GP - Small Scale Industries

BANK FINANCING FOR THE SSI SECTOR SMALL SCALE INDUSTRY
DEFINITION OF THE SME SECTOR Though the definitions are not part of the terms of reference for the Working Group, a clearer definition of the SME sector vis--vis conventional SSI and Tiny sectors was felt necessary. (a) At present small scale industry is defined as one having original investment in plant and machinery not exceeding Rs.1 crore. While recognizing need of larger investment in some of the more important segments of SSI, the Government of India has enhanced this to Rs.5 crore in respect of certain specified industries. A process of graduation of several SSIs into medium enterprises, having larger investment is a natural progression of successful units. Therefore, it was agreed that a separate category of medium enterprises (ME) needs to be recognized. While ME may not qualify for priority sector lending, it must be seen as contiguous with SSI. (b) The SME definition, adopted by other countries is generally based on number of employees, capital investment or turnover. The existing definition of SSI adopted in India, based on investment in plant and machinery, excludes the rapidly growing service sector. The past decade has witnessed the services sector contributing almost half of the GDP. The Working Group strongly recommends the adoption of turn over as a measure for defining the SME sector. Based on turn over, Tiny, Small and Medium enterprises may be redefined as under: Tiny :Turn over up to the financial limit of Rs.2 Crore, Small: Turn over up to the financial limit of above Rs 2 Crore and Up to Rs.10 Crores,
BANK FINANCING FOR THE SSI SECTOR

Medium: Turn over above the financial limit Rs.10 Crores and up to Rs. 50 Crores.
SSI SECTOR IN INDIA A BRIEF
The SSI sector has been contributing immensely to the Indian economy, in terms of employment, production and exports. Figures available show that in the year 2001-02 the SSI sector registered a higher growth rate than the growth in overall industrial production. While the SSI sector registered a growth of 8.03%, industrial production went up by 2.7%.
The SSI sector in India with an estimated 3.6 million units produces over 8000 items and provides employment to about 20 million individuals. What further highlights the importance of this sector is its share of 39% in industrial value added and 34% in Indias total exports.
SSIs IN INDIA
Source: Ministry of Small Scale Industries, Government of India. An analysis of time series data shows that from 1980 to 1997 an additional 80 lakh jobs were created in the SSI sector. This figure is way ahead of the 54 lakh new jobs created in the Organized Sector during the same time period. With an annual average increase in employment of 5.1% during the period 1980 to 1997, this sector has been the mainstay of employment generation and livelihood for many in our country. The SSI sector has tremendous potential for generating

sustainable employment at comparatively low costs and this potential must be exploited if the economy has to maintain a sustained growth in employment.
SME in India
Total Units Employment Share in Industrial Value Added Share in Total Exports DIRECT OVERALL Total Number of Items Produced Number of Reserved Items 34% 45% Over 8000 675 3.57 Million 19.96 Million 39%
Dr. S.P. Gupta Study
Group on Development of Small Enterprises
acknowledged the critical role played by small enterprises in industrialization of rural and backward areas, reduction of regional imbalance and in ensuring a more equitable distribution of national income and wealth. The Interim Report of the Study Group, while recognizing the importance of the small-scale sector in the Indian economy, stressed on the problems plaguing the sector and made recommendations to overcome these problems relating to inadequate credit flow from banks and FIs, inadequate infrastructure facilities, low quality standard of products, use of obsolete technology, plant, machinery and equipment and inefficient management techniques. The Government of India has been helping the sector through supportive policy measures, with focus on improving the credit flow to the sector. The policy 3

support provided so far has acted as a catalyst in promoting this sector. However, opening up of the economy has thrown up new challenges to the sector. As units in this sector prepare themselves to withstand the pressures of global competition, their credit needs have increased manifold. A disturbing trend seen over the last few years is the fall in the share of the SSI sector in the net bank credit outstanding. While in March 2000 the share of the SSI sector in the net bank credit outstanding was 14.2%, the figure had come down to 11.1% by March 2003. A look at the figures for priority sector lending also show that there has been a decline in the credit extended to this sector over time. Figures for March 2000 show that lending to the SSI sector accounted for 36.12% of the total priority sector lending. This figure has since then declined continuously from 32.45% in March 2001 to 29.1% in March 2002 and further to 26.1% in March 2003- a trend that does not augur well for the SSI units. The government and the RBI have taken cognizance of the problems, which the SSI units face on the bank financing front. With the view to adequately pass on the benefits of the declining interest rate regime to the SSI sector, the Finance Minister in his budget speech for the year 2003-04 had made an appeal to banks for adopting an interest rate band of 2 percent above and below their prime lending rate for secured advances to the SSI sector. With regard to improving the flow of credit to the SSI sector, a working group was constituted by the RBI under the chairmanship of Director, Central Board of the RBI in February 2004. The groups terms of reference include assessing the progress made in implementation of Kapur Committee and Gupta Committee recommendations and also suggesting ways to improve credit flow to the SSI sector. In the Interim Budget for the year 2004-05, the Finance Minister announced that the public sector banks would increase the credit limit of their Laghu Udyami Credit Cards, for borrowers who have a satisfactory track record, from Rs. 2 lakh to Rs.10 lakh. The modified scheme is expected to be operational from March 1, 2004.

In the past also several initiatives have been taken for addressing the problems of the SSI sector. A brief of the committees constituted, their recommendations and subsequent follow up action is given below.
Nayak Committee (1991-92) Nayak Committee was set up by RBI in December 1991 to look into the aspects of adequacy of the credit that was being advanced to the SSI sector and also the time involved in processing loan applications. Nayak Committee found that the SSI sector was receiving advances only to the extent of 8.1% of their annual output, which was way below the normative requirement of 20%. On the basis of the recommendations of the Nayak Committee RBI advised banks to grant working capital to the extent of 20% of the projected annual turnover. RBI also issued a number of circulars advising banks to process loan applications without delay and also set up specialized bank branches to provide SSI loans in areas where there is a high concentration of SSI units. Seven Point Action Plan (1995-96) The Nayak Committee recommendations were incorporated in the Seven Point Action Plan that was announced by the Finance Minister in the Budget speech of 1995-1996 to enhance the flow of credit to the SSI sector. The recommendations incorporated included the following: 1. Setting up of specialized SSI bank branches 2. Adequate powers to be delegated to the branch and regional levels

3. Banks to conduct sample surveys of their performing SSI accounts to find out whether they were getting adequate credit. 4. Steps to be taken for sanctioning of composite loans, covering both term loans and working capital, to SSI entrepreneurs as far as possible. 5. Sensitization of bank managers towards the working of the SSI sector. 6. Simplification of procedural formalities by banks for SSI entrepreneurs. 7. Regular meetings to be held by the banks at both zonal and regional levels with the SSI entrepreneurs. Kapur Committee (1997-98) The RBI appointed a one-man committee under the chairmanship of Shri. S.L.Kapur to study the working of the credit delivery system to the SSI sector and suggest measures for improving the delivery system and also simplifying the procedural formalities for credit to the SSI sector. The Committee submitted its report to RBI on 30th June 1998 containing 126 recommendations. The major recommendations were as follows:
1. Special treatment to smaller among small industries. 2. Enhancement in the limits of Composite Loan from Rs.2 lakhs to Rs. 5 lakhs 3. Simplification of procedural formalities. 4. Raising the exemption limit for collateral security from Rs. 25,000 to Rs. 5 lakhs. 5. Enhancement of SIDBIs role and status to match with that of NABARD. 6. Opening of more specialized SSI bank branches. 7. Allowing access to low cost funds to SIDBI for refinancing SSI loans. 8. Setting up of Collateral Reserve Fund to provide support to first party guarantees.

9. Introduction of Credit Guarantee Scheme. . Initiatives Steps taken in the Budget of 1999-2000 1. Launch of a new credit insurance scheme. 2. Composite loan scheme limit enhanced to Rs.5 lakhs. 3. For working capital loans, the annual turnover limit was raised from Rs. 4 crores to Rs. 5 crores
SP Gupta Study Group Interim report, July 2000 The SP Gupta Study Group on development of Small enterprises submitted its interim report in July 2000. Some of the suggestions relating to fiscal and financial measures were as follows 1. Setting up of targets for tiny and SSI units for credit from banks and FIs under priority sector lending. 2. Need for reduction of cost of credit for SSI sector. 3. Setting up of more specialized bank branches for SSI sector. 4. Standardization of procedure and simplification of norms by banks. 5. More effective monitoring of credit flow to SSI sector by the Monitoring Committee of Reserve Bank of India. 6. To make available credit to SSI sector at a reasonable cost, viz, PLR plus three per cent. 7. Raising the limit of composite loans from Rs.10 lakh to Rs.25 lakh to encourage tiny units to get term loan and working capital from same bank/FI. 8. Not to cover all future fixed assets of assisted units for securing its advances.

