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SMEs are the major contributor to GDP, and an even larger contributor to export and employment. Given this background, banks will find SME financing an attractive business opportunity rather than a compulsion, of lending to the priority sector. SIDBI and banks jointly have to play a pivotal and proactive role in financing the SMEs.The present slow down in lending to the SME sector is principally due to the risk aversion arising out of the high proportion of the lending becoming non performing. This calls for reassessment of the strategy of lending to this sector and this reassessment has led us to three principle elements of our strategy. 1) One is direct as those units which have linkage with large corporate undertaking as vender or supplier to these units; provision and flow of credit could be tied up with large undertakings which would facilitate recovery but more important than finance our proposal is that the linkage will have to be strong enough to ensure a win approach for both. This could be achieved by technology transfer of the large undertakings to the small units accompanied by a greater oversight and the quality of the product delivered.2) the second leg of our strategy is aimed at developing a set of standard products for units belonging to the same cluster of industries.3) The third leg of our strategy is to develop local financial intermediaries specifically aimed at financing units in the tiny and small sectors and more particularly to the former. These would be in the nature of the NBFCs but without any permission to accept deposits from the public. They would draw their resources from the banking system, by originating the loans and selling the same to the banks as a portfolio with appropriate arrangements for risk sharing. This report, therefore, emphasizes the need for new vehicles and instruments viz. Bank promoted (non deposit taking) NBFCs, micro credit intermediaries (funded by individual and the group of bank)would be able to credit-rate assess and serve as instruments for extending quick credit to SME cluster, accredited to them. This report also reinforces the importance of SIDBIs.
LIMITATIONS
The study of the project is limited to the SIDBI. It renders the limited information provided by the officials, books and websites. Time, length and depth of the study were limited in making the project to the requirement of Mumbai University.
SCOPE
The scope of this study is to get the knowledge about how credit granted by SIDBI helps in Small Industrial development.
MEANING OF SSI
The Government of India grouped small-scale industrial undertaking into 2 categoriesthose using power but employing less than 50 persons and those not using power but employing less than 100 persons. All small-scale enterprises however had capital investment of less than Rs. 5 lacks. The ownership and management in small enterprises is predominantly proprietary with individual ownership or partnership. The small-scale sector has been assigned a significant role in industrialization and economic development in India as an effective tool in sub serving the national objective of growth with social justice. Its importance has been increasingly recognized in India as a solution for the wide spread unemployment and under unemployment. Small-scale sector is credited with short gestation periods, generation of conduciveness for its dispersal over of widening base of indigenous entrepreneurship. Up gradation and adoption of other modernization measures have received added attention in the recent years to make this sector more cost effective.
SR NO
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OBJECTIVES
To meet the emerging demand for credit.
MAJOR FEATURES
Emphasis to shift from cheap credit to adequate credit. Equity participation by other undertakings domestic foreign up to
24%. Introduction
of
factoring
service
through Banks. Marketing of mass consumption goods under common brand name. Setting up subcontracting exchanges. Technology developmental in SIDO. Quality counseling Up and testing gradation technology information centre. Technology programmes.
OPPORTUNITY
The opportunities in the small-scale sector are enormous due to the following factors: Less Capital Intensive Extensive Promotion & Support by Government Reservation for Exclusive Manufacture by small scale sector Project Profiles Funding - Finance & Subsidies Machinery Procurement Raw Material Procurement Manpower Training Technical & Managerial skills Tooling & Testing support Reservation for Exclusive Purchase by Government Export Promotion Growth in demand in the domestic market size due to overall economic growth Increasing Export Potential for Indian products
Growth in Requirements for ancillary units due to the increase in number of Greenfield units coming up in the large-scale sector.
early days, this national system operated alongside of a large private banking system. Banks were limited in their operational flexibility by the governments desire to maintain employment in the banking system and were often drawn into troublesome loans in order to further the governments social goals.
The major issues confronting SSIs are identified to be: Technology obsolescence Managerial inadequacies Delayed Payments Poor Quality Incidence of Sickness Lack of Appropriate Infrastructure and Lack of Marketing Network
There can be many more similar issues hindering the orderly growth of SSIs. Over the years, SIDBI has put in place financing schemes either through its direct financing mechanism or through indirect assistance mechanism and special focus programmers under its P&D initiatives. In its approach, SIDBI has struck a good balance between financing and providing other support services.
