CHAPTER-6

THE ROLE OF FINANCIAL INSTITUTIONS IN SSI

DEVELOPMENT- AN OVERVIEW

INTRODUCTION

In a labour oriented and capital scarce country like India, Small Scale Industries have
come to occupy an important position in the planned industrialisation of the economy.
Most of the Small Scale Industries have a low capital intensity and high potential for
employment generation.

Small and medium sized enterprises in market economies are the engines of economic
development owing to their flexibility and adaptability as well as their potential to react
to challenges and changing environments, SMEs are contributing to sustainable growth
and employment generation in a significant manner.

SMEs have a strategically importance for each nation‟s economic development due to
wide range of reasons. Thereby, the Government shows a major interest in supporting
entrepreneurship. As this is one of the means through which new jobs could be created,
which can lead to increase in GDP and raising standard of population. Every surviving
and successful business means new jobs and growth of GDP.

Designing a comprehensive, coherent and consistent approach of council of ministers

and entity governments to entrepreneurship development in the form of government
support to SSI has been an absolute priority. This priority has provided for a full co-
ordination of activities of various government institutions and NGOs dealing with
entrepreneurship development and SSIs development. In this context, the development
of National SME support institutions and networks is one of the key conditions for
success.

The development of small enterprises has been assigned a crucial role in India‟s five
year plans. With a view to protect, support and promote small enterprises to become
self-supporting and to facilitate balanced growth of small and large sector, a number of
policy and promotional measures have been taken up by the Government. The policy

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measures include exclusive purchase under the stores purchase policy and differential
excise duty. The promotional measures include:

Development of entrepreneurship along with package of consultancy services,

improvement in techniques, and institutional support in respect of supply of
credit and raw materials, factory accommodation in industrial estates, capital
subsidy, and rebates on sales of certain products.

Contribute significantly to export revenues because of the low cost labour

intensive nature of its products.

Has a positive effect on trade balance since SSIs generally use indigenous raw
materials, reducing dependence on imported machinery, raw material or labour.

Assist in fostering self-help and entrepreneurial culture by bringing together

skills and capital through various lending and skill enhancement schemes.

Provide rural people an opportunity for income generation and personal growth
since they can work at home. This helps to achieve fair and equitable
distribution of wealth by creating nationwide non-discriminatory job
opportunities.

It attracts direct foreign investment since multinationals and big conglomerates have
started to outsource from countries with strong SME sectors. The low labour cost makes
production of semi-finished goods very economically for large concerns operating in
international markets.

The SSIs act as engine through which the growth objectives of developing countries can
be achieved.

ROLE OF FINANCIAL INSTITUTIONS

Financial sector plays an indispensable role in the overall development of a country.

The most important constituent of this sector is the financial institutions, which act as
an intermediary for the transfer of resources from net savers to net borrowers. The
financial institutions have traditionally been the major source of long term funds for the
economy. These institutions provide a variety of financial products and services fulfil
the varied needs of the commercial sectors. They play a vital role in reducing regional

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disparities by inducing in providing assistance to new enterprises, small and medium
firms as well as to the industries established in backward areas.

The Government of India in order to provide adequate supply of credit to various sector
of the economy has developed a fine structure of financial institutions in the country.
These financial institutions can be broadly categorised into All India institutions and
State level institutions, depending upon the geographical coverage of their operations.
At the national level, they provide long and medium term loans at reasonable rate of
interest. These institutions subscribe to the debenture issue of companies, underwrite
public issue of shares, guarantee loans and deferred payments etc. although the State
level institutions are mainly concerned with the development of medium and small
scale enterprises, but they also provide the similar type of financial assistance as the
national level institutions.

NATIONAL LEVEL INSTITUTIONS

A wide variety of financial institutions have been established at the nation level. These
institutions cater to the diverse financial requirements of the entrepreneurs. They
include all India development banks like IDBI, SIDBI, IFCI, IIBI; specialised financial
institutions like IVCF, ICICI venture Funds lid, TFCI; Investment institutions like LIC,
GIC, UTI; etc.

1. All-India Development Banks (AIDBs) – These includes all those development

banks which provide institutional credit to not only large and medium
enterprises but also helps in promotion and development of small scales
industrial units.

1.1 Industrial Development Bank of India (IDBI):

It was established in July 964 as apex financial institutions for industrial

development in the country. It caters to diversified needs of medium and
large scale industries in the form of financial assistances, both direct and
indirect assistance. Direct assistances is provided by way of underwriting of
or direct subscription to industrial securities, soft loans, project loans etc.
while indirect assistance is provided in the form of refinance facilities to
industrial concerns.

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1.2 Industrial Finance Corporation of India ltd (IFCI ltd):

It was the first development finance institution set up in 1948 under the IFCI
Act in order to provide long term institutional credit to medium and large
industries. Its objectives is to provide financial assistance to industry by way
of rupee and foreign currency loans, underwriting or by way of subscribing
to the issues of stocks, shares, bonds and debenture of industrial concerns
etc. It also undertakes various diversified activities like merchant banking,
loan syndication, formulation of rehabilitation programmes, assignments
relating to amalgamations and mergers, etc.

1.3 Small Industries Development Bank of India(SIDBI):

It was set up by the Government of India in April 1990, as a wholly owned

subsidiary of IDBI. It is the principal financial institution for promotion,
financing and development of small scale industries in the economy. It aims
to empower the Micro, Small and Medium Enterprise (MSME) sector with a
view to contributing to the process of economic growth, employment
generation and balanced regional development.

1.4 Industrial Investment Bank of India ltd (IIBI):

The institution was set up in 1985 under the Industrial reconstruction Bank
of India Act, 1984, as the principal credit and reconstruction agency for sick
industrial units. It was converted into IIBI on March 17, 1997, as full-
fledged development financial institutions. It assists industry mainly in
medium and large sector through wide ranging products and services. Apart
from project finance, IIBI also provides short duration non project asset
backed financing in the form of underwriting/direct subscription, deferred
payment of guarantee and working capital/other short-term loans to
companies to meet their fund requirements.

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2. SPECIALISED FINANCIAL INSTITUTIONS(SFIs):

These are the institutions which have been set up to serve the increasing
financial needs of commerce and trade in the area of venture capital, credit
rating and leasing, etc.

2.1 IFCI Venture Capital Funds ltd (IVCF):

It was formally known as Risk Capital Technology Finance corporation ltd

(RCTC), is a subsidiary of IFCI ltd. It was promoted with the objective of
broadening entrepreneurial base in the country by facilitating funding to
ventures involving innovative product process/technology. Initially it started
providing financial assistance by way of soft loans to promoter under its
„Risk Capital Scheme‟. Since 1988, it also started providing finance under
„Technology Finance and Development Scheme‟ to projects for
commercialisation of indigenous technology for new process, products,
market or services.

2.2 ICICI Venture Funds ltd:

It was formally known as Technology Development and Information

Company of India limited (TDICI), was founded in 1988 as joint venture
with the Unit Trust of India. Subsequently, it became a fully owned
subsidiary of ICICI. It is a technology venture finance company set upto
sanction project finance for new technology ventures.

2.3 Tourism Finance Corporation of India ltd(TFCI):

It is a specialised financial institution set up by the Government of India for

promotion and growth of tourist industry in the country. Apart from
convention tourism projects, it provides financial assistance for non-
conventional tourism projects like amusement parks, ropeways, car rental
services, ferries for inland water transport, etc.

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3. INVESTMENT INSTITUTIONS:

They are the most popular form of financial intermediaries, which particularly
caters to the need of small savers and investors. They deploy their assets largely
in marketable securities.

3.1 Life Insurance Corporation of India(LIC):

It was established in 1956 as a wholly-owned corporation of the

Government of India. It was formed by Life Insurance Corporation Act,
1956, with the objective of spreading life insurance much more widely and
in particular to the rural area. It also extends assistance for development of
infrastructure facilities like housing, rural electrification, water supply, etc.
In addition, it extends resource support to other financial institutions through
subscription to their shares and bonds, etc. The life Insurance Corporation of
India also transacts business abroad.

3.2 Unit Trust of India (UTI):

It was set up as a body corporate under the UTI Act, 1963, with a view to
encourage savings and investment. It mobilises savings of small investors
through sale of units and channelises them into corporate investments
mainly by way of secondary capital market operations. Thus, its primary
objective is to stimulate and pool the saving of the middle and low income
groups and enable them to share the benefits of the rapidly growing
industrialisation in the country. In December 2002, the UTI Act, 1963 was
repealed with the passage of Unit Trust of India Act, 2002, paving the way
for the bifurcation of UTI into 2 entities, UTI-I and UTI-II with effect from
1st February 2003.

3.3 General Insurance Corporation of India (GIC):

It was formed in pursuance of the General Insurance Business Act, 1972, for
the purpose of superintending, controlling and carrying on the business of
general insurance or non-life insurance. Initially, GIC had four subsidiary
branches, namely, National Insurance Company Ltd, The New India
Assurance Company Ltd, The Oriental Insurance Company Ltd and United

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 India Insurance Company Ltd. But these branches were delinked from GIC
in 2000 to form an association known as „GIPSA‟ (General Insurance Public
Sector Association).

STATE LEVEL INSTITUTIONS

Several financial institutions have been set up at the State Level which supplements the
financial assistance provided by the all India institutions. They act as catalyst for
promotion of investment and industrial development in the respective States. They
broadly consist of „State financial corporations‟ and „State industrial development
corporations‟.

1. State Financial Corporation‟s (SFCs):

They are the State-level financial institutions which play a crucial role in the
development of small and medium enterprises in the concerned States. They
provide financial assistance in the form of term loans, direct subscription to
equity/debentures, guarantees, discounting of bill of exchange and
seed/special capital etc. SFCs have been set up with the objective of
catalysing higher investment, generating greater employment and widening
the ownership base of industries. They have also started providing assistance
to newer types of business activities like floriculture, tissue culture, poultry
farming, commercial complexes and services related to engineering,
marketing, etc. there are 18 State Financial Corporation‟s (SFCs) in the
country.

2. State Industrial Development Corporations (SIDCs):

They have been established under the Companies Act, 1956, as wholly-
owned undertakings of State Government. They have been set up with the
aim of promoting industrial development in the respective States and
providing financial assistance to small entrepreneurs. They are also involved
in setting up of medium and large industrial projects in the joint
sector/assisted sector in collaboration with private entrepreneurs.

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 NATIONAL LEVEL INSTITUTIONS – AN EVALUATION
SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA (SIDBI)

MISSION STATEMENT
“To empower the Micro, Small and Medium Enterprises (MSMEs) sector with a view
to contributing to the process of economic growth, employment generation and
balanced regional development.”

COMPANY PROFILE
Small Industries Development Bank of India (SIDBI), set up on April 2, 1990 under an
Act of Indian Parliament, is the Principal Financial Institution for the Promotion,
Financing and Development of the Micro, Small and Medium Enterprise (MSME)
sector and for Co-ordination of the functions of the institutions engaged in similar
activities.
Financial support is provided by way of refinance to eligible Primary Lending
Institutions (PLIs) such as banks, State Financial Corporation‟s (SFCs), State Industrial
Development Corporations (SIDCs), State Small Industries Development Corporations
(SSIDCs) etc. for onward lending to MSMEs, financial assistance in the form of loans,
grants, equity and quasi-equity to Non Government Organisations / Micro Finance
Institutions (MFIs) for on-lending to micro enterprises and economically weaker
sections of society, enabling them to take up income generating activities on a
sustainable basis and direct assistance to MSMEs which is channelized through the
Bank's network of 100 branch offices.

FINANCING THE SMALL SCALE SECTOR

Credit is the prime input for sustained growth of small scale sector and its availability is
thus a matter of great importance. The main objective of SIDBI has been to provide
short term credit/working capital to small enterprises for its day to day requirement for
purchasing raw material and other inputs like electricity, water, etc. and for payment of
wages and salaries; and long term credit for creation of fixed assets like land, building,
plant and machinery. To ensure that financial assistance is made available to small units
on easy terms and with hassle-free procedures it has been a matter of policy in SIDBI to
identify the areas of gaps in credit delivery system and fill them through devising

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appropriate new schemes and implementing them. It provides credit to SSIs through a
good network of PLIs spread across the State and in the country as a whole under the
schemes of indirect assistance in addition to making provision for credit under direct
assistance schemes. The assistance under indirect schemes is provided by way of
refinance, bills rediscounting, and resource support in the form of short term loans, etc.
However, direct assistance is provided under several tailor made schemes through its
Regional/Branch offices. The objective behind direct assistance schemes has been to
supplement the efforts of PLIs by identifying the gaps in the existing credit delivery
mechanism for Small Scale Industries.
SIDBI is the principal financial institution for promotion, financing and development of
industry in the small scale sector and co-ordinates the functions of institutions engaged
in similar spectrum of the SSI sector, including tiny, village and cottage industries
through number of schemes. Since its inception, SIDBI has been endeavouring to meet
the diverse needs of the MSMEs through various tailor-made schemes and fulfil its
stated Vision.
VISION STATEMENT
“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
shareholder wealth and highest corporate values through modern technology platform”.
Here is list of the finance operations by SIDBI:

1. OPERATIONS

I. INDIRECT FINANCE II. DIRECT FINANCE III. MICRO FINANCE

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I. INDIRECT FINANCE:

The Indirect Financial Assistance is extended in the form of Refinance support to more
than 900 PLIs, comprising banks, SFCs, SIDCs etc. having a network of over 82,000
branches and Micro finance support to over 130 partner MFIs all over the country.
a) Refinance Scheme

The main objective of the Bank's Refinance Scheme is to augment the resource position
of PLIs which would ultimately facilitate the smooth flow of credit in an increasing
measure to MSMEs. While the banks are provided Refinance support against their term
loans to micro and small enterprises (MSEs), other PLIs like SFCs and SIDCs are
provided support against their loans to MSMEs. The Refinance support is extended for
(i) Setting up of new projects and for technology up gradation / modernisation,
diversification, expansion, energy efficiency adoption of clean production technologies
etc. of existing MSMEs (ii) Service sector entities and (iii) Infrastructure development
and up gradation.

b) Resource Support

SIDBI provides resource support to institutions / Non- Banking Finance Companies

(NBFCs) engaged in promotion and development of MSME sector to facilitate
channelizing of assistance to a large number of MSMEs and infrastructure projects
having linkages to MSMEs.
c) Lines of Credit (Refinance) in favour of:

-- State Financial Corporations

-- State Industrial Development Corporations
-- State Small Industries Development Corporations

II. DIRECT FINANCE:

SIDBI, over the years, has evolved itself to meet the various types of credit
requirements of the MSME sector by directly offering tailor-made financial products
and services. Direct Finance is channelised through its present network of 100 branches
all over the country covering more than 580 MSME clusters. Some of the major
schemes of SIDBI under Direct Finance are:

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a) Term loan assistance

Term loans are provided for (i) Setting up of new projects and for technology up
gradation / modernisation, diversification, expansion, energy efficiency, adoption of
clean production technologies, etc. of existing MSMEs (ii) Service sector entities and
(iii) Infrastructure development and up gradation. It also includes Privileged Customer
Scheme, Scheme for Energy Saving and Clean Production Technology Projects in
MSME Sector, Risk Capital Fund.

b) Working capital assistance

The objective of the Scheme is to provide term loans to MSMEs to meet the shortfall in
working capital including WC margin. It also includes Working Capital arrangement
with IDBI Bank.

c) Support against receivables

MSME Receivable Finance Scheme: SIDBI operates the MSME Receivable Finance
Scheme (RFS) for MSME sellers / eligible service providers in respect of sales &
services rendered to purchaser companies. Under the Scheme, SIDBI fixes limits to
well performing purchaser companies and discounts usance bills of MSMEs / eligible
service sector units supplying components, parts, sub-assemblies, services, etc. so that
the MSME / service sector units realise their sale proceeds quickly. SIDBI also offers
invoice discounting facilities to the MSME suppliers of purchaser companies.

d) Foreign currency loans

SIDBI offers forex assistance to its MSME customers in various forms including
foreign currency term loans, booking of forward contract, etc. SIDBI also offers Line of
Credit in Foreign Currency to institutions / banks for extending export and domestic
credit to MSME units / Export Houses / Trading Houses, etc.

e) Assistance for industrial infrastructure

Financial Assistance is extended for industrial infrastructure like industrial estates.

