Credit – the lifeline of SMEs

Mrs.Neerja Vishal Sharma Abstract The Indian economy is also affected by it largely because it has been detrimental to the performance of the Indian banks. This study was an attempted to identify the critical factors, which were responsible for the SM s financing in banks. This paper describes a self!assessment scale and in"estigates its reliability and "alidity for measuring S M s c o n s t i t u t e t h e dominant form of business organi#ation, accounting for o"er $%& and up to $$& of enterprises depending on the country. They are responsible for between '(!)(& net job c r e a t i o n s i n *e"eloping countries. Small businesses are particularly important f o r bringing inno"ati"e products or techni+ues to the market. Key words: Small and Medium Enterprises in India Introduction Small amd Medium enterprises play an important role for the de"elopment of the country.,owe"er, these industries face difficulty in accessing ade+uate finance for their businesses. -part from the traditional modes of financing like banks and money lenders, newer sources of financing such as "enture capital in"estment, can take care of their financing re+uirement. newer sources of financing. In the case of india ,the go"ernment has taken se"eral initiati"es both at the national and the international le"els to impro"e the a"ailability of finance. .ut there are still certain impediments that the SM s face that are re+uired to be addressed by the go"ernment. SM s encourage entrepreneurial de"elopment and dispersal of the industries throughout the length and breadth of the country. It also generates a lot of employment opportunities and the capital cost per employee is "ery minimum. /ith the ser"ice sector contributing a major share to the 0*1 and as this sector relies on the SM s , the scope for SM financing by the commercial banks has increased tremendously .T h e g o " e r n m e n t i s a l s o committed to gi"e a fillip to the sector through infrastructural de"elopment ,skill de"elopmental effort, technological up gradation and by e2panding the role of Small Industries *e"elopment .ank of India in SM de"elopment. SM s contribute nearly $& of India3s 0*1 and the 4eser"e .ank of India has ad"ised all commercial banks to achie"e 5(& annual growth in SM lending till 5(6(, so that the SM sector e2posure to commercial banks is doubled. 1ublic sector banks3 o"erall credit to SM sector grew by 5'& in 5(('!5((),which amounted to 4s.6,7%,((( cores. -mong the large 1S.s, state bank of India3s SM s e2posure grew by 58& and all banks are targeting SM s credit growth of 5%&.In 5(66 the 1ublic sector bank3s o"erall credit to SM sector grow by 9'.9(&,which amounted to 4s.9)''5%.67crore and in pri"ate sector bank3s o"erall credit to SM s grow by 9%.%5&,which amounted to 4s.7)7%'.)8 crore.-s according to the stimation of

in 5(69!68 4s.from the multipal choices in public and pri"ate banks which is more profitable to both the ser"ice pro"ider and the ser"ice holder is my finding. <To know the benefits of SM financing schemes of the public and pri"ate sector banks. and getting an e2cellent ser"ice .)6'69$crore.To analy#e that which of the banking is more profitable in sme3s financing.-S mentioned in 65th plan period.-s compare to public and pri"ate sector bank pri"ate sector bank take less time n with more ser"ices to a customer. <To know the effecti"eness of "arious SM sector banks. Source: 4eser"e . the first +uestion comes in our mind that which bank pro"ide a good ser"ice with limited time period and with less efferts.-nd in such a competati"e world it is the SM 3s financing come into consideration .but in it selection of a loan pro"iding banke.If we talk about financing a loan . in economic de"elopment and growth through financing schemes of public and pri"ate 2 . either public banking or pri"ate bankings.bjecti"es are the guiding lights of a study. <To study how the finances a"ailed to SM employment and income generation . Objectives of the Study . The present study was undertaken to achie"ethe following objecti"es: ! <To know about the "arious SM financing schemes of public and pri"ate sector banks and their usage. it is easy for a company to get loan .The study “Credit is a life line for SMEs ”. it is "ery difficult to find an e2cellent ser"ice to a customers .7%')79crore.ank of India Rationale of the study In india .but for a small business enterprises it is a "ery difficult task they ha"e to face "arious types of problems.outstanding working capital supply to MSM IN 5(65!69 is 4s.but in SM 3S financing . <To know the problems faced by SM s in getting credit from public and pri"ate sector banks.