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1.3 TECHNOLOGY
In the process of industrialization in general and development of SSIs in particular, technology plays a key role in providing cutting edge for development. SIDBI, since inception, has been giving thrust to technology up gradation of the SSIs and towards this end; various steps were taken by the bank aimed at identifying their needs in terms of process technology, environment management, quality management, common facilities center etc. & adopting suitable measures to address them. Thus, apart from meeting the credit needs of SSIs, SIDBI has developed support mechanism and facilitated institutional and infrastructural framework for development and use of technology on an increasing scale. The technology (APCTT), a United Nations outfits, is gradually emerging as a technology bank for SSIs providing information on range of technologies, sources and facilitating collaboration together with financial tie-up, when feasible. It has also been successfully exporting the SSI technologies to various countries. In April 1995 SIBI out of its own resources set up technology development and modernization fund (TDMF) with an earmarked amount of Rs. 200crores for encouraging existing industrial units in the small scale sector to modernize their production facilities and adopt improved and updated technology. Assistance under this scheme is being provided at SIDBIs prime lending rate to beneficiary units. Though the assistance under TDMF since inception crossed the originally earmarked amount, the bank extended its operation for another 3 years by earmarked another Rs. 100 crores from out its own resources. The major initiatives in this direction include cluster based intervention programmed for technological up gradation, organizing skill cum technology up gradation programmed and expanding information base on status of technologies in specific subsector within SSIs.
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SIDBI is also performing the role of nodal agency in respect of specialized schemes of Government of India for technological up gradation of cotton textile industry and tanneries in the small scale sector. The range of assistance comprising financing, extension support and promotional are made available through appropriate schemes of direct and indirect assistance for the following purposes: Setting up of new projects. Expansion, diversification, modernization, technology up gradation, quality improvement, rehabilitation of existing units. Strengthening of marketing capabilities of SSI units. Development of infrastructure for SSIs and Export promotion.
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The idea of development bank is seeking new dimensions every day. Development Banks as an institutional device to accelerate the pace of socio-economic development in the undeveloped and developing countries are of a comparatively recent origin. The development bankers have module the ideology of top financial institutions to act as a development banks so as to fulfill the aspirations of the changing society at large. They are acting as gap filler in the present set up of the entrepreneurial world.
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Government and private entrepreneurship and others have sponsored them by joint entrepreneurship of the two. Some development banks are of national and international characters while the other are of state and regional level.
a) Economic Growth b) Human Development c) Gender and Development d) Good Governance e) Environmental Protection f) Private Sector Development g) Regional cooperation
a) Increase loans and equity investments to its developing associate countries (DMCs) for their monetary and social development. b) Provides technical help for the planning and implementation of development projects and programs and for advisory services. c) Promotes and facilitates speculation of public and private capital for growth and development. d) Responds to requests for assistance in coordinating growth policies and plans of its increasing member countries.
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The ideology of development banking is based on entrepreneurship promotion in every sector of the national economy. Thus, development banks are assiduously endeavoring to create an economy of surplus and abundance by using innovative and entrepreneurial devices.
The major objectives are:1. To generate entrepreneurial environment in every sector of national economy. 2. To bridge gap of entrepreneurial expertise, knowledge, wisdom and experience. wealth of the country. 4. To accord top priority to backward regions. 5. To nurse and protect the mushroom growth of entrepreneur promotion. 6. To modify the inhibitive environment by providing necessary finance for it. 7. To advise the Government and Planning Commission on matters of national policies and strategies to be conceived for socio-economic development and reformation. If the development bank virtually happens to be the principal development bank of the country, then it should act as a guide, friend and philosopher for other DFIs operating at state and national level. 3. To promote, encourage and stimulate the dormant and passive entrepreneurial human
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What is needed right now is to spot the possibilities that exist all round and to either adapt existing techniques or devise new ones for the best utilization of the available raw materials. It is such improvement effected on a wide scale that can bring about a revolutionary transformation in the SSI sector. There at present two arrangements for providing technical advice and assistance to small firms. First, the Central Small Scale Industries Organization which through its service institutes provides a staff of technically qualified people whose job is to give advice to small entrepreneurs or the technical problem facing them and secondly the common facility workshops which undertake production operations on behalf of the small firms for a cost.