Strengthening of existing industrial clusters, providing support services viz. common

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utility centres, common testing centres etc. and other infrastructure projects which
benefit MSMEs.
f) Non-fund based scheme

SIDBI offers guarantee and Letter of Credit facilities in foreign currency and rupee to
its customers to meet their non-fund based credit requirements.

g) Recent liquidity easing measures

Liquidity easing measures: To provide timely and requisite support to meet the varied
credit and developmental requirements of the MSME sector during the global financial
turmoil and slowdown, SIDBI devised certain tailor-made financial products / services,
some of which are:

i) Ad-hoc Assistance Scheme for existing MSME customers.

ii) One-time Liquidity Support.
iii) Additional limit under MSME RFS.
iv) Diesel Generator Set Financing Scheme.
v) Restructuring.

h) Other recent business initiatives

Structured Credit Delivery arrangements: In order to expand its outreach and speed up
credit delivery to a larger number of MSMEs ,some of whom were outside the formal
banking system so far, SIDBI devised certain innovative measures like entering into a
Memorandum of Understanding with Faridabad Small Industries Association (FSIA)
for providing pre-approved limits to well-performing MSME members of FSIA;
providing assistance to taxi drivers for replacing taxis plying in Mumbai which are
more than 25 years old, providing assistance to MSMEs for procurement of equipment
from Original Equipment Manufacturers as per predetermined credit screen under a
simplified sanction process and terms.
Micro Enterprises Loan Scheme: With a view to extending direct financial assistance to
micro enterprises under SFMC dispensation, a new scheme Micro Enterprises Loan
(MEL) Scheme was introduced. This scheme involves providing need-based composite
assistance in the range of Rs. 50,000 – Rs. 0.5 million under the Bank's micro finance

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programme directly to micro enterprises with guarantee cover from Credit Guarantee
Fund Trust for Micro and Small Enterprises (CGTMSE).

i) Nodal / implementing agency for government schemes

SIDBI is the Nodal Agency for implementation of some of the subsidy schemes of the
Government of India (GOI) for encouraging implementation of technology up gradation
and modernisation by manufacturing enterprises in the MSME sector. SIDBI provides
Nodal Agency services for implementation of:
(i) Credit Linked Capital Subsidy Scheme: Cumulative subsidy claims of Rs. 2.40
billion for about 5700 eligible MSEs have been settled.
(ii) Technology Up gradation Fund Scheme for Textile Industry: Under the scheme,
capital subsidy and interest incentive claims for an aggregate amount of Rs. 5.34 billion
have been settled benefiting over 7100 units
(iii) Integrated Development of Leather Sector Scheme: Cumulative subsidy claims
aggregating Rs. 1.17 billion in respect of about 750 units have been settled.
(iv) Scheme of Technology Up gradation / Setting up / Modernisation / Expansion of
Food Processing Industries: Cumulative subsidy amounting to Rs. 27.45 million has
been released to 11 units.

III. MICRO FINANCE

Micro Finance has emerged as a new paradigm of inclusive growth by empowering

hitherto relatively disadvantaged sections of our society, such as, women, minorities,
backward caste and the poor in general. SIDBI is committed to attain the national goal
of a broad-based equitable and inclusive growth by providing micro credit through its
partner MFIs for on-lending to this segment of the society which is at the bottom-of-
the-pyramid, with special thrust on un-served and under-served regions of the country.
In order to accelerate the process of 'financial inclusion', SIDBI had initiated micro
finance activities by setting up of a dedicated department in 1999 called “SIDBI
Foundation for Micro Credit (SFMC)” to develop a cadre of MFIs from formal and
informal sectors. As at end of September, 2009, SIDBI had nurtured, developed and
strengthened more than 130 MFIs all over the country.

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2. PROMOTIONAL & DEVELOPMENTAL SUPPORT:

The Promotional & Developmental (P&D) activities of SIDBI are designed to achieve
the twin objectives of national importance, viz.
(a) Promotional - Enterprise promotion resulting in self-employment and creation of
additional employment through its select programmes such as, Rural Industries
Programme (RIP), Entrepreneurship Development Programme (EDP) and Vocational
Training Programme etc.

(b) Developmental - Enterprise strengthening to enable MSMEs to face the emerging

challenges of globalisation and growing competition through select interventions such
as Skill-cum- Technology Up gradation Programme (STUP), Small Industries
Management Programme (SIMAP), Cluster Development Programme (CDP) and
Marketing Assistance.

Highlights of select programmes are given below:

a. Rural Industries Programme.

b. Entrepreneurship Development Programme.

c. Skill-cum-Technology Up gradation Programme / Small Industries Management

Programme.
d. Cluster Development Programme.

e. Marketing Initiatives.

f. MSME Financing and Development Project.

g. Technical Assistance.

h. Risk sharing facility.

i. Credit Facility.

j. Capacity Building of Banks.

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3. INSTITUTION BUILDING:

SIDBI'S SUBSIDIARIES AND ASSOCIATES:

a. SIDBI Venture Capital Limited

b. Credit Guarantee Fund Trust for Micro and Small Enterprises

c. SME Rating Agency of India Ltd.

d. India SME Technology Services Ltd.

e. India SME Asset Reconstruction Company Ltd.

Sanctions and disbursement

Graph 6.1-showing the credit sanctions

Credit Sanctions for MSME

The Bank has for the first time crossed the landmark of sanctions of Rs. 35,000 crore
and disbursements of Rs. 30,000 crore during FY 2009-10 and recorded the highest
ever sanctions and disbursements of Rs. 35,521 crore and Rs 31,918 crore, respectively
as shown in graph 6.1 and graph 6.2. The cumulative disbursements of SIDBI as on
March 31, 2010 stood at Rs 1,64,331 crore, reaching out to around 360 lakhs
beneficiaries. Micro finance assistance increased by 53% to Rs. 2,670 crore and micro

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finance outstanding crossed the Rs. 3000 crore mark for the first time to reach to Rs.
3,812 crore as on March 31, 2010, reflecting an increase of 78%. The aggregate
outstanding portfolio of the Bank grew by 23% to Rs. 37,969 crore as on March 31,
2010.
The total assets of the Bank recorded sizable increase of 21% to Rs. 41,885 crore as on
March 31, 2010. Net NPA as a percentage of net outstanding stood at 0.18% as on
March 31, 2010, reflecting strong monitoring, persistent follow-up and timely action by
the Bank, as also adequate provisioning. The total income of the Bank for FY 2009-10
has shown an impressive growth of 22% and stood at Rs. 2,540 crore, net of provisions.
Consequently, the profits have also increased by over 41% to Rs. 421 crore. The
Earnings Per Share (EPS) have improved to Rs.9.36. The Bank has declared a higher
equity dividend of 25% for FY 2009-10. Total assistance (direct and indirect) are shown
in the graph 6.3 with all bifurcation in graph 6.4 and 6.5.

Graph 6.2-showing the disbursement

Graph- 6.3-showing the total assistance provided by the institution

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Graph-6.4- showing the various schemes of assistance undertaken

Indirect Assistance / Refinance

Graph-6.5-showing the various credit facilities

Direct Assistance

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INDUSTRIAL FINANCE CORPORATION OF INDIA (IFCI)

COMPANY PROFILE

INDUSTRIAL FINANCE CORPORATION OF INDIA (IFCI) was established under

IFCI Act 1948 during July 1948 as India‟s first development bank. The main objective
for which IFCI was established, are to make medium and long term credit available to
the industrial undertakings and to assist them in creation of industrial facilities. Its
functions include:

 Direct financial support (by way of rupee term loans as well as foreign currency
loans) to industrial units for undertaking new projects, expansion,
modernisation, diversification etc.

 Subscription and underwriting of public issues of shares and debentures.

 Guaranteeing of foreign currency loans and also deferred payment guarantees.

 Merchant banking, leasing and equipment finance

During 1994, IFCI was converted into a joint-stock company and came out with a
public issue of shares. It is managed by a Board of Directors. It floated institutions such
as TFCI, ICRA etc.

IFCI offers a wide range of products to the target customer segments to satisfy their
specific financial needs. The product range includes following credit products:

 Short-term Loans (upto two years) for different short term requirements
including bridge loan, Corporate Loan etc.
 Medium-term Loans (more than two years to eight years) for business
expansion, technology up-gradation, R&D expenditure, implementing early
retirement scheme, Corporate Loan, supplementing working capital and
repaying high cost debt.
 Long-term Loans (more than eight years to upto 15 years) - Project Finance for
new industrial/ infrastructure projects Takeout Finance, acquisition financing (as

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 per RBI guidelines / Board approved policy), Corporate Loan, Securitisation of
debt.
 Structured Products: Acquisition finance, Pre-IPO investment, IPO finance,
promoter funding, etc.
 Lease Financing
 Takeover of accounts from Banks / Financial Institutions / NBFCs
 Financing promoters contribution (private equity participation)/subscription to
convertible warrants
 Purchase of Standard Assets and NPAs

The product mix offering varies from one business/ industry segment to another. IFCI
customises the product-mix to maximize customer satisfaction. Its domain knowledge
and innovativeness make the product-mix a key differentiator for building enduring and
sustaining relationship with the borrowers.

Graph -6.6-Showing the credit sanction

Credit Sanction

During the FY 2009-10, the total fund based approvals were Rs.6, 765.56 Crore as
against Rs.4, 014.88 Crore in the previous year registering a rise of 68.51% as shown in
the graph 3. Out of the above approvals, an amount of Rs.2, 620 Crore (38.73%) was by
way of short & medium term loans, Rs.1, 826 Crore (26.99%) by way of corporate
loans and Rs.1, 023.40 Crore (15.13%) by way of rupee term loans. Total
Disbursements during FY 2009-10 amounted to Rs.6,053.82 Crore compared to
Rs.3,311.45 Crore in the previous year registering a rise of 82.81% as shown in the

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graph 4, Out of the said disbursement, Rs.2,339.57 Crore (38.65%) was by way of short
& medium term loans, Rs.1,575.21 Crore (26.02%) by way of corporate loans,
Rs.1,082.13 Crore (17.88%) by way of rupee term loans and Rs.1,056.91 Crore
(17.46%) was disbursed against investment commitments mainly in the Infrastructure
sector.

Graph 6.7-Showing the disbursement

Disbursement

Initiatives during the fiscal year

IFCI's approach towards lending was guided by maximization of return on investment,

while maintaining the emphasis on due diligence, ensuring security cover as well as
putting in place appropriate risk mitigants. High yielding short term lending, backed
with strong and easily enforceable security, formed the key strengths helping the
Company to expand its asset base without any NPAs. With sectoral focus on services
and infrastructure, Company has already set up a Project Development Group (PDG)
with expertise in appraisal of infrastructure projects. The group is part of IFCI's strategy
to enter infrastructure projects early in their life cycle, ensuring IFCI reasonable returns
over cost of funds. PDG has expanded its footprint in project development activities for
generating better and consistent return on its investments in infrastructure projects like
Hydro and Thermal Power, Power Transmission, Roads etc.

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 GOVERNMENT OF KARNATAKA
DEPARTMENT OF INDUSTRIES AND COMMERCE (DIC)

INTRODUCTION
The Department of Industries and Commerce, Government of Karnataka is one
of the oldest institutions set up under the aegis of the Government. Established in the
year 1913 under the erstwhile Princely State of Mysore, the Department oversees the
Industrial Development in the State. This Department works operates under the
Commerce and Industries Department, Government of Karnataka. The Department
operates at the State level through the Directorate of Industries and Commerce, at the
District level through the network of District Industries Centres, Industrial wing of Zilla
panchayath and in coordination with related Boards and Corporations. The Department
plays pivotal role in implementation of Schemes and Policies of the State and Union
Governments for the promotion of Industrial Development throughout the state.
Karnataka is considered as one of the most desired industrial location for setting
industries in the country. State has been consistently pursuing progressive outlook to
meet the changing needs of the State's economy and industry. Karnataka is also
considered one of the countries Industrialists State comprising large public sector
industrial undertakings, large privately owned industries like steel sugar, textiles etc., in
recent times, Karnataka has emerged as the leader in IT & BT and knowledge based
industrial sector, making rapid strides in IT & computer related industries and
biotechnology with a strong research and development base. The State has a number of
traditional cottages, Handicrafts, Micro Enterprises like Handlooms, Power looms, silk
weavers, Khadi and village industries etc.

OPERATIONAL GUIDELINES

(FOR PACKAGE OF INCENTIVES AND CONCESSIONS FOR 2009-14)

The Government of Karnataka has announced the Karnataka New Industrial Policy
2009-14
The salient features of the Karnataka Industrial Policy 2009-14 are as follows:

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(i) Envisions making Karnataka prosperous through development of human & natural
resources in a systematic, scientific and sustainable manner.
(ii) Target to provide additional employment for about 10 lakhs persons in the next five
years.
(iii) Efforts to increase the Share of industry to the State GDP to 20% by the year 2014.
(iv) To double the State‟s export from the current level of Rs.1, 30,000 crores.
(v) Focus on providing quality infrastructure across the State.
(vi)Thrust on Skill Development & Entrepreneurship Promotion.
(vii) Added focus on development of MSME sector.
(viii) Performance and Employment linked Incentives & Concessions.

The above industrial policy and package of incentives and concessions shall come into
effect from 01.04.2009 and will have a span of five years i.e. upto 31.03.2014.

INITIATIVES & BOARDS FOR MSME DEVELOPMENT:

1. INDUSTRIAL INFRASTRUCTURE DEVELOPMENT INITIATIVES

a) Karnataka Industrial Areas Development Board:
Karnataka Industrial Areas Development Board (KIADB) is a statutory body
established under the provisions of the Karnataka Industrial Area Development Board
Act 1966, with the objective of acquiring land for formation of industrial areas/estates
and allied industrial infrastructure.

b) Karnataka State Small Industries Development Corporation (KSSIDC):

KSSIDC has been a catalyst in the development of small scale industries in the State.
Establishment of Industrial Estates, construction of Industrial sheds and formation of
Industrial plots are the major functions of the Corporation.

c) Special Economic Zones:

Special Economic Zones are being established to encourage exports and to attract
Foreign Direct Investments. Special Economic Zone is specially delineated duty free
enclave and shall be deemed to be foreign territory for the purpose of trade operations,
duties and tariff.

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In order to support and encourage development of SEZ in the State, State Policy of SEZ
2009 has been announced. The policy provides for a package of incentives.

d) Assistance to State for Development of Export Infrastructure and Allied Activities

(ASIDE):
The objective of the scheme is to involve the States in the export effort by providing
assistance to the State Governments for creating appropriate infrastructure for the
development and growth of exports.

e) Food Parks

2. SSI & VILLAGE INDUSTRIES SECTOR INITIATIVES

a) New Industrial Policy (2009-14):
Implementation of Suvarna Karntaka Abhivrudhi corridor programme, Development
of Sector Specific Zones viz., Steel, Cement, Sugar, Automobile, Food processing,
Readymade garments etc., and to motivate the prospective entrepreneurs, Guidance Cell
in the DICs will be strengthened. This cell will help entrepreneurs from the initial stage
to the implementation level.

b) Constitution of Vision Group:

It is constituted for the rapid industrialisation of Karnataka.

c) Kaigarika Adalath:
It is a platform to find solutions to the problems faced by industrialists under a single
roof for promotion of Industrial and Economic growth in the region were all the
concerned Departments / Corporations / Boards / Associations and Industrialists
brought under one roof and find the solution to a problem.

d) 4th All India Census of MSME:

The main objective of the census was updating the frame list of registered Micro, Small
and Medium Enterprises, to identify sick and incipient sick units with reasons thereof
and to collect other useful information for policy formulation.