nterprises engaged in production?Manufacturing of goods for any industry b. Initially the MSM * -ct 5((' had not gi"en the definition of BSer"ices sectorC and 4.I has defined the ser"ices sector and the acti"ities that can be co"ered under MSM =Ser"ices> Sector. Eor a country like ours.(+IO* O. (5?6(?5(('. shareholder funds or sales as criteria. CO*+RI. %rocessin# (nits) of Services Not to 2ceed 4s./ T h e S m a l l a n d M e d i u m s e c t o r w h i c h p l a y s a i m p o r t a n t r o l e i n t h e Indian economy in terms of employment and growth has recorded a high rateof growth after independence.e. Some others use a combination of re"enue and employment as a hybrid criterion. The definition of SM has been a contentious issue in India.owe"er.5% lakhs but does not e2ceed More than 4s. 5 Arore 4upees but nterprise e2ceed 4s. and Medium nterprises. Not to 2ceed 4s. . nterprises in the manufacturing sector are defined in terms of in"estment in plant and machinery =e2cluding land @ buildings> SME efinition The SM s -ct 5(('. Small.6( lakhs but does not 4s. It is now one of the fastest growing sectors inthe country.efinition of SME!s SM 3s are defined in different ways in different parts of the world.SMEs +O I* IA* ECO*OM. the acti"ities are classified into Manufacturing and Ser"ice Aategory. Some define them in terms of assets. In recent years.I3s guidelines were awaited. More than 4s. 6( Dakhs. % Arore. 5% Dakhs.employment and foreign e2change earnings. with limited financial resources and 3 . the term SSI =Small Scale Industry> is more commonly used to refer to SM 3s. the term. nterprises engaged in rendering?pro"iding of ser"ices. % Arores. defines the Micro.f. It has made steady progress during recent years. Medium More than 4s. Enter"rise Micro nterprise Small nterprise En#a#ed in Manufacturin# $ %reservation En#a#ed In %rovidin#$ Renderin# of &oods 'incl.% Arore 4upees but does not More than 4s. while others use employment. which came into force w. In 5((%. 6( Arore. the 0o"ernment of India has sought to pro"ide greater clarity in this sector by specifying a clear definition. 5 Arores. e2ceed 4s. In fact. production. The good performance of the small scale units is e"ident from their number. -s per the -ct. subse+uently 4. does not e2ceed 4s. the definition of a Small enterprise was e2panded to include a two category classificationa.The root cause of the unemployment in india is o"er growing population which has outpaced the de"elopment of industry and agriculture.

ank of .ank +ools (sed for ata Analysis IJK! Test was applied for making comparison between 1ri"ate and 1ublic sector bank in SM s financing.ank of India 1N.'7 5%5%) Research Methodolo#y The study was e2ploratory in nature with total population of public and pri"ate sector bank employees. The top % banks in both the sector of public and pri"ate sectors are : 1ublic banks .ank 1ri"ate banks IAIAI .ank Fotak Mahindra .E1IS+I*& A* %RO%OSE 2AR&E3ME I(M I* (S+RIES I* *A&%(R IS+RIC+ nu4ber 6 *A&%(R 6$( invest4ent e4"loy4ent nu4ber E1IS+I*& Rs crores )8'9.ank -2is . was calculated in respect of each item of the +uestionnaire.ank .ank H S . Results and iscussions IJConsistency To check the consistency.huge reser"oir of human resources.aroda . which includes top % public and % pri"ate sector bank in SM s on the basis of public aweareness about SM s schemes . Small and Medium industry is the only means for sol"ing the unemployment problem. Aorrelation of e"ery item with all the items was measured and the 4 .ank Aanara .'8 %78(6 68( invest4ent e4"loy4ent %RO%OSE Rs crores %%88. IJK!test on factors was applied to see whether there is significant difference between the factors of SM s in 1ri"ate and 1ublic banks.6 0 S+A+(S O.*EA . The total sample si#e was 9(( indi"idual respondents. Gnion .Small and Medium industry is pro"ide employment at an increased rate which is e"ident from Table.

