Summer Training Project Report on

SUGGESTIONS TO STIMULATE FINANCING UNDER MICRO & SMALL ENTERPRISES

Undertaken at

FOR THE PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE AWARD OF

POST GRADUATE DIPLOMA IN MANAGEMENT

UNDER THE GUIDANCE OF: Ms. Sumedha Shandilya

UNDER THE SUPERVISION OF: Mr. Ashok Dangayach

SUBMITTED BY: Ayushi Saxena PGDM- III SEM

INTERNATIONAL SCHOOL OF INFORMATICS & MANAGEMENT, JAIPUR

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ACKNOWLEDGEMENT

Successful passage and outcome of every work comes with dedication, determination and team work. All these turn futile in the absence of a visionary guidance I sincerely wish to acknowledge a deep debt gratitude to Bank of Baroda, Zonal Office, Jaipur for giving me the opportunity to do summer training in their organization. I feel great joy and pleasure in thanking my supervisor Mr. ASHOK DANGAYACH, Chief Manager, SME Loan Factory without whose constant encouragement and ever guiding spirit, this project would not have been completed at all. I convey my special thanks and warm regards to Mr. R.P.Vijay Senior Manager(Processing Head) who supported me throughout the course of the project. I would also like to thank Mr. Ramawatar Meena (Senior Manager, Processing), Mr. Veerendra Bohra (Senior Manager, Processing),Mr. Vishal Jain (Manager, Marketing) and Mr. Dileep Arya (Senior Manager, Marketing) and Ms. Parvati Khandelwal (Computer Operator) without their wholehearted co-operation my training wouldnt have been successful. I am indebted to Sumedha Maam and all the faculty members, who have disciplined my mode of work and have been pillars of great strength to me. The love and affection of my beloved parents that has brought me to this stage are the most valuable ingredients of my life. I wish convey my love and respects to them. Finally I convey my heartfelt thanks to friends and all my well-wishers.

AYUSHI SAXENA

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PREFACE
The foundation idea for this work rooted in the intent to work on the criteria of assessing a companys financial position before sanctioning loan. As it includes all practical application of financial aspects viz. Financial Ratios, Fund Flow Statement, B/s, P&L A/c, Cash Flow Statement etc. So to gain all practical knowledge in the SME, this project is undertaken. For preparing the Project Report, I was given various loan proposals to avail the necessary information. The blend of learning and knowledge acquired during my practical studies at the company is presented in this Project Report. Various Inspections in the various industries were also done which gave exposure related to checking of security and other documents given by the borrower party. The rationale behind preparing the Project Report is to study the credit appraisal basics, history and development of MSMEs ,major players in MSMEs , contribution of MSMEs in the growth of Bank &economy and its functional areas like relationship managing, credit managing, marketing etc. The Project Report starts with the introduction & history of bank of Baroda, basic concepts of MSMEs, importance of MSMEs and suggestions to support financing under micro and small enterprises.. The information presented in this Project Report is obtained from sources like Bank Personnel, Bank websites, other websites, Bank reports, and Other literature works.

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DECLARATION

I hereby declare that the project report on Suggestions to stimulate financing under Micro and Small enterprises " is my original work as a part of the summer training undertaken at SME department of Bank of Baroda, Zonal office, Jaipur region.

All the information contained in the report has been obtained from the primary research and data available and searching through internet and books which provided in depth knowledge about the topic undertaken.

I also declare that all the data presented is true to best of my knowledge which is fully and specifically acknowledged.

AYUSHI SAXENA

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Executive Summary
The Small and Medium Enterprises (SMEs) play a vital role in the industrial development of any country. The importance of the SME sector is well recognized worldwide due to its significant contribution to gratifying various socio-economic objectives, such as higher growth of employment, output, promotion of exports and fostering entrepreneurship. Outlook towards the SMEs is very much important to strengthen it. The premises for such an outlook that is essential for Indian SMEs to combat the challenges ahead, are outlined below: a) SMEs continued to be the thrust area for government policies. b) The growing economy and the tremendous market potential of the country promise well for the sustained growth of SMEs in a country. c) Avenues for employment and decentralized industrial development. d) Latest policy package for SMEs and envisages 20 percent annual growth in credit to SME sector from FY 2005, to be doubled by 2012. e) With the enactment of MSME Act, the sector is set to emerge as the most vital contributor to the national economy. f) SIDBI as the apex institution will continue to play its key role in facilitating timely and adequate credit besides meeting the developmental needs of the sector. The constraints come across by the SMEs in India to be export competitive include product reservations , regulatory hassles- both at the entry and exit stages , insufficient finance at affordable terms , inflexible labor markets and infrastructure related problems- like high power tariffs, and insufficient export infrastructure.

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CONTENTS
Acknowledgement Preface Declaration Executive Summary 1. Micro, Small & Medium Enterprises Introduction 2 3 4 5 8-29

2. Introduction to Bank of Baroda 3. Bank of Baroda SME Loan Factory 4. Research Methodology 5. Data Analysis and Interpretation 6. Findings of the research 7. Suggestions 8. Limitations 9. Conclusion 10. Learning during the Training 11. Summary 12. Bibliography 13. Questionnaire

30-45 46-68 69-71 72-81 82 83-85 86 87-88 89-111 112 113 114-117

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MSMEMicro, Small and Medium Enterprises

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The micro, small and medium enterprises (MSME) sector plays an important role in the economic growth of India. The sector offers a great contribution to the manufacturing output, employment, and exports of the country. It was estimated that the MSMEs contribute for 45% of the manufacturing output and 40% of the exports of the country. It was estimated that through the fiscal year of 2009-2010, in over 26 million units throughout the country, about 59 million people were employed in the MSME sector. The highest growth rate was observed in the MSME sector than that of the industrial sector. The MSMEs in India are involved in manufacture of about 6000 products that range from traditional goods to high-tech items. The contribution of goods in MSME sector includes 22% from food products, 12% from chemical products, 10% from basic metal industry, 8% from metal products, 6% from electrical machinery parts, 6% from rubber plastic products, and 36% from other products. Maximum opportunities are provided by the MSME sector for both selfemployment and jobs after agriculture sector. According to the 4th Census with reference year 20 06-07, employment to about 595 lakhs persons was given

by about 261 lakhs enterprises. During the fiscal year of 2008-09, employment was given for about 659 lakhs persons by 285 lakhs enterprises. The percentage growth rate of the number of MSMEs from 2008 to 2009 was found to be 4.53. An increase in employment growth rate of 5.35% was observed in 2009 compared to the previous year. There has still been a rise in the development of MSME sector in India. Considering the growth potential of Indian SMEs, the Government of India has asked public sector banks to achieve a minimum 20 per cent year-on-year growth in the funding of SMEs that will lead to double the flow of credit to the

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sector from Rs.67,000crore in 2004-2005 to Rs.1,35,000 crore by 2009-2010.A small-scale unit is defined as one having original investment in plant and machinery not exceeding Rs.1 crore. While recognizing the needs for larger investment in some of the more important segments of small scale industries (SSIs), the Government has enhanced this to Rs.5 crore for specified industries. The Government felt that a separate category of medium enterprises (MEs) needs to be recognized and, accordingly, the new policy package clearly defined the medium enterprises as those units having investment in plant and machinery above the small-scale industry limit and up to Rs.10 crores, as recommended by the Working Group on Flow of Credit to the SSI sector, headed by Mr. A. S. Ganguly. Across the world different context and definitions are there for small businesses. However, in India a standard definition for small and medium enterprises (SMEs) is given in 2006. The Micro, Small and Medium Enterprises (MSMED) Act, 2006 was imposed by the Ministry of Micro, Small and Medium Enterprises, Government of India in 2006. A change in economic scenario changes the definition of SME. The definition of SME for manufacturing sector is different from that of service sector.

Definition of SME in Manufacturing Sector: Manufacturing sector includes the firms and businesses which involve production, processing, or preservation of goods. The definition for SME in manufacturing sector according to the MSMED Act 2006 is described below. The cost of land, building and the items specified by the Ministry of Small Scale Industries are excluded in this description.

When the investment in plant and machinery of the firm does not exceed Rs. 25 lakh, then it is called a micro enterprise. A small enterprise is that having investment in plant and machinery ranging between Rs. 25 lakh and Rs. 5 crore.

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If the investment in plant and machinery is between Rs. 5 crore and Rs. 10 crore, then it is said to be a medium enterprise.

Definition of SME in Service Sector: When the investment in equipment is not above Rs. 10 lakh, then it is called a micro enterprise. A small enterprise is that one which has the investment in requirement between Rs. 10 lakh and Rs. 2 crore. When the investment in equipment is in the range between Rs. 2 crore and Rs. 5 crore, then it is called a medium enterprise. The Importance of Small and Medium Enterprises (SMEs) in any economy cannot be overlooked as they form a major chunk in the economic activity of nations. They play a key role in industrialization of a developing country like India. They have unique advantages due to: Their size. Their comparatively high labor-capital ratio. need a shorter gestation period. focus on relatively smaller markets need lower investments. ensure a more equitable distribution of national income. facilitate an effective mobilization of resources of capital and skills which might otherwise remain unutilized. Stimulate the growth of industrial entrepreneurship.

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According to a UNIDO report,supports for SMEs are generally based on three assumptions. It sustains a broad and diversified private sector and creates employment and thus benefits the country as a whole. Second, a strong SME sector will not emerge without support from the state, but they suffer disadvantages in the markets because of their size. The programs aimed at smallest enterprises, have been justified more in terms of their welfare impact than their economic efficiency.

Composition of SMEs in India

16%

44%

service maufacturing repairs and maintenance

40%

Indian SME at a Glance

In India, SME sector accounts for around 95% of the industrial units, 40% of the value added in the manufacturing sector output, 34% of exports and provides direct employment to 20 million persons in around 3.6 million registered SME

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units. Now, the question is, Can it overtake the invasion of foreign companies through their innovative, quality, affordable/reasonable and readily available products?

In developing countries like India, making the SMEs more competitive is particularly pressing as trade liberalization and deregulation increase the competitive pressures and reduce the direct subsidies and protection that Governments offer to SMEs. If our SMEs are to be competitive enough to withstand and fight back the foreign MNC products, they have to be nurtured. According to Porter, the only meaningful concept of competitiveness at the national level is Productivity, which is the value of output produced by a unit of labor or capital. Productivity in turn depends on both the quality and features of products (which determines the prices that they can command) and the efficiency with which they can be produced. Productivity is the prime determinant of a nations long-run standard of living; it is the root cause of national per capita income. International trade and foreign investment can both improve a nations productivity as well as threaten it. They expose the nations industries to the test of international standards of productivity. An industry will lose out if its productivity is not sufficiently higher than its rivals to offset any advantage in the local wage rates. As wage rates in India are sufficiently less to attract multinationals, the only way is to increase the productivity of local small industries. This means, the increase in the productivity of labor i.e. human resources, the productivity of capital and that of the process, which in turn relates to the use of technology that yields quality and innovative products.

As every coin has two sides, similarly, even SME financing has a share in the overall financing. The following are the issues of SME financing:

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 They are unable to capture market opportunities, which require large production facilities and thus could not achieve economies of scale, homogenous standards and regular supply. They are experiencing difficulties in purchase of inputs such as raw materials, machinery and equipment, finance, consulting services, new technology, highly skilled labor etc. Small size hinders the internalization of functions such as market research, market intelligence, supply chain, technology innovation, training, and division of labor that impedes productivity. Emphasis to preserve narrow profit margins makes the SMEs myopic about the innovative improvements to their product and processes and to capture new markets. They are unable to compete with big players in terms of product quality, range of products, marketing abilities and cost. And most importantly, absence of a wide range of Financing and other services those are available to raise money and sustain the business. Absence of Infrastructure, quality labor, Business acumen and limited options / opportunities to widen the business. The micro, small and medium enterprises face problems at every stage of their operation, whether it is buying of raw materials, manufacture of products, marketing of goods or raising of finance. These industries are therefore not in a position to secure the internal and external economies of scale. The major problems confronting the sector have been identified as: Technology obsolescence Managerial inadequacies Delayed Payments

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Poor Quality Incidence of Sickness Lack of Appropriate Infrastructure Lack of Marketing Network Problem of raw material & power Export difficulties Problem of industrial relations Growing sickness and mortality among these units.

