Your SlideShare is downloading. ×
Ganpati bappa
Ganpati bappa
Ganpati bappa
Ganpati bappa
Ganpati bappa
Ganpati bappa
Ganpati bappa
Ganpati bappa
Ganpati bappa
Ganpati bappa
Ganpati bappa
Ganpati bappa
Ganpati bappa
Ganpati bappa
Ganpati bappa
Ganpati bappa
Ganpati bappa
Ganpati bappa
Ganpati bappa
Ganpati bappa
Ganpati bappa
Ganpati bappa
Ganpati bappa
Ganpati bappa
Ganpati bappa
Ganpati bappa
Ganpati bappa
Ganpati bappa
Ganpati bappa
Ganpati bappa
Ganpati bappa
Ganpati bappa
Ganpati bappa
Ganpati bappa
Ganpati bappa
Ganpati bappa
Ganpati bappa
Ganpati bappa
Ganpati bappa
Ganpati bappa
Ganpati bappa
Ganpati bappa
Ganpati bappa
Ganpati bappa
Ganpati bappa
Ganpati bappa
Ganpati bappa
Ganpati bappa
Ganpati bappa
Ganpati bappa
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×
Saving this for later? Get the SlideShare app to save on your phone or tablet. Read anywhere, anytime – even offline.
Text the download link to your phone
Standard text messaging rates apply

Ganpati bappa

1,283

Published on

Published in: Business
0 Comments
1 Like
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total Views
1,283
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
30
Comments
0
Likes
1
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide

Transcript

  • 1. “ROLE OF BANK IN DEVELOPMENT OF SMALL & MEDIUM SCALE ENTERPRISE” – Catch them young, watch them grow... SMALL SCALE INDUSTRYINTRODUCTION: The definition for small-scale industrial undertakings has changed overtime. Initially they were classified into two categories- those using power with lessthan 50 employees and those not using power with the employee strength being morethan 50 but less than 100. However the capital resources invested on plant andmachinery buildings have been the primary criteria to differentiate the small-scaleindustries from the large and medium scale industries. An industrial unit can becategorized as a small- scale unit if it fulfills the capital investment limit fixed by theGovernment of India for the small-scale sector. As per the latest definition which is effective since December 21, 1999,for any industrial unit to be regarded as Small Scale Industrial unit the followingcondition is to be satisfied: - Investment in fixed assets like plants and equipments either held onownership terms on lease or on hire purchase should not be more than Rs 10 million. However the unit in no way can be owned or controlled or ancillary ofany other industrial unit. The traditional small-scale industries clearly differ from their moderncounterparts in many respects. The traditional units are highly labor consuming withtheir age-old machineries and conventional techniques of production resulting inpoor productivity rate whereas the modern small-scale units are much moreproductive with less manpower and more sophisticated equipments. 1|Page
  • 2. “ROLE OF BANK IN DEVELOPMENT OF SMALL & MEDIUM SCALE ENTERPRISE” – Catch them young, watch them grow... Khadi and handloom, sericulture, handicrafts, village industries, coir,Bell metal are some of the traditional small-scale industries in India. The modernsmall industries offer a wide range of products starting from simple items likehosiery products, garments, leather products, fishing hook etc to more sophisticateditems like television sets, electronics control system, various engineering productsespecially as ancillaries to large industrial undertakings. Nowadays Indian small-scale industries (SSIs) are mostly modern small-scale industries. Modernization has widened the list of products offered by thisindustry. Theitems manufactured in modern Small-scale service & Businessenterprises in India now include rubber products, plastic products, chemical products,glass and ceramics, mechanical engineering items, hardware, electrical items,transport equipment, electronic components and equipments, automobile parts,bicycle parts, instruments, sports goods, stationery items and clocks and watches. A leading, industrially advanced developing country, India has large,medium and small industrial units of production in almost all branches of theindustry. Since the time of the independence in 1947, a significant feature of theIndian economy has been the rapid growth of the small industry sector. The smallindustry sector is considered to have a major role in the Indian economy due to its 40percent share in the national industrial output along with an 80 percent share inindustrial employment and nearly 35 percent share in exports. The small scaleindustries sector has been assigned an important role in the industrialization of thecountry by the previous and current governments of India. However, there is a clear distinction between the traditional and modernsmall industries. The traditional small industries include Khadi and handloom,village industries, handicrafts, sericulture, coir, etc. Modern small industries 2|Page
  • 3. “ROLE OF BANK IN DEVELOPMENT OF SMALL & MEDIUM SCALE ENTERPRISE” – Catch them young, watch them grow...manufacture a wide variety of goods from simple items to sophisticated items such astelevision sets; electronics control system, various engineering products, particularlyas ancillaries to large industries. The traditional small industries are highly labor-intensive, while the modern small industries use highly sophisticated machinery andequipment. The term small-scale industries are mostly used to represent modernsmall industries. The SSIs manufacture many items which include rubber products,plastic products, chemical products, glass and ceramics, mechanical engineeringitems, hardware, electrical items, transport equipment, electronic components andequipments, automobile parts, bicycle parts, instruments, sports goods, stationeryitems and clocks and watches. Since Independence, the growth and development of the small-scalesector has been favored by the GoI on the following grounds: (1) generation ofemployment opportunities by SSIs, (2) mobilization of capital and entrepreneurshipskills, (3) regional dispersal of industries and (4) equitable distribution of nationalincome. The policies pursued by the GOI over the years have helped in the growthof the SSIs to a considerable extent.HISTORY OF SMALL SCALE INDUSTRY: 3|Page
  • 4. “ROLE OF BANK IN DEVELOPMENT OF SMALL & MEDIUM SCALE ENTERPRISE” – Catch them young, watch them grow... Ministry of Agro and Land Rural Industries and Ministry of SSI have beenmerged into a single namely, Ministry of Micro Small & Medium Enterprises. The President under Notification 9th May 2007 has amended theGovernment of India (Allocation of business) Rules 1961,Pursuant to this amendedMinistry of Agro and rural Industries (Krishi Evam Gramin Udyog Mantralay) andministry of SSI (Laghu Udoyag Mantralay) have been merged into a single Ministry,namely, Ministry of Micro Small & Medium Enterprises ( Suksham Laghu AurMedium Udyam Mantralay )CONCEPT & DEFINATION OF SSI: In most parts of the world the nomenclature used is small and MediumEnterprises (SMEs) and the criteria for defining include the number of employeesand /or the turnover. In India the Small Scale Industry evokes different meanings fordifferent agencies and the financial institution. For example for the purpose of exciseand sales Tax Exemption, the turnover alone is the determining criterion. However inbroder terms, currently, an SSI is defined in terms of investment ceiling on theoriginal value of installed plant and machinery.DEFINITION OF SSIs: 4|Page