9. Measures for time-bound disposal of loan applications and easy documentation. Comprehensive policy package - August 2000 Based on the recommendations made by the Nayak Committee, the Kapur Committee and Dr. S.P. Gupta Study Group a comprehensive policy package was announced in August 2000. It included the following:
1. Launch of Credit Guarantee Scheme to cover loans up to Rs. 25 lakhs. 2. Launch of Credit Linked Capital Subsidy Scheme to provide subsidy against loans taken for technological upgradation. 3. Further enhancement of ceiling of composite loan limit to Rs.25 lakhs. 4. Enhancement of project cost limit under National Equity Fund to Rs.50 lakhs.
Steps taken over-time by the RBI for improving the flow of credit to the SSI Sector The RBI from time to time has resorted to moral suasion to improve credit delivery from the banks to the small-scale sector. Some of the steps taken by the RBI in this regard include
1.
In order to ensure that credit is available to all segments of SSI sector, RBI has issued instructions that out of the funds normally available to SSI sector, 40% be given to units with investment in plant and machinery up to Rs.5 lakhs, 20% for units with investment between Rs.5 lakhs to Rs.25 lakhs and remaining 40% for other units.

2. Public sector banks have been advised to operationalise more specialised SSI branches at centres where there is a potential for financing many SSI borrowers. As on March 2002, 391 specialised SSI branches are working in the country. 3. Extension of 'Single Window Scheme' to all districts to meet the financial requirements (both term loan & working capital) of SSIs. 4. With a view to moderating the cost of credit to SSI units, banks have been advised to accord SSI units with a good track record, the benefit of lower spreads over the prime lending. 5. In order to take expeditious decision on credit proposals of SSI units, banks have been advised to delegate enhanced powers to the branch managers of the specialized SSI branches so that most of the credit proposals are decided at the branch level. 6. Laghu Udyami Credit Card (LUCC) Scheme launched by Public Sector Banks for providing simplified & borrower friendly Credit facilities to SSI, tiny enterprises retail traders & artisans. 7. An interest rate band of 2% above & below PLR should be applicable to SSIs. 8. Bank advised to fix self set targets for growth in advances to SSI sector based on previous year's achievements and overall tread in growth of net bank credit. 9. Bank to consider 3 slabs for rate of interest-loans unto Rs.50,000, between Rs.50,000 and Rs.2 lakhs and above Rs.2 lakhs. 10. 11. Composite loan limit to be enhanced to Rs.50 lakhs from Rs.25 lakhs. Limit on collateral free loans to be increased to Rs.25 lakhs in deserving cases.

12. 13. Deposits of foreign banks with SIDBI to earn interest at Bank Rate. Working Group to be set up on flow of credit to SSI sector.
TIME SERIES DATA FOR SSIS IN INDIA
Time Series data for SSIs in India Export (Rs. billion) 3.93 5.41 5.32 7.66 8.45 10.69 12.26 16.43 20.71 20.45 21.64 25.41 27.69 36.43 43.72 54.89 76.25 96.64
Year
No. of units (millions)
Fixed investment (at current prices) (Rs. billion)
Production (at current prices) (Rs. Bn.)
Employment Nos. in million
1973-74 1974-75 1975-76 1976-77 1977-78 1978-79 1979-80 1980-81 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89 1989-90 1990-91 1991-92
0.416 0.498 0.546 0.592 0.67 0. 734 0.805 0.874 0.962 1.059 1.155 1.24 1.353 1.462 1.583 1.712 1.823 1.948 2.082
22.96 26.97 32.04 35.53 39.59 44.31 55.40 58.50 62.80 68.00 73.60 83.80 95.85 108.81 126.10 152.79 N.A. N.A. N.A.
72.0 92.0 110.0 124.0 143.0 157.0 216.35 280.6 326.0 350.0 416.2 505.2 612.28 722.5 873.0 1064.0 1323.2 1553.4 1786.99
3.97 4.04 4.59 4.98 5.40 6.38 6.70 7.10 7.50 7.90 8.42 9.00 9.60 10.14 10.70 11.0 11.96 12.53 12.98
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138.83 177.84 253.07 290.68 364.7 392.48 444.42 489.79 542.00 697.97 712.44 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2.246 2.388 2.571 2.658 2.803 2.944 3.08 3.212 3.312 3.442 3.572 N.A 35.376 40.799 49.620 54.698 60.549 86.106 72.633 79.703 84.329 90.450 2093.0 2416.48 2988.86 3626.56 4118.58 4626.41 5206.5 5728.87 6390.24 6903.16 7420.21 13.406 13.938 14.656 15.261 16.0 16.72 17.158 17.85 18.564 19.223 19.965
Source: Development Commissioner (SSI), Ministry of Small Scale Industries, Government of India
GROWTH OF SSI EXPORTS Cooperative Statement of Export Performance

Year Total exports Exports from SSI sector (Rs. Crores) 1951-52 1961-62 1971-72 1976-77 1981-82 1986-87 1991-92 1992-93 1993-94 1994-95 1995-96 716 660 1608 5142 7809 12567 44040 53688 69547 82674 106353 (Rs. Crores) Negligible Negligible 155 766 2071 3644 13883 17785 25307 29068 36470 11 9.6 14.9 26.5 29.0 31.5 33.1 36.4 35.1 34.2 Percentage share

1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 118817 126286.00 141603.53 159561.00 202509.7 207745.56 252789.97 39249 44442.18 48979.23 54200.47 69796.5 71243.99 86012.52 33.4 35.19 34.59 33.97 34.47 34.29 34.03
Status Classification of SSIs

According to Sample Survey of 1994-95 of registered small scale industries (for the base year 1992-93), the status classification of SSI units is given below. The status has been compared with the findings of Second All India Census (base year 1987-88).
SAMPLE SURVEY 1994-95 1) Locational Status Rural Areas Urban Areas Metropolitan Areas Backward Areas 2) Organisational Status Proprietory Units Partnership Units Limited Companies 3) Distribution By Categories of Industries Small scale Industries Ancillary Industries Small Service Establishments 12 42.20% 48.50% 9.30% 48.30%
SECOND CENSUS 1987-88 42.20% 48.00% 9.90% 62.20%
80.48% 16.84% 2.01% 96.24% 0.52% 3.24%
78.00% 16.03% 3.78% 87.28% 1.57% 11.15%