$' at %& le"el of significance. The reliability "alue was found to be (. /here the computed "alue was found to be less than the standard "alue. If "alue of K is less than standard "alue. +able 8/ Sho9in# the 63test results Statistics of %rivate : %ublic Sector .$' at %& le"el of significance. the null hypothesis is accepted. the null hypothesis is accepted..ank SM s Einancing IAIAI 87 .T-F Mahindra .N . 6..ank 95 -2is .7$$7 6%( '5( 5 1ri"ate 9( 66.. The factors were calculated with the help of total "ariance e2plained. +able 5/ Reliability Statistics IJ-actor Analysis 63test Eactor -nalysis was applied with the help of easy calculation software on the raw scores of random "ariable =2> %( to find out the factors that contribute towards the study. SM s Einancing .8%85' 6%( 696. IJ6 3+est K!test was applied to see whether there was significant difference between public sector banks and pri"ate sector banks in SM s financing."alue was compared with standard "alue of population mean =self calculated>. 6.2IC SEC+OR .A*<S .ank % %RI=A+E SEC+OR .This showed that the items of the+uestionnaire had +uite high reliability. that item was dropped and termed as inconsistent. 7o/ There is no significant difference between SM s financing in pri"ate and public banks.ank 65 Hes .7(95 as per Table 9.ank 9( Statistics Mean 1opulation S.*EA 57 6( Aanara . )% .5 . 5% GNI. If "alue of K is less than standard "alue.I 9% 1N.s %(.an. IJReliability test The reliability of +uestionnaire was calculated through K!test.A*<S . * Sample si#e Variance=1opulation Standard de"iation 1ublic 9( 58.

So it is necessary to know their "iew point regarding it.ank in SM Eunding. It is necessary for the banking system to set prudential norms to minimi#e the problem of SM s.(!The public sector banks are better in SM s funding was put to a statistical by using # L test of significance. 6 . Nlikewise the sub L hypothesis=. This study also show the main factors of SM s financing were there in which 65(( +uestinners are e+ually distributed in both public and pri"ate sector and of which majour portion of public are fea"er in public bank than pri"ate banks i. The study re"eals that there was o"erall significant difference as far as . If the banks take care of these factors they can able to reduce SM s financing problem. manpower. The responsibility for containing the factors leading to SM s rests with banks themsel"es.anks perception towards SM s of pri"ate and public banks is concerned. efforts to reduce costs. Therefore the hypothesis B1ri"ate . The ser"ices pro"ided by pri"ate bank in the four major sector are tested and by using the proportion of customers responses who responded as the funding ser"ices are not better than public sector .e they are deliberately ha"ingsignificant difference between pri"ate and public sector banks perception.7(95 6.#!"alue (.anks are not better than 1ublic . The ser"ices pro"ided by public bank in the sector are tested and by using the proportion of customers responses who responded as the funding ser"ices are better than pri"ate sector . skills to appraise collateral. that a lasting solution to the problem of SM s can be achie"ed only with proper credit assessment and risk management mechanism. go"ernment and political inter"ention and budget constraints should also be gi"en priority while gi"ing loans to the customers. Therefore the hypothesis B1ri"ate .=#6M 6. Conclusion The present portfolio of banks is definitely a bane.C Stands accepted.6>! The pri"ate sector banks are better in SM s funding was put to a statistical by using # L test of significance. The study further conclude that manager3s moti"ation le"el.anks.ank in SM Eunding. It is needless to mention. This paper is an attempt to find the financing perception towards the SM s and according to them what were the probable causes of ha"ing bad loans. The borrowings should be made cheaper by lowering the rate of interest on landings of 1ublic and 1ri"ate .anks are better than 1ublic . It puts se"ere impact on the li+uidity and profitability of the bank where it is out of proportion.)8'6 The sub hypothesis .7(95 > le"el siginificance.)8'6> le"el siginificance. =#6M(.C Stands not accepted.

