TOPIC

ROLE OF SIDBI
SUBMITTED BY
DIVYA DWARKA DUBEY
PROJECT GUIDE
PROF. DEEPTI SONI
SUBMITTED TO
UNIVERSITY OF MUMBAI
RAJASTHANI SAMELANS
Ghanshyamdas Saraf College
Affiliated To University Of Mumbai
ACCREDITED BY NAAC WITH A GRADE
&
DURGADEVI SARAF JUNIOR COLLEGE
(ARTS & COMMERCE)
S.V.ROAD, MALAD (W)
MUMBAI: 400 064
YEAR: 2011-2012

CERTIFICATE
I Prof.Dipti Soni here by certified that Ms.Divya Dwarka Dubey a
student of Ghanshyamdas Saraf College of T.Y.B.C.B.I. (Semester V)
has completed project on ROLE OF SIDBI in the Academic Year
2011-2012.This information submitted is true and Original to the best of
my knowledge.

External examiner:

Principal:

Date:
Project Co-ordinator:
Date:

College Seal:

ACKNOWLEDGEMENT
I take the opportunity to thank the UNIVERCITY OF MUMBAI for giving me a
chance to do this project.
I express my sincere gratitude to the principle; course Co-ordinator Mrs.
Bhanukrishnan Madam, Guide Prof. Dipti Soni and our librarian and

other teachers for their constant support and helping for completing the
project.
I am also grateful to my friends for giving support in my project. Lastly,
I would like to thank each and every person who helped me in
completing the project especially MY PARENTS.

DECLERATION
I Miss Divya Dwarka Dubey a student of Ghanshyamdas Saraf College,
Malad (W) T.Y.B.C.B.I. (Semester V) hereby declares that I have
completed project on ROLE OF SIDBI in the Academic Year 20112012.This information submitted is true and Original to the best of my
knowledge.

Date:

Signature of Student

ROLE OF SIDBI

INDEX
CHAPTER

TOPIC
Executive summary
Design of the study
Methodology of the study

INTRODUCTION
1.1 SSI sector
1.2 Post World War II Scenario
1.3 Technology

DEVELOPMENT BANKING
2.1 What is Development Banking?
2.2 Overview Of Development Banking in India
2.3 Technological Problems in the Modern
Process

SIDBI
3.1 History and Business Domain
3.2 Promotional & Development Initiatives
3.3 Objectives
3.4 Products
3.5 Channels of Assistance
3.6 Schemes
3.7 Subsidiaries
3.8 Interpretation of Managers View

SIDBIS FINDINGS
4.1 Findings

CONCLUSION.
5.1 Conclusion

CASE STUDY

PG NO

REFERENCES

Executive Summary

SMEs are major contributors to GDP, and an even larger contributor to exports andemployment.
Given this background, banks will find SME financing an attractive business opportunity
rather than a compulsion, of lending to the priority sector. SIDBI and banks jointly have to play a
pivotal and proactive role in financing the SMEs.The present slow down in lending to the SME
sector is principally due to the risk aversion arising out of a high proportion of the lending
becoming non performing. This calls for reassessment of the strategy of lending to this sector
and this reassessment has led us to three principle elements of our strategy. (1) One is directed at
those units which have linkages with large corporate undertakings as vendors or suppliers. To
these units, provision and flow of credit could be tied up with the large undertakings which
would facilitate recovery but more important than finance our proposal is that the linkage will
have to be strong enough to ensure a win win approach for both. This could be achieved
by technology transfer of the large undertakings to the small units accompanied by a greater
oversight and the quality of the products delivered; (2) the second leg of our strategy is aimed at
developing a set of standard products for units belonging to the same cluster of industries; (3) the
third leg of our strategy is to develop local financial intermediaries specifically aimed at
financing units in the tiny and small sectors and more particularly to the former. These would be
in the nature of the NBFCs but without any permission to accept deposits from the public. They
would draw their resources from the banking system, by originating the loans and selling the
same to the banks as a portfolio with appropriate arrangements for risk sharing. This report,
therefore,

emphasizes

the

need

for

new

vehicles

and

instruments

viz.

bankpromoted (nondeposit taking) NBFCs, micro credit intermediaries dedicated to SMEfinanci

ng, etc. Such micro credit intermediaries (funded by individual or a group of banks)would be
able to credit-rate and risk assess and serve as instruments for extending quick credit to SME
clusters, accredited to them. This report also reinforces the importance of SIDBIs

DESIGN OF THE STUDY

 OBJECTIVES
The major objective behind doing this project is to get a clear view about how SIDBI, an
apex institution in Small Industries Financing Programmes came into existence, is
organized and managed, its objectives, lending terms and conditions, lending purposes,
challenges faced and tackled.

LIMITATIONS
The study of the project is limited to the SIDBI.
It renders the limited information provided by the officials, books and websites.
Time, length and depth of the study were limited in making the project to the
requirement of Mumbai University.

SCOPE
The scope of this study is to get the knowledge about how credit granted by SIDBI helps
in Small Industrial development.

METHODOLOGY OF THE STUDY

The data for this project is obtained in two ways- primary source and secondary source.

PRIMARY SOURCE DATA

The primary source data for this project has been collected by visiting the office of SIDBI
located at Bandra Kurla Complex, Mumbai.

SECONDARY SOURCE DATA

Secondary data for this project has been gathered through various books, newspapers and
internet.

