In terms of ownership, commercial banks can be further grouped into nationalized banks, the State Bank of India and its group banks, regional rural banks and private sector banks (the old/ new domestic and foreign).
NSIC=National Small Industries CorporationSSIC=state small industries corporationSIDC = State Industrial development corporation
Managementrisk:The risks associated with ineffective, destructive or underperforming management, which hurts shareholders and the company or fund being managed. This term refers to the risk of the situation in which the company and shareholders would have been better off without the choices made by managementFinancialrisk:The possibility that shareholders will lose money when they invest in a company that has debt, if the company's cash flow proves inadequate to meet its financial obligations. When a company uses debt financing, its creditors will be repaid before its shareholders if the company becomes insolvent.Businessrisk:The possibility that a company will have lower than anticipated profits, or that it will experience a loss rather than a profit. Business risk is influenced by numerous factors, including sales volume, per-unit price, input costs, competition, overall economic climate and government regulations. A company with a higher business risk should choose a capital structure that has a lower debt ratio to ensure that it can meet its financial obligations at all times.Industryrisk:is the chance that a specific industry will perform poorly. When problems plague one industry, they affect the individual businesses involved as well as the securities issued by those businesses. They may also cross over into other industries.
A study on financingMicro,Small,and MediumEnterprises with reference to
Agenda• Industry profile• Company profile• Vision and mission• Products and services• Organizational chart• Functional areas• Importance of the study• Objective of the study• Definitions• Problems• SMERA
• Policies and products• Credit frame work• Rating models• Rating process• Rating design• Rejection of proposal• Rate of Interest• CGMSE• Research design• Data analysis• Conclusion
Executive Summary• The study covers the different products of Syndicate bank for MSMEs, different policies undertaken to finance the MSMEs. The study also highlights one of the most important scheme of the Ministry of MSME i.e. Credit Guarantee scheme for Micro and Small Scale Enterprise (CGMSE). The main objective of this study is to know the different schemes of the banks to finance the MSMEs, to know the effectiveness of the bank in this area and to suggest the promotional steps to popularize their products.
Industry ProfileBanking Regulation Act of India, 1949Broadly classified into two major categoriesScheduled banks and non- scheduled banksScheduled banks can be divided into cooperative banks and commercial banks
• State Bank of India and its associates,Commercial • Nationalized Banks, banks can • Regional Rural Banks, be divided • Foreign Banks and • Other Indian Scheduled into Commercial Banks (in the private sector).
The Evolution of Tech Banking in India 1981: Bank automation starts 1985: Bank of India sets up India‟s first computerized bank branch in Mahalakshmi,Mumbai 1986: Magnetic Ink character Recognition (MICR) cheques introduced ,215 years after Bank of Hindoostan introduced the first cheque in the country 1987: Hongkong Bank (now HSBC)sets up first ATM ,in Mumbai 1995: Launch of electronic clearing service ,aka ECS ,and electronic funds transfer systems 2004: Standard Chartered Bank puts through the first real – time gross settlement deal in the country. Ticket size :Rs.10 crore .Client : Hindustan Lever(HUL)
2008: Cheque truncation, national electronic funds transfer take off 2008: Speed clearing of cheques, mobile banking goes on stream. Use of satellites to increase banking penetration mooted2008: ICICI Bank launches immobile banking application 2009: HSBC launches an integrated E-card for farmers supply chain 2010: Business correspondents start to use „handheld ATMs‟ to dispense cash as part of financial inclusion 2010: Punjab National Bank sets up biometric ATM at Ranikhera village near New Delhi
Company ProfileSyndicate Bank was established in 1925 in UdupiBy three visionaries –• Sri Upendra Ananth Pai, a businessman,• Sri Vaman Kudva, an engineer and• Dr.T M A Pai, a physician –Objective• extend financial assistance to the local weavers .• The bank collected as low as 2 annas daily at the doorsteps of the depositors through its Agents under its Pigmy Deposit Scheme started in 1928.• This scheme is the Banks brand equity today and the Bank collects around Rs. 2 crore per day under the scheme.