Einancing institutions do not assume the role of partners to SM s bothin assuming risks and assisting in management and marketing.php 7 .com?statistics?statistics.scribd.anks should also pro"ide consultancy ser"ices and p r o f e s s i o n a l guidance at the time of setting up for considering the long!term and short! term financial re+uirements of a small unit for lending purposes. . the go"ernment can e2tend this research and make few changes in the credit policy of the bank. JThis study is a useful contribution towards the . cost of funding andto pro"ide support on market and management know how.ankers to create more aweareness of SM s products to the customers which will help them to increase their efficiency Venture capital funds ha"e been floated to share risk. *espite these recent changes. I4"lications of the study J/ith the help of data.etter information systems and training ha"e been de"eloped to makeSM "iable and acceptable.ank of India. Non a"ailability of suitable debt and e+uity instruments to help SM s toraise fund from the capital market. Aredit guarantee and rating institutions ha"e floated to support banks to assume risk unhesitatingly in financing SM s More appropriate credit instruments ha"e been de"eloped to help SM toha"e facile credit with less cost and collaterals .com http:??easycalculation.The re!orientation program. SM s need some more hand holding tobecome attracti"e and "iable. workshops and seminars should be organi#ed at district le"el to pro"ide latest information to the small entrepreneurs. E>istin# #a"s/ *eli"ery of finance not linked with deli"ery of business de"$7775' http:??www. References http:??www.4eser"e . Non! e2istence of reliable information systems to study the risk patternand to pro"ide market intelligence to SM s."er"iew!of!micro!small!medium!enterprises!msme! sector!6%8$$ http:??www .. $.Small Industry 2tension Training Institute 1ublication.s i a 1ublications.4eport on currency @ Einance : 4. -dhikary. of Industry. F.go". 6$75 ntrepreneurship of SSI: *eep @ *eep 1ublications.M. 5((5. 6. 4uddar *att @ F.usiness.Small Manufacturing nterprises ! /orld . M.I.SSI @ ntrepreneurship : Vasant *esai.5((5.http:??rbi.go". 5.I. * e " e l o p i n g ntrepreneurship issues and problems.eyond .ld +uations ! Small nterprise Mathew.Indian conomy. 2perience and perspecti"es in India ! 1. New *elhi. . 4.G. '. S.SSI @ ntrepreneurship *e"elopment : A. Mumbai 5((5. .Ahand @ S o n s .imalaya 1ublications.imalaya 1ublications. New *elhi. .org. 66. 9.S.-shwathappa..*eshpande. 6$$6.M. Erancis Aherunilam.Sundharam. Mumbai.M. 0.usiness n"ironment. 5((5.go".imalaya!"iew mastercirculardetails. S.1. T i n y @ V i l l a g e nterprises. Murthy 7. ssentials of n"ironment. .Ahand @ sons. New * http:??Msme.caclubindia. 4ao 6(. .ank 4eport.).A o t t a g e @ S m a l l S c a l e I n d u s t r i e s a n d 1 l a n n e d S t e r l i n g 1ublications. conomic Sur"ey : 0o"ernment of India 1ublications 68.1 o l i c y M e a s u r e s f o r p r o m o t i n g @ S t r e n g t h e n i n g S m a l l .in http:??www.V.4 o l e o f S m a l l I n d u s t r i e s i n I n d i a P s * e " e l o p m e n t . Fanishka 1ublishers.rbi.indianresearchjournals.V.5((5. 8 . conomic n"ironment of . 8.asp2OidM'%%9 http:?? http:??4bidoc. 5(( http:??*cmsme. 69. Mumbai conomic conomy.

6'.S S I s i n I n d i a : . 0 o " e r n m e n t o f India. 6 $ $ 8 . 9 . New *elhi. 6$$6. p p o r t u n i t i e s i n t h e s m a l l s e c t o r .4eport of the committee on Einancial System: Narasimham Aommittee. 6).

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