4) Activity Status Engaged in manufacturing activity only Engaged in processing activity only 5) Ownership Status By scheduled caste entrepreneur By scheduled tribe entrepreneur By women entrepreneur 6) Important Parameters Per unit fixed investment (book value) (Rs. lakhs) Per unit fixed investment in P&M (original value) (Rs. lakhs) Per unit working capital (Rs. lakhs) Per unit production (Rs. in lakhs) Per unit employment (numbers) Capacity utilisation (percentage) 7) Important Ratio Production/investments in fixed assets (Rs. lakhs) Net value added/Investment in fixed assets (Rs. lakhs) Employment/Investment in fixed assets (Rs. lakhs) Wages paid/Employment excluding self employment (Rs. 000)
50.19% 15.23% 6.84% 1.70% 7.69%
51.01% 10.37% 4.57% 1.41% 5.15%
3.08 4.0 6.98 30.93 8.54 79.7%
1.60 0.93 1.23 7.38 6.29 50.6%
10.00 6.75 2.73 12.50
4.62 1.10 3.94 8.00
PARTNERS IN PROGRESS SIDO has been working towards the development of the small scale sector industry, in India, but the efforts are enormous. Its partners, who play a key role in the progress achieved, are aiding the gigantic task. The Key Partners in the Progress are: 13
SSI Ministry
Ministry of SSI and ARI
KVIC
Coir Board
SIDO NSIC FFDC
Other Partners UNIDO
EAN India
IIP
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BANK FINANCING FOR THE SSI SECTOR IP&P WIPO
CMC Web Tech TBSE
APCTT
TANSTIA
CEDOK
Financial Institutions SIDBI RBI
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BANK FINANCING FOR THE SSI SECTOR CGTSI
Training Institutes NIESBUD NISIET ITC SEPTI IIE - Guwahati
Other Web References Other Web Links CSIR
ICAMT
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BANK FINANCING FOR THE SSI SECTOR Toy Association
Stone Association CODISSIA
COINTEC
Useful Websites
CBEC
Tax india Online Department of Revenue Directorate of Service Tax Development Commissioner (Handicrafts)
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BANK FINANCING FOR THE SSI SECTOR Technology Information, Forecasting & Assessment Council Department of Science & Technology
HELPING HANDS OF SSI SECTOR IN INDIA
Ministry The Ministry of SSI designs policies, programmes, projects and schemes in consultation with its organizations and various stakeholders and monitors their implementation with a view to assisting the promotion and growth of small scale industries. The Ministry also performs the function of policy advocacy on behalf of the SSI sector with other Ministries/Departments of the Central Government and the State and Union Territories. The implementation of policies and various programmes/projects/schemes for providing infrastructure and support services to small enterprises is undertaken through its attached office, namely the Small Industry Development Organization (SIDO) and the National Small Industries Corporation (NSIC) Ltd., a public sector undertaking under the Ministry. Small Industry Development Organization (SIDO)
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The Office of the Development Commissioner (Small Scale Industries) is also known as the Small Industry Development Organization (SIDO). It is an apex body for assisting the Ministry in formulating, coordinating, implementing and monitoring policies and programmes for the promotion and development of small scale industries in the country and is headed by the Development Commissioner (SSI). In addition, the SIDO provides a comprehensive range of common facilities, technology support services, marketing assistance, etc., through its network of 30 Small Industries Service Institutes (SISIs), 28 Branch SISIs, 7 Field Testing Stations (FTS), 4 Regional Testing Centers, 2 Small Entrepreneur Promotion and Training Institutes (SEPTI) and 1 Hand Tool Design Development and Training Centre. The SIDO also has a network of Tool Rooms, Process-cum-Product Development Centers (PPDCs) and technology and training support institutes which are run as autonomous bodies registered as societies under the Societies Act. NATIONAL SMALL INDUSTRIES CORPORATION (NSIC) LTD. The National Small Industries Corporation Ltd. was set up with a view to promoting, aiding and fostering the growth of small scale industries in the country with focus on commercial aspects of these functions. NSIC continues to implement its various programmes and projects throughout the country to assist the SSI units. The Corporation has been assisting the sector through the following schemes and activities: Supply of both indigenous and imported machines on easy hirepurchase terms Composite term loan scheme Procurement, supply and distribution, of indigenous and imported rawmaterials
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Marketing of small industries products Export of small industries products and developing export-worthiness of small scale units Enlisting competent units and facilitating their participation in Government Stores Purchase Programme Training in several technical trades Sensitizing SSI units on technological up gradation through Software Technology Parks and Technology Transfer Centers Mentoring & advisory services Technology business incubators Setting up small scale industries in other developing countries on turnkey basis Other areas & international co-operation
Over the years, the Corporation has made significant contribution to the growth of the SSI sector in India. The Corporation has also set up a large number of turnkey projects in a number of developing countries. ISO: 9001-2000 Company. SMALL SCALE INDUSTRIES BOARD SSI Board is the apex non-statutory advisory body constituted by the The Corporation is an
Government of India to render advice on all issues pertaining to the SSI sector. The Minister incharge of the SSI Ministry is the Chairman of the Board. Members of the Board, include inter alia State Industries Ministers, selected Members of Parliament, Secretaries of various Departments of the Central Government, Heads of Financial Institutions, Representatives of Industry Associations and Eminent Experts.
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The SSI Board provides to its members a forum for interaction to facilitate cooperation and inter-institutional linkages and to render advice to the Government on various policy matters, for the development of the sector. The Board was first constituted in 1954. Its term is for two years. The Board was last constituted on 18th January 2003, with 101 members and held its 48 th meeting on 17 January, 2004.
NATIONAL INSTITUTES FOR ENTREPRENEURSHIP DEVELOPMENT As entrepreneurship development and training is one of the key elements for the promotion of small scale industries, the Ministry has established three National Institutes, viz. the National Institute of Small Industry Extension Training (NISIET) at Hyderabad, the National Institute of Entrepreneurship and Small Business Development (NIESBUD) at NOIDA and the Indian Institute of Entrepreneurship (IIE) at Guwahati as autonomous bodies. These Institutes are responsible for development of training models and undertaking of research and training for entrepreneurship development in the SSI sector. National Commission FOR Enterprises in the Unorganized Sector The National Commission for Enterprises in the Unorganized Sector was constituted in September, 2004 under the chairmanship of Dr. Arjun K. Sengupta, an eminent economist. It has three full-time Members and two part-time Members and an Advisory Board consisting of 11 eminent experts from different
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fields relating to the unorganized/informal sector. The Commission will recommend measures considered necessary for bringing about improvement in the productivity of the informal sector enterprises, generation of large scale employment opportunities on a sustainable basis, particularly in the rural areas, enhancing the competitiveness of the sector in the emerging global environment, linkage of the sector with institutional framework in areas such as credit, raw material, infrastructure, technology up gradation, marketing and formulation of suitable arrangements for skill development. In accordance with its terms of reference, the Commission and its Advisory Board have held several rounds of deliberations on a host of issues relating to the unorganized/informal sector enterprises. In the light of these deliberations, the following issues have been identified so far by the Commission for detailed consideration and recommendations: Notion of growth poles for the informal sector in the form of clusters/hubs, where external economies need to be provided to spur employment generation and productivity enhancement and the feasibility of integrating the initiatives and programmes of various Ministries in this domain; Skill formation in the informal sector and potential for public private partnership in providing the required skills; Provision of micro finance and related services to the informal sector enterprises and strengthening of the institutional framework in this area; and Issues concerning social security for the workers in the informal sector and instrumentalities for achieving this objective.
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Performance and policy initiatives in SSI sector during 2004-05

Over the last five decades, the small-scale industries (SSI) sector has acquired a place of prominence in the economy of the country. It has contributed significantly to the growth of the Gross Domestic Product (GDP), employment generation and exports. The sector now includes not only SSI units but also small scale service and business enterprises (SSSBEs) and is thus referred to as the small enterprises sector. During 2000-01 to 2004-05, the SSI sector registered continuous growth in the number of units, production, employment and even exports (till 2002-03). During this period, the average annual growth in the number of units was around 4.1 per cent, while employment grew by 4.4 per cent annually. Further, the average annual growth in production, at current and constant prices, was 10.6 per cent and 7.6 per cent respectively.
Performance of small scale sector

Employ No. of units (lakh) Year Unregd.l Regd. Total (at current prices) (at constant prices) Production (Rs. crore) ment in lakh Exports (Rs. crore)
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2000-01 2001-02 2002-03 2003-04 2004-05 13.1 13.75 14.68 15.54 16.38 88 91.46 94.81 98.41 102.15 101.1 -4.1 105.21 -4.1 109.49 -4.1 113.95 -4.1 118.53 -4 Website: http:/indiabudget.nic.in 2,61,289 -11.5 2,82,270 -8 3,11,993 -10.5 3,57,733 -11.6 3,99,020 -11.5 1,84,428 -8 1,95,613 -6.1 2,10,636 -7.7 2,28,730 -8.6 2,45,747 -7.4 239.09 -4.4 249.09 -4.2 260.13 -4.9 271,36 -4.3 282.82 -4.2 N.A. 69,797 -28.8 71,244 -2.1 86,013 -20.7 N.A.
Policy initiatives in SSI sector during 2004-05

1. The National Commission on Enterprises in the Unorganized/Informal Sector was set up in September 2004. The Commission will, inter-alias, recommend measures considered necessary for improvement in the productivity of these enterprises, generation of large scale employment opportunities on a sustainable basis, linkage of the sector to institutional framework in areas like credit, raw material supply, infrastructure, technology up gradation, marketing facilities and skill development. 2. 85 items reserved for exclusive manufacture in the SSI sector were dereserved in October 2004. The total number of reserved items now stands at 605. 3. To facilitate technology up gradation and enhancing competitiveness, the investment limit (in plant and machinery) has been raised in October 2004, from Rs. 1 crore to Rs. 5 crore, in respect of 7 items of sports goods, reserved for manufacture in the small scale sector. 4. The Small and Medium Enterprises (SME) Fund of Rs. 10,000 crore was operationalised by the SIDBI since April 2004. Eighty per cent of the
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lending from this fund will be for SSI units, at interest rate of 2 per cent below the prevailing PLR of the SIDBI. 5. The Reserve Bank of India enhanced the composite loan limit for the SSI sector to Rs. 1 crore from Rs. 50 lakh. 6. With a view to integrate small and medium enterprises, facilitating their growth and enhancing their competitiveness (including measure for freeing the sector from Inspector Raj), a suitable legislation is being finalized. 7. A new Promotional Package for small enterprises" is being formulated. This would include measures to provide adequate credit, incentives for technology up gradation, infrastructural and marketing facilities, etc.
CREDIT - THE LIFELINE OF BUSINESS