Vision and missionVision Statement (2011- Mission Statement2021) (2011-2021)• To be a bank of choice of every Indian and a • To achieve consistent preferred Banking partner growth in business globally” • To endeavor for inclusive development and ensure service excellence through effective harnessing of human capital and technology
Products and servicesBanking activities:• Syndicate Bank Global Debit Card• Syndicate Bank Global Credit CardBank assurance :• The bank was providing insurance services in association with Bajaj AllianzDeposit Schemes:• Synd 400 Plus and Synd 500 Plus• Savings Deposit account• Special premium savings account• Fixed deposit scheme
Other services:• Telebanking• Internet banking• Any branch Banking• Synd bill pay• Online collection of direct taxes• Online railway ticket booking• Western union money transfer• Synd Instant (RTGS system for instant transfer of funds)• Electronic funds transfers (EFT) system• Syndicate gift cheques• Insurance cover for deposits
Functional Areas• Accounts• Audit and Inspection• Credit• Human resources• Information technology• Insurance• Recovery• Risk management
Accounts• Maintaining Books of Accounts• Inter Branch Reconciliation• Handling Cash Management Services• Maintain government deposits• Handle tax related matters
Audit and Inspection• Audit and Inspection• Vigilance• Providing Information under the Right to Information Act, 2000(RIA)Credit• Credit and policy formulation• Small and Medium Enterprises (SME)
Human Resources• Training• Industrial Relations• RecruitmentInformation Technology• ATM Network• Internet Banking• SMS Banking• Electronic Payment Settlement through NEFT & RTGS
Insurance• The bank has also entered the insurance sector and has tie-ups with some of the major companies of the insurance world. The bank provides the insurance cover association with Bajaj Allianz Life Insurance• InvestGain• CashGain• ChildGain• RiskCare• TermCare• Life time care
Recovery• Handling DRT cases• Rehabilitation of Sick Units:• Out of court settlements• Synd Adalat• Lok Adalat
Risk Management• Foreign Exchange• Asset and liability management• Gold selling• Fund Investment and Management• Interest Rate Formulation• Managing Overall Credit Rating of the Bank
Importance of the study• The study covers the different products of Syndicate bank for MSMEs,• Different policies undertaken to finance the MSMEs.• Credit Guarantee scheme for Micro and Small Scale Enterprise (CGMSE).
Objective of the study• To know the financing schemes for MSMEs from syndicate bank• To know the problems faced by the enterprises while applying for the loan in the banks• To know the effectiveness of the financing schemes of syndicate bank in this area• To suggest the various promotional strategies to popularize the Schemes of the Syndicate Bank.
Definition of Micro, small andmedium enterprises• A micro enterprise is an enterprise where investment in plant and machinery does not exceed Rs.25 lakh• A small enterprise is an enterprise where the investment in plant and machinery is more than Rs.25 lakh but does not exceed Rs.5Crore,and• A medium enterprise is an enterprise where the investment in plant and machinery is more than 5 Crore but does not exceed Rs.10 Crore.
Enterprises engaged in providing orrendering of services• A micro enterprise is an enterprise where the investment in equipment does not exceed Rs.10 lakhs• A small enterprise is an enterprise where the investment in equipment is more than 10 lakhs does not exceed Rs.2 Crore• A medium enterprise is an enterprise where the investment in equipment is more than Rs.2Crore but does not exceed Rs.5 Crore
Growth rate of Micro Small andMedium Enterprises• Monitored by the Ministry of MSME by conducting the All India Census of the sector, periodically in the country• The number of registered working enterprises increased from 13.75 lakhs to 15.64 lakhs, recording annual compound growth rate of 2.61% during the period from 2001-02 to 2006-2007.