There is lack of trained and experienced employees because small firms cannot pay high salaries and cannot spend much on training their employees. Small scale firms find it difficult to recruit and motivate skilled managerial and technical personnel as they look for better opportunities in the large scale industries. Therefore, they get the second rate talent or have to depend on family members who do not have diversified skills. Although, the primary responsibility for promotion and development of MSMEs lies with the concerned State/ Union Territory (UT) Governments. But, the Central Government has always taken active interest in supplementing the efforts of State/UT Governments through its various regulations, as MSMEs have huge potential both in terms of creation of wealth and employment as well as for the proper growth of related sectors of the economy. In India, the Ministry of Micro, Small and Medium Enterprises are the main central authority which assists the States/UTs in their efforts to promote growth and development of MSMEs. It has been implementing several schemes/programs and policies so as to enhance the global competitiveness of the MSMEs. These relate mainly to simplified systems and procedures, easy access to capital, positioning the MSMEs in the global value chain by enhancing their productivity, technology up gradation, quality improvement, skill development, access to both domestic and international markets, etc.

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Risks Faced by SME Units

training / attitudes

echnology Risks (Scope / Costs / Quality)

In India Micro, Small and Medium Enterprises in agriculture, industry and services sectors have key role in value addition, employment generation, export earnings, equitable distribution of national income, regional dispersal of the industries, productive utilization of entrepreneurial skilland capital. Micro, Small and Medium enterprise [MSME] sector is heterogeneous, highly dispersed and

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Mostly in the unorganized sector. It includes diverse types of production units, ranging from traditional crafts too modern high-tech industries and ancillaries that supply components to most modern large-scale industries. Segments such as power looms, handlooms, handicrafts, food processing, coir, sericulture, khadi& village industries and wool, which are mostly unorganized, are fragmented across various Ministries and are often seen only as rural livelihoods. However, since these enterprises have been thriving in many prominent cities, they indeed deserve focused attention of all stakeholders for development and growth. This MSME sector in particular contributes about 8% of the countrys GDP, about 45% of manufactured output and about 40% of exports. This, coupled with a high labor to capital ratio, high growth and high dispersion makes them crucial for achieving the objectives of inclusive growth. The 11th Five Year Plan [2007-12] says MSMEs are more than just GDP earners; they are instruments of inclusive growth which touch upon the lives of the most vulnerable, the most marginalized people. Yet this sector in successive Five Year Plans has not received its due. It is against this background an attempt is made here to understand the broad based definition of MSME sector, its contribution to countrys economy, enabling measures initiated by RBI to boost its development & growth, review credit Operations and need to optimally utilize the institutional infrastructure already created since 1970s at enormous cost to further accelerate its planned growth.

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Profile of Indian MSME Sector

S. No. 1. Particulars Value

Number of micro and small enterprises Employment Share in GDP Share in manufacturing output Share in exports

130 Lakhs

2. 3. 4. 5.

410 Lakhs 8-9% 45% 40%

Growth in number of SME units

Financial Year

Registered (In Lacs)

Unregistered (In Lacs)

Total (In Lacs)

FY 03 FY04 FY05 FY06 FY07 P

16

93

109

17

97

114

18

100

119

19

104

123

20

108

128

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SIZE OF THE MSME SECTOR

Sr. No.

Details Manufacturing enterprises Service enterprises

Micro 9,74,609

Small 57,666

Medium 2,828

Total 10,35,103

5,01,072

15,915

402

5,17,380

Total number 1,475,681 of MSMEs % distribution 95.05 of total units % share of manufacturing 94.16 units % share of 96.85 service units

73,581

3,230

15,52,492

4.74

0.21

100

5.57

0.27

66.67

3.08

0.08

33.33

MICRO, SMALL, MEDIUM ENTERPRISES DEVELOPMENT (MSMED)ACT, 2006 Government of India has set up a new governing body for promotion and development of Micro, Medium and Small Scale Enterprises via MSME Development Act, which came into force from 2nd October 2006. The President under Notification dated 9th May 2007 amended the Government of India (Allocation of Business) Rules, 1961 by which, Ministry of Agro and Rural Industries (Krishi Evam Gramin Udyog Mantralaya) and Ministry of Small Scale

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Industries (Laghu Udyog Mantralaya) have been merged into a single Ministry, namely, Ministry of Micro, Small and Medium Enterprises.

The Ministry of Micro, Small and Medium Enterprises (MSME) is the administrative Ministry in the Government of India for all matters relating to Micro, Small and Medium Enterprises. It designs and implements policies and programmes through its field organizations and attached offices for promotion and growth of MSME sector. The Office of the Development Commissioner (MSME) is an attached office of the Ministry of MSME, and is the apex body to advise, coordinate and formulate policies and programmes for the development and promotion of the MSME Sector. The office also maintains liaison with Central Ministries and other Central/State Government agencies/organizations financial institutions. In accordance with the provision of Micro, Small & Medium Enterprises Development (MSMED) Act, 2006 the MSMEs are classified in two classes.

Manufacturing Enterprises: - The enterprises engaged in manufacturing or Production of goods pertaining to any industry specified in the first schedule to the Industries (Development and Regulation Act, 1951). The Manufacturing Enterprise is Defined in terms of investment in Plant & Machinery.

Service Enterprises: - The enterprises engaged in providing or rendering of services and are defined in terms of investment in equipment.

While for enterprises engaged in the manufacture or production, processing or preservation of goods:

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Micro Enterprise: A micro enterprise is where the investment in plant and machinery does not exceed Rs. 25 lacs.

Small Enterprise: A small enterprise is where the investment in plant and machinery is above 25 lacs but does not exceed Rs. 5 crore.

Medium Enterprise: A medium enterprise is where the investment in plant and machinery can be more than Rs. 5 crore but should not exceed Rs. 10 crore.

Service Enterprises are further classified as under: Micro Enterprises :A micro enterprise is where the investment in equipment does not exceed Rs. 10 lakh .

Small Enterprises : A small enterprise is where the investment in equipments more than Rs. 10 lakh but does not exceed Rs. 2 crore .

Medium Enterprises : A medium enterprise is where the investment in equipment is more than Rs. 2 crore but does not exceed Rs. 5 crore.

India SME exports

SMEs constitute an important segment of Indias industrial production with a contribution to 33% of its exports. During FY 03-06, Indias total merchandise

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exports in US dollar terms witnessed a CAGR growth of 25%, while in the same period SME exports grew at a CAGR of 24%. The remarkable contribution of SMEs in generating employment in the country has been instrumental in addressing issues pertaining to poverty and inequality of income. As per the

Third All India Census on Small Scale Industries-2001-02, highly populated states such as Madhya Pradesh, Uttar Pradesh, West Bengal, Maharashtra, Karnataka and Jharkhand together contributed to around 55.4% of the total exporting units in India. In terms of distribution of value of exports from the SME sector, states like Punjab, Haryana, Uttar Pradesh, Tamil Nadu and Maharashtra together contributed 64.75% of total exports.

Composition of SSI export basket from India

The composition of export basket of SMEs in India has both traditional and nontraditional commodities in nature. There are few commodity groups which are exclusively exported by SMEs such as sports goods, cashew etc. In the commodity group of engineering goods, SMEs constitute around 40% of the total exports of this commodity group. Similarly, SMEs in basic chemicals & pharmaceuticals finished leather and leather products and marine products account for around 44%, 69% and 50% of the export share in their respective commodity groups. In view of the Government of Indias ambitious target of average GDP growth rate of 9% during the 11th Five Year Plan, SMEs have to play a vital role in achieving this target. It is imperative for the government to address the major issues plaguing the sector and take further inclusive growth oriented policy initiatives to boost the sector.

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This includes measures addressing concerns of credit, fiscal support, clusterbased development, infrastructure, technology, and marketing among others. As mentioned earlier, SMEs constitute 34% of Indias merchandise exports and in order to increase Indias export share to the global trade, SMEs are expected to enlarge their scope manifold.

Why SME Loan Factory is called a Factory? As it provides hassle free and faster sanctioning of credit to SME segment. This is the hub for Centralized Processing of SME proposals. That is why it is called as Loan factory.

PREAMBLE It is a veritable race to the bottom of the pyramid. Just a decade ago, banks on an aggressive growth path used to eliminate small &medium enterprises (SMEs) from their portfolio. Then, economic and corporate reform, falling interest rate and a booming capital market changed the game. The best companies aimed for global competitiveness, restructured operations, cut costs, reduced borrowings and met funding needs from the capital market leaving banks to find new customers. SME is fast growing sector in the Indian Economy. Every Bank has given highest importance to financing to SMEs in their strategically growth plan. It has become necessary to bring policy shift and create free market environment from regulations & interventions in economic activity. Growth resulting from globalization and liberalization are visible most profoundly in the SME segment. The relationship between the banker and the customer has become most crucial and competitive. The technology has entered the scene almost as a natural

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corollary of liberalization. Liberalized policies provide ample opportunities to Indian Market to compete with developed and developing countries. The clearance of the Micro, Small & Medium Enterprises Indian industry, as it addresses and streamlines entire frame work along with key governance 7 operational issues being faced by the SMEs.

Outstanding Bank Credit to Micro & Small Enterprises

As on March

Public sector Banks

Private Sector Banks

All Foreign Banks scheduled commercial Banks 6,907 8,430 (22.1) 11,637 (38) 15,489 (33.1) (- 18,064 (16.6) 21,069 (16.6) 83,498 101285 (21.3) 127,323 (25.7) 213,538 (67.7)

Percentage of MSE credit to Net Bank Credit 9 7.5

2005 2006

67,800 82,434 (21.6) 102,550 (24.4) 151,137 (47.4) 191,408 (26.6) 278,398 (45.4)

8,592 10,421 (21.3) 13,136 (26.1) 46,912 (257.1) 46,656 0.5) 64534 (38.3)

2007

7.2

2008

11.6

2009

156,128 (20) 11.4 364,001 (42.1)

2010 (p)

13.4

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OBJECTIVES

The SME Loan Policy is framed with the following objectives: To improve flow of credit to SME Sector so as to double the credit to the Sector in 5 years, i.e. by the year 2012. To formulate liberal norms of lending to SME sector, to ensure availability of adequate and timely credit to the sector. To provide guidelines to the branches to dispense credit to SME Sector on liberalized terms. To devise an organizational structure at all levels for handling SME credit portfolio in a more focused manner. To comply with terms of Policy package announced by Honble Union Finance Minister on 10.08.2005 and further guidelines received from Reserve Bank of India from time to time for implementation of the Policy Package.