CHAPTER 1-INTRODUCTION

1.1 SSI SECTOR

Small Scale Industry accelerates Indian economy not only in terms of its contribution to
industrial output and national export but also in growing employment opportunities. Small Scale
Industries accounts for about 95% of industrial units, contributes about 40% of the value added
manufacturing sector and over 33% of the national exports through 28 lack units spread all over
the country.

MEANING OF SSI
The Government of India grouped small-scale industrial undertaking into 2 categoriesthose using power but employing less than 50 persons and those not using power but employing
less than 100 persons. All small-scale enterprises however had capital investment of less than Rs.
5 lacks. The ownership and management in small enterprises is predominantly proprietary with
individual ownership or partnership.
The small-scale sector has been assigned a significant role in industrialization and economic
development in India as an effective tool in sub serving the national objective of growth with
social justice. Its importance has been increasingly recognized in India as a solution for the wide
spread unemployment and under unemployment.
Small-scale sector is credited with short gestation periods, generation of conduciveness for its
dispersal over of widening base of indigenous entrepreneurship. Up gradation and adoption of
other modernization measures have received added attention in the recent years to make this
sector more cost effective.

ESSENTIAL FEATURES OF THE SSI POLICY 1991

SR

OBJECTIVES

MAJOR FEATURES

NO
1

To meet the emerging demand

for credit.

Emphasis to shift from cheap credit to

adequate credit.
Equity

participation

by

other

undertakings domestic foreign up to

2

To strengthen small industry

marketing.

24%.
Introduction

of

factoring

service

through Banks.
Marketing of mass consumption goods
under common brand name.

To upgrade technology and

Setting up subcontracting exchanges.

Technology developmental in SIDO.

promote modernization.

Quality

counseling

and

testing

technology information centre.

Technology

Up

gradation

programmes.

OPPORTUNITY

The opportunities in the small-scale sector are enormous due to the following factors:

Less Capital Intensive

Extensive Promotion & Support by Government

Reservation for Exclusive Manufacture by small scale sector

Project Profiles

Funding - Finance & Subsidies

Machinery Procurement

Raw Material Procurement

Manpower Training

Technical & Managerial skills

Tooling & Testing support

Reservation for Exclusive Purchase by Government

Export Promotion

Growth in demand in the domestic market size due to overall economic growth

Increasing Export Potential for Indian products

Growth in Requirements for ancillary units due to the increase in number of Greenfield units
coming up in the large-scale sector.

1.2 POST WORLD WAR II SCENARIO

The second half of the 20th century has been called the 'era of development'. The origins of this
era have been attributed to:

The need for reconstruction in the immediate aftermath of World War II;

The evolution of colonialism or "colonization" into globalization and the establishment of

new free trade policies between so-called 'developed' and 'underdeveloped' nations.
The start of the Cold War and the desire of the United States and its allies to prevent the

Third World from drifting towards communism. Before the date, however, the United States had
already taken a leading role in the creation of the International Bank for Reconstruction and
Development (now part of the World Bank Group) and the International Monetary Fund (IMF),
both established in 1944, and in the United Nations in 1945.
The concept of development banking rose only after Second World War, after the Great
Depression in 1930s. The demand for reconstruction funds for the affected nations compelled in
setting up a worldwide institution for reconstruction. As a result the IBRD was set up in 1945 as
a worldwide institution for development and reconstruction. This concept has been widened all
over the world and resulted in setting up of large number of banks around the world which
coordinating the developmental activities of different nations with different objectives among the
world.
The early history of Indian banking and finance was marked by strong governmental
regulation and control. The roots of the national system were in the State Bank of India Act of
1955, which nationalized the former Imperial Bank of India and its seven associate banks. In the
early days, this national system operated alongside of a large private banking system. Banks
were limited in their operational flexibility by the governments desire to maintain employment

in the banking system and were often drawn into troublesome loans in order to further the
governments social goals.

The major issues confronting SSIs are identified to be:

Technology obsolescence

Managerial inadequacies

Delayed Payments

Poor Quality

Incidence of Sickness

Lack of Appropriate Infrastructure and

Lack of Marketing Network

There can be many more similar issues hindering the orderly growth of SSIs.
Over the years, SIDBI has put in place financing schemes either through its direct financing
mechanism or through indirect assistance mechanism and special focus programmers under its
P&D initiatives. In its approach, SIDBI has struck a good balance between financing and
providing other support services.

1.3 TECHNOLOGY

In the process of industrialization in general and development of SSIs in particular,

technology plays a key role in providing cutting edge for development. SIDBI, since inception,
has been giving thrust to technology up gradation of the SSIs and towards this end; various steps
were taken by the bank aimed at identifying their needs in terms of process technology,
environment management, quality management, common facilities center etc. & adopting
suitable measures to address them. Thus, apart from meeting the credit needs of SSIs, SIDBI has
developed support mechanism and facilitated institutional and infrastructural framework for
development and use of technology on an increasing scale.
The technology (APCTT), a United Nations outfits, is gradually emerging as a technology
bank for SSIs providing information on range of technologies, sources and facilitating
collaboration together with financial tie-up, when feasible. It has also been successfully
exporting the SSI technologies to various countries. In April 1995 SIBI out of its own resources
set up technology development and modernization fund (TDMF) with an earmarked amount of
Rs. 200crores for encouraging existing industrial units in the small scale sector to modernize
their production facilities and adopt improved and updated technology.
Assistance under this scheme is being provided at SIDBIs prime lending rate to beneficiary
units. Though the assistance under TDMF since inception crossed the originally earmarked

amount, the bank extended its operation for another 3 years by earmarked another Rs. 100 crores
from out its own resources. The major initiatives in this direction include cluster based
intervention programmed for technological up gradation, organizing skill cum technology up
gradation programmed and expanding information base on status of technologies in specific subsector within SSIs.
SIDBI is also performing the role of nodal agency in respect of specialized schemes of
Government of India for technological up gradation of cotton textile industry and tanneries in the
small scale sector.
The range of assistance comprising financing, extension support and promotional are made
available through appropriate schemes of direct and indirect assistance for the following
purposes:

Setting up of new projects.