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CHAPTER 3- SIDBI
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SIDBI was established on April 2, 1990. The Charter establishing it, The Small Industries Development Bank of India Act, 1989 envisaged SIDBI to be "the principal financial institution for the promotion, financing and development of industry in the small scale sector and to coordinate the functions of the institutions engaged in the promotion and financing or developing industry in the small scale sector and for matters connected therewith or incidental thereto. SIDBI retained its position in the top 30 Development Banks of the World in the latest ranking of The Banker, London. As per the May 2001 issue of The Banker, London, SIDBI ranked 25th both in terms of Capital and Assets. Small Industries Development Bank of India [SIDBI] as the principal financial institution for promotion, financing and development of industry in the small-scale sector, has been assisting the entire spectrum of the SSI sector, including the Tiny, Village and Cottage industries. During the year 2002-03, the aggregate sanctions and disbursements of SIDBI amounted to Rs.10904 crore and Rs.6789 crore respectively. Cumulative assistance, as at the end of March 2003, surged to Rs.86, 158 crores in terms of sanctions and at Rs.59, 101 crores of disbursements, thus recording a compounded annual growth rate of 13.4 % and 11.4 % respectively. Net worth of the Bank is Rs.4075 crores as at the end of March 2003. Role of Small Industries Development Bank of India (SIDBI) is envisaged as "the principal financial institution for the promotion, financing and development of industry in the Small Scale Sector and to coordinate the functions of the Institutions engaged in similar activities. SIDBI is headquartered at Lucknow with networking of 5 Zonal Offices, 1 Regional office and 59 Branch offices covering all the states and important industrial locations in the country.
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In line with the international concept of Small and Medium Enterprises (SMEs), Government of India has permitted SIDBI to extend assistance to medium enterprises, in addition to the SSIs and service enterprises served hitherto. SIDBI, as a part of its operational strategy, has been emphasizing on increasing the flow of financial assistance to SMEs and enhancement in the capabilities of SMEs at all levels, with focus on adoption of improved and modern technology. As a matter of policy, SIDBI has tried to identify the gaps in the credit delivery system so as to fill them through appropriate new Schemes. Over the years, SIDBI has been continuously expanding its credit horizon and is assisting enterprises in the sectors like Tiny, Small Scale, Medium, Service and Micro-Finance Sector. In order to improve the flow of credit to small and medium enterprise sector, strategic business initiatives were taken by the Bank by broad basing certain schemes in line with the changing requirements of the sector. Steps were taken to enhance the scale of operations under direct finance schemes, in addition to refinance activities. Greater emphasis was laid on liberalizing the schemes as well as simplifying the systems and procedures and increasing the retail portfolio of the Bank. Some of the major contributions are launching of Small and Medium Enterprises Rating Agency (SMERA) for credit rating of SMEs, launching of SME Growth Fund of Rs 500 Crore, launching SME Fund for providing Credit to SMEs at concessional rate of interest, a tie up with OBI for providing working capital facilities and signing of MoUs with commercial banks for joint lending/co-financing of SME projects.
SIDBI is the principal financial institution for the promotion, financing and development of industry in the small-scale sector and to co-ordinate the functions of the institutions engaged in the promotion, financing or developing industry in the small-scale sector and for matters connected therewith or incidental thereto. The Bank has also been authorized by Government of India (GOI) to provide financial assistance to small and medium enterprises.