  • 5. “ROLE OF BANK IN DEVELOPMENT OF SMALL & MEDIUM SCALE ENTERPRISE” – Catch them young, watch them grow... The definition for small-scale industrial undertakings has changed overtime. Initially they were classified into two categories- those using power with lessthan 50 employees and those not using power with the employee strength being morethan 50 but less than100capital investment limit fixed by the Government of India forthe small scale sector. As per the last definition which is effective since December21, 1999, for any industrial unit to be regarded as Small Scale Industrial unit thefollowing condition is to be satisfied: - YEAR INVESTMENT LIMITS1960 Upto Rs 5 lacs in Plant & Machinery1966 Upto Rs 7.5 lacs in Plant & Machinery1975 Upto Rs 10 lacs in Plant & Machinery1980 Upto Rs 20 lacs in Plant & Machinery1985 Upto Rs 35 lacs in Plant & Machinery1991 Upto Rs 60 lacs in Plant & Machinery1997 Upto Rs 100 lacs in Plant & Machinery1999 Upto Rs 100 lacs in Plant & MachineryCLASSIFICATION OF SSIs: 5|Page
  • 6. “ROLE OF BANK IN DEVELOPMENT OF SMALL & MEDIUM SCALE ENTERPRISE” – Catch them young, watch them grow... A common classification is between traditional small industries and modernsmall industries. Traditional small industries include Khadi and handloom, village industries,handicrafts, sericulture, coir, etc. Modern SSIs produce wide range of goods fromcomparatively simple items t sophisticated products such as television sets,Electronics, control system, various engineering products, particularly as ancillariesto the large industries... The traditional small industries are highly labour-intensive while the modernsmall-scale units make the use of highly sophisticated machinery and equipment. Forinstance, during 1979-80, traditional small-scale industries accounted for only 135 ofthe total output but their share in total employment was 56%. As against this, theshare of modern industries in the total output of this sector was 74% in1979-80 but their share in employment was only 33%. That means these industrialunits have higher labour productivity. One special characteristic of traditional small-scale industries is that theycannot provide full time employment to workers, but instead can provide onlysubsidiary or part time employment to agricultural laborers and artisans. Amongtraditional village industries, handicrafts possess the highest labour productivity,besides handicrafts make a significant contribution to earning foreign exchange forthe country. Nowadays Indian small-scale industries (SSIs) are mostly modern small-scale industries. Modernization has widened the list of products offered by thisindustry. The items manufactured in modern 6|Page
  • 7. “ROLE OF BANK IN DEVELOPMENT OF SMALL & MEDIUM SCALE ENTERPRISE” – Catch them young, watch them grow...Small-scale service & Business enterprises in India now include rubber products,plastic products, chemical products, glass and ceramics, mechanical engineeringitems, hardware, electrical items, transport equipment, electronic components andequipments, automobile parts, bicycle parts, instruments, sports goods, stationeryitems and clocks and watches.Micro, Small and Medium Enterprises Development act MSMED Act – 2006 and its Impact Clause Salient Features Impact 1. Establishment of Specific representation for Statutory Status, National Small and Women Mandatory compact board and Medium Enterprises Quarterly Meeting. quarterly meetings will Board– Maximum No. of members 47 address problems of SMEs immediately to take corrective action. 2. Concept of Enterprises Clear-cut demarcation of Facilitates SMEs to manufacturing/production enter into service and rendering services. enterprises aggressively. 3. Definition of Specific ceiling limit for Existing small units Enterprises manufacturing/production can graduate into and service enterprise Medium units and avail definition for Medium facilities under the act. enterprises. 4. Filing of memoranda Replacement of Facilitates SMEs to optional for Micro and registration with avail the benefits of the Small enterprises in memorandum. act immediately after manufacturing and setting up of the unit. service sector Medium enterprises in Service 7|Page
  • 8. “ROLE OF BANK IN DEVELOPMENT OF SMALL & MEDIUM SCALE ENTERPRISE” – Catch them young, watch them grow... Sector but mandatory for Medium enterprises in manufacturing sector. 5. Procurement Policies Notification of preference Facilitates opportunity policies by central or for supply of State Governments for goods/services without goods and services provided by Micro any hassles. Public & Small enterprises. Procurement Policy under Section 11 of MSME Act, yet to be notified. 6. Delayed Payment • Period of payment by SMEs can plan their Penalty & dispute the procuring organizations cash flow/financial resolution – 45 days requirement. • Penal interest 200% of PLR 7. Dispute Resolution Establishment of MSE Easy financial planning facilitation Council; 90 and no waste of human days framework for resources for chasing/ dispute resolution. follow up. 8. Delayed Payment: Deduction disallowed This will encourage allowable deduction procurement agencies to under IT Act 1961 ensure timely payment to SMEs. 9. Closure of Business Statutory notification of Facilitates expedition of scheme for closure liquidation. 10. Notification of Statutory Mandatory on all guidelines or facilitating development instructions for of SMEs ensuring fast promotion of SMEs Wrt. To Funds growth. appropriation and release 8|Page
  • 9. “ROLE OF BANK IN DEVELOPMENT OF SMALL & MEDIUM SCALE ENTERPRISE” – Catch them young, watch them grow... 11. Facilitating Credit Statutory Mandatory on all providing Guidelines for credit for 20% year on year growth.Statistics on SSIs: The total number of SSI units increased from 2.082 million units in1991-92 to 2.724 million units in 1995-96. During the same period, at constantprices, the production increased from nearly $1.6 billion to approximately $2.2billion. The total number of persons employed in SSIs increased from 12.9 million to15.2 million. According to Second All-India Census of Registered SSI units, 42percent of the units were functioning in rural areas, 48 percent in urban areas and 10percent in metropolitan areas. 62.2 percent of the units were located in backwardareas. The rate of growth of this sector has been higher as compared to the wholeindustrial sector. In terms of the abovementioned development, the progress of the SSI sectoris considered impressive by experts. But the SSIs are mostly affected by a number ofproblems that have hampered its absolute growth. According to the Seventh FiveYear Plan (1985-90) the growth of the SSIs has been constrained by various factors``including technological obsolescence, inadequate and irregular supply of rawmaterials, lack of organized market channels, imperfect knowledge of marketconditions, unorganized nature of operations, inadequate availability of credit,constraint of infrastructure facilities including power etc. and deficient managerialand technical skills. 9|Page