It can be observed that by and large, SMEs in India MET expectations of the Government in this respect. SMEs developed in a manner, which made it possible for them to, achieve the following objectives: High contribution to domestic production Significant export earning Operational flexibility Location wise mobility Capacities to develop appropriate indigenous technology Import substitution

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CHARACTERISTICS OF SMEs Concentration of functions in one/two persons Relatively low level of investments, production, sales etc Lack of professionalism Low efficiency in business operations Inadequate R&D Infrastructural inadequacies Limited market access Inadequate exposure to international environment

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Governmental Measures

Recognizing the importance of small and medium enterprises in the growth of Indian economy in terms of their contribution to country's industrial production, exports, employment and creation of entrepreneurial base, the Central and State Governments are undertaking several policy measures and incentives as well as implementing schemes and programs for promotion and development of these enterprises. For this, entrepreneurship development and training is one of the key steps, particularly, for the first generation entrepreneurs. Entrepreneurship Development Programs (EDPs) of various durations are being organized on regular basis by a number of organizations, such as, National and State level Entrepreneurship Development Institutes (EDIs);Micro, Small and Medium Enterprises Development Institutes (MSMEDIs) - formerly called Small Industries Service Institutes (SISIs); National and State level Industrial Development Corporations, Banks and other training institutions/agencies in private and public sector; etc. These EDPs aims to create new entrepreneurs by cultivating their latent qualities of entrepreneurship and enlightening them on various aspects necessary for setting up micro and small enterprises. Besides, skill development programs (SDPs) and entrepreneurship-cum-skill development programs (ESDPs) are also being organized by various public as well as private training institutions. However, there are still wide spread variations in the success rate, in terms of actual setting up and successful running of enterprises, by the EDP/SDP/ESDP trained entrepreneurs. Also, new entrepreneurs generally face difficulties in availing full benefits under available schemes of the Governments / financial institutions, completing and complying with various formalities and legal requirements under various laws/regulations, in selection of appropriate technology, etc.

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In order to bridge the gap between the aspirations of the potential entrepreneurs and the realities, there is a need to support and nurture the potential first generation entrepreneurs by giving them handholding support during the initial stages of setting up and managing their enterprises. Accordingly, the scheme called 'Rajiv Gandhi Udyami Mitra Yojana (RGUMY)' has been launched to provide handholding support and assistance to the potential first generation entrepreneurs, who have already successfully completed EDP/SDP/ESDP or vocational training from ITIs, through the selected lead agencies, like 'Udyami Mitras'. This helps such entrepreneurs in the establishment and management of the new enterprise, in dealing with various procedural and legal hurdles as well as in completion of various formalities required for setting up and running of the enterprise, etc. The work profile of Udyami Mitras include networking, coordinating and follow up with various Government departments/ agencies/ organizations and regulatory agencies for channelizing the benefits available under various schemes to the first generation entrepreneurs and help them in setting up their enterprise. Some of the other governmental measures for small and medium enterprises include:

The Ministry

of

Micro,

Small

and

Medium

Enterprises has

been

implementing the 'Scheme of Surveys, Studies and Policy Research' with a view to regularly/periodically collect, from primary, secondary and other sources, relevant and reliable data on various aspects and features of micro, small and medium enterprises (MSMEs) engaged in manufacturing and services (whether in the category of tiny/small scale industries, khadi, village industries or coir) as a composite group or specific segments thereof. It aims to study and analyze, on the basis of empirical data or otherwise, the constraints and challenges faced by the MSMEs as well as the opportunities available to them, in the context of liberalization and

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globalization of the economy. It further aims to use the results of these surveys and analytical studies for policy research and designing appropriate strategies and measures of intervention by the Government, by itself or in public private partnership mode, to assist and enable these enterprises in facing the challenges and availing of the opportunities with a view to enhancing their efficiency and competitiveness as well as expanding generation of sustainable employment by them.

Micro, Small and Medium Enterprises Development Act, 2006 has been enacted to facilitate the promotion and development as well as enhance the competitiveness of micro, small and medium enterprises and for matters connected therewith or incidental thereto. For this, it included the establishment of specific funds, notification of particular

schemes/programs, progressive credit policies and practices, preference in Government procurements to products and services of these enterprises, following more effective mechanisms for mitigating their problems, etc. It provides the first-ever legal framework for recognition of the concept of 'enterprise' which comprises both manufacturing (those engaged in the manufacture/production of goods pertaining to any industry) and service (those engaged in providing/rendering of services) entities. Under the Act, three tiers of enterprises, namely 'micro, small, and medium' have been defined for the first time. The Act also provides statutory consultative mechanism at the national level with balanced representation of all sections of stakeholders, particularly, these enterprises, and with a wide range of advisory functions.

The progressive de-reservation of products in the MSMEs aimed at providing opportunities for technological up gradation, promotion of exports and economies of scale, with a view to encourage modernization and enhance competitiveness in the sector. As on 13 March 2007, 125 items were de-reserved. As on 8th February, 2008, 79 items more were

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de-reserved. At present, the total number of items reserved for exclusive manufacture in the micro and small scale sector is 35.

The National Manufacturing Competitiveness Program (NMCP) has been launched to provide support to the manufacturing sector, particularly small and medium enterprises sector, in their endeavor to become competitive. It consists of 10 components and programs as the initiatives for development and promotion of MSMEs.

Credit is one of the critical inputs for the promotion of small and medium enterprises. It is a part of the priority sector lending policy of the banks. Accordingly, several schemes and policies have been undertaken to provide adequate credit to such enterprises. One of such scheme is the Credit Linked Capital Subsidy Scheme (CLCSS) which was launched to facilitate technology up gradation by upfront capital subsidy to small, micro and medium enterprises, including tiny, khadi, village and coir industrial units, on institutional finance (credit) availed by them for modernization of their production equipment (plant and machinery) and techniques in specified sub-sectors/ products approved under the Scheme.

Besides, the State and Union Territories (UTs) Governments are executing several promotional and developmental projects/schemes as well as providing a number of supporting incentives for development and promotion of MSME sector in their respective States/UTs. These schemes/ projects are executed through State Directorate of Industries, who has District Industries Centers (DICs) under them to implement Central/State level schemes. Around 30 MSMEDIs and 28 Branch MSME-DIs have been set up in State capitals and other industrial cities all over the country, with a view to provide assistance/consultancy to prospective entrepreneurs as well as to existing units; conduct EDPs, Management Development Programs, Skill Development Programs, etc.

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Bank of Baroda (An Introduction)

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Bank of Baroda is a public sector bank established on July20, 1908. It is one of the largest banks in India and known as Indias International Bank. It has a network of over 3411 branches and offices & about 1596 ATMs. Bank of Baroda offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its specialized subsidiaries and affiliates in the area of investment banking, credit cards and assets management, in its international expansion Bank of Baroda followed the Indian Diaspora, and especially that of the Gujratis. The bank has received RBI approval to open various offices in the overseas territory. Its products includes loans, Credit cards, Savings, Investment vehicles etc. The Corporate office is situated in Mumbai. Its shares are listed in BSE and NSE.

Backed by the great vision of the founding father, Maharaja Sayajirao Gaekwad III, Bank has a rich heritage of many flagship achievements, pioneering endeavors and an undisputedly strong place in the Indian Banking industry today. The Bank of Baroda has seen many ups and downs over a period of 100 years but stood undaunted to surmount all hurdles, coming out with flying colors and reinforcing its strong fundamentals. The world was convinced time and again that this is the Bank with impregnable foundation and immense potential to forge ahead to contribute to the nations economic growth. Bank of Baroda is one of the oldest banking institutions in India, having been established in 1908 from a small building in Baroda, Gujarat State. It was set up with a paid up capital of Rs.20 lakhs by the then ruler of Baroda, Maharaja Sayajirao Gaekwad.

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PROFILE
Bank of Baroda (BOB), Indias third largest bank and prominent among the global top 200, has a centurys financial experience backing it. Bank of Baroda offers a wide range of banking products and financial services to more than 70 million global corporate and retail customers, through various delivery channels, its specialized subsidiaries and affiliates in the areas of investment banking, credit cards and asset management. Today, the Bank has significant international presence with a network of 85 branches/offices in 26 countries including 53 branches/offices of the Bank, 28 branches of its 8 Subsidiaries and 3 Representative Offices in Malaysia, Thailand & Australia. The Bank also has a Joint Venture in Zambia with 12 branches. During the current year bank has opened branch at IIford, U.K. & Auckland, New Zealand of its wholly owned subsidiary-Bank of Baroda (new Zealand) Ltd and 3 Electronic Banking Service Units in UAE at RAKIA, Ras Al Khaimah, Al Quasis, Dubai and Sh. Zayed Road, Dubai. Growing its presence across new geographies and strengthening its equity in existing markets, Bank of Baroda is on the path to establish itself 'round the clock around the globe. The bank is exploring out-of-the-box means to identify novel ways to tailor its growing repertoire of products and services to meet segmentspecific requirements across geographies. Automation-led process and cost optimization, orchestration of the offices network and greater attention to compliance with global regulations are aggressively being focused on to help the bank achieve its ambitious goals.

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HISTORY
Bank of Baroda is having a long, eventful and glorious history of 100 years. HH Sir Maharaja Sayajirao Gaekwad-III founded the Bank. The Bank made a humble beginning in 1908 in a small building in Baroda. On 20th July 1908 Bank of Baroda Limited was registered under the Baroda Companies Act of 1897, with a paid up capital of Rs.20 lacs and Shri Vithaldas Damodar Thackersey as the first Chairman. 1908-1959 1908: Maharaja Sayajirao Gaekwad III set up Bank of Baroda (BOB). 1910: BoB established its first branch in Ahmadabad. 1953: BoB established a branch in Mombasa and another in Kampala. 1954: BoB opened a branch in Nairobi. 1956: BoB opened a branch in Dar-es-Salaam. 1957: BoB established a branch in London. 1959: BoB acquired Hind Bank. 1960s 1961: BoB merged in New Citizen Bank of India. This merger helped it increase its branch network in Maharashtra. BOB also opened a branch in Fiji. 1962: BoB opened a branch in Mauritius. 1963: BoB acquired Surat Banking Corporation in Surat, Gujarat. 1964: BoB acquired two banks, Umbergaon Peoples Bank in southern Gujarat and Tamil Nadu Central Bank in Tamil Nadu state. BoB lost its branch in

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Narayanganj (East Pakistan) due to the Indo-Pakistan war. It is unclear when BOB had opened the branch. 1965: BoB opened a branch in Guyana. 1967: The Tanzanian government nationalized BoBs three branches there and transferred their operations to the Tanzanian government-owned National Banking Corporation. 1969: The government of India nationalized 14 top banks, including BoB. Bob incorporated its operations in Uganda as a 51% subsidiary, with the government owning the rest. 1970s 1972: BoB acquired The Bank of Indias operations in Uganda. 1974: BoB opened a branch each in Dubai and Abu Dhabi. 1975: BoB acquired the majority shareholding and management control of Bareilly Corporation Bank (est. 1928) and Nainital Bank (est. in 1954), both in Uttar Pradesh. Since then, Nainital Bank has expanded to Uttarakhand State. 1976: BoB opened a branch in Oman and another in Brussels. The Brussels branch was aimed at Indian firms from Mumbai (Bombay) engaged in diamond cutting and jewellery having business in Antwerp, a major center for diamond cutting. 1977: BoB Opened a branch in Imphal . 1978: BoB opened a branch in New York and another in the Seychelles. 1979: BoB opened a branch in Nassau, The Bahamas.

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1980s 1980: BoB opened a branch in Bahrain and a representative office in Sydney, Australia. BoB, Union Bank of India and Indian Bank established IUB International Finance, a licensed deposit taker, in Hong Kong. Each of the three banks took an equal share. 1985: BoB (20%), Bank of India (20%), Central Bank of India (20%) and ZIMCO (Zambian government; 40%) established Indo-Zambia Bank (Lusaka). BoB also opened an Offshore Banking Unit (OBU) in Bahrain. 1988: BoB acquired Traders Bank, which had a branch network in Delhi. 1990s 1990: BoB opened an OBU in Mauritius, but closed its representative office in Sydney. 1991: BoB took over the London branches of Union Bank of India and Punjab & Sind Bank (P&S). P&Ss branch had been established before 1970 and Union Banks after 1980. The Reserve Bank of India ordered the takeover of the two following the banks' involvement in the Sethia fraud in 1987 and subsequent losses. 1992:BoB incorporated its operations in Kenya into a local subsidiary with a small tranche of shares quoted on the Nairobi Stock Exchange. 1993: BoB closed its OBU in Bahrain. 1996: BoB Bank entered the capital market in December with an Initial Public Offering (IPO). The Government of India is still the largest shareholder, owning 66% of the bank's equity. 1997: BoB opened a branch in Durban.