Financing of Small and Medium EnterprisesTypes of financeShort-term Medium term Long termi. Bank credit i. Issue of shares i. Issue of sharesii. Trade credit ii. Issue of debentures ii. Issue of debenturesiii. Installment credit iii. Loans from banks and other iii. Loans from financialiv. Customer advances financial institutions institutions iv. Public deposits(for existing iv. Ploughing back of profits concerns) (for existing concerns) v. Ploughing back of profits (for existing concerns)
Source of finance Source of Finance Fixed Working Capital SFCs NSIC SSICs SIDCs CommercialState Govt Banks Commercial Industrial Indigenous Money Coop.Banks Banks investments Banks lender co op corp.
Steps for Small and MediumEnterprises loans by Public sector Banks
Problems faced by the banks while lending loan to Small and Medium Enterprises• Information Asymmetry• Granularity• Pecking Order Theory• Switching Costs
Small and Medium EnterprisesRating Agency (SMERA)• An independent third party comprehensive assessment of the overall condition of the SME• financial condition and several qualitative factors that have bearing on credit worthiness of the SME• consists of two parts, a composite appraisal /condition indicator and a size indicator• SMERA rating categories SMEs based on size, so as to enable fair evaluation of each SME amongst its peers
Importance of SMERA• comprehensive, transparent and reliable rating process;• have a wider acceptance within the banking system of the country• simplify the process of credit requests and make process more cost effective.
Products to MSME Target Group: Manufacturing, trading and service units, small and medium manufacturing SYND UDYOG concerns,anciallary units who are vendor to larger manufacturer, agro processing units, traders, dealers, distributors of consumer products etc
Purpose: To meet the credit SYND SME requirements of small and Purpose: to medium meet credit entrepreneursSYND requirement of including all types of microVYAPAR traders, service enterprises, providers and traders, small professionals business man , and self self-employed employed /professional.
Purpose: General credit SYNDICATE needs of the GENERAL customers of Purpose: To small means , provide CREDIT adequate timely CARD withoutSYND insistence onSWAROZGAR credit to small artisans, purpose orCREDIT CARD handloom end use weavers, fishermen, service sector, self-employed persons and micro entrepreneurs
Purpose: To meet genuine credit requirement of theSYND SMALL entrepreneurs of small means who contribute towards CREDIT “Pigmy Plus 2007” Account in branches where “Pigmy Plus 2007” scheme is in operation
Credit Rating Framework for SME Risk Assessment Model Large corporate model (with and without project) non retail asset • There are three variants of the LCM model • Borrower with significant project • Borrowers without significant project • Green field model SME –Manufacturing Model SME-Services model Business Loan model
Sl.N Grade From Up to Descriptiono.1 SYND 1 8.50 10 Highest Safety-borrowers rated SYND 1 are judged to offer highest safety of timely payment. Though the circumstances providing this degree of safety is likely to change, such changes as can be envisaged are more unlikely to affect adversely the fundamentally strong position of such borrowers.2 SYND 2 7.50 8.5 High Safety Plus- Burrowers rated SYND 2 are judged to offer high safety of timely payment. Changes in circumstances providing this degree of safety have low impact on the fundamentally strong position of such borrowers.3 SYND 3 6.50 7.5 High Safety – Borrowers rated SYND 3 are judged to offer high safety of timely payment .they differ in safety from SYND 2 rated borrowers only marginally4 SYND 4 5.75 6.5 Adequate Safety- borrower rated SYND 4 are judged to offer adequate safety of timely payment .however changes in circumstances can adversely affect such borrowers more than those in higher rated grades.
5 SYND 5 5.00 5.75 Moderate Safety Plus- Borrowers rated SYND 5 are judged to offer moderate safety of timely payment of interest and principal for the present .however changes in circumstances are likely to lead to a weakened capacity to repay interest and principal than for borrowers in higher rated grades.6 SYND 6 4.25 5.00 Moderate Safety- Borrowers rated SYND 6 are judged to offer moderate safety of timely payment of interest and principal for the present .there is only marginal difference in the degree of safety provided by borrowers rated SYND 6 compared to borrowers rated SYND 57 SYND 7 3.50 4.25 Inadequate Safety – borrowers in SYND 7 are judged to carry inadequate safety of timely payment while they are less susceptible to default rather than other speculative grades in the immediate future, the uncertainties that the borrower faces could lead to inadequate capacity to make timely payments.
