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The analysis consists of 82 scheduled commercial banks, comprising of 28 Public Sector Banks, 25 Private Sector Banks and 29 Foreign Banks, as defined by the RBI. The group of Public Sector Banks (PSBs) includes nationalised banks, SBI & its Associates . With the purpose of gaining a deeper understanding of the Indian banking industry, an overall profiling of the industry has been attempted in this section. This study considers only the 82 banks profiled in this analysis. The data for the study was collated from sources in the public domain like annual reports, the RBI documents and the bank websites. Various parameters like efficiency, growth, productivity, etc., have been examined for gaining insights. Total Assets Total assets for the 82 scheduled commercial banks combined stood at Rs 27,785,739 mn in FY06, of which Public Sector Banks had the largest share of 72.5%, followed by Private Sector Banks of 20.2% and Foreign Banks at 7.3%.
* During the year FY06, two domestic banks were amalgamated - Ganesh Bank of Kurundwad with Federal Bank Ltd and Bank of Punjab Ltd with Centurion Bank Ltd to become Centurion Bank of Punjab Ltd, while one
foreign bank, UFJ Bank Ltd merged with Bank of Tokyo-Mitsubishi Ltd. ING Bank NV closed its business in India. In Sept, 06, The United Western Bank Ltd was placed under moratorium, leading to its amalgamation with Industrial Development Bank of India Ltd. in Oct, 2006, Sangli Bank, another Private Sector Bank was merged with ICICI Bank. Ganesh Bank of Kurundwad, Sangli Bank and The United Western Bank have therefore been excluded of the publication. The assets for all the profiled banks have grown at a rate of 22.6% over the previous year. It was observed that the asset base of Private Sector Banks was growing more rapidly compared to the other bank groups. Total assets of private banks grew by 16% in FY05 and 33% in FY06, over the previous year. The asset base of Foreign Banks grew by 13% in FY05 and by 30% in FY06 mainly driven by the growth in advances of four banks in this group. The Public Sector Banks maintained a decent year-on-year growth of 15% and 19% in the respective years. However, it should be noted that the growth of Public Sector Banks is on a very high base.
Total Income The total income for the 82 banks stood at Rs 2,215,280 mn in FY06, of which the Public Sector Banks held the highest share of 72.7%, Private Sector Banks at 19.5% followed by 7.8% for the Foreign Banks.
non-interest income was the highest for Foreign Banks at 31%.3% while interest income was a high 84. Non-interest income includes fee income components such as commission. corporate finance transactions.8%. 8 banks were Public Sector Banks while the remaining two were Private Sector Banks. For Public Sector Banks. followed by Private Sector Banks at 19. Non-Interest Income/Total Income The non-interest income for all the 82 banks profiled in this publication on an average stood at 22. brokerage and exchange transactions. . indicative of the value-added services these banks offer.7%. Among the bank groups.The top ten banks classified on the basis of their respective total income accounted for nearly 56% of the total income of the 82 banks. sale of investments. Of these top ten banks. non-interest income was just 15. M&A deals.1% of the total income. and any other income other than the interest income generated by the bank.
6% share in the net profit.281. of which 88% of the branches belonged to the Public Sector Banks (PSBs). out of the profiled 82 banks. accounted for nearly 58.5% of the total net profit of all the 82 banks. The share of Private Sector Banks in the total net profit stood at 21%. indicative of the extent of penetration these banks have in the country. which made losses in FY06. four banks that managed to make it to the top ten on the basis of net profit do not feature among the top ten on the basis of total income. Bank group-wise.346. Within the Public Sector Banks.5 mn for FY06. There are 5 banks. of these top 10 banks. The top ten banks.Net Profit The net profit for the profiled banks together stood at Rs 248. based on the net profit classification. the total number of branches of the profiled banks operating in the country was 54. Infrastructure Banks across all three groups have been rapidly increasing their infrastructure to tap the under served markets. though Public Sector Banks are dominant all across in all regions. Interestingly. 4 foreign and one private. As of Mar 06. Another 11% of the branches belonged to Private Sector Banks and the rest were of Foreign Banks. . two Private Sector Banks and two Foreign Banks. These top ten banks included 6 Public Sector Banks. Public Sector Banks continued to dominate with a 66.4% share in the total net profit. followed by Foreign Banks having a 12.
