIAL STATUS<br />
COMPANY PROFILE<br /><ul><li>Bank of Bikaner and Jaipur was established in 1963 after amalgamation of erstwhile State Bank of Jaipur (established in 1943) with State Bank of Bikaner (established in 1944) as a subsidiary of State Bank of India.
The Bank's main area of operation is in the State of Rajasthan, with a presence at all important centers in the country.
SBBJ has 974 branches spread over the country </li></ul>State Bank of Bikaner and Jaipur headquarter is in Jaipur<br /><ul><li>The Bank boasts of having as many as 950 ATMs throughout India, all of them being the part of over 10000 ATMs of State Bank Group</li></li></ul><li>FINANCIAL STATUS AS ON 31st march 2010<br /><ul><li>The net profit of SBBJ bank has risen by 12.82 % to 455.16 crore as compared to 403.45 crore as on 31st march 2009
It also recorded a business growth of 17.8 percent at Rs 12,310 crore in 2009-10</li></ul>, <br /><ul><li>The SBBJ board of director announced a dividend of </li></ul>144 percent (Rs 14.40 per share on face value of Rs 10) higher<br /> than dividend of 120 percent announced previous year.<br />FINANCIAL STATUS<br />
Definition<br />In accordance with the provision of Micro, Small & Medium Enterprises Development (MSMED) Act, 2006 the Micro, Small and Medium Enterprises (MSME) are classified in two Classes<br /><ul><li>Manufacturing Enterprises
Service Enterprises</li></ul>They are defined in terms of investment in equipment as notified by RBI, industrial development & regulation act 1951 <br />TO<br />SMEs<br /><ul><li>Accepted as the engine of economic growth and for promoting equitable development
High employment potential at low capital cost than large industries all around the globe for ex
In the USA, nearly half of the private workforce is employed in small firms.
In Japan, 78 percent of jobs are generated by SMEs.
The same sector in Korea accounts for 99 percent of all manufacturing enterprises and 69 percent of employment in this sector constitute
over 90% of total enterprises in most of the economies</li></li></ul><li>
SBBJ & SMEs<br /><ul><li>The Bank has set up branches in Industrial Areas / Estates to provide finance to small and medium enterprises
The Bank also finances Small Business activities which are of special significance to a large number of people </li></li></ul><li>Laghu Udhyami Credit Card Scheme (LUCC).<br />Tatkal Vyapar Suvidha” Scheme<br />General Purpose Term Loan.<br />SME Smart Card” Scheme<br />Artisans Credit Card.<br />SBBJ Tourism Plus.<br />SBBJ Shoppe.<br />Car Loan To SME Unit<br />Schemes offered by SBBJ<br />
Mortgage Advances.<br />Working Capital Requirements Of SMEs<br />Medium Term Loan Requirement of SMEs.<br />1<br /> Term Loan Requirement of SMEs.<br />2<br />SBBJ Transport Operators Scheme.<br />SBBJ Professional plus<br />SME CARE.<br />15<br />SME HELP<br />Contd…………..<br />
ROLE OF SME in Indian economy<br /><ul><li>8 per cent of the country’s GDP.
45 per cent of the country’s manufactured output.
The labor to capital ratio in MSMEs and the overall growth in the MSME sector is much higher than in the large industries.
The geographic distribution of the MSMEs is also more even.
This sector employs an estimated 59.7 million persons spread over 26.1 million enterprises.
India has the second largest population of SMBs among BRIC countries and the US the second largest employment provider next to agriculture. </li></ul>Thus, MSMEs are important for the national objectives of growth with equity and inclusion.<br />
<ul><li>Enactment of the Micro, Small and Medium Enterprises Development Act, 2006,
Amendments to the Khadi and Village Industries Commission Act,
Announcement of a Package for Promotion of Micro and Small Enterprises (MSEs),
Launching of new/innovative schemes under National Manufacturing Competitiveness Programme (NMCP),
Launching of Prime Minister’s Employment Generation Programme (PMEGP) to generate employment opportunities, etc.
The government of India has taken a major initiative on 26th of august 2009 when Prime Minister has announced the setting up of a task force to reflect on the issues raised by the association having representative of 19 prominent MSME association</li></ul>GOVERNMENT<br />I<br />N<br />I<br />T<br />I<br />A<br />T<br />I<br />V<br />E<br />A<br />P<br />P<br />R<br />O<br />A<br />C<br />H<br />
What Is Recession ?<br />Recession is a contraction phase of the business cycle……..<br />
What Causes Recession ?<br /><ul><li> A recession normally takes place when consumers loose confidence in the growth of the economy and spend less.
This leads to a decreased demand for goods and services, which in turn leads to a decrease in production, lay-offs and a sharp rise in unemployment.
Investors spend less as they fear stocks values will fall and thus stock markets fall on negative sentiment. </li></li></ul><li>World Economy<br />The Global Economy<br />
Stock market crashed<br />Dollar value Declined<br /><ul><li>All this slowed down the growth of economy.
Subprime mortgage crisis (home loan defaults)</li></ul>All this put together has driven the U.S. economy in recession.<br />
GLOBAL IMPACT<br /><ul><li>Biggest banking shakeout since the savings-and-loan meltdown.
In Iceland involved all three of the country's major banks. Relative to the size of its economy, Iceland’s banking collapse is the largest suffered by any country in economic history.
Decline in the GDP The first quarter of 2009, the annualized rate of decline in GDP was 14.4% in Germany, 15.2% in Japan, 7.4% in the UK, 18% in Latvia, 9.8% in the Euro area and 21.5% for Mexico. </li></ul>By March 2009, the Arab world had lost $3 trillion due to the crisis<br />
IMPACT OF GLOBAL RECESSION ON INDIA<br />IMPACT OF GLOBAL RECESSION ON INDIA<br />
IT & real estate sector<br /><ul><li>IT industries, financial sectors, real estate owners, car Industry, investment banking and other industries as well are confronting heavy loss due to the fall down of global economy.