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3. INDUSTRIAL DEVELOPMENT INITIATIVES
a)Kaigarika Vikasa:
The scheme envisages creation of new economic opportunity by utilizing local
resources. Skill and demand by providing ready to use infrastructure, human resource
development etc.

b) State Investment Subsidy to SSI/Tiny units:

c) Prime Minister‟s Rozgar Yojane (PMRY):

It is known as Prime Ministers Employment Generation Program (PMEGP). The
scheme contemplates to provide self employment to unemployed youths by extending
financial assistance to start their own Industrial ventures/ business/ Service etc., the
scheme also envisages for creation of employment to rural artisans and thereby avoid
the rural artisans to migrate from villages to cities.

d) Kayakanagara Programme:
The programme contemplates a multi-craft township for traditional artisans like
cobblers, bamboo workers, sheet metal and brass workers, pinjaras, tailors and such
other craftsmen.
e) Vishwa:
Vishwa programme aims at continuous productive employment in rural areas by
promoting cottage and village industries by utilizing local resources for manufacture of
goods and services for mass consumption.

f) Establishment of New Industrial Cluster (SCP/TSP):

It is establishment construction of Living cum work sheds for SC/ST artisans.
4. HUMAN RESOURCES DEVELOPMENT INITIATIVES
a) Suvarna Kayaka Koushalya Abhivrudhi Yojane:
The Scheme envisages promoting / helping / facilitating establishment of specialized
skill development institutions at key locations suitable for the manufacturing industries
and emerging vocations in the service sector.

b) Jewellery Training Institute:

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The main objective of providing training to young artisans is also to provide advanced
knowledge and professionalism in Gem & Jewellery activity.

c) Karnataka Institute for Leather Technology:

The main objective of the institute is to offer 3½ years Diploma course in Leather
Technology and short-term courses in leather garments, Foot-wear and Leather goods
manufacturing. The Institute also provides assistance in design development of Leather
articles and R&D programmes.

d) Science and Technology Entrepreneurs Parks (STEPs):

The scheme of Science and Technology Entrepreneurs Park (STEP) mainly aims at
targeting the young engineers and professionals coming out of engineering colleges,
technical and management institutions with a view to motivate them and assist them in
becoming “entrepreneurs” to take up industrial ventures. STEP provides facilities for
upgradation of skills and transfer of technology.

e) Rural Development and Self Employment Training Institutes (RUDSETIs):

The Rural Development and Self Employment Training institutes are being established
in association with the Banks with an objective of preparing the Rural youths to have
their own Industrial / service ventures by imparting Training and guidance.

5. ARTISANS INITIATIVES
a) The Karnataka State Handicraft Development Corporation (KSHDC):
The Corporation is a nodal agency for handicrafts promotion programmes in the State.
KSHDC is implementing various programmes for the development, promotion and
marketing of handicrafts, procuring directly from the artisans

b) Urban Haat:
GOI has evolved a scheme called “Urban Haat” to be established in prime locations in
the State to enable the artisans to sell their products directly to the consumers. It is
planned to have 40 to 50 stalls in the artisans‟ complex and exhibition halls to cater to
the requirement of artisans and to sell their products by organizing weekly exhibitions.

c) Khadi & Village Industries Board:

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The main objective of the KVIB is to give priority for Khadi and Village Industries in
rural areas in developing and regulating Khadi sector and to provide assistance for the
cottage Industries to generate employment opportunities to improve upon the economic
status of the rural artisans.

d) Karnataka State Coir Development Corporation Ltd:

The Corporation was established with the main objective of developing Coir sector in
the State. The main functions of the Corporation are to:
1) Carry on the business of developing, promoting and stabilizing the coir and coir
based and coconut based industries in Karnataka.
2) To support, protect maintain increase and promote the production and sale of coir,
coir products and coconut products.
3) To implement scheme of the Government of Karnataka and the Government of India
for the development of coir and coconut based industries.
4) To generate rural employment to women (including SC/STs) by providing training
and engaging in production of coir products in the coir complexes.
e) Karnataka State Coir Co-operative Federation Ltd:
Its main objective is to assist and support primary coir co-operative societies, provide
training, marketing coir products, technical guidance & implementation of ICDP &
Government sponsored schemes in coir sector.

f) Dr.Babu Jagjeevan Ram Leather Industries Development Corporation (LIDKAR):

Karnataka Leather Industries Development Corporation Ltd, (LIDKAR) was
established by Government of Karnataka in the year 1976, keeping in view objectives
of overall developmental Leather Industry in Karnataka and upliftment of Socio –
Economic conditions of SC Leather Artisans in the State.

6. INVESTMENT AND TRADE PROMOTION INITIATIVES

a) Karnataka Udyog Mitra:
KUM was established with a main objective of providing escort services to
entrepreneurs for establishment of Industrial ventures in the State. It also acts as
Secretariat for State Level Single Window Agency Meeting. KUM organizes various
publicity propaganda programmes, Investors Meet, Road-shows to attract the Investors
not only within the State but also from abroad.

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b) Visveswaraya Industrial Trade Centre:
The main is function of trade and export promotion. It is engaged in conducting
programmes in export management/ export awareness/export documentation and allied
assistance for the community of exporters. Also trade promotion activities are taken up
in the form of participation in exhibitions and trade fairs both within the State and
outside the State and abroad.

c) Kalavaibhava Exhibitions:
It is organised and related Kalavaibhava Exhibitions, Agriculture & Industrial
Exhibitions.

7. TECHNOLOGY UPGRADATION INTIATIVES

Karnataka Council for Technology Up gradation:
The main objectives of the KCTU are to enhance competitive status of SME‟s, catalyse
technology up gradation through acquisition, adoption and modernisation and to reduce
cost of productivity, quality improvement to make the SMEs products more competitive
both nationally and internationally. It assists the SMEs to obtain ISO 9001/14000 or any
other Nationally and Internationally recognised Certification. The Council is a Nodal
Agency for creating awareness and provides assistance for registration of Intellectual
Property Rights, guidance in Plant Layout, diversification, modernisation and
expansion.

8. ENTREPRENEUR DEVELOPMENT PROGRAMME INSTITUTIONS

a) Centre for Entrepreneurship Development of Karnataka, Dharward (CEDOK):
CEDOK was established by Government of Karnataka with an objective to contribute
for the development and disbursal of Entrepreneurship by conducting various EDPs,
Skill Development programmes to expand the social and economic base of
entrepreneurial class.

Main functions
To augment the number of entrepreneurs through entrepreneurship, training and
research.

195
 To produce multiplier effect on opportunities for self-employment.
To improve the managerial capabilities of small entrepreneurs.
To contribute to the dispersal of entrepreneurship and thus expand the social
base of the entrepreneurial class in urban/ rural areas.
To be centre of learning for trainer-motivation on entrepreneurship
development.
To contribute to growth of entrepreneurship cultures, spirit and entrepreneurship
developing countries.

b) Technical Consultancy Services Organisation of Karnataka (TECSOK):

TECSOK is a multi disciplinary consultancy organization engaged in providing
consultancy services for entrepreneurs who wish to set up industries or service ventures
in Karnataka. TECSOK provides basic information on potential products, suitable
location, policy and procedures of the Government and other related organizations,
incentives and facilities offered by the Government to the entrepreneurs.
TECSOK focuses more on promotion of Entrepreneurship amongst rural Entrepreneurs
and Entrepreneurs belonging to SC/ST/Backward Community and other under
privileged classes utilizing various special schemes available for such entrepreneurs.

TECSOK also organizes Entrepreneurship Awareness Programmes, Entrepreneurship

Development Programmes and Seminars/Workshops on current topics at various
locations for the benefit local Entrepreneurs. Further, TECSOK participates in various
programmes organized by other agencies and counsel with Entrepreneurs.
Graph 6.8-showing investment trend in the state

Investment approval trend in the State

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As per the data collected through interview and as per the financial report of the
company, the graph 6.8, above shows that due to, recession in the global economy there
was decrease in the investment. But the figures in the year 2009-10 shows again rise in
the investment in the SME sector which also helps in the development of the country.

STATE LEVEL INSTITUTIONS –AN EVALUATION

KARNATAKA STATE FINANCIAL CORPORATION (KSFC)

COMPANY PROFILE

Karnataka State Financial Corporation is a state level financial institution

established by state government in the year-1959, under the state financial corporation
Act-1951 to meet mainly the long term financial needs of Small and Medium
Enterprises (SMEs) in the state of Karnataka. In 1950 the government of India
circulated a draft bill for eliciting the views of the state and of the RBI. The SFCs bill
was introduced in parliament in December 1950 and passed in 1951; it came into force
on AUG 1, 1952

KSFC gives financial assistance to set up tiny, small, medium and large scale
industrial units in the Karnataka State. The Corporation extends term loans to new &
existing unit‟s upto Rs. 500 lakhs for corporate bodies and registered co-operative
societies. Term loans upto Rs. 200 lakhs are sanctioned to proprietary, partnership and
joint Hindu undivided family concerns. KSFC extends lease financial assistance and
hire purchase assistance for acquisition of machinery/equipment/transport vehicles.
KSFC has a merchant banking department and is approved as a category I merchant
banker by SEBI. Under this activity it does management of public issues, under-writing
of shares, project report preparation, deferred payment guarantee, syndication of loans,
bill discounting etc.

KSFC is one of the fast track term lending financial institutions in the country.
With assistance to more than 1, 56,758 units amounting to nearly 7,744 Crores over the
last 47 years in the State of Karnataka, it is one of the robust, professionally managed
State Financial Corporations. The focus of Karnataka State Financial Corporation
(KSFC) has always been on the small scale sector, artisans, tiny units and

197
disadvantaged groups. KSFC has been the main term lending institution in most of the
districts for first generation entrepreneurs. Its area of activities is:
 Assistance to the small scale sector
 Assistance to artisans, tiny, village and cottage industries.
 Assistance to medium scale industries
 Assistance to local entrepreneurs
 Assistance to backward areas
 Assistance to special segments of society

Graph 6.9-showing the sanctions of funds

Sanctions

Karnataka State Financial Corporation (KSFC) has recorded 14.7 per cent rise in its
sanctions at Rs 724 crore during 2010-11 compared to Rs 631 crore sanctioned in the
previous year as shown in the graph 6.9. Its disbursements have gone up by 33.3 per
cent to Rs 580 crore as against Rs 435 crore in the previous year as shown in the graph
6.10. Its net profit for the year stood at Rs 13.2 crore and the operating profit at Rs 17.8
crore. The gross income for 2010-11 stood at Rs 215.66 crore and the gross expenditure
is Rs 197.82 crore

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Graph 6.10-showing the disbursement of funds

NATIONALIZED COMMERCIAL BANKS

BANK OF BARODA (BOB)

Mission Statement
“To be a top ranking National bank of International standards committed to augmenting
stake holders value through concern, care and competence”

BANK PROFILE

The Bank of Baroda was established in the year 1908 in Baroda. Ever since its
inception, the bank has been growing and expanding its branches successfully. At the
turn of a century, the bank has its presence in 25 countries across the world. Bank of
Baroda has progressively taken a step towards commitment and values by providing
uncompromising standards of service to its customers, stakeholders, employees and the
like. The Bank of Baroda was started on 20th July 1908 under the Companies Act of
1887. The initial capital invested was ` 10 Lakhs. The Maharaja was none other than
Sayajirao Gaekwad who, with his visionary insight, planned the beginning of a reputed
journey which over the years, came to be known as the Bank of Baroda. It is interesting
to note that during the period of 1913 to 1917; almost 87 banks in India succumbed to a
financial crisis. However, the Bank of Baroda survived the economic depression by dint
of its financial integrity, business prudence and concern uncompromising concern about

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its customers and clients. This has transcended down to the present ages and has
become the motto of the bank.

A SAGA OF VISION AND ENTERPRISE

It has been a long and eventful journey of almost a century across 25 countries. Starting
in 1908 from a small building in Baroda to its new hi-rise and hi-tech Baroda Corporate
Centre in Mumbai, it is a saga of vision, enterprise, financial prudence and corporate
governance.

It is a story scripted in corporate wisdom and social pride. It is a story crafted in private
capital, princely patronage and state ownership. It is a story of ordinary bankers and
their extraordinary contribution in the ascent of Bank of Baroda to the formidable
heights of corporate glory. It is a story that needs to be shared with all those millions of
people - customers, stakeholders, employees & the public at large - who in ample
measure, have contributed to the making of an institution.

MSME BUSINESS

The Micro, Small and Medium Enterprises (MSME) segment has been a vital
component of Indian economy. This sector accounts for around 40.0% of total industrial
production, 34.0% of industrial exports, 95.0% of industrial units and 35.0% of total
employment in manufacturing and service sectors of India. The unorganized sector
which forms a major component of the MSE segment comprises almost 95.0% of total
industrial units and employs over 65 million people.
The contribution of Services Sector within the SME segment is quite significant;
especially IT enabled services, hospitality services, tourism, couriering, transportation,
etc. The SMEs have also been playing a vital role in the job creation process. To give a
focused attention to emerging SMEs in India, the Bank has been considering other
commercial units with a turnover up to Rs 150 Crore at par with the SMEs. To promote
the growth of SME Sector, the Bank has launched a special and novel delivery model,
viz. SME Loan Factory, which at present, is operationalized in 36 centres of the Bank
and well accepted in the marketplace. The SME Loan Factory is an innovative model
for streamlining processes and for timely sanctions of SME loan proposals. The model
comprises of the Central Processing Cell for speedy appraisal and sanctioning of

200
proposals within the stipulated deadline. Out of 36 SME Loan Factories as on 31st
March 2010, three SME Loan Factories have been established during the year. These
SME Loan Factories sanctioned loans aggregating Rs 11,071 Crore during FY10 as
against Rs 8,508 Crore in the previous year.
Table 6.1-showing the credit sanction
YEAR 2009 2010
SANCTION 8508cr 11071cr
Source: Bank of Baroda- Financial Statements, March 2010

The total outstanding in MSME Sector works out to Rs 21,111 Crore as on 31st March
2010. The growth in lending to MSME Sector during the last three years is given in the
table below.

Table 6.2-showing the growth trend

Financial Year Percentage Growth

2007-08 31.11%

2008-09 24.18%

2009-10 43.98%
Source: Annual Reports of Bank of Baroda

GROWTH TREND
Graph 6.11-showing the growth trend

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Growth in MSME Sector

Graph given above shows the percentage growth of MSME credit during FY10 is
relatively high to 43.98% as the advances up to Rs 20 lakhs to Retail Trade are, now,
classified under the “Micro & Small Enterprises Sector” after the RBI‟s revised
guidelines issued during September, 2009. The Bank has taken the following initiatives
in its SME business segment during the year under review.
Scheme‟s and programs conducted by the banks for SME
 Working Capital Finance.
 Term Finance &Technology Up gradation Fund Scheme (TUFS) For Textile
and Jute Industries.
 Credit Linked Capital Subsidy Scheme (CLCSS) For SSI Units.
 Collateral Free Loans under Guarantee Scheme of Credit Guarantee Fund Trust
for Micro and Small Enterprises.
 SME Short Term Loans & SME Medium Term Loans.
 Scheme for Financing Energy Efficiency Projects.
 Loans under Interest Subsidy Eligibility Certificate Scheme of Khadi & Village
Industries Commission (KVIC-ISEC).

BANK OF INDIA (BOI)

Mission
"To provide superior, proactive banking services to niche markets globally, while
providing cost-effective, responsive services to others in our role as a development
bank, and in so doing, meet the requirements of our stakeholders".