followed by the Private Sector Banks with 7. while 19% branches are in the metropolitan regions.608 machines. the concentration of branches was highest in the rural areas. As of Mar 06.Region-wise. the presence of Private Sector Banks was largely in urban areas with almost 30% of their branches in this region. Public sector banks once again accounted for the largest share of installed ATMs with 12. .047. 23% of the branches of PSBs are located in semi urban area. The immense reach of PSBs can be seen by the fact that almost 62% of total PSB branches are in rural & semi-urban areas. Foreign Banks have installed 855 ATMs around the country. accounting for almost 35% of the total. Group-wise. The rural segment is entirely dominated by Public Sector Banks with 95% of the total rural branches belonging to PSBs.584 ATM¶s. the total numbers of ATMs installed by profiled banks were 21.
Group-wise. . Growth in Deposits. Advances & Retail Credit * The above figures are represented as an average % growth over FY05 Advances Advances for all the profiled banks have grown at about 32% YoY and that made by Private Sector Banks grew at the highest rate of 44% for FY06 followed by a growth of 30. closely followed by Foreign Banks at 31. Among the major components of total advances. Overdrafts and Loans have shown a yearly decline of 4% in FY05 as a part of total advances.7%. while that of Public Sector Banks has been declining over the years. Cash Credits. For Public Sector Banks the deposits grew at about 13% for the same time period. The share of Private Sector Banks in total deposits has been rising gradually. over the last three years. there was no relative change in the percentage share of Bills Purchased and Discounted.2% for FY06.2%.7% for Public Sector Banks and 30% for Foreign Banks. deposits of Private Sector Banks witnessed a robust growth of 39.Growth in Deposits. Advances & Retail Credit Deposits The overall deposit growth for the profiled banks was at 18.
which grew by 30.8% in FY05 which almost reduced to half and stood at 32.9% in FY06. Retail Credit . Foreign Banks. Term Loans have been growing and constitute a large component of advances.7% growth in FY05 and 48. Term Loans across the profiled banks grew on an average of 35. In FY04.2% in FY05. This growth in all three bank-groups can largely be attributed to the growth in retail credit and the overall economy. and further to 55.7% in FY06. Term Loans provided by the public sector banks showed robust growth of 59. The growth shown by Private Sector Banks has varied too. Term Loans constituted 49.2% in FY06 as against a growth of 37. which increased to 54. Group-wise Average Growth in Term Loans *All figures in %age In FY06.2% in FY05.2% in FY06. with 38. however.Correspondingly. have shown a lower growth in term loans in FY06 as compared to FY05. among other factors.4% of Total Advances.9%.
which was slightly lower than that of FY05. both in the public and private sectors.9% for the same. As seen earlier.5% in FY05. the high rate of bank credit growth during the last two years has resulted in this unique behaviour of credit-deposit (C-D) ratio. where in their C-D ratio stood at 73. . sub-targets of 18% and 10% of net bank credit had been stipulated for lending to agriculture and weaker sections. Credit Deposit Ratio The Credit-Deposit ratio (C-D ratio) is the proportion of loan-assets created by the bank from the deposits received. which too was well above the overall growth.6% of their total advances. In FY06.Retail credit for the Public Sector scheduled commercial banks increased by 35%. a little above the stipulated target level of 40%.7% in FY05. higher than 70. the average credit to the priority sector by the profiled Public Sector Banks accounted for 41.9% for FY05.2% as compared to 59.6% of their total credit to the agriculture sector and private banks contributed 11. The Public Sector Banks contributed 15. both falling short of the stipulated sub-targets of 18%.6% of their total credit.8% in FY06. Within this.3%. a target of 40% of net bank credit was stipulated for priority sector lending by domestic scheduled commercial banks. respectively. Among the 82 banks profiled. Public sector banks too showed a growth in their C-D ratio at 68. The retail advances by the Private Banks grew by 48. foreign banks had the highest C-D ratio of 85. In FY05. the aggregate C-D ratio stood at 70. Priority Sector Advances / Total Advances As instructed by the RBI. which was significantly higher than the profiled banks¶ overall credit growth of 32%.1% in FY06 as compared to 62.4% in FY06. the profiled private banks lending to the priority sector constituted 39. An opposite trend was seen with private banks. Among the profiled bank-groups.