  • 10. “ROLE OF BANK IN DEVELOPMENT OF SMALL & MEDIUM SCALE ENTERPRISE” – Catch them young, watch them grow...For SMEs, sky is the limit: Small and medium enterprises (SMEs), particularly in developingcountries, are the backbone of the nations economy. They constitute the bulk of theindustrial base and also contribute significantly to their exports as well as to theirGross Domestic Product (GDP) or Gross National Product (GNP).INDIAS SME SCENARIO: India has nearly three million SMEs, which account for almost 50 percent ofindustrial output and 42 percent of India’s total exports. A special role for SMEs was earmarked in the Indian economy with theadvent of planned economy from 1951 and the subsequent industrial policy followedby government. By and large, SMEs developed in a manner, which made it possiblefor them to achieve the objectives of:1. High contribution to domestic production2. Significant export earnings3. Low investment requirements4. Operational flexibility5. Low intensive imports6. Capacity to develop appropriate indigenous technology7. Import substitution8. Technology-oriented industries9. Competitiveness in domestic and export markets However, as a result of globalization and liberalization, coupled with WTOregime, SMEs have been passing through a transitional period. With enhanced 10 | P a g e
  • 11. “ROLE OF BANK IN DEVELOPMENT OF SMALL & MEDIUM SCALE ENTERPRISE” – Catch them young, watch them grow...competition from China and a few low cost centers of production from abroad manyunits have of late been facing a tough time. However, those SMEs who had a strong technological base, internationalbusiness outlook, competitive spirit and willingness to restructure themselveswithstood the current challenges and came out successful to make their owncontribution to the Indian economy. It is the most important employment-generating sector and is an effectivetool for promotion of balanced regional development. These account for 50 percentof private sector employment and 30 to 40 percent of value-addition inmanufacturing. It produces a diverse range of products (about 8000 odd items),including consumer items, capital and intermediate goods. However, the SMEs in India, which constitute more than 80 percent of thetotal number of industrial enterprises and form the backbone of industrialdevelopment, are as yet, in technological backwaters vis-á-vis advances in scienceand technology. These suffer from problems of suboptimal scales of operations andtechnological obsolescence. While most of the large companies, even in developing countries, havefinancial as well as technical capacity to identify technological sources and evaluatealternate technologies that would suit their requirements, unfortunately, this capacityis conspicuously missing in most SMEs. It is these features of SMEs that make them an ideal target for technologicalup gradation through technological cooperation with foreign and local enterprises,with R&D institutions and centre’s of technology development. 11 | P a g e
  • 12. “ROLE OF BANK IN DEVELOPMENT OF SMALL & MEDIUM SCALE ENTERPRISE” – Catch them young, watch them grow... So, what these SMEs need today is primarily access to new technology.Poor financial situations and low levels of R&D, poor adaptability to changing tradetrends, non-availability of technically trained human resources, lack of managementskills, and lack of access to technological information and consultancyservices and isolation from technology hubs, etc. are some of the reasons why theseSMEs are not being able to surge ahead. Small and Medium enterprises are the backbone of Indias economy. Theyhave to now work hard to get out of this impending scenario. There has to be a majorchange in policy on how they are operating. SMEs have to put in more effort onresearch and development (R&D) and on ways to use technology at par with theinternational standards.PROMBLES FACED BY SME SECTOR: Indian governments have proclaimed many policies and also implementedseveral initiatives and programs. Most of the policies before the 1990s were aimed atprotecting the small sector rather than making it competitive. Some of the majorissues that these policies did not address are as follows: 12 | P a g e
  • 13. “ROLE OF BANK IN DEVELOPMENT OF SMALL & MEDIUM SCALE ENTERPRISE” – Catch them young, watch them grow... Problems in obtaining credit One of the serious problems affecting thesmall scale sector is the hardship of obtaining credits from the banking sector.Although this has been a problem for past several years and though the issue hasbeen mentioned in budget speeches by government, none of the policies seem tosolve it. Many entrepreneurs who had been drawn into industrial activities hoping toreceive financial assistance have subsequently found that working capital is notforthcoming. The internal financial resources of the SSIs are held to be so small thathave no surplus money in times of business strain. This along with the situation ofunstable profits prevents the banks from issuing them unsecured loans. As a result,many of these SSIs are still dependent for funds on money-lenders who charge highinterest rates. And those who have tried to obtain loans from the various financialinstitutions have only faced corruption associated with grant of loans and long delaysin delivery. In a 1996 survey of small entrepreneurs by the Confederation of the IndianIndustry (CII), a large proportion of the respondents attributed their problems todelayed payments, high cost of borrowing and inadequate credit.Sickness in the SSIs As of September 1992, about 233 thousand small-scale unitswere sick. Many of the sick units ultimately close down due to finance and marketingproblems. Poor management has also been identified as a major cause of sickness.Therefore a need exists to continuously provide help in terms of training for thesmall enterprises to manage themselves. The recent policies and programs providingmanagement training by the SIDBI is hopefully a step towards solving this problem. Negative impacts of reservation policy The previous and current small-scale industries policies have followed the policy of reserving certain items to bemanufactured only by the SSIs. Many of the items that are reserved are in the 13 | P a g e