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1998: BoB bought out its partners in IUB International Finance in Hong Kong. Apparently this was a response to regulatory changes following Hong Kongs reversion to the Peoples Republic of China. The now wholly owned subsidiary became Bank of Baroda (Hong Kong), a restricted license bank. BoB also acquired Punjab Cooperative Bank in a rescue. BoB also incorporate wholly owned subsidiary BOB Capital Markets Ltd.for Broking Business. 1999: BoB merged in Bareilly Corporation Bank in another rescue. At the time, Bareilly had 64 branches, including four in Delhi. In Guyana, BoB incorporated its branch as a subsidiary, Bank of Baroda Guyana. BoB added a branch in Mauritius, but closed its Harrow Branch in London. 2000s 2000: BoB established Bank of Baroda (Botswana). 2002: BoB acquired Benares State Bank (BSB) at the Reserve Bank of Indias request. BSB was established in 1946 but traced its origins back to 1871 and its function as the treasury office of the Benares state. In 1964, BSB had acquired Bareilly Bank (est. 1934), with seven branches; it also had taken over Lucknow Bank in 1968. The acquisition of BSB brought BOB 105 new branches. 2002: Bank of Baroda (Uganda) was listed on the Uganda Securities Exchange (USE). 2003: BoB opened an OBU in Mumbai. 2004: BoB acquired the failed Gujarat Local Area Bank, and returned to Tanzania by establishing a subsidiary in Dar-es-Salaam. BoB also opened a representative office each in Kuala Lumpur, Malaysia, and Guangdong, China.

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2005: BoB built a Global Data Centre (DC) in Mumbai for running its centralized banking solution (CBS) and other applications in more than 1,900 branches across India and 20 other counties where the bank operates. BoB also opened a representative office in Thailand. 2006: BoB established an Offshore Banking Unit (OBU) in Singapore. 2007: In its centenary year, BoBs total business crossed 2.09 lakh crores, its branches crossed 1000, and its global customer base 29 million people. 2008: BoB opened a branch in Guangzhou, China (02/08/2008) and in Kenton, Harrow United Kingdom. 2008: BoB opened a joint venture life insurance company with Andhra Bank and Legal and General (UK) called India First Life Insurance Company 2009: The Bank of Baroda registered with the Reserve Bank of New Zealand, enabling it to trade as a bank in New Zealand (2009/09/01) 2010: Malaysia awarded a commercial banking license to a locally incorporated bank to be jointly owned by Bank of Baroda, Indian Overseas Bankand AndhraBank. The new bank, India BIA Bank (Malaysia), will reside in Kuala Lumpur, which has a large population of Indians. Andhra Bank will hold a 25% stake in the joint-venture, Bank of Baroda will own 40% and IOB the remaining 35%.

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BANK NETWORK
OVER SEAS SUBSIDIARIES Bank of Baroda (Botswana) Ltd. Bank of Baroda (Kenya) Ltd. Bank of Baroda (Uganda) Ltd. Bank of Baroda (Guyana) Inc. Bank of Baroda (Trinidad & Tobago) Ltd. Bank of Baroda (Tanzania) Ltd. Bank of Baroda (Ghana) Ltd. Bank of Baroda (New Zealand) Ltd. Joint Venture India-Zambia Bank Ltd. (Lusaka)

Representative Offices Australia, Malaysia, Thailand.

Indian Subsidiaries: 1. BOB Assets Management Co. Ltd. 2. BOBCARDS Ltd. 3. BOB Capital Market Ltd.

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International Net work

At present, the Bank has an overseas network of 72 branches / offices in the following 26 countries as under:

(1) Bahamas (2) Belgium (3) Botswana (4) Bangkok (5) China (6) Fiji Island (7) Guyana (8) Hong Kong (9) Kenya (10) Mauritius (11) Malaysia(12) South Africa (13) Seychelles (14) Sultanate of Oman (15) Singapore (16) Tanzania (17) Uganda (18) UAE (19) UK (20) USA (21) Zambia (22) Australia (23) Bahrain (24) Ghana (25) Trinidad & Tobago (26) New Zealand

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BOARD OF DIRECTORS OF BANK OF BARODA

NAME

DESIGNATION

1. Shri M.D. Mallya

Chairman & Managing Director

2. Shri N. S. Shrinath 3.Shri Rajiv Kumar Bakshi 4. Shri Alok Nigam 5. Shri R. Gandhi 6. Shri Ajay Mathur 7. Shri V.B. Chavan 8.Dr.(Smt.) Masarrat Shahid 9. Shri Satya Dev Tripathi 10.Dr. Dharmendra Bhandari 11. Dr. Deepak B. Pathak 12. Shri Maulin Vashnav

Executive Director Executive Director

Director Director Director Director Director Director

Director

Director

Director

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POSITION
Bank of Baroda is at 3rd position in Indias top 5 Public sector banks after State Bank of India and Punjab National Bank. After BOB are IDBI and Bank of India.

BANKS MISSION STATEMENT of 2011-12

Business Growth through sales and service excellence.

BANKS VISION
1. To regain the leadership spot among the public sector Banks in India. 2. To acquire at least 2 million customers every year. 3. To double the retail assets and fee based income 4. To bring at least 300 to 400 of the top 500 Corporate in the Banks Loan book 5. To transform the top 500 branches into best-of-the-breed sale and service centers, through improved ambience, processes, people and technology. 6. To pursue best global practices for delivering best value to the customers.

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PRODUCTS AND SERVICES

Given below is the list of services offered by the Bank of Baroda: Retail Banking Rural / Agri Banking Wholesale Banking SME Banking Wealth Management De mat account Product Enquiry Internet Banking NRI Remittances Baroda e-trading Interest Rates Deposit Products Loan Products ATM / Debit cards

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International Services
NRI Services FGN Currency Credits ECB (External Communication Borrowings) FCNR (B) Loans Offshore Banking Finance in Export and Import Correspondent Banking Facility International Treasury

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ACCOLADES AND AWARDS WON BY THE BANK

Sr. No

Name Award

of

the Year

Area

Organization conferring award the

Excellence Finance Communication Award

in 2006

Outstanding contribution Association in communications financial Business

of

Communications of India (ABCI)

Golden

Peacock 2007

Innovation

Golden Peacock

Innovation Award 3 Outlook NDTV Award 4 Employer Branding 2007 Award Managing Health at work ITM School Business Money 2007 Money Best Bank in Home Loan Outlook Category NDTV Money Money

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Amity Award

Leadership 2007

Sectoral Excellence

Amity School

Business

SKOCH Challenger Award

2007

Change Management

SKOCH Consultants Pvt. Ltd.

MIDAS Award

2007

Marketing Effectiveness

MIDAS New York

Awards,

Bank of the Year

2009

Urban Development

Workhardt Foundation

Silver Award

2010

Rendering Services

Financial Dainik Bhaskar Group

10

Best Bank Award

2010

Significant progress in all Business fields Magazine Banker UK For asset tap the of potential SKOCH unskilled Consultancy youth of Ltd.

India

11

Bank of the Year 2010 2010

Continuous progress

Magazine,

12

Financial Inclusion 2011 Award

Pvt.

unemployed India to

impart

them

training by setting up Baroda Swarojgar Vikas Sansthan(BSVS) Baroda R-SETI Centers.

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Bank of Baroda SME Loan Factory

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ORGANIZATIONAL SET UP Bank of Baroda has set up SME Department at Corporate Office headed by the General Manager with a view to take quick decisions. Bank of Baroda has 60 Specialized SME branches all over India.

SME LOAN FACTORY- Objectives To grab vast business opportunities available and with an aim to extend focused attention to Industries & Service Sector, Bank Of Baroda has come out an unique model in the form of SME LOAN FACTORY exclusively for SMEs. It is a revolutionary step taken by Bank of Baroda amongst the nationalized Banks. Is envisages setting up of Centralized Processing Hub to ensure speedy appraisal and sanctioning of proposals of SME Sector within a time bound schedule. The models works on assembly line principles with simplified processes using latest technology and in-house skilled men power to deliver focused services to SME customers. A team of relationship Officers / Relationship Managers have been stationed at different key places spread over the micro segment of the city who will reach out to SME customers. At present 36 SME Loan Factories have already been operationalised all over India with deployment of team of experts.

FEATURES OF THE MODEL Team of officers having expertise in the area of credit with positive approach is selected.

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Instead of appointing DSAs (Direct Selling Agents), bank has appointed officers from existing dedicated team only. The hubs main role is ensuring speedy appraisal & sanctioning of proposals pertaining to SME Sector in a time bound program. The team members reach out to different market segments. Its important feature is working of the SME Loan Factory on assembly line principles with simplified processes. We have two nodes to take care of the marketing/ sales (SALES HUB) and credit processing/ sanction (CREDIT HUB), under a single umbrella of the SME Loan Factory.

ELIGIBLE ENTITIES Manufacturers Traders Educational institutions Hospitals Hotels Auto dealers Dressmakers Coaching classes Repairers etc.

The total outstanding in MSME Sector works out to Rs 27,365 crore as on 31st March 2011. The growth in lending to MSME Sector during the last three years is given in the table below: GROWTH INLENDING: Year 2008-09 2009-10 2010-11 Growth (%, YoY) 24.18% 43.98% 29.63%

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PERFORMANCE OF S.M.E. (JAIPUR) : PERIOD 1.04.2010 31.03.2011 TARGET (In Cr.) to 575.00 ACHIEVED (In Cr.) 652.10

Industry wise sanctions and disbursement during the period 1/04/10 to 31/03/11 Sr. No. Industries Proposal Sanctioned Proposal disbursed No. 1 Engineering Auto 2 3 4 5 6 7. 8 9 10 & Auto 1 16 8 8 20 91 3 19 1.50 35.39 3.67 13.37 61.41 270.52 42.07 71.11 54.72 1 14 8 6 18 79 2 16 5 1.50 34.40 3.67 12.79 57.91 195.79 32.07 64.64 32.42 5 Amount(cr.) 50.89 No. 3 Amount (cr.) 48.99

ancillaries Textile Chemical Plastic Iron & Steel Other manufacturing Real estate Construction s

Educational institutes 6

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11 12 13

Hotels Other service sector Trading sector (a) Retail (b) Wholesale Total

1 8

1.50 8.93

1 7

1.50 7.93

8 18 212

19.78 17.24 652.10

8 13 181

19.78 9.80 523.19

INITIATIVES TAKEN BY BANK IN MSME FINANCING DURING 2010-11 1. During this year, the Bank introduced five new customer-centric, area-specific products to suit the local cluster needs along with the renewal of eight existing customer-centric area-specific products. 2. The Bank sponsored a workshop on Management Skills to Source Financing and Management of Technology by SMEs for entrepreneurs organized by the AIMA at Faridabad. 3. The Bank introduced Protrack -- an e-tracking system for the SME credit proposals with a view to have control over the turnaround time. 4. The Bank celebrated SME Festival from 1st January 2011 to 28th February 2011 in order to give boost to SME advances. Some concessions in the rate of interest and service charges were announced for loans sanctioned during the celebration period. 5. The Bank participated in the Workshops arranged by CGTMSE on Bank Credit to Micro & Small Enterprises and the Role of Credit Guarantee. 6. The Bank accorded higher importance to Increase the flow of credit to MSME with a special emphasis on Micro Enterprises.

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7. The Bank focused on collateral free credit under the CGTMSE scheme through a special campaign. 8. The Bank achieved total customer relationship through enhanced cross selling, locational meetings, and involvement of trade bodies at the national and state levels. 9. The Bank placed emphasis on continuous knowledge updating and skill building of processing/marketing officers attached to its SME factories with the help of external and internal training outfits.