Expansion, diversification, modernization, technology up gradation, quality

improvement, rehabilitation of existing units.

Strengthening of marketing capabilities of SSI units.

Development of infrastructure for SSIs and

Export promotion.

CHAPTER 2- DEVELOPMENT BANKING

2.1WHAT IS DEVELOPMENT BANKING?
The concept of development bank is not very much old. It has seen the light of the day
after World War II in the worlds economy and from 1948 onwards in Indian economy. It is true
that the idea of development bank has developed first of all in the West and has emerged
elsewhere later on. The World Bank has sponsored 68 development Banks in 44 countries so far
up to June 30, 1986. The concept of development bank has been perceived, viewed and
interpreted by the doyens of development banking in different tone and style according to the
prevailing environment of their region. Thus, every doyen of development banking has defined
and opined the term development bank in their own flavor.

The development bank must act as an engine of socio-economic growth in promoting

technological transformation so as to achieve the goal of entrepreneurial self-reliance in year to
come. The dominant influence hitherto exerted by the west in the area of development banking
had to be broken. The countries of the third world break this hegemony and develop their
independence style of development banking. The concept of development banking could assume
this new role in helping the third world so that it could emerge as the main force for the evolution
of world economy.
-Dr. Man Mohan Singh.
The idea of development bank is seeking new dimensions every day. Development Banks
as an institutional device to accelerate the pace of socio-economic development in the
undeveloped and developing countries are of a comparatively recent origin. The development
bankers have module the ideology of top financial institutions to act as a development banks so
as to fulfill the aspirations of the changing society at large. They are acting as gap filler in the
present set up of the entrepreneurial world.
Government and private entrepreneurship and others have sponsored them by joint
entrepreneurship of the two. Some development banks are of national and international
characters while the other are of state and regional level.

A development bank's policies or programs center on the following priorities:

a) Economic Growth
b) Human Development
c) Gender and Development
d) Good Governance
e) Environmental Protection

f) Private Sector Development

g) Regional cooperation

The main functions of a Development Bank:

a) Increase loans and equity investments to its developing associate countries (DMCs) for their
monetary and social development.

b) Provides technical help for the planning and implementation of development projects and
programs and for advisory services.

c) Promotes and facilitates speculation of public and private capital for growth and development.

d) Responds to requests for assistance in coordinating growth policies and plans of its increasing
member countries.

OBJECTIVES OF DEVELOPMENT BANKS

The ideology of development banking is based on entrepreneurship promotion in every

sector of the national economy. Thus, development banks are assiduously endeavoring to create
an economy of surplus and abundance by using innovative and entrepreneurial devices.

The major objectives are:1. To generate entrepreneurial environment in every sector of national economy.
2. To bridge gap of entrepreneurial expertise, knowledge, wisdom and experience.
3. To promote, encourage and stimulate the dormant and passive entrepreneurial human
wealth of the country.
4. To accord top priority to backward regions.
5. To nurse and protect the mushroom growth of entrepreneur promotion.
6. To modify the inhibitive environment by providing necessary finance for it.
7. To advise the Government and Planning Commission on matters of national policies and
strategies to be conceived for socio-economic development and reformation.
If the development bank virtually happens to be the principal development bank of the
country, then it should act as a guide, friend and philosopher for other DFIs operating at
state and national level.

2.2OVERVIEW OF DEVELOPMENT BANKING IN INDIA

The course of development of financial institutions and markets during the post-Independence
period was largely guided by the process of planned development pursued in India with emphasis
on mobilization of savings and channeling investment to meet Plan priorities. At the time of
Independence in 1947, India had a fairly well-developed banking system. The adoption of bank
dominated financial development strategy was aimed at meeting the sector credit needs,
particularly of agriculture and industry. Towards this end, the Reserve Bank concentrated on
regulating and developing mechanisms for institution building. The commercial banking network
was expanded to cater to the requirements of general banking and for meeting the short-term
working capital requirements of industry and agriculture. Specialized development financial
institutions (DFIs) such as the IDBI, NABARD, NHB and SIDBI, etc., with majority ownership
of the Reserve Bank were set up to meet the long-term financing requirements of industry and
agriculture. To facilitate the growth of these institutions, a mechanism to provide concessional
finance to these institutions was also put in place by the Reserve Bank.
The first development bank in India incorporated immediately after independence in 1948 under
the Industrial Finance Corporation Act as a statutory corporation to pioneer institutional credit to
medium and large-scale. Then after in regular intervals the government started new and different
development financial institutions to attain the different objectives and helpful to five-year plans.
The Financial Institutions in India were set up under the strong control of both central and state
Governments, and the Government utilized these institutions for the achievements in planning
and development of the nation as a whole. The All India Financial Institutions can be classified
under four heads according to their economic importance that are:

All-India Development Banks

Specialized Financial Institutions

Investment Institutions

State-level institutions

Other institutions

2.3 TECHNOLOGICAL PROBLEM IN THE MODERN

PROCESS

In this modern age new technology is making possible decentralized production units at a high
efficiency, which at one time seemed impossible. Appropriate technology is not static but a
dynamic concept that must change as the countrys technological skills develop. Appropriate
technology is primarily meant for SSIs that employ local raw materials, utilize available skills
and cater largely to a large demand.
The general level of technology in terms of installed equipment is backward in the SSI sector
when compared to the others. The present low level of new product lines hampers the
developments of SSI. The vast majority of the machines used by the SSI sector are conventional.
Moreover, accessories for the imported machines are not manufactured in India, because of their
age, they need constant attention and maintenance and problem of spare parts is acute. Old
machinery is never replaced due to variety of reasons. Finance, long waiting periods for
deliveries, risk aversion and some of the reasons for the slow replacement of machines in the SSI
sector.
Those who use indigenous machines generally feel that they lack speed and are made of
tempered steel, lack precision, lack durability and often lead to frequent repairs. For those who
wish to modernize or diversify their production, it is difficult to get imported machines because
of restrictions over imports.

What is needed right now is to spot the possibilities that exist all round and to either adapt
existing techniques or devise new ones for the best utilization of the available raw materials. It is
such improvement effected on a wide scale that can bring about a revolutionary transformation in
the SSI sector.

There at present two arrangements for providing technical advice and assistance to small
firms. First, the Central Small Scale Industries Organization which through its service institutes
provides a staff of technically qualified people whose job is to give advice to small entrepreneurs
or the technical problem facing them and secondly the common facility workshops which
undertake production operations on behalf of the small firms for a cost.

CHAPTER 3- SIDBI
3.1 HISTORY AND BUSINESS DOMAIN
SIDBI was established on April 2, 1990. The Charter establishing it, The Small Industries
Development Bank of India Act, 1989 envisaged SIDBI to be "the principal financial institution
for the promotion, financing and development of industry in the small scale sector and to coordinate the functions of the institutions engaged in the promotion and financing or developing
industry in the small scale sector and for matters connected therewith or incidental thereto.
SIDBI retained its position in the top 30 Development Banks of the World in the latest ranking of
The Banker, London. As per the May 2001 issue of The Banker, London, SIDBI ranked 25th
both in terms of Capital and Assets.
Small Industries Development Bank of India [SIDBI] as the principal financial institution for
promotion, financing and development of industry in the small-scale sector, has been assisting
the entire spectrum of the SSI sector, including the Tiny, Village and Cottage industries.
During the year 2002-03, the aggregate sanctions and disbursements of SIDBI amounted to
Rs.10904 crore and Rs.6789 crore respectively.
Cumulative assistance, as at the end of March 2003, surged to Rs.86, 158 crores in terms of
sanctions and at Rs.59, 101 crores of disbursements, thus recording a compounded annual
growth rate of 13.4 % and 11.4 % respectively. Net worth of the Bank is Rs.4075 crores as at the
end of March 2003.
Role of Small Industries Development Bank of India (SIDBI) is envisaged as "the principal
financial institution for the promotion, financing and development of industry in the Small Scale
Sector and to coordinate the functions of the Institutions engaged in similar activities. SIDBI is
headquartered at Lucknow with networking of 5 Zonal Offices, 1 Regional office and 59 Branch
offices covering all the states and important industrial locations in the country.

In line with the international concept of Small and Medium Enterprises (SMEs), Government of
India has permitted SIDBI to extend assistance to medium enterprises, in addition to the SSIs
and service enterprises served hitherto. SIDBI, as a part of its operational strategy, has been
emphasizing on increasing the flow of financial assistance to SMEs and enhancement in the
capabilities of SMEs at all levels, with focus on adoption of improved and modern technology.
As a matter of policy, SIDBI has tried to identify the gaps in the credit delivery system so as to
fill them through appropriate new Schemes. Over the years, SIDBI has been continuously
expanding its credit horizon and is assisting enterprises in the sectors like Tiny, Small Scale,
Medium, Service and Micro-Finance Sector.
In order to improve the flow of credit to small and medium enterprise sector, strategic business
initiatives were taken by the Bank by broad basing certain schemes in line with the changing
requirements of the sector. Steps were taken to enhance the scale of operations under direct
finance schemes, in addition to refinance activities. Greater emphasis was laid on liberalizing the
schemes as well as simplifying the systems and procedures and increasing the retail portfolio of
the Bank. Some of the major contributions are launching of Small and Medium Enterprises
Rating Agency (SMERA) for credit rating of SMEs, launching of SME Growth Fund of Rs 500
Crore, launching SME Fund for providing Credit to SMEs at concessional rate of interest, a tie
up with OBI for providing working capital facilities and signing of MoUs with commercial
banks for joint lending/co-financing of SME projects.

SIDBI is the principal financial institution for the promotion, financing and development of
industry in the small-scale sector and to co-ordinate the functions of the institutions engaged in
the promotion, financing or developing industry in the small-scale sector and for matters
connected therewith or incidental thereto. The Bank has also been authorized by Government of
India (GOI) to provide financial assistance to small and medium enterprises.