  • 14. “ROLE OF BANK IN DEVELOPMENT OF SMALL & MEDIUM SCALE ENTERPRISE” – Catch them young, watch them grow...mechanical engineering, chemical products and auto-ancillary industry groups.Though the policy was mainly aimed at protecting the small firms from competitionfrom the large firms, the lack of any licensing to identify SSIs has resulted in theentry by large firms into those areas. There is no enforceable penalty for moving intoreserved areas. It is also held by many authors that the policy is actuallycounterproductive as those producing non-reserved items have performed better thanthose in reserved areas. Hence the reservation policy tends to become largeredundant. The Equity policy The New Small Industry Policy allows the large firms tohave equity in SSIs. This policy is contended to be a bad one as it only encouragesthe small units to continue to act as dependent on the large firm. A fear that the largefirms might at a later stage takeover the small units is also expressed by someindustry experts. Apart from the abovementioned critical issues, there are several otherissues such as non-classification of a separate medium enterprise under the Indianindustrial sector, regional imbalances in the concentration of small scale industriesand survey data showing that government institutions were the ``least importantsources of technological information. More information on these issues could not beobtained. Another concern is the lack of coordination between the various supportorganizations set up by the government. It would also be interesting to know if anyevaluation systems are in place for these institutes and their programs. Informationon this aspect could not be gathered. An article by Ira Gang mentions that policies intended to support the smallindustry such the reservation, financial incentives, etc. are ``neither promoting 14 | P a g e
  • 15. “ROLE OF BANK IN DEVELOPMENT OF SMALL & MEDIUM SCALE ENTERPRISE” – Catch them young, watch them grow...employment nor improving the competitive base of small firms. Rather, they areworking as strong disincentives for growth of small firms. Though all the previous efforts at helping the SSIs to grow and modernizeseem to have had very little effect, the recent modernization efforts such as thesetting up of the Technology Development Board, the Technology Development andModernization Fund, greater emphasis on providing management skills and inobtaining ISO 9000 certification seem more focused and promising. Since these havevery new, no specific conclusions as to their success or impact can be drawn at thistime. Hopefully, some systematic methods to ensure that SSIs are actually receivingbenefits and necessary assistance will be put in place.FINANCING OF SSI: `Government has recognized the important role of entrepreneurs in theindustrial development of the economy, especially through the small-scale industries(SSIs). SSI is essential for Indian economy in terms of employment generation,foreign exchange earnings, and its share in industrial output, and contribution tonational income. The government of India and state governments provides a numberof special facilities and incentives. 15 | P a g e
  • 16. “ROLE OF BANK IN DEVELOPMENT OF SMALL & MEDIUM SCALE ENTERPRISE” – Catch them young, watch them grow... The incentives not only motivate entrepreneurs to set up industries in thesmall scale sector, but also strengthen the entrepreneur’s base in the economy. Of allthe elements that go into a business, credit is the perhaps the most crucial. The bestplans can come to naught if adequate finance is not available at right time. SSIs needcredit support not only for running the enterprise & operational requirements but alsofor diversification, modernization / up gradation of facilities, capacity expansion etc.In respect of SSIs, the problem of credit becomes all the more critical whenever anyepisodic event occurs such as a large order, rejection of consignment, inordinatedelay in payment etc. In general, SSIs operate on tight budgets, often financedthrough owner’s own contribution, loans from friends and relatives and some bankcredit. Government of India recognized the need for a focused credit policy for SSIin the early days of promotion of SSIs and RBI has been instrumental in devising amulti-stage approach / financial system for credit dispensation to different sectors ofthe economy, for example, agriculture, industry, exports, SSIs etc. This sectionfocuses on the role of SIDBI, SFCs and commercial banks in granting credit to smallscale and tiny sector.ROLE OF BANKS IN DEVELOPMENT OF SME’s: Many of the banks in India is providing loan to SME Sector. Such asSIDBI, PNB, SBI, etc. Maharashtra Small Scale Industries DevelopmentCorporation was established in 1962.The basic objective was to help the small scaleIndustries to develop and grow to the fullest extent enabling them to play their roletowards realization of the national objective of accelerating the place of IndustrialDevelopment, generation of employment and income. 16 | P a g e
  • 17. “ROLE OF BANK IN DEVELOPMENT OF SMALL & MEDIUM SCALE ENTERPRISE” – Catch them young, watch them grow... The main objective of assisting Small and Medium scale industries (SME)Units in the State. The Company failed to achieve fully its main objective of assistingSSI units, as there was continuous decline in number of SSI units assisted during1997-2002.(i) Aid, counsel, assist, finance, protect and promote the interests of SSI to enablethem to develop and improve their methods of manufacture, management, marketingand techniques of production.(ii) Enter into contracts for fabrication, manufacture, assembly and supply of goods,materials, articles and equipment and to arrange for the performance of suchcontracts by sub-contracting with small scale units.(iii) effect co-ordination between large industries with a view to procure orders forSSI and to enable them to manufacture parts, accessories, ancillaries, componentsand other articles required by large industries. Pursuant to its objectives, theCompany undertook the following major Activitiesa) Procurement and distribution of raw materialsb) Assistance in marketing of productsc) Commercial warehousingd) Assistance in import of raw materials and export of productse) Running of emporia for handicrafts and production centre.Recent modernization scenario: In spite of the existence of all the aforementioned organizations to help thedevelopment of the SSI, an increasing spread of sickness is reported in the sector. 17 | P a g e
  • 18. “ROLE OF BANK IN DEVELOPMENT OF SMALL & MEDIUM SCALE ENTERPRISE” – Catch them young, watch them grow...Acknowledging this fact, the DCSSI set up a working group in 1985 to makerecommendations for a suitable action. The suggestions made by this group includedthe following: • Establish a well-equipped design and technology development cell in the office of the DCSSI to coordinate programs of modernization in the small small-scale sector. • Special cells called ``Product-cum-Process Development Centers will be necessary for undertaking research, locating sources of modern technology, identifying suitable technology for transfer and help the small-scale industries in obtaining inputs. • Liberal imports of technology and equipment should be allowed to modernize the small-scale sector. • Incentives should be provided to enterprises with modern technologies to transfer them to the SSIs. In August 1991, the GoI announced its new policy towards the small scalesector. The government announced that a Technology Development Cell would beset up in the Small Industries Development Organization (SIDO). This Cell wouldprovide technology inputs ``to improve productivity and competitiveness of theproducts of the small scale sector. The Technology Development Cell wouldcoordinate with other industrial research and development organizations to achieveits objectives. Information on whether such a Cell had been set up was not available. Under its scheme of direct assistance, the SIDBI had launched theTechnology Development and Modernization Fund. The main objective of this fundis ``to encourage existing industrial units in the small scale sector to modernize their 18 | P a g e