SME PRODUCTS 1. BARODA Overdraft against Land & Building 2. Baroda SME Loan Pack 3. Baroda Vidyasthali Loan 4. Baroda Arogyadham Loan. 5. SME Short Term Loans 6. SME Medium Term Loans 7. Composite Loans 8. Baroda SME Gold Card. 9. Collateral Free Loans under Credit Guarantee fund trust Scheme for Small Enterprises. 10. Term Loans and Working capital finance. 11. Loans under Technology Up gradation Fund/Credit Linked Subsidy Scheme.

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12. Loans under National Equity Fund Scheme. 13. Baroda Artisans Credit Card 14. Baroda Laghu Udyami Credit Card.

FEATURES OF THE PRODUCT Bank of Baroda has posted skilled own employees who are stationed at micro level in the market. Liberal approach for the SMEs. No hidden charges in any of the products. The products have very competitive rate of interest. Time Bound Turnaround Time of SME Proposals. Simplified Processing and System. A Unique product launched SME Loan Pack, which is a single line of credit for fund-based, non-fund based long term requirements. Area specific products have been designed taking into consideration specific geographical requirement of the cluster.

BRIEF DETAILS OF SME PRODUCTS

1. BARODA SME LOAN PACK Baroda SME Loan Pack provides single line of credit for meeting SME borrowers working capital as well as long-term requirements within the overall limit approved by the bank.

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PURPOSE: To provide hassle free credit for working capital (fund based and non-fund based) as also long-term requirements, taking into account nature of business, cyclical trends, cash flow projections, peak time requirements and any eventuality of unforeseen spurt in the business. ELIGIBILITY: Micro, Small and Medium Enterprises (Manufacturing and Service sector ) other than retail trade- as per regulatory definition irrespective of geographical location, i.e. rural, semi-urban, urban, metro areas. All other entities with their annual sales turnover of Rs. 1 crore to Rs. 150 Crore and new infrastructure and real estate projects, where the project cost is up to Rs. 50 Crores.

COMPOSITE LIMIT: 4.5 times of borrowers tangible net worth as per last audited Balance Sheet, or, Rs. 5.00 Crores, whichever is lower. MARGIN: 25% .

2. BARODA OVERDRAFT AGAINST LAND AND BUILDING Baroda Overdraft against land and building is a unique product for financing working capital requirements/long term margin requirements of SME borrowers against the security of unencumbered land and building belonging to the unit or Promoters of the unit. PURPOSE: To meet Fund based working capital requirements.

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ELIGIBILITY:SMEs as per expanded definition established in the line of business for a minimum period of 2 years and financed/ proposed to be financed under sole banking arrangements. LIMIT:Minimum:Rs. 25.00 Lakhs(for rural, semi-urban, urban, metro branches) Maximum: Rs. 50.00 Lakhs (for Rural branches) Rs. 200.00 Lakhs (for Semi-Urban) Rs. 500.00 Lakhs (for Urban and Metro branches) SECURITY:Mortgage of factory land and building and/or any other property (Land & Building) belonging to promoters, viz. Directors, who will also stand as guarantors, Proprietor or Partners. In case of residential/commercial building, age of property should not be more than 25 years. MARGIN:40% of the market value of property mortgaged. Regional head is authorized to reduce the margin upto 35% in deserving cases.

3.COMPOSITE LOANS ELIGIBILITY:Small Scale Industrial Units (including artisans, village and cottage industrial units and tiny units in SSI Sector), and Small Scale Service & Business Establishments engaged in industrial activities only.

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PURPOSE:Fixed capital investment and / or working capital requirement. AMOUNT OF LOAN :Up to Rs. 100/- Lakhs. MARGIN: Nil in case of composite loan up to Rs. 25,000/-. 15% - 25% in case of composite loans above Rs. 25000/- and up to Rs. 100/Lakhs. SECURITY: Charge on assets created out of loan amount and other collateral securities as determined on the merits of each case. PERIOD OF REPAYMENT: Minimum 3 years and maximum of 10 years (which can be extended), with initial holiday of 12 months to 18 months.

4. BARODA VIDHYASTHALI LOAN Baroda Vidyasthali Loan is a special scheme for financing Educational Institutions. PURPOSE: To meet the financial requirements for setting up the institutions which includes construction of building, purchase of equipment etc. for the new set up as also renovation of the existing facilities, purchase of instruments for imparting education training to the students.

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ELIGIBILITY: Educational institutions, Schools, Colleges and other education bodies running education activities set up by firms, company, trusts etc (Note: HUF are not eligible.) LIMIT: Minimum Rs.25 lacs Maximum Rs.10.00 crores SECURITY: Equitable mortgage of Land & Building (not agricultural land). Hypothecation of Instruments & Equipment acquired out of the loan and other assets of the Educational Institution. Personal guarantees of the Promoters of the Institution.

MARGIN 25% of the cost of the project.

5. BARODA AROGYADHAM LOAN PURPOSE: To meet the financial requirements for setting up of new Nursing Home/Hospital including Pathological Laboratory, Expansion/renovation/modernization of existing Nursing Home/ Hospital including Pathological Laboratory, Purchase of medical diagnostic equipments as also office equipments, viz. computers, air conditioners, office furniture, Purchase of ambulance etc and to meet working capital requirements.

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ELIGIBILITY: Micro, Small and Medium Enterprises as per regulatory definition irrespective of geographical location, i.e. rural, semi-urban, urban, metro areas. All other entities with their annual sales turnover of Rs. 1 crore to Rs. 150 Crore and new infrastructure and real estate projects, where the project cost is up to Rs. 50 Crores. Note: The Promoters should have requisite qualification in any branch of medical science from a recognized University and should have minimum 2 years of work experience. LIMIT: Rural Centers - Rs. 0.50 crores Semi-Urban Centers - Rs. 6.00 crores Urban & Metro Centers - Rs. 12.00 crores Notes: Working Capital limits up to 10% of the annual sale or gross income, subject to 20% of the above ceiling limit in case of borrowers requiring both Term Loan and working capital facilities. SECURITY:1. Equitable mortgage of Land & Building/premises of Nursing Home/Hospital 2. Hypothecation of medical equipment/office equipment acquired out of loan amount. 3. Personal guarantee of Promoter Directors in case of Limited Companies and Trustees in case of Trusts. 4. Hypothecation of medicines, receivables and other chargeable current assets.

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5. Charge on unencumbered assets of Promoter Directors in case of Private Limited Companies, or any other collateral by way of FDR, mortgage of properties in the personal name of the relatives of Promoters, etc. MARGIN: 25% on the chargeable assets.

6. MARGIN MONEY SCHEME ENDER RURAL EMPLOYMENT GENERATION PROGRAM OF KVIC OBJECTIVES: To generate employment in rural area. To develop entrepreneurial skills among the rural unemployed youth. To achieve the goal of rural industrialization. To facilitate participation of Financial Institutions for higher credit to rural industries.

ELIGIBILITY: Individual entrepreneurs above 18 years of age. Self-Help Groups Institutions Co-operative Societies Trusts Public Limited Companies owned by State/Central Government

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ELIGIBLE PROJECTS: 1.Any village industry (except those mentioned in the negative list by KVIC) located in the rural areas, in Manufacture as also Service Sector, and in which, the fixed capital investment per head of a full time artisan or worker does not exceed Rs. 50,000/2. Sponsoring of the Project is not mandatory. 3. KVIC would impart training to the beneficiary. CEILING LIMIT PER PROJECT: Rs. 25/- Lakhs (exclusive of cost of land) MARGIN: 5% of the Project cost in respect of beneficiaries belonging to SC/ST/OBC/ women/PH/Ex-Servicemen/Minority and those located in Hill, Border & Tribal area/North East Region/Sikkim/Andaman & Nicobar Islands & Lakshadweep. 10% in case of other beneficiaries. MARGIN MONEY: For projects costing up to Rs. 10/- Lakhs - 25% of the Project cost. For Projects costing above Rs. 10/- lacs and up to Rs. 25/- Lakhs 25% of Rs. 10/- Lakhs + 10% of the remaining cost of the Project. In case of SC/ST/OBC/women/PH/Ex-Servicemen/Minority and those located in Hill, Border & Tribal area/North East Region/Sikkim/Andaman & Nicobar Islands & Lakshadweep, margin money will be 30% of the Project cost up to Rs. 10/- lacs plus 10% of the remaining cost of the Project. Margin Money is calculated on the actual bank loan availed + borrowers own contribution

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7. COLLATERAL FREE LOANS UNDER CREDIT GUARANTEE FUND SCHEME FOR MICRO AND SMALL ENTERPRISES PURPOSE: To provide collateral free loans up to Rs.50/- lacs to Micro & Small Enterprises (both in the Manufacturing Sector as well as in the Service Sector) ELIGIBILITY: Micro & Small Enterprises (both in the Manufacturing Sector as well as in the Service Sector) LIMIT: Term Loan and/or Working Capital / Non Fund Based facility like Letter of Credit, Guarantee etc. up to an aggregate limit of Rs.50/- lacs to a single borrower. SECURITY: Current/fixed assets of the unit. No collateral / third party guarantee. GUARANTEE FEE: A onetime guarantee fee (Joining fee) at specified rate (currently 0.75% p.a. of the credit facilities sanctioned and annual service fee @ 0.75% p.a.

BANKS INITIATIVE 50% of the guarantee fee is shared by the bank with the borrowers (loan up to 25 lacs) to reduce the cost to the borrower.

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8. BARODA SME GOLD CARD Baroda SME Gold Card envisages provision of additional limit of 10% of the assessed eligible bank finance for Working Capital to existing Small & Medium Enterprises, on request along with regular application for Working Capital limits to meet emergent requirements. PURPOSE: To provide hassle free on the spot assistance to take care of borrowers emergent requirements and tie up temporary mismatch in liquidity arising out of delayed payment by buyers, tax payment, execution of bulk orders, etc. ELIGIBILITY: Accounts in Standard Category for last 2 years, with credit rating of BOB 4 and above and enjoying working capital limits of Rs. 25/- Lakhs and above. Accounts having sole banking arrangement with our bank. MARGIN: Nil RATE OF INTEREST: As applicable for regular Cash Credit facility. PERIOD: 12 months to be allowed on 4 occasions during the year for a maximum period of 2 months on each occasion.

SECURITY: As applicable to regular Cash Credit facility.

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9. SME SHORT TERM LOANS PURPOSE: To meet temporary shortfall / mismatch in liquidity, for meeting genuine business requirements only. ENTERPRISES GROUP: Small and Medium-sized corporate, business and Trading houses (including partnership firms). ELIGIBILITY CRITERIA: Satisfactory credit rating for the last three years (BOB 4 and above) and for 4 half years in case of accounts where credit rating is done on half yearly basis. Satisfactory dealings with the Bank for at least five years.

LOAN AMOUNT: Up to 25% of the existing Fund based Working capital limits (depending on the Credit Rating), subject to a minimum of Rs. 10 Lakhs and maximum of Rs. 250 Lakhs. PERIOD: Not exceeding 180 days minimum 90 days

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SECURITY: First charge / Equitable mortgage of fixed assets of the company / firm or extension of existing first charge / equitable mortgage of fixed assets, ensuring that there is a minimum asset cover of 1.50. Extension of Charge on current assets for the additional facility ensuring that adequate drawing power is available. Extension of all existing guarantees of Directors / Third party guarantees to cover the additional facility.

10.SME MEDIUM TERM LOANS PURPOSE: To augment enterprises working capital gap and to help in improvement of current ratio and also for meeting genuine business requirements. The facility will also be available for repayment of secured and unsecured Loans of other banks or institutions, but not for any purpose, which is not related to the enterprises activity. ENTERPRISES GROUP: Small and Medium-sized corporate, business and trading houses (including partnership firms). ELIGIBILITY CRITERIA Satisfactory credit rating for the last three years Latest Balance Sheet etc. should be available. Satisfactory financial performance in terms of Sales/turnover and profits. Negative variance, if any, should not be more than 10%. Debt-equity ratio should not be higher than 2.5:1 and average DSCR should be not less than 1.75:1.

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Satisfactory dealings with the Bank for at least Three years.