Operating Efficiency Net NPAs to Net Advances (Net NPAs/Net Advances) On an average.4%.5%. For Foreign Banks. Operating Expenses The operating expenses are those expenses that cover the day-to-day functioning of the bank like employee costs and charges for normal running of business. Among the profiled 82 banks. Of this. Private Sector Banks was 28. the ratio was much lower at 0. It is evident that there has been a sharp decline in non-performing loans of Public Sector Banks and Private Sector Banks. closely followed by Private Sector Banks at 1. while for Foreign Banks the ratio was nearly one-third of their total expenses and stands a little higher compared to their peers.9%. the net NPA/Net Advances ratio for the 82 banks was 1. the net NPAs to net advances ratio for the Public Sector Banks was estimated to be 1.4%. the ratio of operating expense to total expense for the Public Sector Banks was 26. .4% in FY06. The graph below depicts that the asset quality of all the banks has been improving for the past couple of years.8%.
9%. and Public Sector Banks at 0. All the banks profiled in this publication have a capital adequacy ratio of above 9%. The return on assets for the Private Sector Banks has more or less remained the same with just a slight decline in it. Among the profiled banks. for private banks 0. the return on assets for Foreign Banks was highest at 1.2% for the year ending Mar 06.9%.4% and for Foreign Banks it stood at 0. followed by Private Sector Banks at 0. and when seen in conjunction with non-interest income explains how much is the non-interest income able to cover up the operating expenses of the banks.6%. While the return on assets for Public Sector Banks shows a very sharp decline. with most of the banks placed well above the 9% mark. The RBI guidelines require a capital adequacy ratio of 9%. This gap (the excess of operating expenditure over non-interest income as a percentage to total assets) has been narrowing considerably over the past few years. Capital Adequacy Ratio The Capital Adequacy Ratio is a measure of the amount of a bank¶s capital expressed as a percentage of its risk weighted credit exposures. . The graph depicts that the return on assets bounced back smartly for Foreign Banks after the slight decline it witnessed in FY05. for Public Sector Banks this gap was 0. Return on Assets In the list of 82 banks profiled.Intermediation cost is the ratio of operating expense to total assets.5%.
the equity capital for public sector banks jumped close to five times from Rs 11040 mn in 2003-04 to a whopping Rs.8% in 2003 to 16% in 2006.1% in the year 2006.Return on Equity Of the 82 banks profiled in the publication. the Return on Equity for Public Sector Banks was estimated to be the highest amongst its peers at 16%. also witnessed a huge jump in equity capital and ended the year with an equity capital of Rs. .2% for Foreign Banks.2% in 2006.1% in the year 2003 to 11. closely followed by Private Sector Banks at 11. The Return on Equity for Public Sector Banks too showed a sharp decline from 21.1% and 9. As shown in the graph depicting the trend in Return on Equity over the last four years.04. the return on equity showed a marginal decline from 11% in 2003 to 9. 56540 mn in 2005-06. Bank of Baroda has achieved 15% return on equity for the financial year 2007-08. The private sector banks which had a low capital base in 2003. As for Foreign Banks. it is observed that the Return on Equity for Private Sector Banks fell drastically from 21. One of the reasons for the declining RoE could be the large amount of resources raised from primary capital market to strengthen the capital base. As per RBI data . 54130 mn in the year 2005-06.
4% for Private Sector Banks and 3. the profitability per employee for Foreign Banks was highest at Rs 2.13% for Public Sector Banks. Broadly speaking. a lower ratio being indicative of upper efficiency.20 mn per employee.64 mn and Rs 49. Public sector banks showed an aggregate Rs 0. In FY06. both can be used as tools for measuring the efficiency of an organisation with respect to its human assets.87 mn per employee.Net Interest Margin It is defined as the excess of interest income over interest expense. However. Productivity Business per employee is the total revenue generated on a per employee basis where as Net Profit per employee gives an indication of the ability of labour to generate profit. This indicates that profit generation . . Correspondingly. the Foreign Banks on an average generated business worth Rs 101.27 mn per employee. followed by 3.54 mn respectively. which was the highest among the various bank groups. the Foreign Banks can mobilise low-cost deposits. The business generated per employee by public sector and private banks stood at Rs 41.21 mn profitability on per employee basis. The net interest margin in FY06 stood at 3.5% for Foreign Banks its due to the fact that tradionally. this ratio reflects the allocative efficiency of financial intermediation. as an percentage to total bank assets. followed by private banks with Rs 1.
with respect to its human resource is highest in Foreign Banks followed by private banks. Company Analysis . and lowest in Public Sector Banks.