Of all the elements that go into a business, credit is perhaps the most crucial. The best of plans can come to naught if adequate finance is not available at the right time. SSIs need credit support not only for running the enterprise & operational requirements but also for diversification, modernization/ up gradation of facilities, capacity, expansion etc. In respect of SSIs, the problem of credit becomes all the more critical when ever any episodic event occurs such as a large order, rejection of consignment, inordinate delay in payment etc. In general, SSIs operate on tight budgets, often financed through owner's own contribution, loans from friends and relatives and some bank credit.
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Government of India recognised the need for a focused credit policy for SSIs in the early days of promotion of SSIs. This in turn led to a credit policy with the following components:-
Priority Sector Lending: Credit to the small scale sector is ensured as part
of the priority sector lending by banks. Banks are required to compulsory ensure that defined percentage (currently 40%) of their overall lending is made to priority sectors as classified by Government. These sectors include agriculture, small industries, export etc. The inclusion of small industries in this list makes them eligible for this earmarked credit.
Institutional Arrangement: Small Industries Development Bank of India

( SIDBI ) was set up as the apex refinance bank. Term loans are provided by State Financial Corporations (SFCs) and Scheduled Banks. Credit lending in direct/indirect forms is also undertaken to some extent by NABARD , NSIC etc. With the liberalization of the Indian economy, greater emphasis was placed on meeting the credit needs of SSIs. This was manifest through the following initiatives:-
1. Earmarking of credit for tiny sector within overall lending to small industries. 2. Opening of specialized SSI bank branches. 3. Establishment of National Equity Fund for venture capital support. 4. Technology Development & Modernization Fund through SIDBI. 5. capital Enhancement of turnover limit for assessing aggregate working requirement. 6. Enhancement of limit of composite loan to Rs. 10 lakhs. (Rs 1 million) 7. No collateral security for loans up to Rs. 5 lakhs. (Rs 0.5 million)
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The Comprehensive Policy Package announced on 30th August 2000 took this process further. This included:1. 2. 3. 4. Launch of Credit Guarantee Scheme to cover loans up to Rs. 25 lakhs. (Rs 2.5 million) Launch of Credit Linked Capital Subsidy Scheme to provide for subsidy against loans taken for technology up gradation. Further enhancement of ceiling composite loan limit to Rs. 25 lakhs.(Rs 2.5 million) Enhancement of project cost limit under National Equity Fund to Rs. 50 lakhs.(Rs 5 million) Many of these initiatives were based on the recommendations made by the Nayak Committee, the Kapur Committee and the Dr. S.P. Gupta Study Group.
Credit to SSI Sector from Public Sector Banks

Indian Bank Charters
The Jammu & Kashmir Bank Ltd. State Bank of Indore State Bank of Travancore Central Bank of India State Bank of Bikener and Jaipur State Bank of Mysore Bank of Baroda Oriental Bank of Commerce United Bank of India Allahabad Bank
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Indian Bank Syndicate Bank Bank of India Indian Overseas Bank SBI PNB State Bank of Hyderabad Union Bank of India UCO Bank Bank of Maharashtra Canara Bank
THE TABLE BELOW GIVES THE STATUS OF CREDIT FLOW TO VILLAGE & SMALL INDUSTRIES (VSI) SECTOR SINCE 1991:Net Bank Credit
1,05,632 1,12,160 1,32,782 1,40,914 1,69,038 1,84,381 1,89,684 2,18,219 2,46,203
Year
March 1991 March 1992 March 1993 March 1994 March 1995 March 1996 March 1997 March 1998 March 1999
To SSI
16,783 17,398 19,388 21,561 25,843 29,485 31,542 38,109 42,674
(in Rs. crores) (in Rs. crores)
Share of SSI
15.89% 15.51% 14.60% 15.30% 15.29% 15.99% 16.60% 17.50% 17.33%
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March 2000 March 2001 March 2002 March 2003 Source: RBI 2,92,943 3,40,888 3,96,954 4,77,899 45,788 48,445 49,743 52,988 15.6% 14.2% 12.5% 11.1%
The Table below give the status of credit flow to Tiny Sector since 1995:At the At the At the At the end of end of end of end of March '98 March March March '95 Net Credit To Tiny Sector (Rs. Crore) Tiny Credit as percentage of net SSI credit Refers to units with investment in P&M upto Rs. 5 lakhs. ** Refers to units with investment in P&M upto Rs. 25 lakhs. Note: Rs. 1 Crore = Rs. 10 million, Rs. 1 Lakh = Rs. 100,000/29.93 27.76 30.2 27.0 20.7 54.03 53.7 54.34 50.84 7734 8183 9515 10273.13 8837.47* 22,742** 26,019 27,030 26,937 '96 '97 At the end of March '99 At the At the At the At the end of end of end of end of March '2001 '2002 March '2000 March March '2003
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Assistance to SSIs by SFCs

The main objective of State Financial Corporations(SFCs) is to meet Term Loan/Fixed Capital needs of the Small Scale Industries. There are 18 SFCs in the country.
The Table below gives the total assistance and assistance to SSIs by SFCs:-
SANCTIONS (Rs Crores) Year

1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-2000 Total Assistance 2015.3 1908.8 2702.4 4188.5 3544.8 2626.0 1864 2203 To SSIs 1686 1561 1920 2513 2115 1786 1365 1617
DISBURSEMENTS (Rs Crores)

Total Assistance 1557.4 1563.4 1880.9 2961.1 2782.7 2110 1625 1754 To SSIs 1163.9 1175.2 1314.5 1675.4 1529.6 1222 1004 1083
Source: IDBI Annual Report
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HISTORY OF BANKING IN INDIA

Without a sound and effective banking system in India it cannot have a healthy economy. The banking system of India should not only be hassle free but it should be able to meet new challenges posed by the technology and any other external and internal factors. For the past three decades India's banking system has several outstanding achievements to its credit. The most striking is its extensive reach. It is no longer confined to only metropolitans or cosmopolitans in India. In fact, Indian banking system has reached even to the remote corners of the country. This is one of the main reasons of India's growth process. The government's regular policy for Indian bank since 1969 has paid rich dividends with the nationalization of 14 major private banks of India. Not long ago, an account holder had to wait for hours at the bank counters for getting a draft or for withdrawing his own money. Today, he has a choice. Gone
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are days when the most efficient bank transferred money from one branch to other in two days. Now it is simple as instant messaging or dial a pizza. Money have become the order of the day. The first bank in India, though conservative, was established in 1786. From 1786 till today, the journey of Indian Banking System can be segregated into three distinct phases. They are as mentioned below: Early phase from 1786 to 1969 of Indian Banks Nationalization of Indian Banks and up to 1991 prior to Indian banking sector Reforms. New phase of Indian Banking System with the advent of Indian Financial & Banking Sector Reforms after 1991. To make this write-up more explanatory, I prefix the scenario as Phase I, Phase II and Phase III. Phase I The General Bank of India was set up in the year 1786. Next came Bank of Hindustan and Bengal Bank. The East India Company established Bank of Bengal (1809), Bank of Bombay (1840) and Bank of Madras (1843) as independent units and called it Presidency Banks. These three banks were amalgamated in 1920 and Imperial Bank of India was established which started as private shareholders banks, mostly Europeans shareholders. In 1865 Allahabad Bank was established and first time exclusively by Indians, Punjab National Bank Ltd. was set up in 1894 with headquarters at Lahore. Between 1906 and 1913, Bank of India, Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank, and Bank of Mysore were set up. Reserve Bank of India came in 1935.
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During the first phase the growth was very slow and banks also experienced periodic failures between 1913 and 1948. There were approximately 1100 banks, mostly small. To streamline the functioning and activities of commercial banks, the Government of India came up with The Banking Companies Act, 1949 which was later changed to Banking Regulation Act 1949 as per amending Act of 1965 (Act No. 23 of 1965). Reserve Bank of India was vested with extensive powers for the supervision of banking in India as the Central Banking Authority. During those days public has lesser confidence in the banks. As an aftermath deposit mobilization was slow. Abreast of it the savings bank facility provided by the Postal department was comparatively safer. Moreover, funds were largely given to traders. Phase II Government took major steps in this Indian Banking Sector Reform after independence. In 1955, it nationalized Imperial Bank of India with extensive banking facilities on a large scale especially in rural and semi-urban areas. It formed State Bank of India to act as the principal agent of RBI and to handle banking transactions of the Union and State Governments all over the country. Seven banks forming subsidiary of State Bank of India was nationalized in 1960 on 19th July, 1969, major process of nationalizations was carried out. It was the effort of the then Prime Minister of India, Mrs. Indira Gandhi. 14 major commercial banks in the country were nationalized. Second phase of nationalization Indian Banking Sector Reform was carried out in 1980 with seven more banks. This step brought 80% of the banking segment in India under Government ownership.
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The following are the steps taken by the Government of India to Regulate Banking Institutions in the Country: 1949: Enactment of Banking Regulation Act. 1955: Nationalization of State Bank of India. 1959: Nationalization of SBI subsidiaries. 1961: Insurance cover extended to deposits. 1969: Nationalization of 14 major banks. 1971: Creation of credit guarantee corporation. 1975: Creation of regional rural banks. 1980: Nationalization of seven banks with deposits over 200 crore. After the nationalization of banks, the branches of the public sector bank India rose to approximately 800% in deposits and advances took a huge jump by 11,000%. Banking in the sunshine of Government ownership gave the public implicit faith and immense confidence about the sustainability of these institutions. Phase III This phase has introduced many more products and facilities in the banking sector in its reforms measure. In 1991, under the chairmanship of M Narasimham, a committee was set up by his name which worked for the liberalization of banking practices. The country is flooded with foreign banks and their ATM stations. Efforts are being put to give a satisfactory service to customers. Phone banking and net banking is introduced. The entire system became more convenient and swift. Time is given more importance than money. The financial system of India has shown a great deal of resilience. It is sheltered from any crisis triggered by any external macroeconomics shock as other East
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Asian Countries suffered. This is all due to a flexible exchange rate regime, the foreign reserves are high, the capital account is not yet fully convertible, and banks and their customers have limited foreign exchange exposure.
BANKS IN INDIA
In India the banks are being segregated in different groups. Each group has their own benefits and limitations in operating in India. Each has their own dedicated target market. Few of them only work in rural sector while others in both rural as well as urban. Many even are only catering in cities. Some are of Indian origin and some are foreign players.
All these details and many more are discussed over here. The banks and its 35