Bank Profile
Bank of India was founded on 7th September, 1906 by a group of eminent businessmen
from Mumbai. The Bank was under private ownership and control till July 1969 when it
was nationalised along with 13 other banks. In order to facilitate lending to SME
segment, number of SME branches has been increased from 50 to 100 and SME hub
have been set up at all Zonal Centres to address the problems faced by the SMEs. Bank
has also extended reliefs and concessions to MSME borrowers in tune with the various

202
stimulus packages announced by Government of India and Reserve Bank of India to
help them cope up with the sudden and unexpected hardships. To enable your Bank to
increase its reach, 173 new branches were opened and 13 extension counters were
converted to branches, thus increasing Domestic outlets to 3207 in March, 2010 from
3021 as at March end 2009. The Bank‟s delivery channels include 201 specialised
Branches catering to the specific needs of target beneficiaries, including Large and Mid
Corporate, Foreign Trade, NRIs, SMEs and Retail segments. Business accounts for
around 17.82% of Bank's total business.
Vision
"To become the bank of choice for corporate, medium businesses and upmarket retail
customers and to provide cost effective developmental banking for small business, mass
market and rural markets"

Micro, Small & Medium Enterprise Lending:

India has emerged as one of the fastest growing economies in the world, having
recorded second best Compounded Annual Growth Rate (CAGR) of 8.70% in GDP
during FY05-FY09.Government recognizes that in order to sustain the country‟s
economic progress, broad based robust growth in the industrial and service sector is
necessary. MSME plays significant role in development of the economy as also in
ensuring regional balance. MSME sector is thus being perceived as an agent of
economic transformation and growth.
Bank has devised a Composite Loan Scheme for MSE sector borrowers in Rural
/ Semi Urban and Urban areas for maximum exposure of up to Rs. 5 lacs per borrower.
The scheme has unique features like simplified application cum proposal format, hassle
free minimum documentations, relaxed margin and interest rates, etc. The gross
domestic credit of the Bank registered a growth of 17.20% from Rs.115, 354 crore on
31.03.2009 to Rs.135, 194 crore. The growth rate in the last year was 26.22 %. Robust
sanctions / disbursement by Large Corporate, Mid Corporate, SME and Agriculture
enabled the growth. Credit to SME sector grew from Rs.25, 441 crore to Rs.29, 568
crore recording a growth of 16.22%. Bank has been and continues to be a pioneer in
extending liberal credit to Micro, Small and medium Enterprises (MSME). Even before
the enactment of MSME development act in 2006, the Bank was a leader in respect to
financing to small scale industries and tiny sector. Keeping in line with Government of

203
India guidelines and policy to double flow of Credit to MSME sector during the Five-
Year plan period from 2004-05 to 2009-10, Bank has taken a lead by more than
doubling the credit to MSME in the first 4 year period itself.

Graph 6.12-showing the lending‟s

Lending to MSME Sector

The Bank‟s lending to MSME sector has grown from Rs.11,649 crore as on 31.03.2005
to Rs.29,567 crore as on 31.03.2010 as shown in the graph 9, showing an average
annual growth rate of over 30%. The Bank continues to focus on MSME sector growth
as reflected in 76959 new MSME accounts with sanctioned amount of Rs.15, 447
crores in the current financial year. The MSME portfolio of the Bank has grown at the
rate of 16.90% in the current financial year to Rs. 29,567 crores as on March, 2010
despite the lower credit off-take in the overall credit portfolio.

NEW INITIATIVES FOR GROWTH IN LENDING TO MSE SECTOR IN THE

CURRENT YEAR:

 Simplified loan application and loan proposal forms for MSE borrowers.
 In order to mitigate the hardship & to facilitate the easy availability of credit to
SRTO, the proposals for SRTO borrowers up to the limit of Rs.100 lacs have
been exempt from the Small Business Services (SBS) credit rating model by
introducing a simplified scoring model of credit rating for such accounts.

204
 Encouraged loans to micro and small sector through increased coverage under
CGTMSE cover.
 Increased number of SME branches from 50 to 100.
 Set-up SME hubs and Nodal Officers at all Zonal Centres.
 Have devised a NEW Composite Loan Scheme for MSE Sector borrowers in
Rural/SU/U areas for maximum exposure of up to Rs. 5 lacs per borrower. The
scheme has unique features like simplified application cum proposal format,
hassle free minimum documentations, relaxed margin and interest rates etc.

STATE BANK OF MYSORE (SBM)

State Bank of Mysore was established in the year 1913 as Bank of Mysore
Ltd. under the patronage of the erstwhile Government of Mysore, at the instance of
the banking committee headed by the great Engineer-Statesman, Late Dr. Sir
M.Visveswaraya. Subsequently, in March 1960, the Bank became an Associate of
State Bank of India. State Bank of India holds 92.33% of shares. The Bank's shares
are listed in Bangalore, Chennai and Mumbai stock exchanges. The Bank has a
widespread network of 707 branches (as on 31.03.2011) and 22 extension counters
spread all over India which includes 6 Small and Medium Enterprises Branches, 4
Industrial Finance branches, 3 Corporate Accounts Branches, 6 specialised Personal
Banking Branches, 10 Agricultural Development Branches, 3 Government
Business branches, 1 Asset Recovery Branch and 8 Service Branches, offering wide
range of services to the customers.

PROFILE:

State Bank of Mysore was established in the year 1913 as Bank of Mysore
Ltd. under the patronage of the erstwhile Government of Mysore, at the instance of
the banking committee headed by the great Engineer-Statesman, Late. Subsequently,
in March 1960, the Bank became an Associate of State Bank of India. State Bank of
India holds 92.33% of shares. The Bank's shares are listed in Bangalore, Chennai,
and Mumbai stock exchanges.

Mission:

A premier commercial bank in Karnataka, with all India presence, committed to

provide consistently superior and personalized customer service backed by employee

205
pride and will to excel, earn progressively high returns for its share holders and be a
responsible corporate citizen contributing to the well being of the society.

BRANCH NETWORK:

The Bank has a widespread network of 707 branches (as on 31.03.2011) and
22 extension counters spread all over India which includes 5 Small and Medium
Enterprises Branches, 4 Industrial Finance branches, 3 Corporate Accounts
Branches, 6 Specialised Personal Banking Branches, 10 Agricultural
Development Branches, 3 Government Business branches, 1 Asset Recovery
Branch and 8 Service Branches, offering wide range of services to the customers.

HUMAN RESOURCE:

The Bank has a dedicated workforce of 9926 employees consisting of 3179

supervisory staff, 6747 non-supervisory staff (as on 31.03.2011). The skill and
competence of the employees have been kept updated to meet the requirement of our
customers keeping in view the changes in the environment.

ORGANISATIONAL SETUP:

While the Chairman of State Bank of India is also the Chairman of the Bank,
The Managing Director is assisted by a Chief General Manager and 6 General
Managers.

FINANCIAL PROFILE

The paid up capital of the Bank is Rs.360 Millions as on 31.03.2010 out of

which State Bank of India holds 92.33%. The net worth of the Bank as on
31.03.2010 is Rs.2073.40 Crores and the Bank has achieved a capital adequacy
ratio of 12.42% as at the end of 31.03.2010. The Bank has an enviable track record
of earning profits continuously and uninterrupted payment of dividend since its
inception in 1913. The Bank earned a net profit of Rs.445.77 Crores for the year
ended March 2010 and earnings per share is at Rs.124/-

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BUSINESS PROFILE:

Total deposits of the Bank as at the end of June 2010 is Rs.39488.95 Crores
and the total advances stood at Rs. 30603.18 Crores which include export credit of
Rs. 1209.19 Crores. The Bank is a major player in foreign exchange dealings also
and has achieved a merchant turnover of over Rs 30678.46 Crores and a trading
turnover of over Rs 125156.64 Crores for the year ended March 2010.

HIGHLIGHTS OF THE FINANCIAL RESULTS FOR THE YEAR ENDED

31st MARCH, 2010

The Board of Directors of State bank of Mysore approved the financial results
for the year ended 31st March, 2010 at its meeting held in Mumbai on 20th April
2010. The highlights of the performance and working results are as under.

NET PROFIT:

The “Net Profit” of the Bank increased to Rs.445.77 crores from Rs.336.91
crores in the previous year registering a growth of Rs. 108.86 crores (32.31% as
against 5.66% for the previous year). The net profit for the 4th quarter grew from Rs
49.84 crores to Rs 123.63 crores year on year, clocking in a growth rate of over
148%.The Bank‟s Board has declared a dividend of 100% for the year 2009-10.

OPERATING PROFIT:

The Operating Profit increased to Rs.937.40 crores as on 31st March 2010

from Rs. 653.52 crores as on 31st March, 2009 representing a growth of 43.44%
(15.15% for the previous year). The increase in Operating Profit is on account of
growth of Rs.398.30 crores (from Rs 838.25 cr to Rs 1236.55 cr, at 47.52%) in Net
Interest Income. (Operating profit saw a growth of over 60% on quarter on quarter
basis, from Rs 181.31 cr to Rs 290.91 cr).

Interest Income grew, year on year, by 9.60%, we were able to reduce the
Interest Expenses by 3.60% by shedding high cost bulk deposits and borrowings,
and, by increasing low cost Current and Savings Deposits during the year. The

207
 growth in Staff Expenses was contained at 8.01%, while other Operating Expenses
increased moderately by 10.29%, year on year.

KEY FINANCIALS:

The Return on Assets improved to 1.06% from 0.91% and Return on Equity was at
21.58% up from 20.16%.Net Worth of the Bank (excluding revaluation reserves at
Rs 591.89 cr) increased to Rs. 2021.73 crores from Rs. 1619.44 crores representing a
growth of over 24%. The Bank has been BASEL – II compliant since 31st March
2008 and Capital to Risk weighted assets (CRAR) under Basel II, is at 12.42%
against the regulatory benchmark of 9%. Core CRAR was at 7.59%.
Earnings Per Share (EPS) improved to Rs.123.83 from Rs.93.59. The Book Value of
a share (Face value Rs 10) _ has improved to Rs.562 from Rs.449. Business per
Employee has risen from Rs.602 Lacs in March, 2009 to Rs.675 lacs in March, 2010.
Net Interest Margin (NIM) improved to 3.19% from 2.47%. Cost of Deposits
declined to 6.01% from 6.92%. Yield on Advances declined to 10.33% from
10.68%.

DEPOSITS:

Aggregate Deposits increased from Rs.32388 crores in March, 2009 to

Rs.38440 crores in March, 2010 registering a growth of 18.69% (Rs.6052 crores).

ADVANCES:

The total advances of the Bank reached Rs.29874 crores in March 2010,
registering a growth of 15.43% over the previous year. In the absence of demand for
credit from the corporate sector, the Bank focused on personal segment advances for
its asset growth. These advances grew by over Rs 760 crores, clocking in a growth
rate of over 19%. Within personal segment, housing loans grew by over Rs 400
crores and vehicle loans grew by over Rs 100 crores. The Bank has lent over Rs
3100 crores to MSE sector, Rs 3975 crores to Agriculture, Rs 2500 crores to
housing, and 489 crores to Education. Education loans grew by over 25% during the
year. The Bank has also achieved the Government of India (GOI) stipulated target of

208
doubling SME credit (November 2008) well ahead of the deadline of March 2010
fixed by GOI. The Credit Deposit Ratio stood at 77.72% as at March 31st, 2010.

AGRICULTURE FINANCE:

Agricultural advances continued to receive high priority and are at Rs.3975

crores. Bank‟s advances to agriculture in Karnataka stood at Rs.3491 crores and
constituted 25.76% of the total advances of the bank in the State. The Agriculture
Debt Waiver and Debt Relief Scheme 2008 of Government of India have been
implemented by the Bank. In terms of guidelines issued by Government of India, the
farmers eligible for relief under Agriculture Debt Relief Scheme have been provided
with an opportunity to settle their dues till 30th June 2010. An OTS within OTS
Scheme to assist farmers and to enable them to avail benefit under the extended Debt
Relief Scheme of the Government of India is currently in force.

During the year, Bank implemented new loan schemes to assist farmers viz.,
Tractor Naveekarana (for renovation/repairs to tractors), Comprehensive relief
measures to persons affected by natural calamities and Organic Coffee Scheme.

OTHER NEW SCHEMES/ PRODUCTS INTRODUCED:

CORPORATE SALARY PACKAGE: The Bank also introduced “Corporate

Salary Package”, a package offering a bouquet of benefits, depending upon the
salary of the employees, without any minimum balance requirement. The scheme
offers auto sweep facility, additional free cheque leaves, easy overdraft, concession
in processing charges etc.

SME SECTOR: While continuing all the existing products and schemes introduced
to take care of the varying financial needs of the sector, the Bank has introduced
during the year, three schemes viz., - SME Help, SME Care, and Micro Sector
Collateral Free Loan to support SME sector. Micro Sector Collateral Free loan
scheme provides for sanction of loans up to Rs.5.00 lacs, to these entrepreneurs
without any collateral security. This limit would be increased to Rs 10 lacs shortly

209
AWARDS:

MSME SECTOR: Government of India, Ministry of MSME has conferred to our

Bank “National Award for Excellence in MSE Lending” and “National Award for
Excellence in lending to Micro Enterprises” (amongst Associate Banks) for the year
2008-09. This special award is conferred to us in recognition of our creditable
performance in lending to MSE sector and Micro Enterprises.

FINANCING OF SELF HELP GROUPS: The Bank has Credit linked 37454
groups with an advance amount of Rs.338 crores during the current year and taking
the cumulative total of such credit linkage program to 1,16,040 groups with a
financial outlay of Rs.897 crores up to 31st March 2010. These efforts of the Bank
have been recognized and the Bank has been awarded the 1st Best Bank Award
instituted by NABARD under the Commercial Banks Category for its performance
under SHG Bank Linkage Program for the year 2008-09. The Bank has been the
winner of either the 1st or the 2nd prize award since March 2000 continuously. The
Bank‟s Branch at Malavalli has also been selected as the best performer in SHG
Financing amongst all the commercial bank branches in the State of Karnataka.

NPA MANAGEMENT:

Gross NPA ratio stood at 2.00% and Net NPA ratio stands at 1.02%, as at
March 2010. NPA coverage ratio including prudential write offs is at 66.93%.

TECHNOLOGY:

The bank is fully on Core Banking Platform since 1st January 2006. The
software provides for Anywhere Banking, Internet Banking, ATM, Real Time Gross
Settlement, National Electronic Funds Transfer etc. The new functionalities
introduced during the year under CBS include Mobile Banking Service.

Automated Teller Machines (ATMs): The Bank installed 227 new ATMs
during this year taking the total number of ATMs installed to 608 of which 521 are
in the State of Karnataka. Our ATMS are part of over 21465 strong ATM network of
the State Bank Group. The card base has crossed 15.87 Lacs as on 31st March 2010.
Paper less online ATM customer complaints reporting and redressing has been

210
introduced through the Banks intranet to reduce the time gap between reporting and
redressing of customer complaints relating to ATM transactions to adhere to the RBI
guidelines on ATM customer complaints.

BRANCH EXPANSION:

The Bank opened 15 (fifteen) General Banking Branches and one Centralised
Processing Centre during the year. The last Branch opened during the year was at
Muddenahalli, Chickballapur Taluk, the birth place of Sir M.Visveswaraya - the
founder of the Bank, on 29th March 2010. The total branch network of branches as
on 31st March 2010 stood at 689.

FINANCIAL INCLUSION- ISSUSE OF SMART CARD:

To promote Branch-less Banking, Smart Cards have been put in place

facilitating customers to transact banking business in remote places under the
Business Correspondent Model. The Bank proposes to add 300 hand held machines
to facilitate these correspondents. The Smart Card scheme has been introduced in
Tumkur, Bellary, Chitradurga and Chamarajnagar districts and would be extending
to other

FUTURE PLANS:

The Bank proposes to reach a business level of over Rs.86,000 crores during
the year 2010-11 aiming a growth rate of 26%, from the present level of Rs 68314
crores. The Bank has drawn up ambitious plans to open 100 new branches and install
182 additional ATMs during the financial year 2010-11. The Bank is in the process
of adding more than 700 personnel to support its expansion plans.

It is our aim to emerge as the Bank of 1st Choice in Karnataka; to attract

young and new customers and at the same time retain the existing customers. New
IT enabled services and products are being introduced to suit the needs of all
customers. The Bank is aiming to achieve a higher mind space of customers to
emerge as „MOST PREFERRED BANK‟ in the state.

211
 LOAN SCHEMES AVAILABLE AT SBM:

CREDIT GURANATEE FUND TRUST SCHEME FOR MICRO & SMALL

ENTERPRISES (CGTMSE):

SALIENT FEATURES:

CGTMSE was set up jointly by GOI and SIDBI.

The scheme is extended to all New and Existing units of Micro and
Small Enterprises.

The scheme is available both under Manufacturing Sector and Service

Sector.

Eligible loan limit is up to Rs. 100.00 lakhs.

No collaterals including the third party guarantee.