500.500.00 1.48 740.00 1.00 1.500.00 Paid Up Paid Up Face Value 10 10 10 10 10 10 10 10 10 10 10 6 10 Paid Up Capital(rs.500.500.500.500.500. 2007 .00 1.500.27 293.46 740.46 388.00 1.94 364266000 364265500 293265400 293261700 296000000 296000000 296000000 296000000 296000000 296000000 203537400 92462600 740935900 Financial position of IDBI BANK Profit & Loss Account for the Year ended 31st March.94 Capital Shares(Nos) 367 367 296 296 296 296 296 296 296 296 388.00 1.27 293.00 1.00 1.00 1.in crore) 364.27 364.Followings are included for the purpose of company analysis Capital structure of the IDBI BANK From (Rs crore) Authorized Issued Year 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1996 1995 To Year 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1997 1996 capital 1.500.500.500.00 1.00 1.26 296 296 296 296 296 296 203.54 55.00 1.500.
95.03 8177.97 Rs.69 826.33 9359.10 10385.24.31.07.55.69 207.45.19 252.72 1173.50.99 7.45 Rs.61 14.10 Balance Sheet as on 31st March. 2007 Amount in Rupees .08.68 124.42 3875.84 1026.73.65 127.63.87.46. 2007 I.34.67.45 7350.46.43 1448.04.95.46.45 1026. Profit for the year Available for Appropriation Appropriation 9212.18 207.45 As on 31st March.34 1388.85.60.00 503.27 1090.82 5426. Profit Net. Expenditure Interest Expended Operating Expenses Provisions and Contingencies Total III.73 2384.28.61 Reserves I) Investment Fluctuation Reserve II) General Reserve II) Statutory Reserve (Foreign) d) Dividend (including Dividend Tax) I) Interim Dividend II) Proposed Dividend TOTAL Basic & Diluted Earnings per Share 502.54.46.97 Transfer to : a) Statutory Reserve b) Capital Reserve c) Revenue and Other 256.54. Income Interest Earned Other Income Total II.95.35 57.39.27. 2006 7049.70 25184.108.40.206 826.Amount in Rupees (000's Omitted) As on 31st March.65 206.97 826.35 -1042.39 1127.37 1026.67.75.38.61.53 6.41..95.58 412.96.
69 3991.93 1220.127.116.11 920.16 8437.07 7083. 2007 (000's omitted) Year ended Year ended .75 5212.52.04 143146.46 Total 113392.(000's Omitted) As on 31.16 4802.76 8284.98 1088.52.60 35114.73 Assets Cash and balances with Reserve Bank of India Balances with Banks and Money at Call and Short Notice Investments Advances Fixed Assets Other Assets 6413.17.61 365.74 7418.104.22.1687 As on 31.97.39 14322.214.171.124 34943.52.75 836126.96.36.1996 Capital & Liabilities Capital Reserves & Surplus Deposits Borrowings Other Liabilities & Provisions 3188.8.131.52.73 Statement of Cash Flow for the year ended 31st March.184.108.40.206.46 Total 1133220.127.116.11.87 59911.86.99.02 11866.41.72 93661.52.00 124915.45 3333.90.34 10121.