LOAN AMOUNT: Based Up to 25% of the existing fund Working capital limits (depending on the Credit Rating), subject to a minimum of Rs. 25 Lakhs and maximum of Rs. 500 Lakhs. PERIOD: Not exceeding 36- months, to be repaid in equal quarterly or half-yearly installments. SECURITY: First charge / Equitable mortgage of fixed assets of the Company / firm or extension of existing first charge/ equitable mortgage of fixed assets, ensuring that there is a minimum asset cover of 1.50

11. SCHEME FOR FINANCING ENERGY EFFICIENCY PROJECTS PURPOSE: Financing SMEs for acquisition of equipments, services and adopting measures for enhancement of energy efficiency/conservation of energy. ELIGIBILITY SME units financed by bank as also other units desirous of shifting their account to Bank of Baroda. LIMIT: Up to 75% of the total project cost, subject to maximum of Rs. 1/- crore. (Minimum amount of loan Rs. 5/- Lakhs).

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PROJECT COST MAY INCLUDE THE FOLLOWING: Cost of acquisition/modification/renovation of equipment/software. Cost of alterations to existing machinery. Cost of structural / layout changes. Cost of energy audit/consultancy. Preparation of Detailed Project Report (DPR).

RATE OF INTEREST: Banks BPLR from time to time. REPAYMENT: Maximum 5 years, including moratorium, if any. SECURITY: For Sole Banking Accounts: Extension of first charge on all fixed assets. For Consortium/Multiple Banking Accounts: first charge on equipments acquired out of loan and collateral, if any, with the total security coverage being not less than 1.25. Grant from IREDA: IRDEA, at present, gives a grant of Rs. 25,000/- for projects costing Rs. 1/- crore or below to meet partial cost of Energy Audit. This grant is available for the first 100 projects (SME Sectors only) approved by them.

12. SCHEME FOR FINANCING EXISTING BORROWERS UNDER SME SEGMENT FOR PURCHASE OF NEW VEHICLES NATURE OF FACILITY: Demand Loan / Term Loan

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PURPOSE: For acquiring any type of new vehicle eligible for Registration with Regional Transport Authority. LIMIT: Maximum Rs. 50/- lacs. ELIGIBILITY: Proprietorship firms, Registered Partnership concerns, Private Limited

Companies, Limited Companies, Trusts, and Co-operative Societies (Except individuals) under SME Segment with credit rating up to BOB-6. MARGIN: 10 % of total cost of transport vehicle i.e. inclusive of initial insurance premium, RTO Tax, Octroi, body building charges & other incidental charges in case of new vehicle. RATE OF INTEREST: 2.25% below BPLR with monthly rests, irrespective of credit rating. NOTE: Though rate of interest is declined from credit rating, Credit Rating is to be carried out for each account as per extant guidelines PERIOD: Maximum 60 months subject to review every year. The facility to be included in the regular review proposal. REPAYMENT OF TERM LOAN: In 60 monthly installments depending upon the cash flow. Interest to be serviced every month.

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SME LOAN POLICY OF BANK OF BARODA

OBJECTIVES The SME Loan Policy is framed with the following objectives: To improve flow of credit to SME Sector so as to doubles the credit to the Sector in 5 years, i.e. by the year 2010. To formulate liberal norms of lending to SME sector, to ensure availability of adequate and timely credit to the sector. To provide guidelines to the branches to dispense credit to SME Sector on liberalized terms. To devise guidelines to the branches to dispense credit to SME credit portfolio in a more focused manner. To comply with terms of policy package announced by Honble Union Finance Minister on 10.08.2005 and further guidelines received from Reserve Bank of India from time to time for implementation of the Policy Package.

SCOPE OF POLICY This Policy will form a part of Banks Domestic Loan Policy and will cover following: Composition of SME SectorMicro, Small and Medium enterprises in Manufacturing and Service areas. Broad guidelines on lending to SME Sectorregarding application norms, time norms, submission of credit proposal, type of facilities, assessment of requirement, margin, rate of interest, penal interest, credit rating, collateral free loans, techno-economic viability study and financial analysis SME Loan Factory Modelincludes credit and sales hub. Pricing Policyas per the facility and amount demanded.

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Identifying Thrust Industriesincludes o IT & IT enabled services o Drugs & Pharmaceuticals o Auto components, Auto Ancillary units o Food and Agro based industries o Textile machineries o Dyes & intermediates o Engineering equipments o Chemicals o Defense equipments manufacturing Units

TYPES OF FACILITIES - SME Units may be granted a variety of credit facilities for their different needs which will include the following: (a) Term Loan / Demand loan / Deferred Payment Guarantee: For acquisition of capital goods (including second hand), fixed assets, vehicles, plant &machinery, purchase of land, construction of buildings etc. (b) Working Capital by way of Cash Credit, Overdraft etc for: 1. Purchase of raw material, components, stores, spares and maintenance of stock of these items at minimum level and stock in process and finished goods. 2. Finance against receivables including receipted challans / invoices. 3. Meeting marketing expenses where the units have to incur large-scale expenditure towards marketing of their products. (c) Bills Purchase / Discounting under L/c or outside L/c. (d) Export Credit facilities like Packing Credit, FBP / UFBP. (e) Letter of Credit (f) Bank Guarantees

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Research Methodology

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Research Methodology
The Research part of the project included finding the factors that will stimulate financing in micro and small enterprises and whether the approach of Bank of Baroda is satisfactory. The research work followed by the 1. Analysis of existing facilities i.e. various loans granted by Bank of Baroda to the SME Companies particularly of Jaipur region. 2. Effective working of SME Loan Factory. 3. Recommendations for the requisite improvement in the lending criteria of a SME Loan Factory.

Title of the Study

Suggestions to stimulate financing under micro and small enterprises

RESEARCH OBJECTIVES
To gauge the level of satisfaction of existing customers (who are enjoying various loan facilities) of Bank of Baroda. To prepare a loan scheme for the SMEs. To suggest the ways and benefits of cluster approach of Banks in Financing SMEs in India To give recommendations towards enhancements of lending and effective working of SME Loan Factory.

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RESEARCH TYPE
Exploratory Research: It has the goal of formulating problems more
precisely, clarifying concepts, gathering explanations, gaining insights and eliminating impractical ideas.

SAMPLE SIZE
Existing Customers* of Bank of Baroda (15 in number). *- Existing customers here means those who are enjoying various facilities of Bank of Baroda till March 2011.

RESEARCH AREA
Manufacturer and / or Exporter organizations in Sitapura Industrial Area and Bagru Industrial Area, Jaipur Region (Rajasthan).

SOURCES OF THE RESEARCH DATA

Primary Data : Questionnaire. Secondary Data : Internet and Books.

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Data Analysis And Interpretation

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ANALYSIS OF THE RESEARCH

The following graphs with their elaboration will explain the analysis done to draw conclusions out of the data generated with the help of questionnaire used for the research purpose:

Fig. 1

20% 20%
Private Ltd.

60%

Partnership Proprietary

The Figure 1 represents the Ownership pattern of various Companies. Out of the 15 Companies 60 % are Private Ltd. 20 % are Partnership. 20 % are Proprietary.

This reveals that larger part of the Organizations includes Private Limited. Partnership and Proprietary Companies hold equal portions in SME.

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Fig. 2

0% 0% 0%

Public Banks Private Banks Cooperative Banks Regional Banks

100%

The Figure 2 represents the Categories of Banks which are approached for loans and advances. Here, we can see that all the Organizations approached for Public Sector Banks. This reveals that facilities provided by Public Sector Banks for SMEs are comparatively good and Organizations belief on Public Sector banks. Other banks should also make efforts to contribute in the growth of SME sector.

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Fig. 3 Awareness in the customers regarding schemes provided by the Bank

0 27%
Yes

73%

No

The Figure 3 represents the number of the existing clients out of the sample size 15 that whether they are aware of the loans and advances schemes given by the Bank of Baroda to the SMEs. Out of 15 Clients, only 27 % are aware of the schemes provided by the Bank. Rest 73 % is unaware about all the loans and advances schemes given by the Bank to the SMEs.

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Fig. 4 Limit of the credit taken by the customers

0% 13.33% 20%
upto 25 lakhs 25 lakhs - 1 crore 1 crore-5 crores

20%
46.67%

5 crores - 10 crores above 10 crores

The figure 4 indicates the Limit of the Credit taken by the existing customers. This reveals that mostly customers have taken loan in the Rs. 1 crore and 5 Crores range that is 47 %. There are equal number of customers who have taken loan in the range of 25 lacs to 1 crore and 5 crores to 10 cores. Only 13 % have taken loan more than 10 crores that is only 2 customers out of 15 have taken loan which is above 10 Crores.

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Fig. 5

In Future, whether the customers will opt for Bank of Baroda for Loans and Advances

13%

27% 60%

yes Not thinked yet No

This figure represents the number of customers that will opt for bank of Baroda if in future; they will have a loan requirement. Out of the total sample size, 60 % will opt for Bank of Baroda. 27 % have not thinked yet. And 13 % will never opt for Bank of Baroda for their loan requirement.

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Fig. 6 Customers having accounts in other Banks

40% 60%
Yes No

This Figure indicates the percentage of customers who have accounts in other Banks. 40 % of the customers have account in other Banks while 60 % do not have account in the Bank other than Bank of Baroda.

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Fig. 7 Key factors that motivated the Customers to take Loan from Bank of Baroda

13%
long term business relations

87%

Near Branch

This figure shows that 87 % Customers motivation is long term business relations while the remaining 13 % customers took loan from Bank of Baroda because it is the nearby Branch to their Organization. The bifurcation on the basis of these key factors shows that yet the Bank has to do a lot in the same direction so that the motivation level of the existing customers can be increased and it can motivate to the new customer to take loan willingly from the Bank of Baroda.

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Fig. 8 Whether Bank of Barodas products are sufficient or not

26%
yes

74%

no

This figure shows that the 74 % of the customers are satisfied with the Banks Products and they feel that the products are sufficient to the SME sector. While 26 % customers feel that SME products provided by the Bank is in-sufficient.

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Fig. 9 Services provided by the Bank

6.50%

6.50%

0%

40%

Very Satisfied Satisfied Neutral

47%

Dis-satisfied very Dis-satisfied

This figure represents the level of satisfaction regarding the services provided by the Bank among the existing Customers. 40 % of the customers are highly satisfied by the services of Bank. Near about 7 % customers are neutral and 7 % are dis-satisfied with the services of the Bank. So the Bank should concentrate on increasing the level of satisfaction among the customers.

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FINDINGS OF THE RESEARCH

We have surveyed the two industrial areas in Jaipur i.e. Sitapura and Bagru Industrial Area. It is seen that most of the Industries in Sitapura area are dealing in Garment as it is declared as non-pollution area and in Bagru area, the Industries are dealing mainly in the production of Iron and steel bars, rods etc.

There is little bit support provided by the government/banks to the Industries. All the firms expect low rate of Interest loans from the Banks. Most of the firms want that the Government should provide various subsidies and rebates. Cash Credit, Term Loan, Bank Guarantee and Letter of Credit are the most demanded facilities in the Industry. There is lack of motivation among customers to take loan from Bank of Baroda. Most of the customers are not aware of the Banks new schemes. There is a lot of scope seen in the nearby future of SMEs.

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SUGGESTIONS
To improve the flow of credit to MSE sector and to achieve the various targets and commitment for the MSE sector, the bank should adopt the following strategies: 1. The SMEs should need more and more awareness of the facilities provided the Government and the Banks.

2. The Bank should invest in Customer Relationship Management in which the following actions can be taken : a) Bank should provide or give information (related to a particular concern for e.g. information of sanction, disbursement, letters that bank posts etc.) to the party through direct calls. b) Bank should send greetings or gifts or sweets to its all customers on various occasions. c) Timely processing should be there i.e. if Bank says that we will sanction a proposal within 15 days, then it should be done in the given time. d) Bank should fulfill all its promises given to the customers. e) Bank rules should be clear related to the different charges and concessions. It helps in long-term customer relationship.