The loans to Micro enterprises up to Rs.5.00 lacs the max guarantee

cover will be 85% of amount in default/Max 4.25 lakhs and loans to
MSE for credit facility upto Rs.50 lakhs operated by women
entrepreneurs are covered up to 80% of amount in default/max Rs.40
lakhs.

The Maximum guarantee cover where credit facility above Rs.5 lakhs
upto Rs.50 lakhs is 75% of amount in default/max Rs.37.50 lakhs,
Above Rs.50 lakhs upto Rs.100 lakhs Rs.37.50 lakhs plus 50% of
amount in default above Rs.50 lakhs/max 62.50 lakhs.

One Time upfront guarantee fee has to be paid within one month from
date of first disbursement/demand advice date whichever is later and
Annual Service fee at specified rate on the credit facility has to be
paid to the Trust before 31st of May every year.

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 LOANS TO MICRO & SMALL ENTERPRISES (MSES):

Eligibility

Any individual / partnership firm / Public or Private Ltd. Companies desirous of

promoting MSEs (Manufacturing sector) with investment in Plant & Machinery not
exceeding Rs. 5 crore and Medium Enterprises with investment in plant &
Machinery is above Rs. 5 Crore and upto Rs. 10 crores. Extent of Finance. Need
based (both fund based and non-fund based), Margin: Working Capital/ Medium
Term Loan
a) No margin up to Rs.25000/-
b) Credit limit over Rs.25000/- Flexible approach: 15% - 25% depending on the
merits of each case.

Security:

Primary:
i) Assets created out of Bank finance
Collateral:

 Obtaining of collateral Security exempted

 Up to Rs. 5 lacs
 Over Rs. 5 lacs and up to Rs. 25 lacs, based on good track record and
satisfactory financial position
 Over Rs.25 lacs at the discretion of the Bank
Interest: As per prevailing rates from time to time

Export Finance

Establishment of Letter of Credit

Pre-shipment finance
Post-shipment finance
Assistance against Duty draw back

SMALL BUSINESS FINANCE:

Retail Trade- Advances to Retail Traders (Other than Fertilizers & Mineral Oils

213
Eligibility: All types of Retail Traders are eligible. Persons who propose to start retail
trade business, fair price shop, consumer co-operative stores are also eligible for finance

Extent of Finance: Credit limits up to Rs.20 lacs

Rate of Interest: As per prevailing rates from time to time

Margin: No margin up to Rs.25000/- , 15 to 25 percent, for credit limits exceeding Rs.

25000/-

Security: Assets created out of Bank‟s finance, Collateral security as per Bank‟s norm

SMALL BUSINESS ENTERPRISES:

Eligibility: Individuals and firms managing a business enterprise established mainly for
the purpose of providing any service other than professional services.

Extent of Finance: Individual limits for working capital will be fixed depending upon
the requirement of activities pursued. Advances for acquisition, construction,
renovation of House Boats and other tourist accommodation will be financed. Advances
for distribution of mineral oils will also be considered under this category

Rate of Interest: As per prevailing rates from time to time

Margin: No margin up to Rs.25000/- , 15 to 25 percent for credit limits exceeding

Rs.25000/-

Security: Assets created out of Bank‟s finance, Collateral security as per Bank‟s
discretion

PROFESSIONALS & SELF-EMPLOYED PERSONS:

Eligibility: Medical practitioners including Dentists, Chartered Accountants, Cost

Accountants, practicing Company Secretary, Lawyers or Solicitors, Engineers,
Architects, Surveyors., Construction Contractors or Management consultants

Extent of Finance: Professional and self employed persons are eligible for assistance up
to Rs.10 lacs of which not more than Rs.2 lacs should be for working capital

214
requirements. However, in case of professionally qualified medical practitioners,
financial assistance will be up to Rs.15 lacs for working capital limits for setting up
practice in semi-urban and rural areas

Rate of Interest: As per prevailing rates from time to time

Margin: No margin up to Rs.25000/- , 15 to 25 percent for credit limits exceeding

Rs.25000/-

Security: Assets created out of Bank‟s finance, Collateral security as per Bank‟s norms

TRANSPORT OPERATORS:

Eligibility: Advances to Small Road and Water Transport operators.

Extent of Finance: Not exceeding Rs 200 lakhs

Rate of Interest: As per prevailing rates from time to time

Margin: No margin up to Rs.25000/- , 15 to 25 percent for credit limits exceeding

Rs.25000/-

Security: Assets created out of Bank‟s finance, Collateral security as per Bank‟s norms

LAGHU UDYAMI CREDIT CARD SCHEME:

Eligibility: Small businessmen, retail traders, artisans, Small industrial units including
those in tiny sector, Professionals and self employed persons, enjoying working capital
up to a limit of Rs 10 lacs.

Limit: Fixed at 20% of annual sales turnover declared in Income Tax/Sales Tax returns,
Professionals and Self- employed persons are eligible for credit limits up to 50% of
their gross annual income, as declared in their income- tax return (The assessment
norms in vogue is as per the Nayak Committee recommendations) For units above Rs. 2
lacs and up to Rs. 10 lacs, scoring model method will be followed. Those who score
more than 60% would qualify for coverage under the scheme

Primary security: Hypothecation of stock in trade, receivables, machinery, office

equipment etc.

215
Collateral Security: As decided by the Bank

Margin: 25%

Validity: Valid for 3 years. Half-yearly review will be done on the basis of last 12
months turnover in the account

Interest: As per prevailing rates from time to time

Insurance: Insurance cover is waived for limits up to Rs.25000/-

CONTRIBUTION BY SBM:

MICRO AND SMALL ENTERPRISE LENDING:

Government of India, ministry of MSME has conferred to our bank national award for
excellence in MSE lending and national award for excellence in lending to micro
enterprise for the year 2008-09. This special award is conferred to us in recognition of
SBM creditable performance in lending to MSME sector.

MICRO AND SMALL ENTERPRISE MANUFACTURING:

The banks advance to MSME manufacturing sector has increased from Rs. 1290.26
crores in March 09 to Rs. 1476.08 crores as at the end of March 2010 registering a
growth of 14.40%. The impact of the economic slowdown had its effects during this
year also. The bank has extended all the initiatives of the government of India and
reserve bank of India to MSME sector this year also to help them to tide over the
problems.

GRAPH 6.13- SHOWING CONTRIBUTION MADE BY SBM TO SME

SCHEME AND FINANCIAL ASSISTANCE:

216
THE PROMINENT STEPS TAKEN BY SBM:

 Reduction in the rate of interest on working capital limits.

 Sanction of additional credit limits of 20% of the fund based working capital
limit.

 Relaxing the norms for carry inventory and receivables to support the
elongated working capital cycle.

 Reduction in the margin requirements for issuing letters of credit and bank
guarantees.

 Rescheduling the instalments of term loans wherever felt necessary.

 Extending term loan for purchasing gensets, machines, and tools at a

concessional rate of interest at 9% p.a. for the first year.

While continuing all the existing products and schemes introduced to take care of
varying financial needs of the sector, the bank has also introduced following schemes to
extend finance at a concessionary rate of interest to all the new accounts for a period of
one year.

 SME help

 SME care

 Micro sector collateral free loan upto Rs 5.00 lacs.

MICRO AND SMALL ENTERPRISE SERVICE:

Banks lending to this sector increased from Rs.958.38 crores as at the end of March
2009 to Rs.999.83 crores at the end of March 2010 registering a growth of 4.33%.

LINKAGES WITH VARIOUS BANKS:

The various other institutions with which SBM has linkages for coordinating activities
are:

 KVIC
 KVIB

217
  DIC

ACTIVITIES AND FUNCTIONS:

The activities and function in which they are linked are direct financial assistance and
indirect financial assistance.

GRAPH-6.14- SHOWING LOAN SANCTIONED AND LOAN DISBURSED:

GRAPH 6.15-SHOWING CONTRIBUTION MADE BY SBM FOR SME

EXPANSION:

218
TECHNOLOGY UPGRADATION AND UNDER MODERNISATION LOAN TO
SME:

The SBM do give support to technology up gradation and the criteria for the selection
of SME are implement the scheme of ministry of textile, GOI, for power looker,
spinning and jute industry. The SBM gives support for purchase of new machinery.

DIVERSIFICATION SCHEMES AND SUPPORT TO QUALIFIED

PROFFESIONALS:

The diversification scheme provided by SBM is by providing vehicles. The financial

support given to qualified professional for self employment is by providing machinery
and by providing any other help.

SCHEMES NOT PROVIDED BY SBM:

SBM does not give financial support to scheduled banks, leasing arrangement, hire
purchase, direct factoring service, venture capital.

LOAN CREDITED TO BORROWERS:

The loan credited to borrowers is of two types:

1. Fund based

 Cash credit
 Term loan

2. Non fund based

 Bank guarantee
 Letter of credit

219
GUIDELINES BY RBI

Classifications of MSME sunder Priority Sector:

The RBI has since taken into account the definition ofMSMEs as per the MSMED Act
2006 for purposes of their classification under Priority Sector. Accordingly all the
following advances would be eligible for classification as Priority Sector. It may
importantly be noted that all advances to Micro & Small Enterprises in both the
manufacturing and services sectors except private Retail Traders with credit limits up to
Rs.20 lakhs and advance to Traders under Public Distribution System or Fair Price
Shops/Consumer Co-op Societies, have been synchronised with the MSMED definition
to fall under Priority Sector classification.

(a) Small Enterprises (Direct and Indirect Finance):

(i) Direct finance to small enterprises shall include all loans given to micro and small
(manufacturing) enterprises engaged in manufacture/ production, processing or
preservation of goods, and micro and small (service) enterprises engaged in
providing or rendering of services, and whose investment in plant and machinery
and equipment (original cost excluding land and building and such items as
mentioned therein) respectively, does not exceed the amounts specified above under
(vi) Investment Criteria. The micro and small (service) enterprises shall include
small road & water transport operators, small business, professional & self-
employed persons, and all other service enterprises, subject to the above investment
criteria. (Please importantly note that Retail Trade is dealt separately below).

ii) Indirect finance to small enterprises shall include finance to any person providing
inputs to or marketing the output of artisans, village and cottage industries,
handlooms and to cooperatives of producers in this sector.

(iii) Reserve Bank of India has classified Retail Trader advances separate from
MSME Enterprises. As such, advances to Retail Traders would not be classified
under MSMEs, although such advances would be handled and reported by SME-
SBU.

220
  Under Retail Traders, Private Retail Traders with credit limits up to Rs.20
lakhs would alone be eligible to be classified as Priority Sector. Thus, all
advances to Private Retail Traders exceeding Rs.20 Lakhs would not be
covered under Priority Sector.
 Retail Trade shall include retail traders dealing in essential commodities (fair
price shops), and consumer co-operative stores (irrespective of credit limits).

Medium Enterprises:

Bank‟s lending to Medium Enterprises in both the manufacturing and services sectors
would not be included for the purpose of reckoning under the Priority Sector.

1.3. Target for Micro & Small Enterprises Credit:

1.4. Table-6.3-The RBI has prescribed the following overall target for the Bank as
a whole for Micro & Small Enterprises credit :

32 per cent of ANBC or credit equivalent

Small enterprises Advances amount of Off-Balance Sheet Exposure,

whichever is higher.
10 per cent of ANBC or credit
equivalent amount of Off-Balance Sheet
Exposure, whichever is higher.

Micro enterprises Advances within

(i) 40 per cent of total advances to
small enterprises sector should go to
Small Enterprises Sector
micro (manufacturing) enterprises
having investment in plant and
machinery up to Rs 5 lakhs and micro
(service) enterprises having investment
in equipment up to

Rs.2 Lakhs.

ii) 20 per cent of total advances to small

221
 enterprises sector

should go to micro (manufacturing)

enterprises with investment

in plant and machinery above Rs 5 lakhs

and up to Rs. 25 lakhs,

and micro (service) enterprises with

investment in equipment

above Rs. 2 lakhs and up to Rs. 10 lakhs.

(Thus, 60 per cent of
Micro enterprises Advances within

small enterprises advances should go to

Small Enterprises Sector
the micro enterprises)

iii) By corollary, the rest 40% should

go to Small Enterprises(Manufacturing)
with investment in plant and

Machinery more than Rs.25 lakhs and up to

Rs.5 Crores as well as to Small Enterprises

(Services) with investment in equipment

more than Rs.10 lakhs and up to

Rs.2 Crores.
12 per cent of ANBC or credit equivalent

Export Credit amount of Off-Balance Sheet Exposure,

whichever is higher?

Source: RBI Bulletin

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Filing of Memorandum by Micro, Small & Medium Enterprises:

There is a change in the entire registration process with the MSMED Act.2006 coming
into force w.e.f. 02/10/2006. Vide Chapter III Section 8 (Page 7); the Act stipulates
certain important requirements from the Entrepreneurs which are quoted verbatim in the
Annexure hereto. Accordingly, the following would be the requirements under the
MSMED Act 2006:

a. New Enterprises established/to be established after the MSMED Act 2006:

A Memorandum has to be filed with the District Industries Centre under whose
jurisdiction the enterprise is located/proposed to be located. Depending on the activity
of the Enterprise, the filing of the said memorandum is either mandatory or
discretionary as shown below:

Sl. Enterprises Memorandum

No.

A. Micro & Small Industries in both Not mandatory but only

discretionary with the discretion
Manufacturing and services
left to the Entrepreneur
sector.
concerned.

Source: DIC-Bangalore Urban District

However, with the advantages/benefits available in many ways to such enterprises

(A & B above), from several Authorities/Organisations, it is always desirable
(though not mandatory) to file Memorandum of Registration.

Wherever SSI Registration Certificate Number is asked for by any other

body/authority, the units may furnish the date of filing the Memorandum and the
date of acknowledgement thereof, as received from the authorities.

223
b. Existing SSI & Medium Industries:

In much the same way as above, it is not mandatory for an existing SME (Mfg.) unit
to file the Memorandum as above; however, at their discretion the SME (Mfg.)
may file the Memorandum, in view of the benefits available due to Registration.

 An existing Medium industry (in the manufacturing sector), however,

should mandatorily file the Memorandum as required.

c. Period for Filing:

(i) Already Established Medium Enterprises:

In respect of established Medium Enterprises, such a filing of memorandum was to

be done within 180 days from the date of commencement (02/10/2006) of the
MSMED Act 2006 i.e. on or before 30/03/2007. If units financed by us, more
particularly in the Medium Enterprises segment where mandatory filing is required,
have not filed the requisite memorandum before 30/03/2007 and submitted the copy
of DIC acknowledgement thereof, they should be advised to seek the permission for
late filing from the respective DICs.

The Local DIC should be contacted for the latest guidelines in this regard.
Branches/Zones should insist upon the filing before extending any further limits.
Since online filing is also permitted, there is no reason why medium industries
cannot file the requisite memorandum in time. No concessions should be extended to
such units till they file the memorandum and produce the copy of the
acknowledgement from the DIC.

224
 Newly established/proposed Medium Enterprises:

In respect of newly established/proposed Medium Enterprises, the Branches should

insist on the filing and production of the acknowledgement before consideration of
any limits/taking up the proposals.

d. Procedural Guidelines for the Entrepreneurs:

The form of the Entrepreneur‟s Memorandum comprises of Parts I & II:

Existing units to file only Part II of the Memorandum.

Part I to be filed as an expression of interest by all intending entrepreneurs.

Part II to be filed once the enterprise starts production or starts

providing/rendering services, within two years from the date of filing Part I.

If Part II not filed within the said two years, Part I would automatically become
invalid.

Whenever changes/additions take place in the investment/product/Services, the

filing to be done within three months of such changes/additions.

The Memorandum to be filed would be in quadruplicate.

There is no fee prescribed for processing such memorandum.

The DIC issues an acknowledgement (Specimen Enclosed For ready reference)

after allotting an Entrepreneur memorandum Number:

Within five days of the receipt of the memorandum - If submitted by post.

 Same day - If submitted in person or online.

Copy of this acknowledgement has to be obtained and kept on records.