  • 19. “ROLE OF BANK IN DEVELOPMENT OF SMALL & MEDIUM SCALE ENTERPRISE” – Catch them young, watch them grow...production facilities and adopt improved and updated technology so as to strengthentheir export capabilities. Through this fund, its helps the SSIs meet the costs ofpurchasing capital equipment, acquisition of land, expenditure incurred in obtainingISO 9000 series certification and also the costs for improvements in packaging. TheSSIs have to meet some criteria before they can apply for financial assistance underthis scheme, for e.g. units must be in operation for at least three years. It is alsoworking towards prospects of marketing the products of SSIs in the internal andinternational markets. One of Development and Support Services extended by the SIDBI is theEnterprise Strengthening service. Under this service, there are specific programsincluding technology transfer, technology up gradation in indentified industryclusters and management development. In the 1996-97 Union Budget, the government announced the setting up ofa Technology Development Board and this has been instituted under the Departmentof Science and Technology. During the presentation of the budget, the UnionMinister for Finance proposed that the unutilized corpus of $1.75 billion under theTechnology Development and Modernization Fund Scheme of the SIDBI should beprovided to the State Financial Corporations and commercial banks. These bankswill in turn be able to make it available for the SSIs for modernization projects. In addition, the SIDO and SISIs have introduced a program for promotingtechnological modernization of the SSIs. Under this initiative, the small productionunits are provided information, advice and training. Reports are distributed amongthem for spreading modernization information. The SSIs can register for theseprograms for a fee. As of March 1986, there were 570 enterprises registered under 19 | P a g e
  • 20. “ROLE OF BANK IN DEVELOPMENT OF SMALL & MEDIUM SCALE ENTERPRISE” – Catch them young, watch them grow...the modernization scheme of the SIDO. However only 24 of these have beenprovided with modernization guides. A recent change in the small-scale industrial policy allows the large firmsto hold up to 26 percent of equity in small enterprises without the requirement ofconsolidation of accounts. This is considered as a good way to induce the transfer oftechnology and skills from large industrial units to SSIs. Industry experts arehowever skeptical about this. Most large units use the small-scale sector as sub-contractors. Doubts have been expressed whether these large units would allow fortransfers of technology to SSIs and enable them to grow and become independentunits in their own right.POSITIVE IMPACT OF SME: The importance and potential contribution of the SME sector are supportedby both theoretical and empirical arguments and evidence. We turn first to theformer. Part of the contribution of the SME sector both to the overall total factorproductivity (efficiency, as usually defined) of an economy and to employmentgeneration and distributional equality comes by virtue of its pattern of technologychoice. SME technology tends to be intermediate between the highly labour intensivetechnologies of micro enterprise, which as a result achieve only low average labour 20 | P a g e
  • 21. “ROLE OF BANK IN DEVELOPMENT OF SMALL & MEDIUM SCALE ENTERPRISE” – Catch them young, watch them grow...productivity, and the highly capital intensive technologies of large firms whichthereby achieve high labour productivity, but use more capital per worker than isavailable for the economy as a whole. A larger SME sector is best thought of as thealternative to a highly dualistic economy with most of the capital in the large scalesector and most of the workers in the very small-scale sector. An economy which isdominated by SMEs, as Taiwan’s has been, can generate a low level of inequality inthe distribution of primary income (before tax and transfer) whereas the dualisticeconomy characterized by the combination of much large enterprise and much microenterprise typically generates a high level of primary inequality. Its intermediate technology characteristic is what gives the SME sector aspecial role (together with small-scale agriculture) in the generation of adequate ordecent employment. When most jobs are in the micro enterprise sector, too many ofthem are destined to be low productivity and hence low income in character. SMEfirms can be substantially more productive, so in terms of the potential to generate“decent” jobs this sector competes with large private firms and the government, but ithas the advantage of being able to generate many more such jobs for a modest inputof capital. The key mechanism in generating decent employment in most developingcountries involves the expansion of this sector fast enough to absorb peoplepreviously unemployed (a few) or engaged in low productivity informal sector jobs(the bulk). Developing countries without substantial SME sectors (hence oftendescribed as having a “missing middle” in their firm size structure) tend not only tohave capital and the income from it concentrated in the larger firms but also to have a“labour elite” in that sector, able to bargain for wages much higher than elsewhere inthe economy. With the economy’s capital stock almost completely used up by the 21 | P a g e
  • 22. “ROLE OF BANK IN DEVELOPMENT OF SMALL & MEDIUM SCALE ENTERPRISE” – Catch them young, watch them grow...large firms (usually a result of capital market imperfections), there is little remainingcapital to be distributed among the many workers not hired by large firms; thisproduces a large micro enterprise sector with the SME sector squeezed out for lack ofcapital. The equilibrium wage in the micro enterprise sector is very low and capitalincomes are low there as well. In short, income is very unequally distributed. Whenthe SME sector is large, these extremes in the distribution of both capital income andlabour income are avoided. Apart from being the sector to which one would like to see a high share ofresources allocated at a given point of time, for the above reasons, the SME sectoralso plays a key dynamic role in generating growth, especially pro-poor growth.Nearly all developing economies have large micro enterprise sectors that, like theSME sector itself, are highly heterogeneous in many respects--the goods or servicesproduced the entrepreneurial capacity of the owner, and the potential for growth, etc.Many are survivalist in character but others have dynamic potential. In mostcountries for which such data are available it appears that most small firms (of say6-25 workers) began their lives as microenterprises and then grew SIDBI 22 | P a g e