Through above-mentioned points, the Bank can increase customer satisfaction as well as the motivation level of customers and eventually it will attract the other concerns also. 3. Banks should increase the staff.

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4. Services should be made easy for the convenience of the customers.

5. Sanction of loan is very time-taking process so it should be made easier and shorter so that less time is involved. 6. If a proposal does not satisfy all the rules and regulations, the Bank should give suggestions to the customer that how he can fulfill these conditions. It will build good brand image of the Bank. 7. Government should give benefits in various subsidies and rebates. 8. The bank should increase the number of personnel in the SME Department so that the complaints of the clients of delaying the sanctioning of proposal can be listened and solved properly. 9. There should be one IT personnel in each department which will help in the work process and problem. 10. There should be less time duration for the documentation work done for the customers who are applying for loan. 11. The bank should find out the key problem areas where the development of SME is lacking. 12. Adequate marketing contacts & reach should be managed. 13. Simplified loan application forms in bilingual formats should be made available for loans to Micro Enterprises. 14. Region wise and branch wise targets should be fixed for lending to MSE sector and monthly review notes on Region wise performance should be placed to Top Management.

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15. SME branches and specialized SME branches should be opened at potential centers, identified clusters and industrial estates to enhance the flow of credit to MSE sector. The reason behind this is that distances create problems to the customers.

16. Latest technology should be adopted for on line submission of MSE credit applications, tracking of applications and for MIS requirements.

17. New credit products should be developed for MSE sector to meet the emerging requirements of the sector from time to time. 18. Bank should improve the ability of R & D and innovations. 19. Financial Institutions should strengthen the willingness to extend credit to SME and emerging industries. 20. Bank should wisely utilize SME credit products in line with government policies. 21. There should be system software which automatically checks the CMA Data. 22. Bank requires a strong anti-virus in every system. 23. Bank should introduce new and advance technology in systems because system is working at MS 2003. 24. System speed and net connection speed is also very slow. So Bank should work in this area as there is a requirement of fast working net connection and system.

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25. There should be more space in the SME Loan Factory for the proper sitting arrangements for the customers.

LIMITATIONS OF THE RESEARCH

Sample size was considerably small in size. Sample comprised of existing customers of Bank of Baroda only. Lack of interaction with Proprietors / Directors of the Manufacturing concern due to non-co-operation of the company management. Customers of bank of Baroda (particularly of Jaipur region) are situated in far-flung areas that are why approach to all was a cumbersome task. (Therefore only Bagru Industrial area and Sitapura were the research areas).

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CONCLUSION OF THE SECTOR

Opportunities in the MSMEs 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 & Raw Material Procurement Manpower Training & Technical & Managerial skills Tooling & Testing support Reservation for Exclusive Purchase by Government Growth in demand in the domestic market size due to overall economic growth Increasing Export Potential for Indian products & export promotion

By its less capital intensive and high labor absorption nature, SSI sector has made significant contributions to employment generation and also to rural industrialization. This sector is ideally suited to build on the strengths of our traditional skills and knowledge, by infusion of technologies, capital and innovative marketing practices. This is the opportune time to set up projects in the small-scale sector. It may be said that the outlook is positive, indeed promising, given some safeguards. However, the bug bear of the sector has

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been the inadequacies in capital, technology and marketing. The process of liberalization will therefore, attract the infusion of just these things in the sector.

TO THE ORGANIZATION
Access to the field areas which full-time sales officers are unable to tap due to lack of time. Preparation of the new scheme and making aware customers about all the facilities of Bank of Baroda will be helpful for the bank. Although Bank is growing at a very fast pace, but still lack at some points regarding awareness and motivation among the new customers. So they should work in the concerned area.

TO THE INTERN
The summer internship gives a rendezvous with the corporate world, which prepares the intern to be a full-time member of it. This is a simulation process , which prepares the intern to handle the real life business situations. Last but not the least, it enhances knowledge related to the SME Loan Factory.

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Learning during the Training

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HOW SME-LF WORKS?

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Credit support officer Credit officer

Sanction authority

1.

2. Check on completeness of proposal

Receipt of proposal

3.

On complete Proposal On Incomplete Proposal

Study of file, presanction visit, raising customer queries and customer meeting

Returned to BO/ Party for Completion

Credit officer 4.

Sanction authority

File with Ratios

Sending Queries to the party and the Branch 5. Data entry for credit rating and financial analysis 6.

7. Satisfactory response from customer of queries and preparation of Appraisal Note

Request for advocate, valuer and TEV reports (Where required)

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8. Receipt of advocate, valuers and TEV reports (where required)

9. Check on advocate, valuers and TEV reports

11 ..

Issue of final sanction letter with signature from credit officer

10 . Final sanction by sanction authority

12 .

Preparation and stampings of documents

Workflow for sanction and disbursement process

13 . Execution of documents in presence of Branch Officer/ Manager

14 Sanctioned & vetted Document released for disbursement

Disbursement by Branch

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STUDY OF CREDIT MONITORING APPRAISAL (CMA) There is a particular format to represent the various direct & indirect expenses, profit, various assets & liabilities, capital etc. for the parties who wants to get loans from the bank, is known as CMA. In the CMA a party gives its brief detail of operating expenses, profit & loss account, balance sheet items etc. that shows the complete picture of financial position of the party in concern. In the study of credit monitoring appraisal the financial position is analyzed. Its study gives the knowledge of how should company represents all its financial affairs. If the information is available in the general form, it can be filled in the standard format known as CMA. Therefore in CMA study, the preparation of it is also included.

CIBIL CIBIL is the CREDIT INFORMATION BUREAU (INDIA) LIMITED. It is Indias first credit information bureau is a repository of information, which contains the credit history of commercial and consumers borrowers. CIBIL provides this information to its members in the form of credit information reports. Its official website is www.cibil.com Banks, Financial Institutions, State Financial

Corporations, Non-Banking Financial Companies, Housing Finance Companies and Credit Card Companies are the members of CIBIL. These members are provided with a user Id and Password for accessing it. Bank of Baroda has 5 % stake in CIBIL. From this site, a CIBIL Information Report is created which is a factual record of a borrowers credit payment history compiled from information received from different credit grantors. Its purpose is to help credit grantors make informed lending decisions quickly and objectively.

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A CIBIL report shows history of various accounts of the borrower. All should be standard. And no account should be sub- standard, settled, written-off or overdue.

ECGC: ECGC is Export Guarantee Corporation of India Limited. It was established in the year 1957 by the Government of India to strengthen the export promotion drive by covering the risk of exporting on credit. A username and password is given to all Banks to access it. It is the fifth largest credit insurer of the world in terms of coverage of national exports. ECGC provides a credit risk insurance covers to exporters against loss in export of goods and services and offers guarantees to banks and financial institutions to enable exporters to obtain better facilities from them. Banks are concerned about the financial strength and the performance of the borrowers. It is necessary that all borrowers are of good credit risk and there should not be any shadow of doubt about the safety of the funds lent. The investigation process carried out by the Bank for taking a credit decision is called "credit analysis". The main source of information for judging the viability and financial strength of operations of the borrower, are financial statements which consist of two parts, viz. Balance Sheet and Profit & Loss Account and these should be studied together for a meaningful analysis. The system or approach for analyzing a balance sheet depends upon the purpose for which the study is undertaken. Our purpose of analyzing the financial statements is different from that of an investor, government authority etc.

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CREDIT ANALYSIS While analyzing a credit proposal, several factors, apart from analysis of statements, are taken into account. The process of credit analysis can broadly be divided into the following major heads : (a) Promoters and their business background (b) Nature of the industry/business (c) Factors of production (d) Past financial record, present position and future profitability (e) Financial Planning (f) Borrower's integrity (g) Purpose of advance (h) Repayment program (i) Security and other terms and conditions (j) Associate concerns, if any, and their performance (k) Promoters'/Borrowers' dealings with our Bank and other banks, where applicable The entire gamut of credit appraisal can be segregated into 7 sections is under: Borrower appraisal Man behind the project should be very competent and banker would willingly Grant a credit facility to a borrower, if he has sufficient confidence in the borrower That it will not be necessary to seek the help of a court for its recovery.

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5 Cs of the borrower Characterintegrity of the borrower and his intention to repay. Character is constituted by honesty, sobriety, good habits, personality, the ability and willingness to keep his word under all circumstances, reputation of the people with whom he deals etc. Capacity--- ability of the borrower to manage an enterprise or venture successfully with the resources available to him. Capital:--ability to meet the loss, if borrower has some stake in the business, he may not take much interest in its success. Collateral Conditions

For this Banks are following the KYC (Know your customer) norms, which include: Customer identification Customer verification Document verification Credit report on borrowers Application form Borrowers past dealing with the branch Reports from persons having dealing with the borrower Reports from the guarantors Reputation in the line of trade in which he is engaged in Reputation in the society, community Credit information from other banks and financial institutions Credit information from RBI

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Technical Appraisal: Availability of basic infrastructure:-Land, Location, Power, Water Licensing/ Registration Requirements Selection of technology: availability, application, Plant size and production capacity, availability of skilled technical personnel/ training facility, continuous updating, availability of suitable raw material and consumables

Management Appraisal Individuals, proprietary concerns, partnership firms, corporate borrower

Financial Appraisal Refers to the study of the following: Determination of the cost of the project. Assessment of the source of funds/means of financing the project Break even analysis Profit & Loss statement and balance sheet of last 3 years Cash flow projections Projected balance sheet Ratio Analysis

Economical analysis Project should yield best possible return to the society in general and the investor in particular. Sensitivity analysisthe process of computing the IRR and the repaying capacity of the borrower for different values of each of these parameters is called the sensitivity analysis.

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Market Appraisal General market prospects for the product Position of the product vis--vis the competitors Size of the market and share of the proposed unit. Pricing structure Raw material Marketing strategy thrust

Financial Ratios for Credit Appraisal (Not applicable in case of takeover of accounts) Following ratios can be accepted for granting credit facilities to SME units falling as per regulatory guidelines or SMSs as per expanded coverage. Sr. no Micro and Small Enterprises under manufacturing sector and service sector falling under regulatory guidelines 1 2 Current Ratio Debt Equity Ratio ( Total Term Liability / Tangible Net 1.17 & above 3:1 Medium Enterprises under manufacturing sector and service sector falling under regulatory guidelines 1.20 & above 3:1 Units covered under SME Sector as per expanded definition and outside the purview of regulatory definition 1.33 & above 3:1 Ratio Norms

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Worth) 3 FACR (Fixed Assets / Term Debts) 4 Average DSCR for Term Loan 1.75 with a condition that in any one year it should not be below 1.25 as per extant guidelines. 1.75 with a condition that in any one year it should not be below 1.25 1.75 with a condition that in any one year it should not be below 1.25 Not below 1.25 Not below 1.25 Not below1.25

The above ratios are indicative and deviations can be considered by the sanctioning authority / competent authority on case-to-case basis, depending on industry specific problems of unit etc. incorporating justification for the same in the sanction note.

CREDIT RATING The exercise of assessing the credit record, integrity and capability of a prospective borrower to meet debt obligations. Credit rating relates to companies, individuals and even countries. The rating agencies in India are Credit Rating and Information Services of India Limited (CRISIL), ICRA, and Credit Analysis and Research (CARE).

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CRISIL RATING MODELS Eleven models for Credit Risk rating of all commercial advances i.e. existing as well as new with exposure of Rs.25 lacs and above (FB+NFB) for implementation have been introduced by our Bank. New CRISIL Rating Models for commercial advances are based on twodimensional rating methodology specified under Basel II Accord requirements. Eleven Models are applicable to Large Corporate, SME (Manufacturing Sector), SME (Services), Traders, Banks, NBFCs, Brokers, Infrastructure (Power), Infrastructure (Roads & Bridge), Infrastructure (Ports) and Infrastructure (Telecom)

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The risk rating flow chart under CRISIL NEW rating models is as under:
Composite Rating (Indicator of expected loss i.e. EL)

Obligor (Borrower) Rating (Indicator of Probability of Default i.e. PD) Evaluation of Credit worthiness of an Obligor (Borrower).