The Entrepreneurs‟ Memorandum issued by DIC would also be available at the Small
Industries Service Institutes of the State/Jurisdiction as well as with the Joint

225
Development Commissioner in the Office of the Development Commissioner (Small
Scale Industries).

Please bring the above important provisions of the MSMED Act 2006 (relating to the
Filing of Memorandum) to the notice of all their existing as well as prospective Micro,
Small & more particularly Medium Enterprises (MSME) Customers by addressing
individual letters as per the enclosed format.

Delayed Payments By Companies to Micro/Small Enterprises:

(a) The MSMED Act inter alia states that where any buyer (of our SME borrower‟s
products) is required to get his annual accounts audited under any law for the time
being in force, such buyer shall furnish the following additional information in his
annual statement of accounts, namely:-

(i) The principal amount and the interest due thereon (to be shown separately)
remaining unpaid to any supplier (read our borrower SME) as at the end of each
accounting year;

(ii) The amount of interest paid by the buyer in terms of section 18, along with the
amounts of the payment made to the supplier (our SME borrower) beyond the
appointed day during each accounting year;

(iii) The amount of interest due and payable for the period of delay in making pay-
ment (which have been paid but beyond the appointed day during the year) but
without adding the interest specified under this Act;

(iv) The amount of interest accrued and remaining unpaid at the end of each year (i.e.
accounting year); and

(v) The amount of further interest remaining due and payable even in the succeeding
years, until such date when the interest dues as above are actually paid to the small
enterprise (read our borrower SME), for the purpose of disallowance as a deductible
expenditure under section 23.”

226
(b) Please take note of the above provisions of the MSMED Act, 2006 while
verifying the receivables shown by the SME Borrower in their Book Debts Statement
as well as annual balance sheet by cross-checking if these receivables appear in the
respective buyers‟ audited balance sheet(s). For the same reason, if any Corporate or
otherwise buyer (of any SME suppliers‟ products) happens to be our Bank‟s
borrowers, one should verify if these borrowers reflect their dues (to these supplier
SMEs) in their audited balance sheet(s).

Credit Officers/Managers should importantly bring the above provisions to our

SME Borrowers‟ knowledge/information for their necessary action.

1.5. Interest Rate for MSME Advances:

Concessions:

(a) Only those enterprises which can be classified as MSMEs in accordance with
the above definitions would qualify for interest rate concessions. Any other
activity/enterprise, not falling under above MSME definition cannot, therefore,
be extended any concessions available to MSMEs. Wherever concessions need to
be given for such non-SME advances, the same would be in the normal course (as
applicable to and stipulated under C & IC advances). Wherever such concessions
were already given in the past, the same would have to be withdrawn immediately
under advice to the borrower concerned and appropriate interest rate fixed. If it is
desired to extend any concessions to such borrowers for business exigencies, the
same would be considered under Commercial & Institutional Credit and not
MSME.

(b) A detailed list of the activities eligible for classification as SME

(Manufacturing & Services) is as per Annexure V (i) & (ii).

(c) In respect of schematic lending‟s, or advances under any specialized scheme like
Priyadarshini Yojana, Star SSI Supreme, Star Laghu Udyog Suvidha or medi-
mobile scheme or finance under Star Channel Credit or finance to cluster of
accounts under Cluster Finance, the rate prescribed for the scheme as a whole would

227
prevail over, and the rate concessions would not be applicable. Thus, wherever the
interest rates are:

Fixed The existing rates would continue

till reset
The existing rates would be increased/

Floating, i.e. linked to BPLR decreased in tune with the PLR

Increase/decrease.

Source: RBI Bulletin

Judicious Concessions: Although the concessions allowed as above are applicable

generally to NEW accounts, concessions may also be offered under the following
conditions:

 Only when there is an imminent threat of take-over of our existing accounts.

Delegates have to satisfy themselves that such threat of take-over is genuine
and there is every chance of losing the account if the concession is not
granted.
 Our bid for taking over of satisfactory accounts from other Banks through
offer of concessional rates.

The authority should be exercised with great restraint and with adequate
justifications so that the Bank‟s bottom line does not get affected much.

Extant concessions to Borrowers who are no longer covered under MSMEs (such as
Retail Traders etc) would be withdrawn forthwith and in any case, such concessions
to non-MSME Traders would, as already stated, be as applicable to advances under
Commercial & Institutional Credit (C & IC) sector.

Rating done by External Agencies such as CRISIL, Dun & Bradstreet, SMERA etc
before interest concessions are extended.

228
1.6. Take Over of Accounts: Take-over of advance accounts from other Banks/FIs
if the following minimum financial parameters and conditions are complied with:

 Accounts should be eligible for a credit rating of minimum AA as per our credit
rating model treating the account as a new one.
 The accounts to be taken over should be standard accounts with the existing
Bank.

 The firm/company continuously registering increasing trend in sales volume and

making cash profit for at least last three years.

 Maximum debt equity ratio of 3:1 in the case of Medium Enterprises, and Small
Enterprises enjoying working capital limits over Rs.5.00 Crores and 4:1 in the
case of Tiny Enterprises, and Small Enterprises enjoying working capital limits
up to Rs.5.00 Crores.

 Current Ratio around 1.20:1 for accounts with limits up to Rs 5 crores, where
Turn Over Method alone would be applied for assessment of the Working
Capital (as against 1.33 prescribed normally).
 Minimum Interest Service Coverage Ratio (ISCR) of 1.50:1 as against 1.75:1
prescribed normally.
 If Term Loan is also proposed to be taken over, the minimum Debt: Service
Coverage Ratio (DSCR) should be 1.25.

 The Asset Coverage Ratio should not be less than 1.50.

1.7. Credit Appraisal

 Although same appraisal norms cannot be uniformly applied to Micro, Small

and Medium Enterprises, broadly the appraisal would involve:
 Proper identification of the Proponent(s) and his/her/their antecedents in
accordance with KYC Norms/Guidelines, the proponents‟ experience,
educational and social background, technical/ professional competence,
integrity, initiatives, etc,.
 Checking out for Willful Defaulters‟ List of RBI, Specific Approval List (SAL)
of ECGC etc,

229
 The acceptability of the product manufactured, its popularity/market demand,
market competitors.
 Evaluation of State and Central Govt. Policies (enabling environment) with
specific reference to the Enterprise in question, Environmental stipulations,
Availability of necessary infrastructure-roads, power, labour, raw material and
markets.
 Project Cost, the Proponent‟s own financial contribution, projections for three
years, and other important parameters which would include the BEP, liquidity,
solvency, and profitability ratios, etc,.

Working Capital Assessment

For working capital limits up to Rs.5 Crores,Turnover Method would be

applicable as mandated under Nayak Committee Recommendations for financing
working capital needs of the SMEs @ 20% of the projected turnover based on the
assumption of a three month operating cycle. It is abundantly clarified that this 20%
is the minimum WC limit to be sanctioned even if the proponent‟s operating cycle is
shorter than 3 months. However, one should ensure to restrict the drawings in such
cases to actual drawing power. MPBF method may be resorted in specific cases
with longer operating cycle. One should obtain and scrutinise latest audited
financials of the constituent in all cases of WC limits above Rs.10 lakhs. In case of
provisional balance sheets it should be ensured that in the audited financials, the
variation is not beyond +/- 5%. CMA Data are not also required to be obtained in
case of SME Proposals up to Rs.5 Crores under Turnover Method.

The next year‟s sales projections made by the borrower, however, would have to be
corroborated by the trend in sales over 2 years, last year actual sales through
verification of the following indicative parameters (besides the financial data
submitted by the borrower):

 Sales Ledger/Sales Turnover.

 Credit Summation in the account.
 Sales Memos or Invoices/Delivery Challans.
 Sales Tax Paid/Turnover Tax/Excise Register, as applicable,
 Electricity Bills –wherever applicable.

230
  Orders on hand/expected orders.
 Installed capacity vis-à-vis the projections.
 Overall market trend etc,

Such projections should be within reasonable limits say 25% over last year‟s sales.
However, in exceptional cases deviations from this may be allowed if supported by
LCs/Firm orders on hand etc,

Current Ratio:

While a benchmark current ratio of 1.33:1 is always desirable, it is felt that some
relaxations are provided to SMEs in their Current Ratio. They may be permitted to
maintain a minimum current ratio of 1.20:1 as against 1.25-1.33:1 stipulated for
others, although ideally under Turnover Method this ratio should be 1.25:1. Such
deviations are not to be allowed, particularly if the rating gets below AA. Borrower
has to improve the position by building up the current assets through infusion of
more capital/funds. Classification of Current Assets and Current Liabilities under
MPBF method would be based on extant RBI/Bank guidelines.

Debt: Equity Ratio:

The following may be accepted as the benchmark in this regard:

 W/C Limits up to Rs.5 Crores to Micro & Small Enterprises: 4:1.

 W/C Limits over Rs.5 Crores to Micro & Small Enterprises: 3:1.
 W/C Limits to Medium Enterprises: 3:1.

1.8. Credit Rating

Govt. /RBI had advised that Banks may initiate necessary steps to rationalise the
cost of loans to SME sector by adopting a transparent rating system with cost of
credit being linked to the credit rating of enterprise. The Bank has adopted the
Internal rating Model developed in house. The ratings given by reputed Credit
Rating agencies such as SMERA, CRISIL etc, which have been approved by the
National Small Industries Corporation, may also be considered for granting
concessions in the interest rates, in tune with such credit ratings, based on parameters

231
such as turnover, market position, operating efficiency, existing financial position,
and management evaluation.

Internal Credit Rating as advised by HO will be used for rating purposes before
pricing the facilities to any borrower with limits over Rs. 10 lakhs.

1.9. Collateral Security and Margin Norms:

As per extant RBI guidelines, Micro & Small Enterprises with limits up to Rs.5
Lakhs (i.e. erstwhile Tiny and SSI) may be sanctioned credit facilities without any
collateral security. For customers with good track record, this waiver of collateral
security may be for limits up to Rs.50 Lakhs, provided Credit Guarantee Fund Trust
for Small Industries (CGFTSI) -since renamed as Credit Guarantee Fund Trust
for Micro and Small Enterprises (CGTMSE) - cover is available. However, the
issue of collateral security would be addressed on a case-specific basis.

Credit facilities extended to Micro & Small Enterprises either by way of Term
Loan or Working Capital or both, without any collateral security or third party
guarantee, will be covered, if eligible, under CGTMSE scheme. The coverage of the
Scheme has since been extended to all new and existing Micro and Small Enterprises
(both in the manufacturing and Services Sectors).

The credit guarantee cover has been raised from 75% to 80% for the following
category of MSME advances:

 Loans to Micro Enterprises up to Rs.5 lakhs, and

 Loans to Micro and Small Enterprises operated and/or owned by women.

For all others, the cover would be available up to 75% of the amount in default
subject to maximum of Rs.37.50 Lakhs.

Till now, CGMTSE (erstwhile CGFTSI) charged one-time Joining fee of

1.50% and Annual Service fee of 0.75% of the sanctioned limits with credit
facilities up to Rs.25 Lakhs. This fee structure has since been revised by CGMTSE
(erstwhile CGFTSI) and a differential pricing based on slab of coverage has been
introduced for credit limits up to Rs.50 lakhs. Thus the following fee structure is

232
 prescribed by CGTMSE (erstwhile CGFTSI) to all eligible MSME advances covered
under the scheme. However, SBM would continue with the coverage to the extent
of 75% of the credit facility sanctioned in all cases (and 80% in specified
categories such as to women and borrowers in North eastern states)

1.10. Time Norms for Disposal of Applications:

With the switch over to the simple Turnover Method for all advances in the SME
segment up to Rs.5 Crores, the time for processing of the applications and sanction
has to be curtailed as under (from the date of submission of complete papers by
the borrower):

Limits Time Limit Not Exceeding

Up to and including Rs.25,000/= 4 Business Days.

Over Rs.25,000/= and up to 8 Business Days.

Rs.10 Lakhs

Over Rs.10 Lakhs up to Rs.5 Crores 12 Business Days.

Source: Annual Reports-State Bank of Mysore, Bangalore

A register should be maintained at the branches to record the dates of receipt of

applications/ sanction/ disbursements/ rejections with reasons therefore.

1.11. Purpose of the Loans: The Advances can be given for Capital expenditure
and Working Capital requirements only.

1.12. Loan Amount: The Loan amount is as per the requirements of the Customer
and eligibility arrived as per the Appraisal/Analysis.

233
1.13 Tenor/ period of Advance: Working Capital loans will be sanctioned for a
period of one year on renewal basis and the Tenor of the Term Loans is defined
based on the cash flows and repayment capacity of the applicant.

1.14 Disbursal of Loans: The Disbursement of Loans will be done only after
completion of the all documentation and pre sanction conditions as mentioned in the
Sanction Letter.

1.15 Documentation: The Documentation of the loans will be done based on the
Banks policy.

1.16: Right to Recall:

At the option of the Bank, and without necessity of any demand upon or notice to
the Borrower, all of which are hereby expressly waived by the Borrower, and
notwithstanding anything contained herein or in any security documents executed by
/ to be executed by the Borrower in the Bank‟s favour, the said Dues and all of the
obligations of the Borrower to the Bank hereunder, shall immediately become due
and payable irrespective of any agreed maturity, and the Bank shall be entitled to
enforce its security, upon the happening of any of the following events (“Events of
Default”)

(a) If any representations or statements or particulars made in the Proposal of

the Borrower are found to be incorrect or the Borrower commits or threatens to
commit any breach or default in performance or observance of these presents or fails
to keep or perform any of the terms or provisions of any other agreement between
the Bank and Borrower in respect of the Loan;

(b) If the Borrower commits any default in the payment of principal or interest
of any obligation of the Borrower to the Bank when due and payable;

(c) If there is any deterioration or impairment of the said Securities or any part
thereof or any decline or depreciation in the value or market price thereof (whether
actual or reasonably anticipated), which causes the said Securities created in favour
of the Bank, in the judgment of the Bank to become unsatisfactory as to character or
value;

234
(d) If any attachment, distress, execution or other process against the Borrower, or
any of the said Securities is enforced or levied upon;

(e) If there is a failure in business, commission of an act of bankruptcy, general

assignment for the benefit of creditors, if the Borrower suspends payment to any
creditors or threatens to do so, any petition in bankruptcy of by, or against the
Borrower is filed or any petition for winding up of the Borrower is filed and not
withdrawn within 30 days of being admitted.

(f) If the Borrower is unable to pay its debts within the meaning of Section 434 of
the Companies Act, 1956 (1 of 1956) or if a liquidator, or receiver is appointed in
respect of any property or estate of the Borrower or the Borrower goes into
liquidation for the purpose of amalgamation or reconstruction, except with prior
written approval of the Bank;

(g) If a receiver is appointed in respect of the whole or any part of the property
/assets of the Borrower;

(h) If the Borrower ceases or threatens to cease or carry on its Business; If it is

certified by a Firm of Accountants appointed by the Bank (which the Bank is entitled
and hereby authorised to so appoint at any time) that the liabilities of the Borrower
exceed the Borrower‟s assets or that the Borrower is carrying on business at a loss;

(i) If the Borrower, without prior written consent of the Bank, attempts or purports
to create any charge, mortgage, pledge, hypothecation, lien or other encumbrance
over the said Securities or any part thereof, except for securing any other obligations
of the Borrower to the Bank;

(j) If any circumstance or event occurs which is prejudicial to or impairs or imperils

or jeopardises or is likely to prejudice, impair, imperil, or jeopardise any other
security given by the Borrower or any part thereof;

(k) If any circumstance or event occurs which in the opinion of the Bank, would or
is likely to prejudicially or adversely affect in any manner the ability/ capacity of the
Borrower to perform or comply with its obligations to there under and/or to repay the
Loan or any part thereof (or the implementation of the Project);

235
(l) If the Loan or any part thereof is utilised for any purpose other than the purpose
for which it sanctioned by the Bank;

(m) If any substantial change in the constitution or management of the Borrower

occurs without previous written consent of the Bank or the Management ceases to
enjoy the confidence of the Bank;

(n) If any of the foregoing events occur in relation to any third party which now or
hereafter has guaranteed or provided security for or given any indemnity in respect
of any money obligation or liability hereby secured or such third party if individual
shall commit an act of bankruptcy or die or become incompetent to contract.