  • 23. “ROLE OF BANK IN DEVELOPMENT OF SMALL & MEDIUM SCALE ENTERPRISE” – Catch them young, watch them grow... 23 | P a g e
  • 24. “ROLE OF BANK IN DEVELOPMENT OF SMALL & MEDIUM SCALE ENTERPRISE” – Catch them young, watch them grow... VARIOUS BANKS POLICIES IN RESPECT OF SME SECTOR SIDBIDirect Finance:Objective SIDBI had been providing refinance to State Level Finance Corporations /State Industrial Development Corporations / Banks etc., against their loans granted tosmall scale units. Since the formation of SIDBI in April, 1990 a need was felt/ representationswere made that SIDBI being the principal financial institution for the small sector,should take up the financing of SSI projects directly on a selective basis. So it was decided to introduce direct assistance schemes to supplement theother available channels of credit flow to the small industries sector. Since then, SIDBIhas evolved itself into a supplier of a range of products and services to the Small &Medium Enterprises [SME] sector.1.Direct Credit Schemes 24 | P a g e
  • 25. “ROLE OF BANK IN DEVELOPMENT OF SMALL & MEDIUM SCALE ENTERPRISE” – Catch them young, watch them grow... • SSIs • Medium Sector Enterprises (MSE) and • Service sector units with project cost • Service sector units with Upto Rs.25 crore project cost above Rs.25 crore and Upto Rs.250 crore. Eligible I] New or existing SSI units. i] New or existing medium sector Borrowers ii] SSI unit graduating to enterprises, and medium scale, and ii] Service sector units with an overall iii] Service sector units with project cost above Rs.25 crore and an overall project cost not Upto Rs.250 crore with Banks exceeding Rs.25 crore. assistance not exceeding Rs. 50 crore. Constitution The unit should generally be The unit should generally be a private a private limited / public limited / public limited company limited company. However, partnership firms, sole proprietorship concerns and Societies and Trusts would also be considered on a case to case basis. Nature of Term loan and other forms of Term loan and other forms of assistance assistance such as Working assistance such as Working Capital Capital Term Loan and bills Term Loan, suppliers & purchasers discounting (on selective bills discounting. Investment products basis). such as debentures, optionally convertible cumulative preference shares, zero coupon bonds, etc. 25 | P a g e
  • 26. “ROLE OF BANK IN DEVELOPMENT OF SMALL & MEDIUM SCALE ENTERPRISE” – Catch them young, watch them grow... 26 | P a g e
  • 27. “ROLE OF BANK IN DEVELOPMENT OF SMALL & MEDIUM SCALE ENTERPRISE” – Catch them young, watch them grow...2.Technology Up gradation Fund Scheme for Textile Industries (TUFS) 27 | P a g e
  • 28. “ROLE OF BANK IN DEVELOPMENT OF SMALL & MEDIUM SCALE ENTERPRISE” – Catch them young, watch them grow...Note: At present this scheme is suspended until further instructions from Govt. ofIndia. Purpose The Scheme is operated by the Ministry of Textiles, Govt. of India. Policy guidelines are issued by the office of Textile Commissioner, Govt. of India. TUFS has been launched with a view to sustaining as well as improving the competitiveness and overall long term viability of the textile sector. The scheme intends to provide timely and adequate capital at internationally comparable rates of interest in order to upgrade the textile industrys technology level. Special Features SIDBI is the nodal agency for SSI textile sector and cotton ginning and pressing sector. For SSIs: The borrowers can avail of any one of the following benefits: 5% interest reimbursement on the interest actually charged in respect of rupee loan or coverage of exchange rate fluctuation not exceeding 5% p.a. from the base rate or cost of forward cover premium Upto 5% p.a. on the base rate of exchange in respect of foreign currency OR 15% Credit Linked Capital Subsidy on eligible investment made for modernization, for Small Scale Textile and Jute Industries in respect of Rupee Loans; The units are permitted to make new investment eligible under TUFS Upto Rs. One crore or till the unit reaches SSI limit, whichever is higher. OR 28 | P a g e
  • 29. “ROLE OF BANK IN DEVELOPMENT OF SMALL & MEDIUM SCALE ENTERPRISE” – Catch them young, watch them grow...3.Scheme for Development of Industrial Infrastructure for SSI Sector (DII) 29 | P a g e
  • 30. “ROLE OF BANK IN DEVELOPMENT OF SMALL & MEDIUM SCALE ENTERPRISE” – Catch them young, watch them grow... Purpose Setting up of industrial estates / development of industrial areas including such projects found eligible under KVIC model. Strengthening of existing industrial clusters / estates by providing increased amenities for smooth working of the industrial units. Setting up of warehousing facilities for SSI products / units. Providing support services viz., common utility centre’s such as convention halls, trade centre’s, raw material depots, warehousing, tool rooms / testing centre’s, housing for industrial workers, etc. Any other infrastructural facilities which will benefit predominantly SSI units / entrepreneurs. Eligible All forms of organizations such as Public / Pvt. Ltd. Companies; Borrowers Registered Societies / Trusts; Government Corporations; Corporate / Co-operative entities / accredited NGOs approved by KVIC. Norms Cost of Project: Not to exceed Rs.100 million. Debt Equity Ratio: Not more than 3:1 Repayment Period - Not exceeding 10 years including initial moratorium period of Upto 3 years.4.Integrated Infrastructural Development (IID) 30 | P a g e
  • 31. “ROLE OF BANK IN DEVELOPMENT OF SMALL & MEDIUM SCALE ENTERPRISE” – Catch them young, watch them grow... Purpose For setting up of IID centre’s with facilities like water supply, power, telecommunication, common services centre including for technological back up services for small scale industries in rural backward areas as envisaged under the policy for promoting and strengthening small, tiny village enterprises announced by Govt. of India (GOI) on August 6, 1991. The cost of improving / upgrading the deficient infrastructural facilities to increase the productivity and optimum utilization of the existing centre’s / clusters in backward / rural areas may also be covered under the scheme. Eligible Implementing agencies (a public sector corporation or a corporate body Borrowers or a good NGO having sound financial position) entrusted with the task of implementing the scheme by the concerned State / Union Territory (UT) Govt.5.Credit Linked Capital Subsidy Scheme (CLCSS) 31 | P a g e
