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India requires prominence of small and medium .Download this Document for Free A REPORT ON Case Study on SIDBI – A Successful FinancialInstitution in SME Financing Indian Institute of Planning and Management (IIPM)Ahmedabad© IIPM. impressive thoughtscome out from the small brain. similarly. now it’s a time of consolidation rather than antagonism. Such a panorama teaches us that now. Curing the fatal disease requires the doses of small pills. now it’s atime of convergence rather than cutting each other’s neck over customers and markets. is the time of cooperation rather than a competition. the wind has been changing in the finance sector in general and banking-investment sector inparticular. 2006 -1- “Good things in life begin small” Case on successful SME financing – SIDBI Worldwide.

Government policies to allow greater FDI in banking industry and the move to amend Banking regulations Act to remove the existing 10 per cent cap on voting rights of shareholders are pointer to these developments. technologicalupgradation of Banks esp.2. bill discounting etc. Public Sector Banks. effective risk mangers will prosper and risk-averseare likely to perish. retail trading. Opening up of the financialsector from 2005. SMEs financing etc. The ability to gauge the risks and take appropriate position will be the key to successful financing inthe emerging Indian banking scenario. Some of the Indian banks may also emerge as global players. under WTO. They are expected to bring with them capital.In this process. banks inIndia wanting to increase their international presence could naturally be expected to follow these corporate entitiesand other trade flows out of India. the rules of the game have completely changed. They should be made moreaccountable and responsible towards their duties. A merger between two public sector banks or between a publicsector bank and a private bank could be the next logical development. the technological advancement of Indian banks would create a soothing climate to manage their risk in a better way. will alsoimpact on globalization of Indian banking. working capital finance. Indian banks have to ensure: -3- 1. the majorproblem of inadequate financing to SMEs needs an urgent attention. technology. the growing pressure on capital structure of banks is expected to trigger a phase of consolidation in thebanking industry. and management skills which would increase the competitive spirit in the system leading to greater efficiency. This process isexpected to gain momentum in the coming years. Asglobalization opens up opportunities for Indian corporate entities to expand their overseas operations. Dueto the growing influence of globalization on the Indian banking industry. As audit and supervision shifts to a risk-based approach rather than transaction oriented. the author is of the opinion that thefinancial sector would be opened up for greater international competition under WTO. The reform in the financial sector in India along with the overall second generation economicreforms in Indian economy has transformed the landscape of banking industry and financial institutions. There is a growing need for banks to deal with issues relating to `reputational risk' to maintain a high degreeof public confidence for raising capital and other resources. the flow need not be one way. However considering the level of appetite for credit facilitiesof Indian small and medium enterprises. GDPgrowth in the 10 years after reforms averaged around 6 %. The pressure on banks to gear up to meet stringent prudential capital adequacy norms under Basel II and the various Free Trade Agreements (FTAs) that India is entering into with other countries. Among them. To cure the overall disease of lack of appropriate growth of Indian SMEs – Small and Medium Enterprises. rural credit and overseas operations are the major growthdrivers for Indian banking industry. better risk management. Having said this. risk management has become the key to success in which adoption of the state-of-the-arttechnology and latest rating and management skills turn out to be the significant aid for better riskmanagement. In recent years. asset quality and provisioning for the doubtful losses. The scene has changed since the adoption of financial sector restructuring programme in 1991. the risk awarenesslevels of line functionaries also will have to increase.3. In the past mergers were initiated by regulators to protect the interest of depositors of weak banks. such as Singapore. private and public sector banks in India need to work out an unique andinnovative model of financing to this vital sector (SME) of Indian Economy.India needs several small pills such as adequate credit delivery to SMEs.In this context.In today’s changing world. Alongside. Secondly. Consolidation could also take place throughstrategic alliances or partnerships covering specific areas of business such as credit cards. would see a number of global banks taking large stakes and control over banking entities in the country. Risk management has to trickle down from the corporate office to branches. profitability. -2- Now. In the years to come. there have been a number of market-led mergers between private banks. it is pertinent to mention thatSmall Industrial Development Bank of India has achieved landmark results in the domain of small and mediumenterprise financing and fulfilling their credit requirements time to time in various forms such as long term projectfinance. insurance.However. With the introduction of the reforms especially in financial sector and successful implementation of them resultedinto the marked improvement in the financial health of the commercial banks measured in terms of for curing itsproblem of low economic growth vis-à-vis developed nations. Risk-takers will survive. attitudinal change in Bankers and so on. SME financing. Consolidation has become the new mantra for survival. technological developments would render flow of information and data .

This would enable banks to make credit management moreeffective. bill payment services or supermarkets or retailers doing basic lending operations. There would be an increased need for self-regulation among Indian banks since development of best international standard practices could evolve betterthrough this rather than based on mandatory regulatory prescriptions. although it would mean greater disclosureand tighter norms. data warehousing. with the help of technological innovation. the banks will have to initiate adopting the best global practices of financial accounting and reporting. Forexample. it seems that the next decade will be an eraof consolidation and integration. besides leading to an appreciable reduction in transaction cost. we could see utility service providers offering. It is expected that banks should migrate to global accounting standardssmoothly rather than waiting for the regulatory circulars and guidelines.Considering such developments in the banking industry of India. For instance. to enlist the confidence of theglobal investors and international market players. It would also require a number of legislative changesto enable the banking system to remain contemporary and competitive. say.Last and the most important development in the Indian banking industry is its change of focus in corporate lending on account of above mentioned changes and challenges. and so on – majorly for cost effectiveness and secondary motto would be to provide everything under one head. So for better profit margin. In such a scenario. the conventional definition of banking might undergo changes. consolidation andinnovation in corporate lending. when -4- . In the sheltered days of corporate lending by banks. Banks and financial institutions will join together to share facilities in the areas of payment andsettlement.In order to reduce investment costs in technology. the expected integration of various intermediaries in thefinancial system would require a strong regulatory framework. banks are likely to resort sharing of facilities such as ATMnetworks.leading to prompt appraisal and decision-making.faster. The advent of new technologies could see the emergence of new players doing financial intermediation. back-office processing.


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8. 9 p. 24 p. 10 p. smera. 05 / 05 / 2010 ravish419left a comment nice work 03 / 18 / 2010 . 12 p. Add a Comment Santhosh Kumarleft a comment u had done which will be more useful for my research 12 / 29 / 2010 sandeep kaundinyaleft a comment hi mst say a very nice work bt you could have make this more meaningfull by adding framework of external credit rating agencies like crisil. icra. 9 p. onicera who are playing a major role for credit appraisal in banks. 15 p. 9.

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