03. Cash flow from financing activities : Share capital Share premium Unsecured Subordinated Bonds Dividend paid including dividend tax Interest paid / payable on unsecured subordinated bonds Net cash from financing activities (C) 2 12 4491000 -2524584 -2172062 -205632 710000 15351111 7700000 -2076769 -1969417 19714925 .03. Cash flow from operating activities: Net Profit before taxes Adjustments for : Depreciation on fixed assets Depreciation on investments (including on Matured debentures) Bad debts written-off/Provision in respect of non-performing assets Provision for Standard Assets Provision for Other items(Net) Profit/(loss) on sale of fixed assets(Net) Payment/provision for interest on subordinated debt(treated separately) Dividend received from subsidiaries/others (treated separately) Sub total Adjustments for : (Increase)/Decrease in investments (Increase)/Decrease in advances (Increase)/Decrease in other assets Increase/(Decrease)in borrowings Increase/(Decrease) in deposits Increase/(Decrease) in other liabilities and provisions Direct taxes paid(Net of refund) Increase in Capital Reserve on a/c of merger of BOBHFL Net cash from operating activities (A) -3927008 -239281783 -17024574 -36596391 312539877 10320723 -4833814 439034 51539374 1942849 5442072 2190869 1760349 299718 -128475 2172062 -318721 29903310 16542587 31.2007 A. Cash flow from investing activities : Purchase of fixed assets Sale of fixed assets Changes in Trade related investments (Subsidiaries & others) Dividend received from subsidiaries/others Net cash from investing activities (B) -3914373 328321 190848 318721 -3076483 -2014206 186730 3310300 127566 1610390 C.31.2006 8920074 1111313 6096190 3200090 47400 1836215 3020 1969417 -127566 23056153 13506034 -168314035 -2649422 31613670 123285273 3717501 -3536105 ² 20679069 B.
Net increase in cash & cash equivalents (A)+(B)+(C) Cash and cash equivalents as at the beginning of the year Cash and cash equivalents as at end of the year 48257259 134546394 182803653 42004384 92542010 134546394 Ratio Analysis .
One way to avoid this problem is to calculate and compare financial ratios of the both the companies. and assessing market risk. It is helpful in assessing corporate excellence. forecasting bond ratings. Acid Test Ratio o Profitability Ratios. Liquidity refers to the ability of a firm to meet its obligations in the short-run.Financial statement analysis may be done for a variety of purposes. Liquidity refers to . Financial ratio has been classified in several ways. judging creditworthiness. They are as follows. finance structure ratios to measure the solvency thus the ability of the company to return the principal amount on maturity. Liquidity ratios to measures the ability to pay interest regularly . usually one year. A ratio is the arithmetical relationship between two figures. Current Ratio. Financial ratio analysis is a study of ratios between various items or groups of items in financial statements. o Liquidity Ratios. The important liquidity ratios are. finance structure ratios to measure the solvency thus the ability of the company to return the principal amount on maturity. as there would be a problem of differences in size of these companies. Liquidity ratios are generally based on the relationship between current assets and current liabilities. Liquidity ratios to measures the ability to pay interest regularly . which may range from a simple analysis of the short-term liquidity position of the firm to a comprehensive assessment of the strengths and weaknesses of the firm in various areas. valuing equity shares. If we want to compare the financial statement of one company with that of the other company it is difficult. predicting bankruptcy.
Valuation ratios are generally presented on the per share basis and thus are more useful to the share holders and the other interested parties may be external. and debtor¶s turnover. o Finance Structure Ratios. Liquidity ratios are generally based on the relationship between current assets and current liabilities. and levels of various assets. usually one year. Assets are the inputs which are deployed to generate production or sales. If the assets turnover ratio is high. Acid Test Ratio o Assets Turnover Ratios. while outside debt funds are supplementary funds and are added at the discretion of the management. net fixed assets turnover. It should be noted that equity funds are the prime fund which increase progressively through reinvestment of profits. it shows efficient or productive use of inputs or assets. Finance structure ratios indicate the relative mix or blending of owners¶ funds and outsiders¶ debt funds in the total capital employed in the business. The important assets turnover ratios are total assets turnover. inventory turnover. The important liquidity ratios are. Asset turnover ratios are basically Productivity ratios which measure the output produced from the given inputs deployed. represented by sales or cost of goods sold. The valuation ratios are the result of the management of the above four categories of the functional ratios. It includes the following ratios (1) earning per share .the ability of a firm to meet its obligations in the short-run. Current Ratio. The same set of assets when used intensively produces more output or sales. Management prefers to choose debt only when it helps in enhancing the earnings of equity o Valuation Ratios. These ratios are based on the relationship between the level of activity.
IMPORTANCE OF RATIO ANALYSIS. 1). Valuation ratios are generally presented on a per share basis and thus are more useful to the equity investors.(2) (3) (4) (5) dividend per share book value per share earning yield Dividend yield etc. Since the market value of equity reflects the combined influence of risk and return. Intracompany comparison. . valuation ratios are the most comprehensive measures of a firm¶s performance. Following type of comparison can be made with the help of ratios. Valuation ratios indicate how the equity stock of the company is assessed in the capital market. Valuation ratios are the result of the management of above categories of the functional ratios. Business units are interested in assessing whether they have progressed or digressed over the period. Ratios are the relative information which is amenable for comparison. Ratios transform the absolute rupee data of the financial statements into the pure relative unit less information.