  • 32. “ROLE OF BANK IN DEVELOPMENT OF SMALL & MEDIUM SCALE ENTERPRISE” – Catch them young, watch them grow...Note: At present this scheme is suspended until further instructions from Govt. ofIndia. Purpose The Scheme is operated by the Ministry of SSI, Govt. of India. Policy guidelines are issued by the office of DC (SSI), Govt. of India. The objective of the scheme is to facilitate technology up gradation of tiny and SSI units in the specified products / sub-sectors as indicated below by providing 15% capital subsidy for induction of proven technologies approved under the scheme in 45 products/sub-sectors viz., leather and leather products including footwear and garments; food processing( including Ice-cream manufacturing);Information and Technology (Hardware);drugs and pharmaceuticals; auto parts and components; electronic industry particularly relating to design and measuring; glass and ceramic items including tiles; dyes and intermediaries; toys; tyres; hand tools; bicycle parts; foundries - ferrous and cast iron; and stone industry(including Marble Mining Industry). Cap on amount of subsidy : 15% of the cost of eligible Plant & machinery or Rs. 15 lac whichever is less. Ceiling on the Loan amount : Rs. 100 lakh Eligible a) Existing SSI units registered with the State Directorate of Industries Borrowers which upgrade with the state-of-the-art technology, with or without Eligible expansion. Primary b) New SSI units which are registered with the State Directorate of lending Industries and which set up their facilities only with the appropriate institutions eligible and proven technology duly approved by the GTAB. 32 | P a g e Scheduled commercial banks and National Small Industries
  • 33. “ROLE OF BANK IN DEVELOPMENT OF SMALL & MEDIUM SCALE ENTERPRISE” – Catch them young, watch them grow... 7.SME-IT Loan Schemes SIDBI for Business Enterprises Introducing an easy-to-get, easy-to-pay finance bundle from SIDBI specially for SMEs to computerise their business. SIDBI and Intel have come together with a first-of-its kind initiative to help SMEs set-up or step-up IT in their business. While Intel will deliver a range of world class IT products and solutions, SIDBI will provide the financial assistance for SMEs to buy them. Called SMEITLOANS, it provides an easy access for SMEs to get both the finance and the technology to adopt IT, especially since the loan is available for hardware, software, installations and services. 33 | P a g e
  • 34. “ROLE OF BANK IN DEVELOPMENT OF SMALL & MEDIUM SCALE ENTERPRISE” – Catch them young, watch them grow... 8. Bills Finance Schemes: Objective Bills Finance Scheme involves provision of medium and short-term finance for the benefit of the small-scale sector. Bills Finance seeks to provide finance, to manufacturers of indigenous machinery, capital equipment, components sub-assemblies etc, based on compliance to the various eligibility criteria, norms etc as applicable to the respective schemes. To be eligible under the various bills schemes, one of the parties to the transactions to the scheme has to be an industrial unit in the small-scale sector within the meaning of Section 2(h) of the SIDBI Act, 1989. The various sub schemes that have been introduced are as listed on the menu, on the left. 9.Receivable Finance Scheme Purpose To enable SSI / SME / Eligible Service sector units (including construction / small road transport operators) selling components, parts, sub-assemblies, services, etc. to Medium & Large scale units realise their sale proceeds quickly. Eligible Limits are sanctioned by SIDBI to well established industrial Borrowers units using components / parts / sub-assemblies / accessories / services manufactured / provided by by SSI / SME / Eligible Service sector units. Either seller or Purchaser need34 |qualify as to P a g e
  • 35. “ROLE OF BANK IN DEVELOPMENT OF SMALL & MEDIUM SCALE ENTERPRISE” – Catch them young, watch them grow...Small & Medium Enterprises: (SMEs) play a major role in global economic growth in terms of theircontribution to industrial employment, output and exports. SMEs occupy a place ofstrategic importance in the Indian economy as well. However, since the early 1990s,Indian SMEs have been exposed to intense competition due to the accelerated 35 | P a g e
  • 36. “ROLE OF BANK IN DEVELOPMENT OF SMALL & MEDIUM SCALE ENTERPRISE” – Catch them young, watch them grow...process of globalization. Therefore, the survival as well as growth of SMEs is understrain. However, globalization has also brought, in its wake, newer opportunities forSMEs.Importance of SMEs to Indian economy: SMEs are officially defined and exclusively identified for promotion in themanufacturing sector of most national economies. The most important justificationfor the exclusive promotion of SMEs is their potential for employment intensity. Ingeneral, a SME generates more jobs per unit of capital investment than a largeenterprise. A SME has much other benefit: it can be started with relatively lesscapital; it facilitates nurturing of entrepreneurship, which could emerge from within;it can be used as an instrument for alleviating regional disparities in development etc.Further, a SME is flexible in production, has the potential to be a training ground formanagerial skills, promotes individual initiatives, and encourages rich personalrelations. Therefore, it is often promoted as a source of technological innovations inindustrialized economies. However, there is no uniform definition of a SME in theglobal economy. Different countries have defined SMEs in different ways. In Japan,a SME in the manufacturing sector is defined in terms of upper limit of paid-upcapital of 300 million Yen or 300 employees (Small & Medium Enterprise Agency,2004). In South Korea, SMEs are defined as firms, which are independently ownedand employ less than 300 persons in the manufacturing, mining, transportation andconstruction sectors (Back, 2002). In the European Union, SMEs are defined in termsof employment and turnover/balance sheet total (Table 1). To be classified as a SME,an enterprise must satisfy the criteria for the number of employees and one of the twofinancial criteria, that is, either the turnover total or the balance sheet total. Inaddition, it must be independent. There is no official definition of a SME in India. 36 | P a g e
  • 37. “ROLE OF BANK IN DEVELOPMENT OF SMALL & MEDIUM SCALE ENTERPRISE” – Catch them young, watch them grow...Future Importance of SMEs? What do present trends in the world and in developing countries suggest aboutthe future role of SMEs? There are several reasons to think that this role will notwane in most developing countries, at least in the short and medium term. Theseinclude: 1i) The end, at least in some parts of the world, of the observed upward trend in the share of employment found in large private firms plus the government in those countries achieving healthy GDP growth; (such increase has rarely occurred in 37 | P a g e
