SME LENDING Neha Jain Naveen Panchal Malay Srivastava Vishal Patil
• SME play vital role for growth of Indian economy by contributing 45% of industrial output, 40% of exports and employing 60 million people and creating 1.3 million jobs every year and produce 8000 quality products.
IndiaClassification Manufacturing Enterprises Service EnterprisesMicro Upto Rs.25 lakh Upto Rs.10 lakhSmall Above Rs.25 lakh & upto Above Rs.10 lakh & Rs.5 crore upto Rs.2 croreMedium Above Rs.5 crore & upto Above Rs.2 crore & upto Rs.10 crore Rs.5 crore Source : Ministry of Small Scale Industries vide its notification No. S.O. 1722(E) dated October 5, 2006.
Top 5 GDPs of World v/s India Country GDP GDP(In Rs. trillion) SME % Loan Value (Rank) In $ (@ 45.02, GDP as % of GDP trillion 31 March 2010) (2010- 2011) USA(1) 14.582 657.4 51 4.93 China(2) 5.878 265.02 58.5 48.67 Japan(3) 5.497 247.82 - 35.90Germany(4) 3.309 149.206 53.8 - France(5) 2.560 115.410 56 10.64 India(9) 1.729 77.947 8 4.34 (World GDP $ 63.044 trillion )(World Bank, 2010)Source: www.CGAP.org (Independent Evaluation Group)www.data.worldbank.org , European Commision (SBA Fact Sheet)ASSOCHAM, www.gov.cn(China Government Website)
Competitors• Indian Bank Crore Rs(Advances)• SBI 1,10,812• ICICI 71720• PNB 45296• Canara Bank 29958• Bank Of Baroda 27365• Bank Of India 21000• UCO Bank 15727• Central Bank of India 11901
StakeHolders• End User SME(http://rbidocs.rbi.org.in/rdocs/content/PDFs/78396.pdf)• Rating Agency.• Banks.• Promoters• Employee.• Government.• Government Schemes.• Government Bodies like NABARD, PFC.• RBI.• Lobbyist.• NBFC.• Venture capitalist.• IT service providers.
Value Parameters• No. of Branches.• Geographical coverage.• Interest Rate.• Transparency.• Information Confidentiality.• Efficiency in Operation.• Fees and Charges.• Interest.• Services(Funded, Non funded, Value Added Services, Internet Banking).• Collateral/Security.
FRONT END DISTRIBUTION CHANNELS • Relationship managers In-house • Websites • Existing customers Database. • Branches External • Direct Sales Agent ( 1% of lending amount) • Charted Accountants (1-2% of lending agencies amount) • Rating Agencies.
WORKFLOW FOR SME SALES TEAM Advertising Events Industry Outbound Sales Branch Lead (SMS, Internet, association referralsgenera- Inbound Call tele-calling walk-in Centre) tie-ups tion Sales Coordinator Head Sales ... Sales teamProposal Relationship Relationship Managergenera- Activities performed (RM) Officer (RO) tion Contacting customer for preliminary information In-principle check on viability of lending Proposal Given to Compilation of proposal generated local Credit Hub 11
Parameters for Loan considerationIndividual Organization • Integrity • Credit Rating • Intentions • Debt Equity ratio • Educational Background • Balance Sheet • Past Experience in the Sector • Feasibility of the Product • Owners Capital • Lenders experience • Capability to Pay back with the organization • Asset and Mortgages offered
Value parameters from Borrowers Perspective• Interest Rate.• Turn around Time.• Collateral.• Pre sanction amount facility.• Documentation.• Products/Schemes available.• Relationship with Bank.
WORKFLOW FOR SANCTION AND 14 day 12 day DISBURSEMENT PROCESS (1/2) 1 3 6 10 day 8 day 6 day Data entry 4 day File with Request for Credit for credit Receipt of ratios and advocate, valuer 2 daySupport rating and credit proposal and TEV reportsOfficer financial rating (where required) analysis Time meter for cases where TEV is not required Proposal 2 4 7 File with inspection Satisfactory Study of file, pre- Check on report response to sanction visit, Credit complete- customer customer meeting Officer ness of queries, Complete and raising customer File with proposal preparation of proposal queries appraisal appraisal note note Incomplet 5 e proposal In-principle decision to go- Sanc- ahead with tioningAuthority Returned proposal or not, to RM/RO for together with Credit Officer 14 completion
WORKFLOW FOR SANCTION AND DISBURSEMENT PROCESS (2/2) 8 11 12 13 14 Receipt of Issue of final Execution of advocate, Credit sanction letter Preparation and documents in Vetting of valuers andSupport with signature stamping of presence of documents by TEV reportsOfficer from Credit documents Branch Officer/ advocate (where Officer Manager required) File with reports Sanctioned and 9 14 day vetted documents 12 day released for Check on disbursement Credit advocate, 10 day Decided Officer valuers and files 8 day TEV reports 6 day 4 day Disburse File with 2 day -ment by reports Branch 10 Time meter for cases where TEV is not required Final Sanc- sanction by tioning Sanc-tioningAuthority Authority 15
Need Gap• Back end1. Documents are submitted by the client at the front end of the branch and are forwarded to SME factory for due diligence and processing2. CMA data is developed using balance sheet and P&L account and gives the current status and the future projection for 5-6yrs3. Every CA prepares the CMA data in their own format
Consulting Service• Small Business diversification.• Paid Consulting not affordable.• Time and Energy Spend to know the Registrations and other procedures.• Delays in complying with the preconditions can frustrate entrepreneurs.• Bank provide consultancy to help start business in terms of assistance to expedite the startup. This will enhance customer experience.
SME Groups• A single Entity will become guarantor.• Derisking.• Leveraging.• Pressure for Repayment.• Reduced Transaction cost.
Women Entrepreneur• Many Incentives from Government.• Dedicate Cell to track and cater Women Entrepreneur.• Eg: Financing women-owned SMEs (Nigeria) and Women Entrepreneurs’ Package (Turkey)
Interest Rate Deregulation• RBI taking steps towards Interest Rate regulation.• Interest Rate war will set in.• Help SME entrepreneurs.