relation with the customers, their mode of operation, the names of banks under different groups and other such useful informations are talked about. One more section has been taken note of is the upcoming foreign banks in India. The RBI has shown certain interest to involve more of foreign banks than the existing one recently. This step has paved a way for few more foreign banks to start business in India. MAJOR BANKS IN INDIA

ABN-AMRO Bank Abu Dhabi Commercial Bank American Express Bank Andhra Bank Allahabad Bank Bank of Baroda Bank of India Bank of Maharastra Bank of Punjab Bank of Rajasthan Bank of Ceylon BNP Paribas Bank Canara Bank Catholic Syrian Bank Central Bank of India Centurion Bank China Trust Commercial Bank Citi Bank City Union Bank Corporation Bank Dena Bank Deutsche Bank Development Credit Bank 36
Indian Overseas Bank IndusInd Bank ING Vysya Bank Jammu & Kashmir Bank JPMorgan Chase Bank Karnataka Bank Karur Vysya Bank Laxmi Vilas Bank Oriental Bank of Commerce Punjab National Bank Punjab & Sind Bank Scotia Bank South Indian Bank Standard Chartered Bank State Bank of India (SBI) State Bank of Bikaner & Jaipur State Bank of Hyderabad State Bank of Indore State Bank of Mysore State Bank of Saurastra State Bank of Travancore Syndicate Bank Taib Bank

Dhanalakshmi Bank Federal Bank HDFC Bank HSBC ICICI Bank IDBI Bank Indian Bank
UCO Bank Union Bank of India United Bank of India United Bank Of India United Western Bank UTI Bank & Vijaya Bank
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INDUSTRY PROFILE
Small Industries Development Bank of India (SIDBI) was established in April 1990 under an Act of Indian Parliament as a wholly-owned subsidiary of Industrial Development Bank of India. SIDBI has since completed 8 years of service to the small scale sector. As at March 31, 1998, SIDBI had a total staff strength of 861 comprising of 685 professionals and 176 support staff. SIDBI's statute provides that it should serve as the principal financial institution for:

Promotion Financing and Development of industry in the small scale sector and Co-ordinating the functions of other institutions engaged in similar activities.
SIDBI became operational on April 2, 1990. The Small Scale Industry (SSI) sector, which is a vibrant and dynamic sub-sector of the India's industrial economy, comprises the area of SIDBI's business. The contribution of the SSIs in terms of production, employment and export earnings has been significant. The objectives of Government policy have been to impart vitality and growth impetus to the sector by removing bottlenecks that affect the growth potential. In the liberalised era and emerging economic scenario, the sector is assured of continued support.
RANGE OF SERVICES
SIDBI REFINANCES:
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Loans granted by PLIs for new SSI projects and for technology upgradation, modernisation, quality
expansion, promotion.
Loans sanctioned by PLIs to small road transport operators,
qualified professionals for self-employment, small hospitals and nursing homes and to promote hotels and tourism-related activities. SIDBI DIRECTLY FINANCES:
SSI units for new/expansion/diversification/modernisation Marketing development projects which expand the domestic Existing well-run SSI units and ancillaries/sub-contracting Infrastructure development agencies for developing industrial Leasing and hire purchase companies for offering
projects.
and international marketability of SSI products.
units/ vendor units for modernisation and technology upgradation.
areas.
leasing/hire purchase facilities to SSI units.
Existing export-oriented units to enable them to acquire ISO-
9000 Series Certification SIDBI HELPS:
SSIs to obtain credit rating from accredited credit rating
agencies SIDBI PROVIDES FOREIGN CURRENCY LOANS TO:
Import equipment by existing export-oriented SSIs and new Execute confirmed export orders by way of pre-shipment
units having definite plans for entering export markets.
credit/letter of credit and provides post-shipment facilities.
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SIDBI's VENTURE CAPITAL FUND PROVIDES ASSISTANCE TO:
Small scale entrepreneurs using innovative indigenous
technology and expertise. LINES OF CREDIT ARE ESTABLISHED BY SIDBI IN FAVOUR OF:

State Financial Corporations State Small Industries Development Corporations for
supplying raw material and extending marketing support to SSI units.

Factoring Companies to factor receivables of SSIs. Commercial banks to cover their pre-shipment credit in Merchant Banks for supporting equity issues of SSIs on Over
foreign currency of SSI exporters.
The Counter Exchange of India. DEVELOPMENT AND SUPPORT SERVICES BY SIDBI ARE FOCUSED AT:

Enterprise promotion with emphasis on rural industrialisation Human Resource Development of the SSI sector Technology Upgradation Special Emphasis Programmes - Quality and Environment Information Dissemination
Management and
Programmes implemented for Enterprise promotion include:

Micro Credit Scheme Rural Industries Programme Mahila Vikas Nidhi Entrepreneurship Development Programme
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Programmes for Human Resource Development of the SSIs:
SIDBI supports the reputed management and technical institutions spread throughout the country to conduct.

Small Industries Management Assistance Programme (SIMAP) Skill-cum-Technology Upgradation Programme (STUP) While the SIMP is aimed at providing to SSIs a trained cadre of managers, STUP seeks to offer skill development opportunity to owners/senior managers of SSIs.
Programmes for Technology Upgradation include:

Technology upgradation in identified industry clusters Technology Transfer Quality Enhancement
Quality and Environment Management programmes include support to programmes and workshops on quality management techniques and assistance to create awareness among the SSIs for abatement of environmental pollution. Information Dissemination initiatives aim at promoting new units by identification and publicity of viable project ideas and business opportunities through :

Publication of Project Profiles Broadcasting Udyog Sadhana Radio Programme Production of video films on various entrepreneurship
themes and telecasting them through electronic media. RANGE OF SERVICES
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INSTITUTIONAL BUILDING: SIDBI Co-promoted

Factoring Companies Technology Bureau of Small Enterprises North Eastern Development Finance Corporation Ltd. IDBI Bank Ltd. Indian Institute of Entrepreneurship, Guwahati
SPECIAL PURPOSE FUNDS IN SIDBI

National Equity Fund Mahila Vikas Nidhi Mahila Udyam Nidhi Venture Capital Fund Technology Development and Modernisation Fund Marketing Development Assistance Fund with special
earmarked corpus for women.
UCO BANK-CHARTER FOR SMALL SCALE INDUSTRIES

Both term and working capital loan sanctioned for setting up of a new Industrial Unit or expansion/modernization/technological up gradation of an existing industrial unit.