8 SYND 8 2.50 3.50 High Risk- borrower rated SYND 8 have greater susceptibility to default .While currently payments are met, adverse business or economic conditions can lead to lack of ability or willingness to repay.9 SYND 9 1.50 2.50 Very High Risk-borrowers rated SYND 9 are vulnerable to default .timely payment of interest and principal is possible only if favorable circumstances continue10 SYND 10 0 1.50 Extremely High Risk – borrowers rated SYND 10 are in bad shape or are expected to default on maturity .Such investments are extremely speculative and returns from these may be realized only on recognition or liquidation11 DEFAULT Default
Rating ProcessThe risk rating will be based on audited financialstatements immediately after completion of audit inany case not later than 7 months of the closure offinancial year of the borrower and submitted to theconforming authority. In cases where rating is done based on unaudited /provisional financial statements, upward revision, if any, in the rating will not be considered. However, down gradation .if any will be taken into consideration for credit decisions.
Rating Design• Company rating = management risk + industry risk + business risk + financial risk• Company model scale rating (without project) = company rating• Company models scale rating (with project)= company rating + project rating• Single scale rating (SYND)=Mapping Company model scale rating using the matrix• Facility Rating (FR)=Facility Structure +collateral• Combined rating (CR)=single scale rating(SYND)+facility rating
Rejection of Proposals• Branch level to be disposed of in 30 days• Regional office levels are to be disposed of in 45 days• Corporate office levels are to be disposed of in 90 days• In case of priority sector proposals the Branch Manager can reject the proposal provided case of rejection is subsequently verified by Regional Head .• A register is to be maintained by the branch with the details of sanction /rejection of proposals which should be made available to inspecting officials.
Rate of Interest on advances• Base Rate (BR) w.e.f. 01.05.2012 – 10.50% effective for all loans and advances Sanctioned / renewed from 01/07/2010• Maximum rate of interest payable on defaulted loans (penal rate is 2% p.a. over and above the applicable rate)
Micro and Small Enterprises (includingKVI Sector) Size of credit limit Interest rate* Micro and Small Enterprises (MSE)-(Manufacturing and Service Sector) Up to Rs.50000/ BR + 0.50% Above Rs.50000 to Rs.10 BR + 1.00% lacs *Tenor premium of 0.25% on all Term Loans to be added to the above rates.
Above Rs.10.00 lakhs: Rating Above Rs.10 lacs ABOVE Rs.100 up to Rs.100 lacs lacs SYND 1 & 2 BR + 1.25% BR + 2.00% SYND 3 & 4 BR + 1.50% BR + 2.50% SYND 5 & 6 BR + 2.00% BR + 3.00% SYND 7 & Below BR + 2.50% BR + 3.50%*Micro Enterprises will get rebated of 0.50% in rate of interest forprompt repayment.
Medium Enterprises Rating Interest Rate* Up to Rs.10.00 lakhs BR + 2.00% SYND 1 BR + 2.25% SYND 2 BR + 2.50% SYND 3 BR + 2.75% SYND 4 BR + 3.00% SYND 5 BR + 3.25% SYND 6 BR + 3.50% SYND 7 & Below BR + 3.75%*Tenor premium of 0.25% on all Term Loans of 36 months and above tobe added to the above rates.
Credit Guarantee Fund Scheme forMicro and Small Enterprises(CGMSE)• credit guarantee cover to the collateral free credit• avail credit facilities up to Rs.100.00 lac• Period of term loan in case of Term Loans and 5 years in case of working capital facility
Research Design• Data-The data collected are from both primary and secondary sources.• Research instrument- I have used the „questionnaire‟ as the research instrument• Sampling Unit: In this research the sample units are organizations belonging to micro, small and medium enterprises
Time and Place:• The research was conducted for one week in the month of July .The area covered under this study is Peenya Industrial AreaSample Size:• The sample size is 22.The study could cover only 22 respondents.