It shows efficient utilization of the total assets of the Bank of Baroda. ~ The comparison of company ratios with competitive company ratios. Under this type of comparison. ~ Current year with preceding year. Ratios represent the quotient relationships between two relevant variables of the financial statements an individual item to individual item. ~ Time series and trend series. There are two ways through which this can be done. which develop the meaningful relationships between these two sets of variables. Strategic comparison. and national average of international standards.89% As per the calculation the return on average assets improved from 0. .89% on year-to-year basis which shows 11. the relative data of company is compared with the other company.25% increases than previous financial year. 2). Key Financial Ratios: 2007-08 Return on Average Assets (ROAA)= EBIT___ x 100 Total Assets =0. It is necessary to dig out the facts behind the figures. 3). ~ To compare the actual ratios with the budged ratios. ~ It helps in planning the future activities.80% to 0. industry average. the relative data of the same company are made with the preceding period.Under the intracompany comparison. ~ The comparison with national ratios. Intercompany comparison. an individual item to group item or a group item to group item.
2007] Bank of baroda¶s book value per share has decreased by more than 11%.18 last year) It shows significant increase in the earning per share by 39.59 at end-March. Return on Equity (ROE) = Net Profit x 100 Net Worth =15. It shows efficient utilization of available financial resources.07% [12.28. Book Value per Share = Equity capital + Reserves ± Misc.54 [Rs 231. Cost-Income Ratio = Total operating expenses Net Profit . expenses No.Preference Dividend Total Number of Equity Shares = Rs.85% compare to other banking companies¶ the bank of baroda holds a bulwark over increasing the value of share holders.41 (Rs.39. which result in to less operating expenses and higher net profit. of equity shares = Rs 261.Earning per share = Net Profit .17% Last year] Return on equity has increased by 23.82% as compare to last year.
1722(E) dated October 5.5 Crore.21% (51. y Small (service) enterprises: .O. The higher the ratio the less efficient utilization of resources. Introduction to the small-scale enterprises y Small (Manufacturing) enterprises: Enterprise engaged in the manufacture/production or preservation of goods and whose investment in plant and machinery ( Original cost excluding land and building and the items specified by the Ministry of small scale Industries vide its notification No. but here the ratio has shown the declination by more than 5% that means it has used its resources effectively and also shown improvement in cost control.does not exceed Rs.= 49.2006.).30% last year) The cost income ratio shows proportion between total expense incurred and net profit realized.S.
Act 2006 ) does not exceed Rs.1722(E) dated October 5.S.Enterprise engaged in the providing/rendering of services and whose investment in equipment ( Original cost excluding land and building and furniture.2006). irrespective of the location of the unit.25 lakh.does not exceed Rs. y Micro (service) enterprises: Enterprise engaged in the providing/rendering of services and whose investment in equipment ( Original cost excluding land and building and furniture.10 crore.Act 2006 ) does not exceed Rs.2006. y Medium (Manufacturing) enterprises: Enterprise engaged in the manufacture/production or preservation of goods and whose investment in plant and machinery ( Original cost excluding land and building and the items specified by the Ministry of small scale Industries vide its notification No. y Micro (Manufacturing) enterprises: Enterprise engaged in the manufacture/production or preservation of goods and whose investment in plant and machinery ( Original cost excluding land and building and the items specified by the Ministry of small scale Industries vide its notification No. fittings and other not directly related to the service rendered or as may be under the micro small and medium enterprises development (MSMED).O.10 lakh.O.2 crore. fittings and other not directly related to the service rendered or as may be under the micro small and medium enterprises development (MSMED). .S.5 crore but does not exceed Rs.) is more than Rs.1722(E) dated October 5.