Simple Loan Application Forms Acknowledgement for receipt of Loan Application.
TIME NORMS:
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Disposal of Loan Applications Upto Rs.25,000 Over Rs. 5 lacs Upto Rs.5 lacs
Two Weeks Four Weeks Eight to Nine Weeks
COLLATERAL FREE LOANS : No collateral security/Third Party Guarantee is required. For loans upto Rs.5 lacs For loans upto Rs.25 lacs on the basis of good track record and financial position For loans upto Rs.25 lacs under the scheme of Credit Guarantee Trust Fund for Small Industries (CGTSI) Composite Loan upto Rs. 50 Lacs to SSI Units :
Rate of Interest : Total funded exposure : Upto Rs.50,000 More than Rs.50,000 &upto Rs.2 lacs More than Rs.5 lacs &upto Rs.10 lacs* More than Rs.10 lacs &upto Rs.25 9% 10%
More than Rs.2 lacs &upto Rs.5 lacs 11.5% 12% 13%
lacs* *with maturity less than 3 years
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INDUSIND BANK- CHARTER FOR SMALL SCALE INDUSTRIES

Working Capital Finance It offers working capital facilities - both fund-based and fee-based. Fund-based working capital products include cash credit, overdraft, bill discounting, short-term loans, export financing (pre-shipment as well as post-shipment). Fee based facilities include letters of credit and bank guarantees. Working Capital facilities are provided to finance the day-to-day business requirements. Funding requirements are structured to finance procurement of raw materials/stores and payment towards manufacturing costs and other overheads. Sales are financed against sundry debtors/ receivables. The Bank offers a combination of operative cash credit and working capital Short Term Finance The Bank offers short-term loans for a period ranging from 3 months to 12 months to sound corporates for meeting their specific short-term working capital requirements. The funds are provided with interest rates either linked to our BPLR or at a fixed rate with varying repayment patterns. Term Loans It offers term loans to both Industrial as well as Infrastructure sectors promoted by strong business houses. These loans are for a period of 3-5 years with a moratorium period. Interest rates could be fixed or floating linked to the bank's BPLR. Bills Finance - Supply /Purchase
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This product enables corporate to fund their operating cycle right from the stage of procurement to sale. Bill Financing is extended by IndusInd Bank to its clients at competitive rates.
Letter of credit backed bill discounting and clean bill discounting are the convenient mode of financing for domestic trade transactions. BOE could be broadly classified into Demand and Usance bills and are further classified into clean and documentary bills. Asset Securitization It also extend loans for asset securitization comprising lease rental receivables and other receivables backed by firm arrangements. In such cases, the future cash flows of the client are discounted applying a discount rate and arrived at the Net Present Value (NPV) which is the amount lent to the borrower.
BOI Artisan Credit Card (ACC)

Purpose To provide adequate and timely assistance to artisans to meet their credit requirements both investment needs as well as working capital. Investment loans for purchase of tools/equipments by way of Demand Loan/Term Loan with appropriate repayment schedule. The scheme would be applicable both in rural and urban areas.
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Eligibility All artisans involved in production/ manufacturing process. Preference would be given to artisans registered with Development Commissioner (Handicrafts) Thrust in financing on cluster of artisans and artisans who have joined to form Self-Help Groups (SHGs) Beneficiaries of other Government Sponsored Schemes are not eligible Issue of cards A photo Identity Card with sanctioned limit, validity period of credit facilities along with a passbook incorporating Name, Address, Borrowing Limit, Validity Period, etc. will be issued. Credit limit Credit limit to be fixed based on assessment of Working Capital requirements as well as cost of tools and equipments required for carrying out manufacturing process. For assessing working capital requirement, 20% of anticipated turnover will be taken into consideration. Maximum Limit Rs.2 lakhs per borrower. Security Hypothecation of Assets created out of Bank Finance. Margin
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Up to Rs.25,000/- Nil above Rs.25,000/- 20% to 25% Rate of Interest *
Present Upton Rs.50,000/- - 9% p.a Above Rs.50,000/- upto Rs.2 lakhs - 9.75% p.a
* subject to change Validity/Renewal of limits
1) Small scale units, artisans, village and cottage industry. 2) Self-Help Groups (SHGs) for their economic activities. Purpose i) Purchase of equipment machinery, vehicle, furniture/fixtures etc. ii) Working capital needs. Loan Amount Need based depending on project cost/turnover etc. Margin For limits up to Rs.25,000/- - NIL For limits over Rs.25,000/up to Rs.5 lakhs - 10% - 20% For limits over Rs.5 lakhs 15% - 30% 47

Rate of interest 1% less than the applicable interest rate for limits above Rs.50,000/-.
Security No collateral for advances up to Rs.5 lakhs. If account is eligible for cover under CGFTSI, no collateral is required for limits up to Rs.25 lakhs.
Repayment Period Repayment schedule will be spread over 3 to 7 years depending upon nature of manufacturing activity proposed.
BOI - Laghu Udyami Credit Card (LUCC) Eligibility All existing customers under SSI sector who are having satisfactory dealings for last 3 years and enjoying loan/operation limit up to Rs.2 lakhs.
Purpose To meet the credit requirements of Small Scale Industries and Tiny Sector.
Assessment of credit For assessing working capital requirement, 20% of anticipated turnover will be taken into consideration, as per Nayak Committee recommendations. Margin - 25%
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Rate of interest (*) Upto Rs.50,000/- - 9% p.a Above Rs.50,000/- upto Rs.2 lakhs - 9.75% p.a Above Rs.2 lakhs upto Rs.10 lakhs - 10.75% p.a (*)subject to change Women holding LUTC card are granted 1% p.a. concession in rate of interest when the limit exceeds Rs. 50,000/-.
Validity Limit sanctioned under LUCC will be valid for 3 years subject to satisfactory conduct of account. Limit valid for 3 years subject to annual review. Annual review without asking financial statements from the borrower but based on assessment of performance by field inspections.
CANARA BANK- CHARTER FOR SMALL SCALE INDUSTRIES