  • 38. “ROLE OF BANK IN DEVELOPMENT OF SMALL & MEDIUM SCALE ENTERPRISE” – Catch them young, watch them grow... slow growing countries). For reasons still in need of further research, it appears that this gradual increase, once thought of as a stylized aspect of the development process and a process by which the employment structure of developing countries would gradually approach that of developed ones, may no longer be present. When this is the case, we know that the share of employment found either in the informal or the SME sector is not falling, so unless the SME employment share is rising, that of the informal sector cannot be falling, though that decline is an important goal if employment quality is to rise in a country. To illustrate the problem, in Latin America, even after the return to modest growth in the 1990s, the informal sector’s share of employment had not fallen as of about 2003, nor that of the large scale sector risen. Probably the reasons for the levelling off or decline of the large firm employment share include the near worldwide trend towards more flexible labour contracts and towards subcontracting out of some auxiliary functions previously carried out within the large firm. The falling role of manufacturing employment probably also plays a role since the large firms account for a higher share of manufacturing employment than that in most other sectors of the economy. Globalization may be playing a role by inducing increases in labour productivity in large firms operating in international markets or having access to very low cost capital in the international market; that increase in labour productivity accounts for the cases in which this sector’s output has grown at a good clip but employment has stagnated or fallen. Chilean manufacturing was a notable case of this during its 1990s boom as has been the non-maquiladora part of Mexican manufacturing. 1ii) The information revolution may increase the relative competitiveness of smaller firms. Informational monopolies often underpin large size and monopoly. 38 | P a g e
  • 39. “ROLE OF BANK IN DEVELOPMENT OF SMALL & MEDIUM SCALE ENTERPRISE” – Catch them young, watch them grow... Some, of course, are based on patents. We know that the accoutrements of information technology have diffused first among larger, more sophisticated firms, then among SMEs. What we cannot yet judge is how this revolution will have affected relative competitive positions after the dust has settled and the diffusion is more nearly complete. 1iii) More generally, it may be that small firms will play a larger role in technological advance in the context of the information revolution and the rising role of services than was earlier the case under the dominance of manufacturing. 1iv) Most developing countries have achieved large increases in the share of the population completing primary education and in the share with a considerable amount of secondary as well. This, together with the large microenterprise sectors that server as a training ground in business management for some of those located there, suggests a widening of the pool of entrepreneurial talent. Healthy SME sectors require such a pool (for which Taiwan, for example, has always been noted). 39 | P a g e
  • 40. “ROLE OF BANK IN DEVELOPMENT OF SMALL & MEDIUM SCALE ENTERPRISE” – Catch them young, watch them grow...Conclusion Thus I would conclude that banks are playing major role in development ofsmall and medium scale Enterprise. Thus various benefits are arising from financingof SME. From the view point of the national economy, the benefits arising fromhigher order focus of SME financing may be classify as : Increasing the contributionof the SME sector in the GDP of the country, Entrepreneurial interest would beencouraged and growth in the number of SME may be possible. New product ,services would be increasingly available for consumer. Competitiveness in businesswill increase. The government of India has taken many measure for growth anddevelopment of the SME sector. Globalization has been affecting every economic activity in almost everycountry across the world. Indian SMEs are no exception. The performance of SMEs 40 | P a g e
  • 41. “ROLE OF BANK IN DEVELOPMENT OF SMALL & MEDIUM SCALE ENTERPRISE” – Catch them young, watch them grow...has a determining significance for Indian economic growth due to their substantialshare of enterprises, employment, production and gross value added in the industrialsector. However, in general, Indian SMEs lack technological strength to access andexploit the benefits emerging from the intensifying process of globalization.Therefore, technological transformation of SMEs should attract the focus ofattention of policymakers. In addition, FDI and TNC entry should be used topromote inter-firm linkages for the benefit of SMEs. They need to be “consciouslyguided” to enter the ever expanding global value chains of TNCs, both in themanufacturing and retail sectors. Further, technological innovation and orientation ofSMEs should be promoted and information access be made easy. On the whole,SMEs should be enabled to achieve self-sustainable competitiveness and reap thefruits of globalization for their own growth and the growth of the Indian. SIDBI has also floated several other entities foe related activities. Creditguarantee fund trust for micro and small enterprise provides guarantee to banks forcollateral free loan extended to SME. SME rating agency of India Ltd (SMERA)provides composite rating to SME. 41 | P a g e
  • 42. “ROLE OF BANK IN DEVELOPMENT OF SMALL & MEDIUM SCALE ENTERPRISE” – Catch them young, watch them grow... 42 | P a g e
  • 43. “ROLE OF BANK IN DEVELOPMENT OF SMALL & MEDIUM SCALE ENTERPRISE” – Catch them young, watch them grow... 43 | P a g e
  • 44. “ROLE OF BANK IN DEVELOPMENT OF SMALL & MEDIUM SCALE ENTERPRISE” – Catch them young, watch them grow... 44 | P a g e
  • 45. “ROLE OF BANK IN DEVELOPMENT OF SMALL & MEDIUM SCALE ENTERPRISE” – Catch them young, watch them grow... 45 | P a g e
  • 46. “ROLE OF BANK IN DEVELOPMENT OF SMALL & MEDIUM SCALE ENTERPRISE” – Catch them young, watch them grow... STATE BANK OF INDIA 46 | P a g e
  • 47. “ROLE OF BANK IN DEVELOPMENT OF SMALL & MEDIUM SCALE ENTERPRISE” – Catch them young, watch them grow... 47 | P a g e
  • 48. “ROLE OF BANK IN DEVELOPMENT OF SMALL & MEDIUM SCALE ENTERPRISE” – Catch them young, watch them grow... 48 | P a g e
  • 49. “ROLE OF BANK IN DEVELOPMENT OF SMALL & MEDIUM SCALE ENTERPRISE” – Catch them young, watch them grow... Date: 1/10/2010 49 | P a g e
  • 50. “ROLE OF BANK IN DEVELOPMENT OF SMALL & MEDIUM SCALE ENTERPRISE” – Catch them young, watch them grow... To whomsoever it my concern This is to certify that Miss. Foram Navin Dedhia student of N.E.S RatnamCollege of Arts, Science & Commerce, Bhandup (West), Mumbai-78, visited ourBank in relation to project work of Semester V, Third Year, Banking & Insurance,Mumbai University (“ROLE OF BANK IN DEVELOPMENT OF SMALL &MEDIUM SCALE ENTERPRISE” – Catch them young, watch them grow...) We found her very Sincere & dedicated towards her project work. We wishher luck in her future Endeavour. Signature (Chief Manager) R. B. Khare 50 | P a g e

×