flexible response and lower fixed overhead costs. Such advances will be eligible for consideration under the sub target (60 per cent) of the small enterprises segment within the priority sector. The small scale sector produces a wide range of products. plastics . location and amount of original investment in plant and machinery. :Significance of SMEs in Indian Economy: The Indian industrial economy is characterized by a dynamic and versatile set of enterprise actors.y Medium (service) enterprises: Enterprise engaged in the providing/rendering of services and whose investment in equipment ( Original cost excluding land and building and furniture. irrespective of their size of operations. As ancillaries. It is because of their ability to make available low-volume customized products. y Khadi and Village industries Sector (KVI): All advances granted to units in KVI sector. The sector has emerged as a major supplier of mass consumption goods like leather articles.5 crore. This SME category has been leading a typical competitive advantage to Indian industry in terms of controlling sufficient markets globally.Act 2006 ) is more than Rs. they have evolved as clusters. fittings and other not directly related to the service rendered or as may be under the micro small and medium enterprises development (MSMED). from simple consumer goods to highly precision and sophisticated end-products.2 core but does not exceed Rs. The other typical behavior of these SME¶s is that in most of the cases depending upon their specialization. it produces a variety of parts and components required by the large enterprises. who are small and medium in terms of scale of operations.
air conditioning equipment. It has proved to be a powerful instrument for a rapid and decentralized growth of a developing economy like India with a large army of unemployed labour and scarcity of capital resources. sheet metal components. This sector is also considered very effective in promoting the industrial development of backward area. electronic desk calculators. 4. It also helps in checking the unplanned migration from rural and semirural areas to the urban areas. The importance of SME¶s as compared to Corporate Enterprises with regard to their contribution towards Indian economy can be best understood that they have a share of 40% in terms of volume. utensils. soaps and detergents. microwave components.and rubber goods. electric motors. 80% in terms of employment. The small scale sector is considered as an important means for checking concentration of economic power in a few hands and bringing about economic dispersal and more equitable distribution of national income. 2. 60% in terms of exports and 92% in terms of number of enterprises. . processed food and vegetables. fabrics and ready-made garments. More sophisticated items manufactured by the small scale sector now include television sets. These figures are indicative of the economic significance of SME¶s. drugs and pharmaceuticals. of enterprises Corporate Enterprises (%) 60 20 40 7 to 8 SME¶s (%) 40 80 60 92 : The following are the main reasons for the promotion of small-scale industrial units: 1. S No. 1 2 3 4 Contribution to Indian Economy In terms of volume In terms of employment In terms of exports In terms of no. autoparts. 3. cosmetics. wooden and steel furniture and so on.
backward/ forward areas. (4) Facilitates balanced regional development: Dispersion of MSMEs in all parts of the country helps in removing regional imbalances by promoting decentralized development of industries.4 million directly or indirectly which is roughly 10% of India¶s population. desert. 6. MSME sector is the second largest manpower employer in the country next only to agriculture sector. mountains. explored and facilitated. coastal. This decentralized concept also helps in reducing the other problems like pollution. (5) Helps in equitable distribution of wealth/ income: When the entrepreneurial talent is allowed to grow in different regions and areas. sanitations etc. (3) Big employment generator. small and medium enterprises (MSME) for its contribution in the Indian economy growth is a matter of record and needs no further elaboration. It provides employment to more than 20 million people which is roughly 2 % of country¶s population.9 million registered one which are spread out across the length and breadth of India. urban. it helps in solving the unemployment and under-employment problem in the society. It greatly encourages the development of new entrepreneurial initiative and thereby injects competitiveness in our industrial economy. They may be touching the lives of 123. the income is also distributed instead of being concentrated in the hands of . However with the changing focus from economic growth to inclusive growth. MSMEs sector role in the socio economic development of India needs to be understood. forest. What is so significant about MSMEs that makes them special in their relation to socio economic development of the country? Here are few facts which may give answer to this question.5. (1) Wide spread reach: There are around 12. including 1. Small scale sector also assumes great significance from India's stand point since this sector accounts for more than 35 percent of India's total exports. :MSMEs and their role in socio economic development: The importance of Micro. congestion. (2) Major share in GDP: MSMEs combined output is roughly 7% of country¶s Gross Domestic Production (GDP). MSMEs can be found every where. Looked from social angle.34 million (1) MSMEs. which may be rural. housing.
This help in solving a big social issue of bridging the gap between rich and poor.few. the latent/ raw talent available locally can hone their skills and talents. . to experiments. (6) Act as nursery for entrepreneurship: MSMEs provide a natural habitat for entrepreneurs. to innovate and transform their ideas into goods and services needed by the society. Through this platform.
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