There is a well-defined system in the Bank regarding decision-making process. The Bank
follows a committee based approach for all its lending decisions wherein Credit/Settlement
committees have been set up right from branch level depending upon the nature and size of loan.
Branches receive applications for credit facilities and recommend to the appropriate sanctioning

authority. In the case of major loan products applications are processed at branches and
Centralized Credit Processing Cells.
There is a defined organizational structure and clear system of accountability based on RBI /
CVC guidelines. All credit decisions approved by any sanctioning authority are reported to the
next higher authority for control / monitoring purpose. The system of exercising proper
delegation of power and submission of control reports is in place and control officers monitor
them.
Administrative decisions are taken at various levels of Officers and also by Executive Directors
and Chairman & Managing Director as per the powers delegated to them by the Board.
The documents being obtained at the time of lending are preserved at the respective branch
offices of the Bank. The Bank maintains register of share holders and record of proceedings of
the Board meetings at its Head Office at Lucknow
The Banks shareholders are IDBI, LIC, GIC, other Nationalized Banks / FIs. Representatives of
the shareholders and Industry Association / SSI Sector are members on the Board of Directors.
The issues concerning the policies can be raised by the shareholders in the Annual General
Meetings of the Bank and by members in the Board meetings.

The Bank has the following bodies:

1. Board of Directors.
2. Executive Committee.
3. Audit Committee.
4. Risk Management Committee.
5. Committee for supervision of State Financial Corporations.

The Board and its Committees meet at regular intervals and guide the bank in achieving its
objectives. The meetings of the Board or Committees are not open to the public and the minutes
of such meetings are not accessible to public.
There are no plans and budgets for expenditure of public money. The provision is not applicable
to that extent to the Bank.
The Bank does not have its own subsidy programmes or plans for lending activities. However,
the Bank is the nodal agency for implementing GOI sponsored schemes like Credit Linked
Capital Subsidy Scheme (CLCSS), Technology Up gradation Fund Scheme (TUFS) & Integrated
Development of Leather Sector (IDLS).

BOARD OF DIRECTORS (AS ON AUGUST 05, 2011)

1
Shri Sushil Muhnot

Chairman & Managing Director (CMD)

Shri Rakesh Rewari

Deputy Managing Director (DMD)

Shri N.K. Maini

Deputy Managing Director (DMD)

Dr. Shyam Agarwal

Government Director

Shri Anurag Jain

Government Director

Shri T.R. Bajalia

Nominee of IDBI Bank

Shri K. Sitaramam

Nominee of State Bank of India

Shri B. Manivannan

Nominee of Life Insurance Corporation of

India

Shri Vikas Raj

Nominated by Government of India

Shri Prakash Bakliwal

Nominated by Government of India

Shri M. Balachandran

Co-opted Director

Shri Janki Ballabh

Co-opted Director

Shri S.K. Tuteja

Co-opted Director

10

11

12

13

14
Shri P.A. Sethi

Co-opted Director

Credit Guarantee Fund Trust for Small Industries (CGTSI) Coverage in

North Eastern Region
The Ministry of Small Scale Industry, Government of India, and SIDBI have set up the Credit
Guarantee Fund Trust for Small Industries (CGTSI), to help small scale/tiny units in accessing
institutional credit, both term loan and working capital, for their viable projects without
arranging for collateral security and/or third party guarantee. As on August 30, 2006
banks/institutions have availed of CGTSI guarantee in North Eastern Region in respect of 1147
units covering aggregate assistance of Rs 2718 lacks in North Eastern Region.

SME Rating Agency of India Ltd (SMERA) Coverage

As a part of SIDBI's thrust towards emerging as one step shop to serve the SME sector, the SME
Rating Agency of India Ltd. (SMERA) was launched as country's first and only rating agency
dedicated to the SME segment. A joint initiative of SIDBI, Dun & Bradstreet Information
Services India Pvt. Ltd., Credit Information Bureau (India) Ltd and banks, SMERA's primary
objective is to provide ratings that are comprehensive, transparent and reliable and which would
enable the rated units to borrow at competitive rates of interest. SIDBI calls upon the existing
SMEs in the country to get them rated by SMERA in order to have competitive edge in availing
credit at lower rates.

BUSINESS DOMAIN OF SIDBI

The business domain of SIDBI consists of small-scale industrial units, which contribute
significantly to the national economy in terms of production, employment and exports. Smallscale industries are the industrial units in which the investment in plant and machinery does not
exceed Rs.10 million. About 3.1 million such units, employing 17.2 million persons account for
a share of 36 per cent of India's exports and 40 per cent of industrial manufacture. In addition,
SIDBI's assistance flows to the transport, health care and tourism sectors and also to the
professional and self-employed persons setting up small-sized professional ventures.

Mission
To empower the Micro, Small and Medium Enterprises (MSME) sector with a
view to contributing to the process of economic growth, employment generation and
balanced regional development

Vision
To emerge as a single window for meeting the financial and developmental needs
of the MSME sector to make it strong, vibrant and globally competitive, to position
SIDBI Brand as the preferred and customer - friendly institution and for enhancement of
share - holder wealth and highest corporate values through modern technology platform.

Four basic objectives are set out in the SIDBI Charter. They are:

Financing

Promotion

Development

Co-ordination
For orderly growth of industry in the small scale sector the Charter has provided
SIDBI considerable flexibility in adopting appropriate operational strategies to meet these
objectives. The activities of SIDBI, as they have evolved over the period of time, now
meet almost all the requirements of small scale industries which fall into a wide spectrum
constituting modern and technologically superior units at one end and traditional units at
the other.

3.2 PROMOTIONAL AND DEVELOPMENTAL (P&D) INITIATIVES:

As an apex institution for the small-scale sector, SIDBI also plays a major role in meeting the
varied developmental needs of the Indian SSI sector. The P&D initiatives of the Bank aim at
improving the inherent strength of the small scale sector so as to enable it to face the emerging
challenges of globalization as also economic development of poor through enterprise promotion
resulting in self employment and creation of additional employment.