(o) If any circumstances or event occurs which in the opinion of the Bank, would or
is likely to prejudicially or adversely affect in any manner the ability/capacity of the
Borrower to perform or comply with its obligations to there under and/or to repay the
Loan or any part thereof (or the implementation of the Project).

(p) If any event of default or any event which, after the notice or lapse of time or
both would constitute an event of default shall have happened, the Borrower shall
forthwith give the Bank notice thereof in writing specifying such event of default, or
such event. The Borrower shall also promptly inform the Bank if and when any
statutory notice of winding-up under the provisions of the Companies Act, 1956 or
any other law or of any suit or legal process intended to be filed / initiated against the
Borrower, is received by the Borrower. On the question whether any of the above
events/circumstances has occurred/ happened, the decision of the Bank shall be final,
conclusive and binding on the Borrower.

(q)The company hereby agree as a pre-condition of the loan given to it by the bank
that in case it commits default in the repayment of the loan or in the repayment of
interest thereon or any of the agreed instalment of the loan on due date, the bank
and/or the Reserve Bank of India will have an unqualified right to disclose or publish
its name or the name of its directors as defaulter in such manner and through such
medium as the bank or Reserve Bank of India in their absolute discretion may think
fit.

236
 EVALUATION PROCESS FOR SANCTIONING LOAN TO MSME:

The borrower approaches the nearby SBM branch and explains the need of loan
and fetches the application form and submits with the relevant document as required
by the bank. The bank person collects the form, documents and goes through it. If
the documents produced by the entrepreneur are legal then the application is
forwarded to the small, medium enterprise city credit centre. If the borrower turnover
is less than 25 cr (depending on the borrower turn over the application will be moved
to that concerned department). There are totally 13 people involved in the evaluation
process, where this 13 people are divided in to 4 regions of the city. The concerned
person of that region goes through the application and evaluates. If the documents
produced are relevant and legal then the loan would be sanctioned within eight days
or else the documents will be sent back to entrepreneur and will ask to produce
relevant documents. All this process is done by maintenance department.

STEPS TAKEN TO CREATE AWARENESS TO ENTREPRENEUR:

The steps taken by SBM to create awareness regarding the loan available to
the entrepreneurs is by TV advertisement, loan mela, road side banners, cut outs
outside the banks, pamphlets, brochures, seminars, exhibitions, etc.

FINDINGS:

 SBM is more customers friendly as it provides the required assistance with

respect to sanctioning of loan.

 SBM constantly up grades their technology with respect to the loan.

 The SBM adopts a combination of technology which is traditional and modern.

 The numbers of people who have been benefited with this scheme is
tremendously increasing year by year.

 The SBM adopts various quality promotion strategies with respect to

improvising SME‟s.

 SBM provides assistance not only to entrepreneurs but also to the potential
individual who qualified professionals for self employment.

237
  SBM do provides help to SME in getting credit rating from accredited credit
rating agencies.

 SBM do provides developmental support service by giving enterprise

promotion and technology up gradation.

 SBM has simplified common loan application form for SME‟s.

 Constant monitoring with respect to the performance of SME‟s

 Efficient and qualified person are appointed so as to perform the job as well as
being customer friendly

CANARA BANK

History of Canara Bank:

Founder- Sri. Ammembal Subba Rao Pai

"A good bank is not only the financial heart of the community, but also one with an
obligation of helping in every possible manner to improve the economic conditions of
the common people" - A. Subba Rao Pai.

Founded as 'Canara Bank Hindu Permanent Fund' in 1906, by Late Sri. Ammembal
Subba Rao Pai, a philanthropist, this small seed blossomed into a limited company as
'Canara Bank Ltd.' in 1910 and became Canara Bank in 1969 after nationalization.

238
Founding Principles:

1. To remove Superstition and ignorance.

2. To spread education among all to sub-serve the first principle.
3. To inculcate the habit of thrift and savings.
4. To transform the financial institution not only as the financial heart of the
community but the social heart as well.
5. To assist the needy.
6. To work with sense of service and dedication.
7. To develop a concern for fellow human being and sensitivity to the surroundings
with a view to make changes/remove hardships and sufferings.

These sound founding principles, enlightened leadership, unique work culture

and remarkable adaptability to changing banking environment have enabled Canara
Bank to be a frontline banking institution of global standards.

Table 6.4: Milestone of Canara Bank

Year
1st July Canara Hindu Permanent Fund Ltd. formally registered with a capital of
1906 2000 shares of Rs.50/- each, with 4 employees.

1910 Canara Hindu Permanent Fund renamed as Canara Bank Limited

1969 14 major banks in the country, including Canara Bank, nationalized on

July 19
1976 1000th branch inaugurated

1983 Overseas branch at London inaugurated Cancard (the Bank‟s credit card)
launched

1984 Merger with the Lakshmi Commercial Bank Limited

1985 Commissioning of Indo Hong Kong International Finance Limited

1987 Can bank Mutual Fund &Can fin Homes launched

239
1989 Can bank Venture Capital Fund started

1989-90 Can bank Factors Limited, the factoring subsidiary launched

1992-93 Became the first Bank to articulate and adopt the directive principles of
“Good Banking”.
1995-96 Became the first Bank to be conferred with ISO 9002 certification for one
of its branches in Bangalore
2001-02 Opened a 'Mahila Banking Branch', first of its kind at Bangalore, for
catering exclusively to the financial requirements of women clientele.
2002-03 Maiden IPO of the Bank

2003-04 Launched Internet & Mobile Banking Services

2004-05 100% Branch computerization

2005-06 Entered 100th Year in Banking Service, Launched Core Banking Solution
in select branches. Number One Position in Aggregate Business among
Nationalized Banks
2006-07 Retained Number One Position in Aggregate Business among Nationalized
Banks.
Signed MoUs for Commissioning Two JVs in Insurance and Asset
Management with international majors viz., HSBC
(Asia Pacific) Holding and Robeco Groep N.V respectively
2007-08 Launching of New Brand Identity
Incorporation of Insurance and Asset Management JVs
Launching of 'Online Trading' portal
Launching of a „Call Centre‟
Switchover to Basel II New Capital Adequacy Framework
2008-09 The Bank crossed the coveted Rs. 3 lakhs crore in aggregate business
The Bank‟s 3rd foreign branch at Shanghai commissioned

2009-10 The Bank‟s aggregate business crossed Rs.4 lakhs crore mark.
Net profit of the Bank crossed Rs.3000 crore.
The Bank‟s branch network crossed the 3000 mark.

Source: Website of Canara Bank, June 2010

240
As at June 2010, the total business of the Bank stood at Rs.4, 12,649 crore.

PROFILE OF CANARA BANK:

Canara Bank was founded by Shri. Ammembal Subba Rao Pai, a great
visionary and philanthropist, in July 1906, at Mangalore, then a small port in Karnataka.
The Bank has gone through the various phases of its growth trajectory over hundred
years of its existence. Growth of Canara Bank was phenomenal, especially after
nationalization in the year 1969, attaining the status of a national level player in terms
of geographical reach and clientele segments. Eighties was characterized by business
diversification for the Bank. In June 2006, the Bank completed a century of operation in
the Indian banking industry. The eventful journey of the Bank has been characterized
by several memorable milestones. Today, Canara Bank occupies a premier position in
the community of Indian banks. With an unbroken record of profits since its inception,
Canara Bank has several firsts to its credit. These include:

Launching of Inter-City ATM Network

Obtaining ISO Certification for a Branch

Articulation of „Good Banking‟ – Bank‟s Citizen Charter

Commissioning of Exclusive Mahila Banking Branch

Launching of Exclusive Subsidiary for IT Consultancy

Issuing credit card for farmers

Providing Agricultural Consultancy Services

Over the years, the Bank has been scaling up its market position to emerge as
a major 'Financial Conglomerate' with as many as nine subsidiaries/sponsored
institutions/joint ventures in India and abroad. As at June 2010, the Bank has further
expanded its domestic presence, with 3057 branches spread across all geographical
segments. Keeping customer convenience at the forefront, the Bank provides a wide
array of alternative delivery channels that include over 2000 ATMs- one of the highest
among nationalized banks- covering 732 centres, 2681 branches providing Internet and

241
Mobile Banking (IMB) services and 2091 branches offering 'Anywhere Banking'
services. Under advanced payment and settlement system, all branches of the Bank
have been enabled to offer Real Time Gross Settlement (RTGS) and National
Electronic Funds Transfer (NEFT) facilities.
Not just in commercial banking, the Bank has also carved a distinctive mark,
in various corporate social responsibilities, namely, serving national priorities,
promoting rural development, enhancing rural self-employment through several training
institutes and spearheading financial inclusion objective. Promoting an inclusive growth
strategy, which has been formed as the basic plank of national policy agenda today, is
in fact deeply rooted in the Bank's founding principles. "A good bank is not only the
financial heart of the community, but also one with an obligation of helping in
every possible manner to improve the economic conditions of the common people".
These insightful words of our founder continue to resonate even today in serving the
society with a purpose.

The growth story of Canara Bank in its first century was due, among others, to
the continued patronage of its valued customers, stakeholders, committed staff and
uncanny leadership ability demonstrated by its leaders at the helm of affairs. We
strongly believe that the next century is going to be equally rewarding and eventful not
only in service of the nation but also in helping the Bank emerge as a “Global Bank
with Best Practices". This justifiable belief is founded on strong fundamentals,
customer centricity, enlightened leadership and a family like work culture.

Vision

To emerge as a „Best Practices Bank‟ by pursuing global benchmarks in

profitability, operational efficiency, asset quality, risk management and expanding
the global reach.

Mission

To provide quality banking services with enhanced customer orientation, higher

value creation for stakeholders and to continue as a responsive corporate social citizen
by effectively blending commercial pursuits with social banking.

242
Table 6.5-Showing list of Board of Directors

Sl. Directors Photo

No.

1 Mr S Raman Chairman & Managing

Director
Canara Bank
Head Office
112, J C Road
BANGALORE - 560 002

2 Mr Jagdish Pai K L Executive Director

Canara Bank
Head Office
112, J C Road
BANGALORE - 560 002

3 Smt. ARCHANA S. BHARGAVA Executive Director

Canara Bank
Head Office
112, J.C. Road
BANGALORE -560002

4 Dr. THOMAS MATHEW Director representing

Government of India
Joint Secretary (CM)
Ministry of Finance
Government of India
Dept. of Economic Affairs
North Block
NEW DELHI - 110 001

243
5 Shri G Padmanabhan
Director representing
Chief General Manager Reserve
D/o Payment & Settlement Systems
Bank of India
Central Office; Central Office Building,
14 th floor, Shahid Bhagat Singh Road,
MUMBAI – 400001

6 Shri. DEVENDER DASS RUSTAGI

Workmen Employee
General Secretary, Director
Canara Bank Employees' Union
Canara Bank Circle Office,
Nehru Place,
NEW DELHI

7 Shri. G.V. MANIMARAN Officer Employee

Director
Manager
Canara Bank
IIT Branch
Chennai - 600 036

8 Shri. S. Shabbeer Pasha Part-time Non-Official

Director
No.96/8, Al-Ameen Apartments
First Cross, South End Road
BANGALORE - 560 004

9 Shri. Pankaj Gopalji Thacker Part-time Non-Official

Director
S.A.X. - 135
ADIPUR
Kutch
Gujarat

Source: Lead Bank: Bangalore Urban District; District Credit Plan 2011-12

244
SME Policy of the bank

 Medium Enterprises defined for the first time

 Relaxations in take over norms, graded rate of interest applicable to SEs

(Earstwhile SSI) sector extended to Medium Enterprises also.

 Time Norms for disposal of Loan applications stipulated

 Service Enterprises other than Retail Traders included under SME sector.

 The following sectors are identified as thrust areas under SME sector

i. Textiles/Garments/Hosiery

ii. Bio-Technology/Drugs and Pharmaceuticals

iii. General Engineering

iv. Electrical & Electronic components

v. Auto Components / Ancillaries

vi. Sports goods

vii. Leather

viii. Handicrafts

ix. Gems & Jewellery

x. Information Technology & Enabled Services (ITES)

Targets for lending to SMEs

Lending to SEs falls under Priority Sector and lending to Medium Enterprises
(Industries) fall under Non-Priority sector. RBI has advised to double the credit flow to
SME sector by the year 2009-10, i.e., in 5 years. Accordingly, targets are being set by
the Bank. Within the SE sector, following sub sector targets are stipulated by RBI.

a. Advances to Small Enterprises will be reckoned in computing performance

under the overall priority sector target of 40% of Adjusted Net Bank Credit
(ANBC) or credit equivalent amount of Off-Balance, whichever is higher.

245
 b. 40% of total advances to small enterprises sector should go to micro
(manufacturing) enterprises having investment in plant and machinery upto Rs.5
lakhs and micro (Service) enterprise having investment in equipment upto Rs.2
lakhs.

c. 20% of total advances to small enterprises sector should go to micro

(manufacturing) enterprises having investment in plant and machinery above
Rs.5 lakhs and up to Rs.25 lakhs, and micro (Service) enterprise having
investment in equipment upto Rs.2 lakhs and up to Rs.10 lakhs.

Bank‟s SME policy is formulated so as to:

a. Achieve the growth rate under SME sector as stipulated by GOI / RBI.

b. Achieve commensurate growth in SE sector.

Lending to Small & Medium Enterprises (SME) Clusters – Recommendation of

Dr. A S Ganguly Committee

Essentially a cluster can be defined as a sectoral and geographical concentration

of enterprise, in particular SMEs, having common strengths/constraints and potential
for growth linked with commonalities. These clusters can give rise to:

External economies (Ex. Specialized suppliers of raw materials, components

and machinery, sector skills etc )

Favour the emergence the specialized technical administrative and financial

services.

Create a conducive ground for the development of inter-firm cooperation and

specialization as well as of cooperation among public and private local
institutions to promote local production, innovation and collective learning.

Reduction in transaction costs, mitigation of risk, improvement in quality of

products and development of infrastructure.

a. As per the recommendation of the Working Group consisted by RBI under the
Chairmanship of Dr. A S Ganguly, a full-service approach to cater to the diverse

246
 needs of SME sector need to be achieved by extending banking services to
recognized SME clusters by adopting a 4-C approach namely –

Customer Focus, Cost Control, Cross Sell and Contain Risk.

A cluster based approach to lending is more beneficial:

i. In dealing with well defined and recognized groups.

ii. Availability of appropriate information for risk assessment.

iii. Monitoring by the lending institutions.

b. In tune with the recommendations of the working group as above, guidelines

from RBI and SME policy of the Bank branches/ offices are advised to have a
Cluster Based Approach for promoting SME sector.

c. Plan of Action has been provided to Branches, Regional Offices and Circle
Offices to increase flow of credit towards SME clusters.

SME Debt Restructuring

At times SEs (Erstwhile SSIs) / ME units get into financial problems, due to certain
internal & external reasons. Timely institutional support through restructuring and
rehabilitation in genuine cases is required for revival of these units. This is essential to
protect the money lent by banks / FIs and to ensure productive use of assets.

A policy for Debt Restructuring of units in SME sector is introduced in the Bank.

Following are the salient features of the policy:

 Corporate SMEs whose borrowing are classified under Standard, Sub Standard
& Doubtful Assets and who are solely banking with us, irrespective of the level
of dues to the Bank are eligible.

 Non Corporate SMEs whose borrowings are classified under Standard, Sub
Standard & Doubtful Assets irrespective of the level of dues to the Bank (sole
banking or multiple banking / consortium arrangement) are eligible.

247
  Corporate SMEs whose borrowing are classified under Standard, Sub Standard
& Doubtful Assets, which have funded and non funded outstanding upto Rs.10
crores under multiple/ consortium banking arrangement are eligible.

 Loss assets & accounts involving wilful default, fraud and malfeasance are not
eligible.

 The Restructuring Package shall be worked out & implemented within a period
of 60fays from the date of receipt of the request.

 The secured creditors (Banks / FIs) have to enter into Inter Creditors Agreement
(ICA).

 The secured creditors (Banks / FIs) and the concerned unit have to enter into
Debtor-Creditor Agreement (DCA).