1. Simplified & bilingual applications for credit facilities to SSI units are available at all our branches. 2. Acknowledgments are issued to SSI units immediately on receipt of loan application by branches. 3. SSI loan applications/credit proposals are disposed off within the stipulated Time Norms from the date of receipt of application completed in all respects:
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a. Up to Rs.25000/- 2 Weeks b. Over Rs.25000/- & up to Rs.5 lakhs 4 Weeks c. Over Rs.5 lakhs 8 to 9 Weeks 4. Margin: Up to Rs.25000/- Nil Over Rs.25000/- 15% to 25% as determined by Bank 5. Rate of Interest: Up to Rs.50000/- 8.75% for working capital & 9.25% for Term Loans Over Rs.50000/- up to Rs.2 lakhs for Working Capital and Term Loans at BPLR ( presently 10.75%) Over Rs. 2 lakhs at attractive rate of interest. 6. Collateral-free loans up to Rs.5 lakhs. 7. Collateral -free loans over Rs. 5 lakhs & up to Rs.25 lakhs based on good track record and financial position of the borrowing unit. 8. Collateral/Third Party Guarantee free credit limits (Fund Based) up to Rs.25 lakhs if covered under Credit Guarantee Fund Scheme for Small Industries (CGFSI). 9. Composite Loans under Single Window concept of RBI up to Rs.100 lakhs. 10. Loans under Margin Money Scheme of Khadi &Village Industries Commission under their Rural Employment Generation Programme (REGP) for setting up industrial/service units in Rural/ Semi Urban areas focussing on employment generation. 11. Equity type Soft Loans under National Equity Fund (NEF)/Mahila Udyam Nidhi (MUN) Schemes of SIDBI and Special Assistance to Women Entrepreneurs through CED for Women/Mahila Banking Branches.
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12. Loans under Technology Upgradation Fund Scheme (TUFS) for Textile & Jute industrial units in SSI sector AND to 39 Specified Industries in SSI sector for Technology Upgradation under Credit Linked Capital Subsidy Scheme (CLCSS). 13. Loans for Acquisition of ISO 9000 Series certification by SSI units. 14. Standby Credit for Capital Expenditure of SSI units up to Rs.5 lakhs along with renewal of working capital facilities for making small additions to fixed assets of the unit. 15. Laghu Udyami credit card / Artisan credit cards upto a limit of Rs. 10 lakhs & Rs. 2 lakhs respectively. 16. Focussed attention to SSI units at our 38 Specialized SSI branches located in different parts of the country.
TERM LOANS ELIGIBILITY PURPOSE Individuals, Proprietorship, Partnership, Ltd. Companies etc. For acquisition of fixed assets (viz, land/building, plant/machinery, other fixed assets) towards setting up of new units and for expansion, modernization and diversification in case of existing units QUANTUM REPAYMENT Depending on the project cost. 36 months and above in monthly/quarterly/half yearly/yearly installments depending on the cash generation and Debt Servicing capacity. SECURITY 1 charge on fixed assets financed by us. Collateral Security and Personal/Third Party guarantee shall be insisted wherever
st
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required. GUARANTEE COVER Cover under credit guarantee fund for small industries (CGFSI) (in case the aggregate credit facility permitted is upto Rs. 25 lakhs) ROI, Insurance cover etc., as per Bank's norms
SIMPLIFIED OPEN CASH CREDIT (SOCC) A LIBERALISED credit facility to SSI entrepreneurs who are not in a position to maintain detailed stock books.
PURPOSE
For working capital needs of Small SSI units. Facility available as Running Limit.
MAXIMUM LIMIT Rs.5 lakhs only SECURITY Prime security - Assets created out of the credit facility Collateral security - Fixed assets of the unit wherever applicable REPAYMENT GURANTEE COVER Facility is permitted as a Running Limit subject to review /renewal every year. Cover under Credit Guarantee Fund for Small Industries (CGFSI) would be available
COMPOSITE LOAN SCHEME A SIMPLIFIED scheme devised under Single Window Concept of RBI to suit the requirements of Tiny Units under SSI sector.
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PURPOSE ELIGIBILITY For acquiring equipments, construction of work sheds and to meet working capital needs of the unit Artisans, village and cottage industries engaged in manufacturing, processing, preservation and servicing by utilizing locally available natural resources and/or human skills where individual credit limit does not exceed Rs.25 lakhs. Tiny units under SSI sector irrespective of their location and whose investment in plant and machinery does not exceed Rs.25 lakhs. LOAN AMOUNT MARGIN * NIL up to Rs.2 lakhs * 25% for loans over Rs.2 lakhs SECURITY Prime security - Assets created out of the credit facility Collateral security - Nil up to Rs.5 lakhs. For loans over Rs.5 lakhs and as determined by Bank on merits REPAYMENT Repayment within 3 to 10 years including initial moratorium of 12 to 18 months. GURANTEE COVER Cover under Credit Guarantee Fund for Small Industries (CGFSI) would be available. For collateral free/3rd party guarantee, free loans upto Rs. 25 lakhs. Maximum Rs.100 lakhs
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BANK OF INDIA- CHARTER FOR SMALL SCALE INDUSTRIES

1. To acknowledge loan applications. 2. To issue applications accompanied by checklists. 3. To comply with time norms for disposal of applications, received complete in all respects (a) 2 weeks for loan up to Rs.25, 000/(b) 4 weeks for loan up to Rs.5 lakhs (c) 8-9 weeks for loan over Rs.5lakhs 4. No collateral security for loans up to Rs.5 lakhs. 5. No collateral for loans over Rs.5 lakhs and up to Rs.25 lakhs subject to good track record and financial position. 6. To consider composite loan up to Rs.100 lakhs. 7. To compute working capital requirements based on Nayak Committee norms. Loan quantum: minimum 20% of anticipated annual turnover. 8. To cover loan accounts with limits up to Rs.25 lakhs without collateral security/third party guarantee under CGFTSI, if eligible. 9. To offer concession in interest rates up to 1% under Priyadarshini Scheme (Scheme for women entrepreneurs). 10. To consider short term loan facility at Sub-PLR rates to meet temporary liquidity requirements of eligible credit worthy existing borrowers with good track record under Star - SSI Supreme Scheme. 11. We also participate in -
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(a)Rural Employment Generation Programme (REGP) of KVIC. (b) Credit Linked Capital Subsidy Scheme for Technology Up gradation administered by SIDBI. (c) National Equity Fund Scheme of SIDBI.
Bank of Indias product spectrum To assist the SSI sector, Bank has been adopting innovative and growth measures. Keeping in view, the Bank's past rich experience in financing this sector and in tune with Government/Reserve Bank of India guidelines, the Bank has recently launched innovative products with defined objectives and refined methodology exclusively for SSI units. The philosophy behind launch of new products/schemes has been to promote growth of industries and to provide hassle free assistance to borrowers who have established their credentials with the Bank and shown their commitment to run the unit successfully. These products/schemes are listed below :i) Star - SSI Suprime Scheme (SSS) ii) BOI - Artisan Credit Card (ACC) iii) BOI - Laghu Udyami Trade Card (LUTC) iv) "Priyadarshini Scheme" (Scheme for Women Entrepreneurs) Star - SSI Suprime Scheme (SSS) Objective The product has been designed to offer loans at BOI Sub-PLR rates to existing credit worthy borrowers coming under SSI Sector. Purpose
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Short Term Loans up to 180 days to meet/supplement temporary liquidity requirements which may have arisen due to bunched despatch of goods, execution of special orders with short delivery schedule, seasonal build up of inventories awaiting despatch for which orders from reputed companies are on hand. Eligibility "AAA" and "AA" rated borrowers having sound track record making net profit at least during the last 3 years and having an annual turn-over in excess of Rs.50 lakh. Facility : Short Term Loans up to 180 days against inland bills of our Prime, "AAA" and "AA" rated borrowers accepted by the drawees, bills drawn on Government Department/ Undertaking including SEBs with whom power of attorney has been registered and against accepted bills drawn under L/C (DA) by prime banks with usance not exceeding 180 days. Quantum of finance : Minimum : Rs.5 lakhs Maximum : Rs.25 lakhs Margin Short Term Loan : 25% Against Bills : Nil Interest Rate <For customers with Credit Rating : "AAA" : 2% below BOIPLR "AA" : 1% below BOIPLR Repayment Identified at the time of consideration of the loan and depending on the type of facility availed (maximum 180 days). Security
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Charge on assets/extension of charge, wherever needed.
1. Acknowledgments for receipt of loan application by branch by affixing date stamp. 2. Time Norms for disposal of loan applications: a. Upto Rs. 25,000 - Within 2 weeks* b. Over Rs. 25000 & up to Rs. 5 lacs - Within 4 weeks* c. Over Rs. 5 lacs - Within 8-9 weeks* * from the date of receipt of duly completed loan application and check list 3. No collateral security for advances up to Rs. 5 lacs and for Advances over Rs. 5 lac up to Rs. 25 lakh based on good track record and financial position. 4. Guarantee cover is available under Credit Guarantee Scheme floated by CGTSI for SSI for loans sanctioned without collateral security /third party guarantee for advances upto Rs. 25 lacs. For availing guarantee cover under the Scheme, a guarantee fee of 2.5 % of credit facility sanctioned for a period of 5 years and Annual service fee @ 1% of outstanding amount as on 31st March every year is payable. 5. Composite loan upto Rs. 50 lakh is sanctioned to SSI units. 6. Loan quantum : Minimum 20% of projected annual sales turnover (Nayak committee norms) for working capital requirement.
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7. Margin Money Requirement(Contribution by the Borrower): Loans upto Rs. 25,000/- NIL Loans above Rs. 25,000/- 15% to 25% 8. Rate of Interest a. Credit limits upto & inclusive of Rs. 2 lakhs: At COBAR (presently 10.5%) for loans of tenor upto & inclusive of 1 year At COBAR +0.50% for loans of tenor above 1 year b. Credit limits above Rs. 2 lakhs and upto & inclusive of Rs. 100 lakhs: At COBAR +0.50% for loans of tenor upto & inclusive of 1 year At COBAR + 1% for loans of tenor above 1 year c. Credit limits above Rs. 100 lakhs: Maximum at COBAR +2% for loans of tenor upto & inclusive of 1 year Maximum at COBAR + 2.5 % for loans of tenor above 1 year (Corporation Bank Benchmark Advance Rate [COBAR] is presently fixed at 10.5%) 9. Bank has launched the following entrepreneur friendly Schemes: A. Corp Artisan Credit Card Scheme: Financing Artisans to meet the cost of acquiring tools and equipments and working capital requirements B. Corp Laghu Udyami Credit Card Scheme: Hassle-free Scheme for Financing Small Businessmen, Retail traders, Artisans, Village Industries, SSI and tiny
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units, Professionals and Self Employed. C. Establishment of Creches: Finance for setting up of Creches for children of working women to assist them to take up employment and become economically independent. D. Village Information Centres: Financing village information centres to generate employment and to derive benefits of information technology. E. Self Employment Ventures: Financing ventures in rural areas under KVIC margin money Scheme. F. Technology Up gradation Fund Scheme: Under the Scheme, interest reimbursement of 5% is available on the loans availed for induction of state of the art or near state of the art technology. G. Credit linked Capital subsidy Scheme for Technology Up gradation of the Small Scale Industries: Back ended capital subsidy is admissible on the loans for technology up gradation in certain sectors.
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INDIAN BANK- CHARTER FOR SMALL SCALE INDUSTRIES