There is a well-defined system in the Bank regarding decision-making process. The Bank follows a committee based approach for all its lending decisions wherein Credit/Settlement
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committees have been set up right from branch level depending upon the nature and size of loan. Branches receive applications for credit facilities and recommend to the appropriate sanctioning authority. In the case of major loan products applications are processed at branches and Centralized Credit Processing Cells. There is a defined organizational structure and clear system of accountability based on RBI / CVC guidelines. All credit decisions approved by any sanctioning authority are reported to the next higher authority for control / monitoring purpose. The system of exercising proper delegation of power and submission of control reports is in place and control officers monitor them. Administrative decisions are taken at various levels of Officers and also by Executive Directors and Chairman & Managing Director as per the powers delegated to them by the Board. The documents being obtained at the time of lending are preserved at the respective branch offices of the Bank. The Bank maintains register of share holders and record of proceedings of the Board meetings at its Head Office at Lucknow The Banks shareholders are IDBI, LIC, GIC, other Nationalized Banks / FIs. Representatives of the shareholders and Industry Association / SSI Sector are members on the Board of Directors. The issues concerning the policies can be raised by the shareholders in the Annual General Meetings of the Bank and by members in the Board meetings.
The Bank has the following bodies: 1. Board of Directors. 2. Executive Committee. 3. Audit Committee.
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The Board and its Committees meet at regular intervals and guide the bank in achieving its objectives. The meetings of the Board or Committees are not open to the public and the minutes of such meetings are not accessible to public. There are no plans and budgets for expenditure of public money. The provision is not applicable to that extent to the Bank. The Bank does not have its own subsidy programmes or plans for lending activities. However, the Bank is the nodal agency for implementing GOI sponsored schemes like Credit Linked Capital Subsidy Scheme (CLCSS), Technology Up gradation Fund Scheme (TUFS) & Integrated Development of Leather Sector (IDLS).
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BOARD OF DIRECTORS
10 Shri Prakash Bakliwal 11 Shri M. Balachandran 12 Shri Janki Ballabh 13 Shri S.K. Tuteja 14 Shri P.A. Sethi
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arranging for collateral security and/or third party guarantee. As on August 30, 2006 banks/institutions have availed of CGTSI guarantee in North Eastern Region in respect of 1147 units covering aggregate assistance of Rs 2718 lacks in North Eastern Region. SME Rating Agency of India Ltd (SMERA) Coverage As a part of SIDBI's thrust towards emerging as one step shop to serve the SME sector, the SME Rating Agency of India Ltd. (SMERA) was launched as country's first and only rating agency dedicated to the SME segment. A joint initiative of SIDBI, Dun & Bradstreet Information Services India Pvt. Ltd., Credit Information Bureau (India) Ltd and banks, SMERA's primary objective is to provide ratings that are comprehensive, transparent and reliable and which would enable the rated units to borrow at competitive rates of interest. SIDBI calls upon the existing SMEs in the country to get them rated by SMERA in order to have competitive edge in availing credit at lower rates.
Mission
To empower the Micro, Small and Medium Enterprises (MSME) sector with a view to contributing to the process of economic growth, employment generation and balanced regional development
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Vision
To emerge as a single window for meeting the financial and developmental needs of the MSME sector to make it strong, vibrant and globally competitive, to position SIDBI Brand as the preferred and customer - friendly institution and for enhancement of share - holder wealth and highest corporate values through modern technology platform. Four basic objectives are set out in the SIDBI Charter. They are: Financing Promotion Development Co-ordination For orderly growth of industry in the small scale sector the Charter has provided SIDBI considerable flexibility in adopting appropriate operational strategies to meet these objectives. The activities of SIDBI, as they have evolved over the period of time, now meet almost all the requirements of small scale industries which fall into a wide spectrum constituting modern and technologically superior units at one end and traditional units at the other.
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As an apex institution for the small-scale sector, SIDBI also plays a major role in meeting the varied developmental needs of the Indian SSI sector. The P&D initiatives of the Bank aim at improving the inherent strength of the small scale sector so as to enable it to face the emerging challenges of globalization as also economic development of poor through enterprise promotion resulting in self employment and creation of additional employment. SIDBI has sanctioned grants to various organizations like TCOs, Industry Associations, reputed NGOs and other agencies to conduct topical seminars and EDPs, and also sponsored the participation of SSI units in exhibitions at subsidized rates to enable them to market their products. In pursuance of its multifaceted P&D activity, synergistic with its business activities aimed at development of the small industries, SIDBI looks forward to a partnership with NGOs, associate financial institutions, corporate bodies, R&D laboratories, marketing agencies, etc., for national level programmes. The sanction and disbursement of grant under P & 0 activities in NER during the last three financial years amounted to Rs 125 lacks and Rs 92 lacks respectively.