SIDBI has sanctioned grants to various organizations like TCOs, Industry Associations, reputed
NGOs and other agencies to conduct topical seminars and EDPs, and also sponsored the
participation of SSI units in exhibitions at subsidized rates to enable them to market their
products. In pursuance of its multifaceted P&D activity, synergistic with its business activities
aimed at development of the small industries, SIDBI looks forward to a partnership with NGOs,
associate financial institutions, corporate bodies, R&D laboratories, marketing agencies, etc., for
national level programmes. The sanction and disbursement of grant under P & 0 activities in
NER during the last three financial years amounted to Rs 125 lacks and Rs 92 lacks respectively.

RURAL INDUSTRIES PROGRAMME

Besides P&D activities, SIDBI has been providing a cohesive and integrated package of basic
inputs like information, motivation, training and credit, backed by appropriate technology and
market linkages for the purpose of enterprise promotion under its Rural Industries Programme
(RIP). RIP is a unique approach for rural industrialization where the emphasis is on stimulating
and helping the potential entrepreneurs to set up small enterprises through a consultancy outfit
positioned by SIDBI. The prime objectives of RIP are development of viable and self-sustaining
tiny/small enterprises in rural and semi urban India by harnessing local entrepreneurial talent.
The programme attempts to address the problems such as rural unemployment, urban migration
and under-utilization of local skills and resources, and is designed as a comprehensive Business
Development Services programme.

3.3 OBJECTIVES

Four basic objectives are set out in the SIDBI Charter. They are:

Financing

Promotion

Development of industry in the small scale sector and

Co-ordination the functions of other institutions engaged in similar activities.

For orderly growth of industry in the small scale sector the Charter has provided
SIDBI considerable flexibility in adopting appropriate operational strategies to meet these
objectives. The activities of SIDBI, as they have evolved over the period of time, now
meet almost all the requirements of small scale industries which fall into a wide spectrum
constituting modern and technologically superior units at one end and traditional units at
the other.

SIDBI has an Integrated (Rupee and Forex) Treasury set up at Mumbai which functions as a
separate business unit. The Treasury is headed by a Chief General Manager and has Front, Mid
and Back offices which are manned by experienced officers. The Treasury has various required
IT infrastructure to support the day-to-day operations and MIS requirement. The forex treasury is
equipped with RMDS, SWIFT and WANDA settlement systems.

3.4 PRODUCTS
DIRECT FINANCE
SIDBI had been providing refinance to State Level Finance Corporations / State Industrial
Development Corporations / Banks etc., against their loans granted to small-scale units

Since the formation of SIDBI in April, 1990 a need was felt/ representations were made that
SIDBI being the principal financial institution for the small sector, should take up the financing
of SSI projects directly on a selective basis.

So it was decided to introduce direct assistance schemes to supplement the other

available channels of credit flow to the small industries sector. Since then, SIDBI has evolved
itself into a supplier of a range of products and services to the Small & Medium Enterprises
[SME] sector.

Direct Credit Schemes

Purpose: - Assistance for purposes, such as

Setting up of a new SSI unit/ service sector unit.

Expansion / Diversification/ modernization/ technology up gradation/ quality

certification.

Any other activity considered relevant to the project.

For undertaking various marketing related activities

Acquisition of additional machinery / equipment

Meeting working capital requirements including gap in MPBF or margin on selective

basis.

Any other activity as per guidelines (having linkages and benefits accruing to SSI sector
from the proposed assistance). All activities covered under erstwhile marketing assistance
scheme for SSIs.

Minimum loan amount

Generally Rs.50 lacks for setting up new unit and Rs.25 lacks for other purposes. In
respect of well-run existing SSI units, the minimum loan could be Rs. 10 lacks.

BILLS FINANCE SCHEME

Bills Finance Scheme involves provision of medium and short-term finance for the benefit
of the small-scale sector. Bills Finance seeks to provide finance, to manufacturers of indigenous
machinery, capital equipment, components sub-assemblies etc, based on compliance to the
various eligibility criteria, norms etc as applicable to the respective schemes.
To be eligible under the various bills schemes, one of the parties to the transactions to the
scheme has to be an industrial unit in the small-scale sector within the meaning of Section 2(h)
of the SIDBI Act, 1989.

3.5 CHANNELS OF ASSISTANCE

SIDBIs financial assistance to small-scale sector has three major dimensions:
i)

Direct assistance:

The objective behind SIDBI's direct assistance schemes has been to supplement the
efforts of PLIs by identifying the gaps in the existing credit delivery mechanism for SSIs.
Assistance is provided directly through 43 branches of SIDBI. The assistance is extended
directly for setting up of new SSI units, small hotels, hospitals/nursing homes, technology up
gradation and modernization, expansion and diversification, marketing of SSI products, setting
up of multiplexes, development of infrastructure for the SSI sector, discounting of bills etc.
ii)

Indirect assistance:
SIDBI's schemes of indirect assistance envisage credit to SSIs through a large network

of 913 PLIs SIDBI has bagged the prestigious "ADFIAP Development Award 2003" for its Rural
Industries Programme designed to give impetus to rural development by creating sustainable
industrial and service enterprises in rural areas spread across the country with a branch network
of over 65,000. The assistance is provided by way of refinance, bills rediscounting and resource
support in the form of short-term loans/line of credit in lieu of refinance etc.
iii)

Development and Support Services:

SIDBI extends development and support services in the form of loans and grants to different

agencies working for the promotion and development of SSIs and tiny industries. The support is
given for enterprise promotion with emphasis on rural industrialization, HRD development in the
SSI sector, technology up gradation, quality and environment management, marketing
promotion, information dissemination etc.