Facility Risk Rating (indicator of Loss given default i.e. LGD) Evaluation of Riskiness of a Facility

Obligor (Borrower) Rating 1. Industry Risk 2. Business Risk 3. Financial Risk 9Borrower 4. Management Risk

Project Risk Rating 1. Project Implementation 2. Post Implementation

Project Implementation Risk 1. Construction Risk 2. Funding Risk

Post Project Implementation 1. Industry Risk 2. Business Risk 3. Financial Risk 4. Management Risk

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These Models involves three types of ratings 1. Obligor (Borrower) Rating 2. Facility Rating 3. Composite Rating

Obligor (Borrower) Rating is indicative of credit worthiness of an obligor or the Probability of Default (PD) and it is based on the assessment of past and projected Cash flows of the company. For assessment of an obligor, the rating structure consists of evaluation by way of four models viz. 1. Industry Risk The assessment of this module which is external to borrower and is done by assessment of industry related macroeconomic parameters like demand supply gap / capacity utilization level / financial ratios like ROCE / OPM etc. applicable to the specific industry and having different risk weights. 2. Business Risk The assessment of this module is based on internal working of the Borrower and relates to parameters such as after sales service, distribution set up, capacity utilization etc. The parameters, which are only relevant to a particular industry, are selected for scoring having different risk weights. 3. Financial Risk The assessment of this module is based on internal working of the Borrower and relates to parameters such as past (not in case of a green field/infrastructure company under implementation stage) and projected

financials. The CMA based data input sheet is uploaded into the software and the same allows computation of financial rating automatically based on the computation of financial ratios like Net Profit Margin, Current Ratio, DSCR, Interest Coverage etc.

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4. Management Quality The assessment of this module is based on internal working of the Borrowers management and relates to parameters such as past repayment record, quality of information submitted, group support, etc.

Obligor rating grades range from BOB 1 to BOB 10. Obligor grade is used for deciding about the investment grade or non-investment grade borrower in absolute terms. Grade no. I. II. III. IV. V. Nature of grades BOB-1 BOB-2 BOB-3 BOB-4 BOB-5 Description Investment grade- highest safety Investment grade- high safety Investment grade- high safety Investment grade- adequate safety Investment safety VI. BOB-6 Investment safety VII. BOB-7 Sub Investment grade- inadequate safety VIII. IX. X. BOB-8 BOB-9 BOB-10 Sub Investment grade-high risk Default substantial risk default grademoderate grademoderate

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Facility Rating is carried out for each and every facility separately which is based on the Basel approach for the calculation of Loss Given Default (LGD). Facility rating grade ranges from FR 1 to FR 8 with least risky to highest risky advances facility in that order. Grade no. Nature grade 1. 2. 3. 4. 5. 6. 7. 8. FR-1 FR-2 FR-3 FR-4 FR-5 FR-6 FR-7 FR-8 Highest-safety Higher-safety High-safety Adequate-safety Reasonable-safety Moderate-safety Low-safety Lowest-safety of Description

Composite Rating is the matrix or the combination of PD and LGD and indicates the Expected Loss (EL)in case the facility is defaulted. The composite rating is worked out automatically by software based on the matrix of Obligor (Borrower) Grade (BOB Rating) and Facility Rating Grade (FR Rating). Composite rating grade ranges from CR 1 to CR 10. Bank has accepted BOB 6 as the cut off point for the acceptance of an obligor based on obligor rating carried out as the applicable model Scoring Models for Educational Loan, Baroda Traders Loan have also been approved by the Board rolled out for

104

implementation. Efforts are being made to have scoring model for all retail products keeping in view Basel II Accord. Grade no. Nature grade 1. 2. 3. 4. CR-1 CR-2 CR-3 CR-4 Minimum expected loss Lower expected grade Low expected grade Reasonable grade 5. 6. 7. 8. 9. CR-5 CR-6 CR-7 CR-8 CR-9 Adequate expected loss Moderate expected loss Extra expected loss High probability of loss Higher loss 10. CR-10 Highest expected loss probability of expected of Definition

Proposal from the new borrowers (i.e. borrowers approaching Bank for the first time) may be entertained with minimum rating category of Moderate Safety BOB-6 (CRISIL Rating Model) fresh / increase facilities to the existing borrower having credit rating below BOB-6 to be considered on merits by sanctioning authority up to 75% of normal lending powers as stated above.

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WORKING CAPITAL ASSESSMENT DEFINITION A firm's working capital is the money it has available to meet current obligations (those due in less than a year) and to acquire earning assets. Or Working Capital is the amount required in different forms at successive stages of operation during the net operating cycle period of an enterprise.

Concept of Working Capital

Balance Sheet Concept

Operating Cycle Concept

Gross Working Capital

Net Working Capital

Total Current Assets

Current Assets- Current Liabilities

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WORKING CAPITAL GAP Difference between gross working capital and current liabilities excluding bankBorrowing is known as working capital gap.
Working Capital Gap = Gross Working Capital Current liabilities*

*Current liabilities excluding Bank borrowings.

ARGUMENT IN FAVOUR OF WORKING CAPITAL Positive Net Working Capital is an indicator of the financial soundness and the ability to face depression and contingencies firmly by an enterprise. Positive Net Working Capital provides better margin of protection to short-term creditors and investors.

APPRAISAL OF BANK FINANCE The appraisal of bank finance for working capital thus involves the following steps: Estimation of the level of Gross Working Capital Estimation of the level of Current Liabilities Computation of Net Working Capital Gap Computing the share of NWC gap required to be brought by the borrower as margin Computation of the level of Bank Finance.

107

ESTIMATING WORKING CAPITAL REQUIREMENT Following methods are generally used in estimating working capital for the future period: 1. Operating Cycle the Method: To estimate the gross working capital understanding of the operating cycle of

requirements,

manufacture/production is very important: CREDIT SALES DEBTORS CASH

CASH SALES

FINISHED GOODS

RAW MATERIAL

WORK IN PROCESS

Flow chart: Operating cycle of a manufacturing/production concern COMPONENTS OF GROSS WORKING CAPITAL 1. Raw material 2. Consumable stores and spares 3. Stock in process 4. Finished goods 5. Receivables 6. Cash and Bank of Baroda balance 7. Other Current Assets

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2. Tondon or chore committee recommendations (Maximum Permissible Bank Finance system) CURRENT LIABILITIES Creditors for purchase Other Current Liabilities Total Current liabilities other than Bank Borrowings Bank borrowings including bills Discounted with bankers Receivables including bills CURRENT ASSETS Raw materials Stock-in-process Finished Goods

discounted with bankers

Other Current Assets Total Current Liabilities I Method Total Current Assets Total Current Assets II Method Total Current Assets

Less: Current Liabilities other than Bank Less: 25% of current assets of Baroda borrowings Working capital Gap Less: 25% of working capital gap Working capital Gap Less: current liabilities other than Bank borrowings Maximum Permissible Bank finance Maximum finance Permissible Bank

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3. NAYAK COMMITTEE RECOMMENDATIONS FOR SSI INDUSTRIES The method originally proposed for SSI borrowers and later made applicable for all borrowers with Fund based working capital limits up to Rs.5 crore, the computation is made at 20% of projected gross sales as follows: Gross working capital Borrowers margin minimum of 25% of projected gross sales 20% of gross working capital

4. CASH BUDGET METHOD The method applicable for the assessment of working capital finance more than Rs.1000 lac from the banking system for all types of borrowers. As in SME only proposals upto 1000 lacs are considered thus this method does not apply over here.

PRELIMINARY STUDY OF TWO PROPOSALS Proposal is a request in the form of documents made by the party/ organization/ individual to get the requisite loan from the bank. In the preliminary study an officer confirms that the documents are complete or not and whether it fulfills the required rules and regulations. It also includes the detail study of financial position and the validity of documents

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PREPARING A QUERRY LETTER In the case of any problem or query related to the proposal the officer who is studying it prepare a letter to the branch manager or directly to the party to collect the required information, known as query letter.

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SUMMARY
Reading texts and scoring high doesnt hold a higher position in the professional courses, they stand equally on the platform with the ability to apply these texts in the field work and perform. Summer Training is the most vital part in professional courses like MBA as it not only gives an understanding of the corporate world & its functioning but also Grooms and matures an individual. This contribution of summer training prepares a student to step out in the corporate world and start performing in the minimum possible time. I personally feel more confident now, with clear understanding and enlarged horizon towards the work culture of the Indian corporate sector. It also gives me a sense of immense pleasure to have done my Internship whole heartedly, contributing the level best and learning not only about the functional aspect of the work profile of the internship program but also about team- building, superior subordinate relationship, crisis management, co-operation and co-ordination, formal and informal groups, etc. Given a thought today to the almost two months spent as a trainee in Bank of Baroda, makes me realize that it was all applicably of the teachings and guidance of the faculty members of my college ( International School of Informatics &Management ) & all other teachers in my life. Bank of Barodas priorities and strategies for supporting MSMEs are relevant and effective. This is not a conclusion of the experience I had during the course of internship but its a beginning of a never ending process of learning while performing whole heartedly.

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BIBLIOGRAPHY
BOOKS REFERRED Instruction Booklet no. 5, Bank of Baroda. Banks Circulars related to the SME Loan Factory Banks Domestic loan Policy Kothari, C.R., 2004, Research Methodology, New Delhi, New Age International (P) Limited, Publishers.

NEWSPAPER REFERRED Economic Times Times of India

WEBSITES REFERRED www.msme.com www.bankofbaroda.com www.ministryoffinance.com www.sisijaipur.gov.in www.bankofbaroda.com/download/sme-policy www.cc.iift.ac.in/sme/NEWS/02272009_SBI%20to%20restructure%2041,000%2 0SME%20accounts%20by%20March%20end.pdf

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QUESTIONNAIRE
Name of the Organization: Address:

Representative: Designation: Email id: Contact No. : Activity / Deals in: Ownership pattern of the Company: 1. Proprietary 2. Partnership 3. Private Ltd. 4. Public Ltd.

Which category of bank you approach for loans and advances? 1. Private Banks 2. Public Sector Banks 3. Cooperative Banks 4. Regional Banks

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Are you aware of the loans and advances schemes given by the Bank to SMEs? 1. Yes 2. No

What is the limit of Credit you want or you have taken? 1. Upto Rs. 25 lakh 2. Rs. 25 lakh to Rs. 1 Crore 3. Rs. 1 Crore to Rs. 5 Crores 4. Rs. 5 Crores to Rs 10 Crores 5. Above rs. 10 Crores

In future, if you have loan requirement, will you opt for Bank of Baroda? 1. Yes 2. Not Thinked yet 3. No

Give reasons, why not?

______________________________________________________________________

Do you have account in other Banks also?

1. Yes 2. No

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Availability of funds from financial institutes / Banks (loan facilities) 1. Very easy 2. Easy 3. Module 4. Difficult 5. Very difficult

Do you think that Indian SME s globally Competitive? 1. Yes 2. No

Is the Bank of Barodas SME Products sufficient to make Indian SME globally Competitive? 1. Yes 2. No

Please mark your opinion about the services provided by the Bank of Baroda 1. Very satisfied 2. Satisfied 3. Neutral 4. Dis-satisfied 5. Very Dis-satisfied

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Are you satisfied with the working of the SME Department of Bank of Baroda? 1. Yes 2. no

What are the key factors that motivated you to take loan from Bank of Baroda?

________________________________________________________________

Any suggestions to stimulate financing? ________________________________________________________________ ________________________________________________________________

Filled by

Designation . Signature Contact no. . .

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