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similarly.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. Curing the fatal disease requires the doses of small pills. Such a panorama teaches us that now. the wind has been changing in the finance sector in general and banking-investment sector inparticular. now it’s atime of convergence rather than cutting each other’s neck over customers and markets. 2006 -1- “Good things in life begin small” Case on successful SME financing – SIDBI Worldwide. India requires prominence of small and medium . is the time of cooperation rather than a competition. now it’s a time of consolidation rather than antagonism.

To cure the overall disease of lack of appropriate growth of Indian SMEs – Small and Medium Enterprises. Opening up of the financialsector from 2005. SME financing. effective risk mangers will prosper and risk-averseare likely to perish. Indian banks have to ensure: -3- 1. Secondly. the risk awarenesslevels of line functionaries also will have to increase. They should be made moreaccountable and responsible towards their duties. rural credit and overseas operations are the major growthdrivers for Indian banking industry. 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. technologicalupgradation of Banks esp. attitudinal change in Bankers and so on.In today’s changing world. 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. the growing pressure on capital structure of banks is expected to trigger a phase of consolidation in thebanking industry. the technological advancement of Indian banks would create a soothing climate to manage their risk in a better way. working capital finance. bill discounting etc. 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. Alongside. In recent years.In this process. the majorproblem of inadequate financing to SMEs needs an urgent attention. technology. Consolidation could also take place throughstrategic alliances or partnerships covering specific areas of business such as credit cards.3. SMEs financing etc. asset quality and provisioning for the doubtful losses. The scene has changed since the adoption of financial sector restructuring programme in 1991. Among them.India needs several small pills such as adequate credit delivery to SMEs. In the past mergers were initiated by regulators to protect the interest of depositors of weak banks. and management skills which would increase the competitive spirit in the system leading to greater efficiency. would see a number of global banks taking large stakes and control over banking entities in the country. insurance. will alsoimpact on globalization of Indian banking. As audit and supervision shifts to a risk-based approach rather than transaction oriented. -2- Now. banks inIndia wanting to increase their international presence could naturally be expected to follow these corporate entitiesand other trade flows out of India. 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. 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. 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. The ability to gauge the risks and take appropriate position will be the key to successful financing inthe emerging Indian banking scenario. In the years to come. the author is of the opinion that thefinancial sector would be opened up for greater international competition under WTO. Asglobalization opens up opportunities for Indian corporate entities to expand their overseas operations. Risk-takers will survive. the rules of the game have completely changed. They are expected to bring with them capital.2. Having said this. GDPgrowth in the 10 years after reforms averaged around 6 %. Public Sector Banks. Consolidation has become the new mantra for survival. profitability. A merger between two public sector banks or between a publicsector bank and a private bank could be the next logical development. Some of the Indian banks may also emerge as global players. there have been a number of market-led mergers between private for curing itsproblem of low economic growth vis-à-vis developed nations. technological developments would render flow of information and data . retail trading. 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 capitaladequacy. under WTO. Risk management has to trickle down from the corporate office to branches.In this context. Dueto the growing influence of globalization on the Indian banking industry. better risk management. However considering the level of appetite for credit facilitiesof Indian small and medium enterprises. 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.However. This process isexpected to gain momentum in the coming years. such as Singapore.

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


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12 p.8. onicera who are playing a major role for credit appraisal in banks. 05 / 05 / 2010 ravish419left a comment nice work 03 / 18 / 2010 . 9. 24 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. smera. 9 p. 15 p. 10 p. 9 p. icra.

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