3.6 SCHEMES
SIDBI, primarily a refinancing institution has offered various direct as well as indirect (through
refinance to the financial institution) start up term loan facilities to the small entrepreneurs.

This includes the following:-

GENERAL SCHEME
Purpose- For setting up new small-scale units & for all activities eligible for assistance under
the scheme including professionals practice/ consultancy ventures & services sector units such as
tourism related activities/hospitals/nursing homes/hotels/marketing & industrial infrastructure
projects.

Eligibility- All forms of organizations in the small scale sector (i.e. Proprietary, Partnership
Company, Cooperative Society etc.) for infrastructure development all forms of organization
such as public, private ltd.

SCHEMES FOR COTTAGE, VILLAGE & TINY INDUSTRIES:

Purpose- Assistance for equipments or working capital as also for shed.
Eligibility- Artisans, Village & Cottage Industries & Small Industries in tiny sector.
Limit- Not to exceed than 0.5 million Rupees.
SCHEMES FOR SC/ST & HANDICAPPED:
Purpose- Assistance for equipments or working capital.
Eligibility- SC/ST & Physically Handicapped persons.
Limit- Not to exceed than 0.5 million Rupees.
SCHEMES FOR SMALL ROAD TRANSPORT OPERATED (SRTOS):
Purpose- To meet expenditure towards cost of chassis, building initial taxes/ insurance and
working capital.
Eligibility- Small road transport operators.
Limit- Need based.

NATIONAL EQUITY FUND SCHEME:

Purpose- To meet gap in prescribed minimum promoters contribution and in equity.

Eligibility- Small entrepreneur for setting up new projects and existing in small scale sector and
rehabilitation of potentially viable sick SSI units irrespective of the location, satisfying the
investments ceiling prescribed for tiny entrepreneur undertaking expansion, modernization,
technology up gradation and diversification.
Limit- Cost of projects not to exceed Rs. 1 million, soft loan limit 25% of cost of projects
subjects to max Rs.2, 50,000 per projects service charges 1% p.a. on soft loan.

MAHILA UDYAM NIDHI:

Purpose- To meet gap in prescribed minimum promoters contribution or in equity.
Eligibility- Small entrepreneurs for setting up new projects in small-scale sector and
rehabilitation of potentially viable sick SSI units irrespective of the location. Enterprises would
include all Industrial units and Service Industries satisfying the investment ceiling prescribed for
tiny entrepreneurs.

SELF EMPLOYMENT FOR EX-SERVICEMEN:

Purpose- For setting up small industrial projects including service industries and specified
transport activities which are eligible for finance as per SSI norms.
Eligibility- Ex-servicemen sponsored by Director General, Ministry of Defense, Government of
India.
Limit- Scheme operated through SFCs twin function of project not to exceed than 1.5 million,
Soft loan limited to meet gap in equity subject to a maximum of Rs. 2, 25,000 per project.
Service charges-1% p.a. during moratorium period thereafter, interest at 6% p.a. on soft loan.

3.7 SUBSIDIARIES

SIDBI Venture Capital Ltd. [SVCL] a wholly owned subsidiary of SIDBI acts as the
Asset Management Company of the National Venture Fund for Software and Information
Technology. The fund has a committed corpus of Rs.100 crores as on March 31, 2003.

SIDBI Trustee Co.Ltd. [STCL] has been set up to carry out trusteeship functions for
Venture Capital Funds. Presently STCL is acting as Trustee of National Venture Fund for
Software and Information Technology.

Credit Guarantee Fund Trust Scheme for Small Industries [CGTSI] promoted
jointly by Government of India and SIDBI, was launched by the Hon'ble Prime Minister on
August 30, 2000. The credit guarantee scheme of CGTSI aims at helping the new and existing
industrial units in SSI sector, in getting collateral free credit by way of both term loan and
working capital from eligible member lending institutions. Member Lending Institutions include
scheduled commercial banks; select Regional Rural Banks and Government of India may
approve such of the institutions as.

Technology Bureau for Small Enterprises [TBSE] was set up by SIDBI in 1995 in
collaboration with United Nations Asian & Pacific Center for Transfer of Technology. The
Bureau aims at helping SSI units to attain international competitiveness through transfer of latest
available technologies from both within and outside the country.

3.8 INTERPRETATION OF MANAGERS VIEW POINTS

The development banks started before 1991 provide loan for Small Scale Industry and also
charge low and high rate of interest on it.
The loan sanctioned to the entrepreneur it is depending upon the three years Balance Sheet of the
industry, means the industry was profit making or not and entrepreneur is capable or not to repay
the taken loan in case of existing entrepreneur, if the entrepreneur is new then development bank
decide upon his/her financial background and nature of project report.
People have preferred Co- operative banks over the sources of finance.
General Rate of margin money is 25%.
The time required for completion of project report is 15 days.
Processing period in general is 3 months.