3.3 OBJECTIVES
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Four basic objectives are set out in the SIDBI Charter. They are: Financing Promotion Development of industry in the small scale sector and Co-ordination the functions of other institutions engaged in similar activities. For orderly growth of industry in the small scale sector the Charter has provided SIDBI considerable flexibility in adopting appropriate operational strategies to meet these objectives. The activities of SIDBI, as they have evolved over the period of time, now meet almost all the requirements of small scale industries which fall into a wide spectrum constituting modern and technologically superior units at one end and traditional units at the other. SIDBI has an Integrated (Rupee and Forex) Treasury set up at Mumbai which functions as a separate business unit. The Treasury is headed by a Chief General Manager and has Front, Mid and Back offices which are manned by experienced officers. The Treasury has various required IT infrastructure to support the day-to-day operations and MIS requirement. The forex treasury is equipped with RMDS, SWIFT and WANDA settlement systems.
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3.4 PRODUCTS
DIRECT FINANCE
SIDBI had been providing refinance to State Level Finance Corporations / State Industrial Development Corporations / Banks etc., against their loans granted to small-scale units Since the formation of SIDBI in April, 1990 a need was felt/ representations were 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 the other available channels of credit flow to the small industries sector. Since then, SIDBI has evolved itself into a supplier of a range of products and services to the Small & Medium Enterprises [SME] sector.
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Any other activity as per guidelines (having linkages and benefits accruing to SSI sector from the proposed assistance). All activities covered under erstwhile marketing assistance scheme for SSIs.
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development in the SSI sector, technology up gradation, quality and environment management, marketing promotion, information dissemination etc.
3.6 SCHEMES
SIDBI, primarily a refinancing institution has offered various direct as well as indirect (through refinance to the financial institution) start up term loan facilities to the small entrepreneurs. This includes the following:-
GENERAL SCHEME Purpose- For setting up new small-scale units & for all activities eligible for assistance under
the scheme including professionals practice/ consultancy ventures & services sector units such as tourism related activities/hospitals/nursing homes/hotels/marketing & industrial infrastructure projects.
Eligibility- All forms of organizations in the small scale sector (i.e. Proprietary, Partnership
Company, Cooperative Society etc.) for infrastructure development all forms of organization such as public, private ltd. SCHEMES FOR COTTAGE, VILLAGE & TINY INDUSTRIES:
Purpose- Assistance for equipments or working capital as also for shed. Eligibility- Artisans, Village & Cottage Industries & Small Industries in tiny sector. Limit- Not to exceed than 0.5 million Rupees. SCHEMES FOR SC/ST & HANDICAPPED:
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Purpose- Assistance for equipments or working capital. Eligibility- SC/ST & Physically Handicapped persons. Limit- Not to exceed than 0.5 million Rupees. SCHEMES (SRTOS):
Purpose- To meet expenditure towards cost of chassis, building initial taxes/ insurance and working capital. Eligibility- Small road transport operators. Limit- Need based.
FOR
SMALL
ROAD
TRANSPORT
OPERATED
Purpose- For setting up small industrial projects including service industries and specified transport activities which are eligible for finance as per SSI norms. Eligibility- Ex-servicemen sponsored by Director General, Ministry of Defense, Government of India. Limit- Scheme operated through SFCs twin function of project not to exceed than 1.5 million, Soft loan limited to meet gap in equity subject to a maximum of Rs. 2, 25,000 per project. Service charges-1% p.a. during moratorium period thereafter, interest at 6% p.a. on soft loan.