 Working of the scheme:

a. Proposals upto Rs.25lakhs - To be submitted to concerned

RO/SIR Section, CO.

b. Proposals of Rs.25lakhs and above - To be submitted to SIR Section of

the Concerned circle.

 Empowered Committee for SME Debt Restructuring is to be constituted at

Circle.

 Package is for restructuring of the existing dues as well as for extending need
based additional finance.

Branches and Offices Abroad

Canara Bank established its International Division in 1976, to supervise the

functioning of its various foreign departments, to give required thrust to foreign
exchange business, particularly exports and to meet the requirements of NRIs.
Though small in size, the Bank's presence abroad has brought in considerable
foreign business, particularly NRI deposits.

248
Canara Bank has also introduced new money transfer facilities known as

Western Union Money Transfer Facility

Electronic Fund Transfer Facility

SCHEMES / LOAN PRODUCTS TO MICRO, SMALL & MEDIUM

ENTERPRISES

Govt. of India Schemes

Prime Minister's Employment Generation Programme (PMEGP)

Scheme for Rejuvenation, Modernization & Technology Up gradation of the

Coir Industry (REMOT)

Schemes for Capital Investment

Term loan for acquisition of fixed assets

Standby term loan scheme for Apparel Exporters

Loan scheme for reimbursement of investment made in fixed assets by SMEs

Soft loan scheme for Solar Water Heaters

Scheme for Energy Savings for SMEs

Technology Up gradation Fund scheme (TUFS) for textile & jute industries in
SME sector

Credit linked capital subsidy scheme (CLCSS)

Loan scheme for acquisition of ISO 9000 series certification

Co-financing arrangement with Small Industries Development Bank of India

(SIDBI) for projects under Small Enterprises (SE), Service Sector and related
infrastructure projects

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 Loans under Interest Subsidy Eligibility Certificate (ISEC) Scheme of Khadi &
Village Industries Commission (KVIC) to eligible institutions

Schemes for Working Capital

Simplified Open Cash Credit (SOCC)

Open Cash Credit (OCC)

Micro financing joint liability groups (Handloom weaver & Agarbathi

manufacturer groups)

Laghu Udhyami Credit Card (LUCC)

Bill of Exchange discounting facility to Small Entrepreneurs at concessional rate

of interest (BE-SE)

Schemes for Composite requirements

Composite loan scheme (CLS)

Artisan Credit Card (ACC)

Doctor‟s Choice

Others

Export Finance schemes

Foreign currency loan for residents (FCLR)

Non fund based limits

Rehabilitation/Nursing of Sick Small Enterprises (Manufacturing) units

Debt Restructuring Mechanism for Small & Medium Enterprises

(Manufacturing) units

Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGMSE)

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 Rating of SMEs by External Agencies

A Special Package to provide relief to Micro, Small and Medium Enterprises

(MSME) sector is launched:

a. Need based Adhoc Working Capital Demand Loan (Adhoc WCDL) upto 20%
of the existing fund based limits in respect of Micro, Small & Medium
Enterprises having overall fund based credit facility upto Rs.10 crores.
b. Increased working capital limits, for elongated operating cycle.
c. Relaxations in cash margin on LCs and guarantees.
d. Extension in moratorium period in respect of Term Loans wherever project
implementation has been delayed for reasons beyond the control of the
borrower.
e. Term loan for gensets.
f. SME Debt Restructuring and second restructuring.
g. MSME Care Centres for counselling and resolving grievances.
MSME Development Institute, Bangalore

The small scale industries covering a wide spectrum of small, tiny and cottage
sector occupies an important position in the planned development of Indian economy
and plays a vital role in the overall economic and industrial development of the country.
The small-scale sector has distinct advantage of low investment and high potential for
employment generation in rural and semi-urban areas.
MSME-Development Institute, Bangalore is a field office under SIDO-Small
Industries Development Organization, the Ministry of Micro, Small & Medium
Enterprises, Govt. of India. SIDO is an apex body and a nodal agency for formulating,
coordinating and monitoring the policies and development of small-scale industries in
the country. The Additional Secretary and Development Commissioner (Micro, Small
& Medium Enterprises), Ministry of Micro, Small & Medium Enterprises,
heads the Small Industries Development Organization (SIDO), which is an apex body
for formulating policies for the development of small scale industries in India.
SIDO plays a very fundamental role for strengthening the sector and furthering the
national objectives. SIDO is an Apex/Nodal department and provides the link between
Ministry/Department and field Organizations. It functions as an Agent of Change for
small scale industries through policy initiatives, providing technology Centre training

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and facilities, schemes and incentives, information, techno and commercial and
managerial consultancy services. A vast network of the field organizations and MSME
Development Institutes across the country operates according to the aims, objectives
and guidelines laid down by SIDO.

The data collected through interview schedule about the operational activities of the
bank by which they provide financial assistance to MSMEs under various schemes are:

The schemes offered by bank under following heads:

Table 6.6: The schemes offered by the bank

MSME-Manufacturing and Services MSME-Manufacturing and Services

For Capital Investment For Working Capital Investment
(Fixed Assets)
Term loan for acquisition of fixed assets Simplified Open Cash Credit (SOCC)
Standby credit for capital expenditure Open Cash Credit (OCC)
Standby term loan scheme for Apparel Micro-financing joint liability groups
Exporters (Handloom Weaver & Agarbathi
Manufacturer Groups)
Loan scheme for reimbursement of Laghu Udyami Credit Card (LUCC)
investment made in fixed assets
Soft loan scheme for Solar Water Heaters Bill of Exchange discounting facility to
Small Entrepreneurs at concessional rate
of interest (BE-SE)
Scheme for Energy Savings equipment -
Co-financing arrangement with Small -
Industries Development Bank of India
(SIDBI) for projects under Small
Enterprises (SE), Service Sector and
related infrastructure projects
Loan scheme for acquisition of ISO 9000 -
series certification
Source: Annual Reports of Canara Bank, March 2010

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CO-ORDINATION OF ACTIVITIES AND LINKAGES:

The activities and functions to which Canara bank is linked on the basis of sector wise
as Micro, Small and Medium, considering whether it is manufacturing or service unit.

Table 6.7: Activities & Functions linked to Manufacturing or Service

Sl. No Activities & Functions To

Manufacturing or Service

1. Raw Materials

2. Direct Financial Assistance

Source: Annual Reports of Canara Bank, March 2010

Canara Bank co-ordinates with MSMEs by providing assistance through linkage to raw
materials, direct financing, with less co-ordination to activities like man power,
technical knowhow, marketing etc.

 REQUIREMENTS by MSMEs:

The requirements to be satisfied by MSMEs for getting assistance from Canara

Bank

 Assets created out of Bank loan.

 Charge on the machinery/equipment & other fixed assets directly
associated with the activity of the enterprise.
 NO collateral security/third party guarantee for loans:
i. Up to Rs.10 lakhs to Micro & Small Enterprises
ii. Upto Rs.25 lakhs in respect of MSMEs whose
track record and financial position are good as per
Bank records

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 iii. Upto Rs.100 lacs (aggregate) in respect of Micro
and Small Enterprises whose borrowable accounts
are covered under Credit Guarantee fund for
Micro & Small Enterprises (CGMSE).
[Note: Presently CGMSE cover is not available to
credit facilities extended to retail traders,
educational institutions, training institutes,
training cum incubator centres and to Medium
Enterprises].
 Collateral security/third party guarantee for loans beyond the above
limits is insisted on merits of each case, as determined by Bank, subject
to RBI/GOI guidelines.

 CANARA BANK ASSISTANCE TO MSMEs:

The Canara bank provides assistance to MSMEs with various schemes. The
following are the details of amount pertaining to MSMEs.

Table 6.8: Amount showing Assistance provided to MSMEs

Year Outstanding Amount of MSMEs(in crores)

2005-06 1208

2006-07 1532

2007-08 2015

2008-09 2170

2009-10 2856

Source: Annual Reports of Canara Bank, March 2010

The above table shows the amount including the loans sanctioned and repayments of
MSMEs with Canara Bank for the period 2005-2010

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 GRAPH 6.16: Amount showing Assistance provided to MSMEs

The above graph is showing an upward trend for the period 2005-06 to 2009-10. This
upward trend indicates the increase in the number of MSMEs.

 VOLUME OF MSMEs FOR EXPANSION:

TABLE-6.9-The number of MSMEs covered for expansion under the bank.

Year No. of MSME Investment in Rs. Employment

units (Lakhs)

2005-06 334,456 726,616 1,887,111

2006-07 347,036 782,160 1,944,628

2007-08 362,020 894,816 2,068,027

2008-09 377,725 996,4341 2,173,061

2009-10 394,920 119,249.5 2,284,225

Source: Annual Reports of Canara Bank, March 2010

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The table shows the number of MSMEs covered under expansion for the period 2005-
2010.

Graph-6.17-Showing the number of MSMEs covered for expansion under the

bank.

The above graph indicates the employment rate as increased from the period 2005-06 to
2009-10. The investment has declined gradually in the period 2009-10. With an
increase in the number of MSMEs, the employment rate as also increased but decline in
the investment

 TECHNOLOGY UPGRADATION:

The loans sanctioned by providing Technology Upgradation to MSMEs and the

selection criteria are with respect to;

i. Sole Proprietorship

ii. Partnership

iii. Co-operative Societies

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 iv. Private or Public Limited companies in SSI sector

v. Existing units registered with the State Directorate of Industries

The schemes available under Technology Up gradation are;

 Technology Up gradation Fund scheme (TUFS) for textile & jute industries

 Credit Linked Capital Subsidy Scheme (CLCSS) for Technology Up gradation

in Specified Industries under SSI

 Margin Money Subsidy @ 20% under Technology Up gradation Fund Scheme

(MMS @ 20% - TUFS) for power looms in SSI sector

 DIVERSIFICATION SCHEME:

Canara Bank provides assistance to MSMEs under diversification scheme Term

Loans by providing;

 Vehicles

 Road contract transport

The scheme under diversification for assistance to MSMEs is Term Loan.

The term loan is granted for industrial and non- industrial purposes.

It is a single transaction loan repayable in instalments along with interest.

It is repayable in not less than 36 months.

It is provided for specific purpose / project.

It is normally extended for acquisition of land, building, machinery and

purchase of vehicles etc.

 SELF-EMPLOYMENT / PROFESSIONALS:

Canara Bank extends its financial support to qualified professionals for self-
employment by providing;

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  Machinery

 Capital

The purpose assists the term loan requirements of qualified Medical Practitioners. The
loan can be availed for the following:

Purchase of equipment

Setting up of clinic, X-Ray lab, Nursing Home etc.

Expansion / renovation / modernization of existing premises.

Purchase of vehicles, ambulance, computers and other essential equipments.

Meet working capital needs.

The quantum of loan is Rs.10 lakhs

 DIRECT FACTORING SERVICES

The Canara Bank also provides direct factoring services to MSMEs. The
services rendered are through the means of their subsidiaries. They are:

Can bank Financial Services Ltd.

Can bank Venture Capital Fund Ltd.

Can bank Factors Ltd.

Canara Bank Securities Ltd. (formerly GILT Securities Trading Corp.

Ltd).

The purpose by Canara bank is to discount / negotiate bills of exchange (pre accepted
bills or bills drawn under LCs) drawn on reputed joint stock companies / public sector
undertakings representing genuine trade transactions. The eligibility for bills
discounting as follows:

 Drawer of the bill should be a SEs (Earstwhile SSI) unit.

 Borrowable accounts of the unit are classified under Standard Assets.

 Drawee of the bill should be a reputed joint stock company / public sector
undertaking.

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 New SE units coming into our fold (takeover accounts) are also eligible subject
to satisfying the takeover norms.

 VENTURE CAPITAL SUPPORT:

The assistance to venture capital is being provided by the bank only when it is
needed by any MSMEs or new entrepreneurs.

The schemes provided by the bank are as follows:

Mahila Udyami Nidhi (MUN) Scheme – Soft loan assistance

Simplified Open Cash Credit (SOCC)
Laghu Udyami Credit Card (LUCC)
Open Cash Credit (OCC)
Prime Minister's Employment Guarantee Programme (PMEGP)

 ACQUISITION OF CREDIT RATING CERTIFICATION:

The acquisition of 9000 Series Certification for MSMEs is assisted by the bank.

Release of cash award to recipients under SME sector. The purpose of

certification is to encourage the SMEs to go for ISO Certification. The
eligibility for SMEs is that SMEs which are financed by the bank. The SME
unit who acquire ISO Series Certification and apply to bank for release of
cash award within 6 months of receipt of Certificate. The cash award of
Rs.25, 000/- to 200 units in a calendar year on first come first served basis.
Loan scheme for acquisition facility is for acquiring testing / calibrating
equipment and to meet the expenditure on account of consultancy,
documentation, audit, certification fee etc. The eligibility is for existing SEs
(Earstwhile SSI) clients having dealings with bank for at least 2 years. They
should be profit making units and during the preceding 2 years units should
not have defaulted to bank or FIs in payment of dues

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  LEASING FACILITY:

Canara Bank arranges Leasing for MSMEs through the subsidiaries of the bank.
The Subsidiaries are -

i. Can bank Financial Services Ltd.

ii. Can bank Venture Capital Fund Ltd.

iii. Can bank Factors Ltd.

The leasing facility is being arranged by the bank only with respect to the included
sector basis, and the assistance is provided only on priority.
 INFRASTRUCTURE FACILITIES:

Canara bank provides infrastructure facilities on special basis under the MSME
section on priority.

The infrastructure facilities are also co-financed with Small Industries

Development Bank of India (SIDBI) for projects under SEs manufacturing,
service sector and related infrastructure projects.

The purpose is to provide finance to projects with the eligibility;

Preference will be given to new units promoted by well experienced

entrepreneurs with satisfactory track record and with emphasis on export
oriented units.

Existing units whose borrowings are classified as standard assets and going
in for modernization, technology up gradation, diversification, expansion
etc. The quantum of loan is minimum Rs.50 lakhs.

 HIRE PURCHASE FACILITY:

Canara Bank provides Hire Purchase facility to the MSMEs. The HP facility is
being provided with respect to following subsidiaries:

 Canara Bank Computer Services

 Can bank Factors Ltd.

 Canara Bank Securities Ltd

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  Can bank Financial Services Ltd.

The Hire Purchase facilities and services provided by the bank are maintained under the
separate wing by the bank as mentioned above.

 MARKET DEVELOPMENT PROJECT:

Canara bank provides the market development through SME marketing team
which assists as follows:

 Undertake the market research of existing products of competitors.

 Participating in seminars, workshops, industry dialogues, so as to bring
in knowledge of best practices
 Facilitates relationship building between you and the Bank for
addressing your financial requirements
 Helps in choosing the right product to match your credit needs
 Facilitates the documentation procedures
 Assists in your project appraisal.
 Develop marketing strategies for various new products being developed
by the group and also for existing products.
 Gets your enterprise rated by reputed external rating agency
 Helps you in adding value to your supply chain management.

 PUBLICATIONS:

The publications or the printed format for the assistance rendered to MSMEs by
Canara bank is through Brochures which contain the schemes available for the
SMEs services.

FINDINGS

 As per the MSMED Act 2006, the SSI concept has been changed to MSME.
 The bank provides loan on sector wise, i.e. Manufacturing and Service industry.
 The interest rate charged for the sanctioning of loans as per the terms prescribed
by the RBI or Government of India.
 The loan sanction for MSMEs differs from sector wise schemes available.

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 The bank provides loan to women entrepreneurs in Micro and Small
Entrepreneurs.
 The bank provides loans for rural employment generation(Margin Money
Scheme of Khadi and Village Industries)-
 The bank provides Debit Card facility to MSME Entrepreneurs.
 The number of increase in MSMEs units for the period from 2005-06 to 2009-
10 shows the constant growth in the assistance provided by the bank to the
entrepreneur.

Hypothesis 3: The directives recommended in the expert committees are

implemented by institution for providing better finance assistance to SSI.

The sample financial institutions which were considered for the research have given
their feedback as to that all of them are implementing the various directives
recommended by the committee from time to time. Therefore, the Null hypothesis is
accepted.

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