Data analysis• Which of the following category does your company belong? Percentage of respondents 18% 27% Micro Enterprises Small Enterprises Medium Enterprises 55%
• What is the source of financing to your company? Percentage of respondents 0% 0% 0% 9% Owners Fund Equity finance Bank financing Angel financing others 91%The survey revealed that the majority of the enterprises i.e. 91%of the respondents have taken loan from the bank
• If it is bank financing, from which bank has the company taken loan? Percentage of respondents 0% 9% 5% State Bank of India 9% 0% Canara Bank Syndicate bank Corporation Bank others 77% Not applicableThe survey reveals that, 17 respondents i.e. 77% which forms themajority of the respondents have raised the loan from SyndicateBank
• What are the obstacles you have faced while seeking the bank finance? Percentage of respondents Guarantor 9% Collateral 37% 27% Long procedure in submitting application None 9% 18% Not applicable• The survey revealed out of 17 respondents who are from Syndicate Bank majority i.e. 8 respondents faced problem in guarantor
• How you came to know about the financing scheme of the above bank? Percentage of respondents 9% 5% I have my account 5% Friends 0% Relatives 13% Advertisement 68% Others Not applicableThe survey revealed that the majority of the respondents came toknow about the schemes as they have their account and 13respondents out of 17 customers of the Syndicate Bank
• Are you aware of Credit Guarantee Fund for Micro and Small Enterprises (CGMSE) scheme? Percentage of respondents 18% Yes No 82%
• Whether your account is covered under the CGMSE Scheme? Percentage of respondents 18% Yes 46% No Not applicable 36%As told earlier majority of them aware of the CGMSE 10customers are eligible for the scheme
• Was the amount granted by the bank relative to the amount requested? Percentage of respondents 0% 5% 5% 5% Strongly satisfied 13% Satisfied Neutral Dissatisfied Strongly dissatisfied 72% Not applicableThe survey revealed that majority that is 72% of respondents aresatisfied with the amount granted by the bank
• Are you satisfied with the interest rate charged on the loan? Percentage of respondents 0% 0% 5% 5% Strongly satisfied Satisfied Neutral 36% 54% Dissatisfied Strongly dissatisfied Not applicableThe majority of the respondents are satisfied with the interest rate
• Have you heard about the different schemes in SME financing of Syndicate Bank? Percentage of respondents 23% Yes No 77%• The survey revealed that 73% of the customers are aware of the different schemes of the Syndicate Bank
• If yes, which among the following is beneficial? Percentage of respondents Synd Udyog 18% Synd Vyapar 22% Synd SME 0% 5% 14% Synd Swarozgar Credit Card Other Schemes 41% Not applicable
• According to you what should be the steps that Syndicate Bank take to popularize their schemes? Percentage of respondents 9% Television advertisements 14% 40% Newspaper advertisements Gifts or presents to the customers Others 37%
Conclusion and Recommendation• Syndicate bank has many schemes which can support the MSMEs• schemes need to be promoted among non-Syndicate bank customers .• So, if the bank will take promotional steps, surely it can earn lots of customers and can gain the market share.
Limitations of the Study The information given by therespondents might be biased as some of them might not be interested to give correct information. Some of the respondents could not answer the questions due to lack of knowledge.Some of the respondents of the survey were unwilling to share information.
BibliographyBooks• Desai, Vasant, Small-Scale Industries and Entrepreneurship. Mumbai: Himalaya Publishing House, 1994(Edition2011)• Kothari, C.R, Research Methodology New Delhi: Tata McGraw Hill, 1995(Edition 2005)• Syndicate bank study materialsMagazines and Newspaper articles• Nayak,Mahesh, „The Quick and Easy Solution‟, “Business World”,Dated:28 November 2011• Goyal,Virendra,SMERA• Prasad, C.S. „Micro, Small and Medium Enterprises Financing in India-Issues and Concerns‟, “Cab Calling”, July- September 2006.• Srinivas,Y. „Bank Finance to the SME Sector-Issues and Perspective‟, “The Chartered Accountant”, September 2006