3.7 SUBSIDIARIES
SIDBI Venture Capital Ltd. [SVCL] a wholly owned subsidiary of SIDBI acts as the Asset Management Company of the National Venture Fund for Software and Information Technology. The fund has a committed corpus of Rs.100 crores as on March 31, 2003. SIDBI Trustee Co.Ltd. [STCL] has been set up to carry out trusteeship functions for Venture Capital Funds. Presently STCL is acting as Trustee of National Venture Fund for Software and Information Technology. Credit Guarantee Fund Trust Scheme for Small Industries [CGTSI] promoted jointly by Government of India and SIDBI, was launched by the Hon'ble Prime Minister on August 30, 2000. The credit guarantee scheme of CGTSI aims at helping the new and existing industrial units in SSI sector, in getting collateral free credit by way of both term loan and working capital from eligible member lending institutions. Member
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Lending Institutions include scheduled commercial banks; select Regional Rural Banks and Government of India may approve such of the institutions as. Technology Bureau for Small Enterprises [TBSE] was set up by SIDBI in 1995 in collaboration with United Nations Asian & Pacific Center for Transfer of Technology. The Bureau aims at helping SSI units to attain international competitiveness through transfer of latest available technologies from both within and outside the country.
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The bank has achieved consistent growth in financial parameters since inception. The total assets of the bank have grown from a level of Rs. 5309 crores in March 1991 to Rs 36, 561 crores in March 2009. The income has increased from Rs. 425 crores in 1990-1991 to Rs. 1598 crores in 1999-2000 and in 2001-2004 the income has increased to Rs. 1600 crores and to Rs. 5000 crores in 2006-2009. While the net profit has grown from Rs. 36 crores to Rs.459 crores during the same period. The capital to risk asset ratio as at end March 2000 was at 27.8 percent and 96.2 percent of the assets were standard assets. The bank has been paying dividends on equity holding to IDBI since inception.
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FINDINGS
1) Is an apex financial institution in the field of rural development. Is Small Industries Development Bank of India. Was setup under the SIDBI Act-1989 and commenced operation from April, 1990. Has more than 80 XBO. Was de-linked from IDBI to provide functional autonomy and operational flexibility in year 2000. 2) Established in April 2,1990 3) The business domain of SIDBI consists of small scale industrial units, which contribute significantly to the national economy in terms of production, employment and exports. Small scale industries are the industrial units in which the investment in plant and machinery does not exceed Rs.10 million. About 3.1 million such units, employing 17.2 million persons account for a share of 36 per cent of India's exports and 40 per cent of industrial manufacture. In addition, SIDBI's assistance flows to the transport, health care and tourism sectors and also to the professional and self-employed persons setting up small-sized professional ventures. 4) SIDBI retained its position in the top 30 Development Banks of the World in the latest ranking of The Banker, London. As per the May 2001 issue of The Banker, London, SIDBI ranked 25th both in terms of Capital and Assets. 5) To empower the Micro, Small and Medium Enterprises (MSME) sector with a view to contributing to the process of economic growth, employment generation and balanced regional development. 6) To emerge as a single window for meeting the financial and developmental needs of the MSME sector to make it strong, vibrant and globally competitive, to position SIDBI Brand as
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the preferred and customer - friendly institution and for enhancement of share - holder wealth and highest corporate values through modern technology platform.
7) There are four basic objectives are set out in the SIDBI Charter. They are: Financing Promotion Development Co-ordination For orderly growth of industry in the small scale sector. The Charter has provided SIDBI considerable flexibility in adopting appropriate operational strategies to meet these objectives. The activities of SIDBI, as they have evolved over the period of time, now meet almost all the requirements of small scale industries which fall into a wide spectrum constituting modern and technologically superior units at one end and traditional units at the other. 1) The entire issued capital of Rs.450 crore has been divided into 45 crore shares of Rs.10 each. Of the total Rs.450 crore subscribed by IDBI, while setting up of SIDBI, 19.21% has been retained by it and balance 80.79% has been transferred / divested in favour of banks / institutions / insurance companies owned and controlled by the Central Government.
2) The SIDBI all industrial concerns in the small-scale sector. The main role of SIDBI is to channelize need based higher flow of credit both by way of term loan and working capital to tiny and rural industries.
3) The Small Industries Development Bank of Indias (Sidbi) proposed credit rating agency, exclusively catering to the small scale industry (SSI), is likely to run into stiff competition as the National Small Industries Corporation Ltd (NSIC) has sounded out leading credit rating
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agencies Crisil, Care, Icra, and Fitch for empanelment for providing credit rating service to SSIs. 4) Interest Rate is 12.75% p.a.
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