3.9 SIDBIS FINANCIAL HIGHLIGHT

4000
3500
3000
2500
Income Of SIDBI

2000
1500
1000
500
0
1990-91

1999-00

2001-04

2006-09

The bank has achieved consistent growth in financial parameters since inception. The total assets
of the bank have grown from a level of Rs. 5309 crores in March 1991 to Rs 36, 561 crores in
March 2009. The income has increased from Rs. 425 crores in 1990-1991 to Rs. 1598 crores in
1999-2000 and in 2001-2004 the income has increased to Rs. 1600 crores and to Rs. 5000 crores
in 2006-2009. While the net profit has grown from Rs. 36 crores to Rs.459 crores during the
same period. The capital to risk asset ratio as at end March 2000 was at 27.8 percent and 96.2
percent of the assets were standard assets. The bank has been paying dividends on equity holding
to IDBI since inception.

CHAPTER 4- SIDBIS FINDINGS

4.1 FINDINGS

Over the past decades, SIDBI has evolved into a strong and small-scale sector credit giving
Facility apex developmental institution with a complete grass roots level understanding of the
Complexities of the small-scale sector. SIDBI is a major shareholder in the Small-scale Industry
In India. The bank is fully equipped organizationally, financially, and domain knowledge wise to
Emerge as a strong player in the Small-scale Industry Credit system. Promoting various groups
Reflects SIDBIs capabilities in capacity-building and nurturing the small-scale Industry.
A small-scale industrial unit is considered sick if it has at the end of an accounting year incurred
losses equal to or exceeding 50% of its peak net worth in the preceding 5 accounting years. The
sickness in SSI units have been causing concerned to policy-makers because of the productive
assets lying unutilized or underutilized in this units, the huge assistance from financial
institutions and banks locked up in them and the adverse impact on employment in case the unit
closes.

CHAPTER 5- CONCLUSION
5.1- CONCLUSION

The main objective of SIDBI is to provide financial assistance to all SSI s

throughout India through SFC s and SSIDC s. SIDBI s motive is promoting industrial
development in India, it emphasizes on the development of the small-scale industries
not to earn much profits. The maximum shares of profits of SIDBI are transferred to
reserves. It can have more debt capital, hence the large portion of profits are utilized for
the payment of interest to long-term securities.

The activities of SIDBI, as they have evolved over the period of time, now meet
almost all the requirements of small scale industries which fall into a wide spectrum
constituting modern and technologically superior units at one end and traditional units at
the other.

Case Study on SIDBI A Successful Financial Institution in SME

Financing

Worldwide, the wind has been changing in the finance sector in general and banking-investment sector
in particular. Such a panorama teaches us that now, is the time of cooperation rather than a
competition, now its a time of convergence rather than cutting each others neck over customers and
markets, now its a time of consolidation rather than antagonism.

Curing the fatal disease requires the doses of small pills; impressive thoughts come out from the small
brain, similarly, India requires prominence of small and medium enterprises for curing its problem of
low economic growth vis--vis developed nations.

To cure the overall disease of lack of appropriate growth of Indian SMEs Small and Medium
Enterprises, India needs several small pills such as adequate credit delivery to SMEs, better risk
management, technological up gradation of Banks esp. Public Sector Banks, attitudinal change in
Bankers and so on. Among them, the major problem of inadequate financing to SMEs needs an urgent
attention.

Having said this, it is pertinent to mention that Small Industrial Development Bank of India has
achieved landmark results in the domain of small and medium enterprise financing and fulfilling their
credit requirements time to time in various forms such as long term project finance, working capital
finance, bill discounting etc. However considering the level of appetite for credit facilities of Indian
small and medium enterprises, private and public sector banks in India need to work out an unique and
innovative model of financing to this vital sector (SME) of Indian Economy.

In todays changing world, retail trading, SME financing, rural credit and overseas operations are the
major growth drivers for Indian banking industry. The scene has changed since the adoption of
financial sector restructuring programme in 1991. The reform in the financial sector in India along
with the overall second generation economic reforms in Indian economy has transformed the
landscape of banking industry and financial institutions. GDP growth in the 10 years after reforms
averaged around 6 %.

With the introduction of the reforms especially in financial sector and successful implementation of
them resulted into the marked improvement in the financial health of the commercial banks measured
in terms of capital adequacy, profitability, asset quality and provisioning for the doubtful losses.

BIBLIOGRAPHY

INTERNET REFRENSES
http://www.sidbi.com/
http://www.sidbi.com/NOTICES/MicroFinance/TOR%20Impact.pdf
http://www.sidbi.com/NOTICES/corporate.pdf
http://www.sidbi.com/FAQ.asp
http://www.sidbi.com/directobjectives.asp
http://www.sidbi.com/directcredit.asp
http://www.sidbi.com/directtechnology.asp
http://www.sidbi.com/UnderConstruction.asp
http://www.sidbi.com/directssi.asp
http://www.sidbi.com/directrisk.asp
http://www.sidbi.com/billsobjectives.asp
http://www.sidbi.com/billsreceivable.asp
http://www.sidbi.com/internationalpost.asp
http://www.sidbi.com/internationalpre.asp
http://www.sidbi.in/Micro/index.htm
http://www.sidbi.com/otherschemes.asp
http://www.sidbi.com/otherschemes.asp
http://www.sidbi.com/promotionalObjectives.asp
http://www.sidbi.com/refinanceiso.asp
http://www.sidbi.com/customersssi.asp

BOOK REFRNSES

Ramesh IDBI/SIDBI Assistant Manager Guide

By Ramesh

Financial Services Management

Deepak Abhyankar

MAGAZINE REFRENSES
OPTIMISM
A bi-monthly magazine dedicated to the Micro, Small and Medium Enterprises