Inflation and psychological impact of the us crisis.
Benefits are missing as companies look to cut cost.
one of the casualties this time are real estate, where building projects are half done all over the country and in this tight liquidity situation developers find it difficult to raise finance.</li></li></ul><li>Industrial sector!<br /><ul><li>Government and other private companies are reluctant in starting new ventures and starting new projects.
Projects that are halfway to completion, or companies that stuck with cash flow issues on business that are yet to reach break even, will run out of cash.
Hospitality and airlines are hit by poor demand.</li></li></ul><li>Banking sector!<br />IMPACT OF SLOW DOWN ON INDIAN BANK<br /><ul><li> Indian banks are facing through a tough time of liquidity crunch. Lehman Brothers had invested a great amount in the stocks of Indian banks that have invested in derivatives
Falling down of Lehman had a great impact on the leading international bank, ICICI Bank, a bank that had invested in Lehman’s bonds. This meltdown even have covered the Axis Bank but not to a great extent
Central banks have worked to improve liquidity but are charging higher credits. The interest rates have drastically increased from 11.5% to nearly about 16%. </li></li></ul><li>CREDIT FLOW<br /> & QUALITY<br /> OF SMEs<br />
Flow of Credit by PSUs Banks in Rajasthan<br />Flow of Credit by PSUs Banks in Rajasthan<br />
Flow of Credit to MSME sector in Rajasthan during April 2008 to march 2009<br />
Flow of Credit to MSME sector in Rajasthan during April 2008 to march 2009 <br />
MACRO LEVEL FINDINGS<br /><ul><li>There is a consistent increase in the flow of credit to MSME sector. In March 2005 the total credit to MSME was 2740.87 crores and it increased to 13870.04 crores in September 09 and between this period it increased very sharply from March 2007 to 2008. The number of accounts also increased from 62574 lakhs in March 2005 to 398795 lakhs in September 2009.
Growth of 80.49% as on March 2008 appears to be phenomenal. However, the same is due to wider coverage of different enterprise under MSME sector (on account of enactment of the Micro, Small and Medium Enterprises Development Act 2006 and consequent revision in definition).
It is also noteworthy that despite global meltdown, the number of MSME beneficiaries has increased from 143228 as on December 08 to 148815 as on march 09.i.e, net income of 5587 within three months period involving additional finance of Rs 1439.90 crores</li></li></ul><li>CONTD……………<br /><ul><li>During 2008-09 the flow of credit of public bank has increased from Rs 7522.07 crores to Rs 9759.61 crores i.e., net increase of Rs 2237.54 crores. Out of this credit flow during January - march 2009 alone was Rs 1439.90 crores i.e. 64.35% during three months time against growth of Rs 797.64 crore during 9 months which indicates about the active role played by the PSU bank in the state towards increasing flow of credit to MSME Sector to support and help it in present difficult time owing to global meltdown.
In the last quarter of 2008 RBI decided to improve the delivery system and simplification of procedure for credit to the MSME sector, due to that procedure the credit flow again increased.</li></li></ul><li>MICRO(SBBJ ANALYSIS)<br />
MICRO LEVEL FINDINGS<br /><ul><li>The outstanding credit to MSME sector increased by 46.8% from Rs.4,015 crore as at end- March 2009 to Rs.5,896 crore as at end- March 2010. This includes retail trade advances amounting to Rs.803 crore, which were included in the definition of MSME sector by Government of India during the year 2009-10.
As against the target of doubling the credit flow to SME sector between 2005-06 and 2009-10 in terms of the policy package of Government of India, the Bank has tripled the credit flow to this sector during the five year period.
As at end-March 2010 the outstanding assistance to micro and small enterprises increased by 50.5% to reach a level of Rs.4,652 crore, as against Rs.3,092 crore as at end-March 2009.</li></li></ul><li>CONTD……………<br /><ul><li>As against the target of financing 2805 new SME accounts (5 new accounts per urban/ semi-urban branch), the Bank has assisted 25,730 new MSME units during the year 2009-10.
Since August 2008, after the onset of slowdown the bank in order to protect these MSMEs has continued providing relief and concessions, including relaxation in the lending rates, so as to enable to remain at the growing trend. The benefit of SME Help Scheme was extended to the new customers during the year. Besides, in order to benefit the small borrowers, the maximum eligible loan under Laghu Udyami Credit Card (LUCC) scheme was increased from Rs. 10 lakh to Rs.20 lakh during the year.
The Bank attaches high importance to providing collateral free loans to Micro and Small Enterprises (MSEs) under the Credit Guarantee Scheme of Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).
During the year, the Bank provided new collateral free loans under the Credit Guarantee scheme to 5,080 MSEs amounting to Rs.70.34 crore, taking the level of these loans to Rs.105.56 crore to 8,403 units as at end-March 2010.</li></li></ul><li>MEASURES ANNOUNCED BY-<br />
<ul><li>With its agility and dynamism, the sector has shown admirable innovativeness and adaptability to survive the recent economic downturn and recession.
Due to lack of dependency on export as compared to China and other Asian economies the SMEs in Indian economy did not get affected to the same extent as compared to other export oriented economy.
Thus, to conclude the finding of the project it could be said that that timely measures announced by RBI and Government of India have been proved successful in preventing any major negative impact on the credit flow to SME sector and as regards the impact of industrial slowdown on quality (health) of SMEs the data of NPAs of SBBJ indicates that it is insignificant.</li></li></ul><li>Queries<br />QUIRIES<br />