Time - Bound Loans for Small Scale Industries Loan Limit Loans upto Rs.25,000/Over Rs.25,000/- and upto Rs. 5 lakhs Over Rs.5 lakhs
Time for Disposal from the date of receipt of application complete in all respects. 2 Weeks 4 weeks 8 - 9 weeks
The exemption limit of SSI borrowal accounts for obtention of collateral security is Rs 5.00 lakhs
Based on good track record and financial position of the units the dispensation limit of collateral requirement for SSI loans is now extended upto Rs 25.00 lakhs
For loans sanctioned without collateral security/Third party Guarantee with limits upto Rs 25 lakhs, guarantee is available under Credit Guarantee Fund Trust Scheme for SSIs (CGTSI).
For loans covered under Credit Guarantee Fund Trust Scheme (CGTSI) the one time up front fee of 2.5%* is borne by the Bank (from 01 04 2004 to 31 03 2006) [* the fee is 1.5% a) for all loans upto Rs 2.00 lakh b) All eligible women entrepreneurs c) All eligible borrowers located in the North Eastern Region (including Sikkim) and Jammu & Kashmir]
Composite loans upto Rs 100 lakhs is sanctioned to SSI units
Loan Quantum 60
Loan quantum /credit requirement would be assessed based on the norms of the Bank
Minimum 20 % of projected annual sales (Nayak Committee Norms) for working capital limits upto Rs 5 crores
Branch Managers empowered to sanction adhoc limits upto 20% of Working Capital Limits (both Fund based and Non-Fund based) This is also applicable to Medium Enterprises. Interest rate structure
Advances - SSI Working Capital & Term Loan < 36 Limits upto Rs 2 lakhs Limits above Rs 2 lakhs months BPLR - 1% (presently 10%) PLR + 2% * (presently 13.00%)
Interest Rate Term Loan (36 months and above)
BPLR + TP - 1% (presently 10.50%) PLR + TP + 2% * (presently 13.50%)
* Finer rate of interest upto PLR are given based on credit rating and subject to change from time to time . Incentives
One time cash incentive of Rs 10,000/- for ISO certified SSI borrowers.
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COMPANY PROFILE
1. SSI entrepreneurs have a right to seek credit assistance from bankbranches convenient to them. 2. Our Bank sanctions loans/credit assistance to Small Scale Industries for acquisition of fixed assets (factory land/buildings & machinery) and working capital requirements at very competitive interest rates and against soft Rate of interests effective from 01.06.2003: Upto Rs. 2 margins
Period
lacs Having contractual maturity upto 180 10.00% days (STPLR-I) Having contractual maturity more than 10.50% 180 days but upto 1 year (STPLR-II) Having contractual maturity more than 11.00%
Above Rs. 2 lacs 10.00% with band of 0% to 2% based on credit ratings 10.65% with band of 0% to 2% based on credit ratings 11.50% with band of 0% to 2% based
1 year (TPLR) on credit ratings Interest rates on new SSI advance accounts will have a band of 0.50% only in case of loans above Rs. 2 lacs. The above interest rates are subject to change from time to time as per RBI directives/banks policy guidelines.
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3. Trilingual Loan application forms for availment of loans by SSI borrowers in Hindi, English and local Language are available at branches. 4. A Check List of requirements along with the application form to enable the potential borrower to submit all necessary information and documents required for consideration of his/her request for loan at one time will be available at our branches 5. An acknowledgement of receipt of application forms along with Check List will be issued and definite date for discussion, clarification etc., if considered necessary, will be intimated to the applicable by branches 6. Loan application forms complete in all respects will be disposed off within the time schedule given below: Within 2 weeks Upto Rs. 25,000 Upto Rs. 25,000/- to upto Rs. 5 lacs Within 4 weeks Over Rs. 5 lacs Within 8 to 9 weeks 7. Collateral /third party guarantee free loans are considered to Tiny/Small Scale Industries for credit limits upto Rs. 25 lacs based on the criteria given below: To all the Tiny sector/ Small Sector units For loans upto Rs. 5 lacs For loans over Rs. 5 lacs & To all Tiny Sector/Small Scale Sector units, if covered upto Rs. 25 lacs under Credit Guarantee Fund Scheme for Small Industries (CGFSI) For loans over Rs. 5 lacs & To Tiny Sector / Small Scale Sector units having upto Rs. 15 lacs satisfactory dealings with the Bank for last 3 years and sound financial position even if not covered under Credit Guarantee Fund Scheme for Small Industries. 8. Composite Loans upto Rs. 50 lacs for Capital investment/working Capital under Single Window Concept are considered 9. Hassel free credit limits upto Rs. 2 lacs under special scheme - BOB Laghu Udyami Credit Card Scheme are considered to all our existing
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customers in the categories of Tiny/Small Scale units having satisfactory track record/dealings with our bank for the last 3 years 10. The Loans are available under following special schemes:
National Equity Fund Scheme where bank loan at Interest Rates as mentioned aforesaid and Equity Loan at a service charge of 5& p.a. from SIDBI for setting up new projects in tiny/small scale sector and for undertaking expansion, modernization, technology upgradation for existing SSI/Tiny units
Margin Money Scheme of Khadi & Village Industries Commission Under Rural Employment Genertion Programme for setting-up industrial/service units in Rural/Semi urban areas which generate employment under which margin money subsidy upto a maximum amount of Rs. 4 lacs is available to the beneficiaries
Technology Upgradation Fund Scheme (TUFS) under which an interest incentive of 5 percentage points on the loans for Technology upgraqdation /modernization of their units can be availed by Textile Textile Industrial Units in SSI sector
Credit Linked Capital Subsidy Scheme under which 12% capital subsidy for induction of proven technologies approved under the scheme is provided for Technology Upgradation specified industries in SSI sector to facilitate technology upgradation of their units
11. Specialised services at our 38 Specialised SSI branches to SSI units across the country 12. Interaction with our existing and potential SSI entrepreneurs through periodical meetings conducted at SSI Clubs of our Specialised SSI branches for furthering quality of service at branches 13. A grievance - redressal mechanism is in place in our Bank: Customers Complaints against a branch can be lodged with respective Regional Office of the Bank. If no action is initiated within 15 days, customer may approach respective Zonal Office. If still no action for a month, customer may directly write to Priority Sector Department, Baroda Corporate Centre,
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Mumbai. Addresses of Regional, Zonal and Baroda Corporate Centre are available at all our branches. Charter of Credit Entitlements for SSI Borrowers
SSI Entrepreneurs have right to seek credit assistance from bankbranches convenient to them Bank considers loans/credit assistance to SSIs for acquisition offixed assets (factory land/buildings & machinery) and working capital requirements against : (a) soft margins (b) at very competitive interest rates for loans above Rs. 2 lacs with a ban of 0% to 2% over respective PLR for existing accounts based on credit ratings. For new accounts the band is only 0.50% over respective PLR.
Loans upto Rs. 2 lacs are granted existing as well as new accounts at 0.25% and 0.50% below respective PLRs for a period from 6 months to 1 year and above 1 year respectively.
Trilingual Loan application forms for availment of loans by SSI borrowers in Hindi, English and local language are available at our branches. An acknowledgement of receipt of application forms along with Check List will be issued and definite date for discussions, clarifications etc., if considered necessary, will be intimated to the applicants by branches.
Loan application forms complete in all respects will be disposed off within a period of 2 weeks for limits upto Rs. 25,000/- within 4 weeks for limits between Rs. 25,001/- to Rs. 5 lacs and within a period of 8 to 9 weeks for limits above Rs. 5 lacs.
Collateral/third party guarantee free loans are considered to all Tiny/Small Scale Industries for credit limits upto Rs. 5 lacs. For loans over Rs. 5 lacs and upto Rs. 25 lacs - no collateral security if covered under Credit Guarantee Fund Scheme for Small Industries (CGFSI). For Tiny/SSI units having satisfactory dealings for last 3 years and sound financial position no collateral security / third party guarantee insisted for loans over Rs. 5 lacs and upto Rs. 15 lacs even if not covered under CGFSi. 65
Composite Loans upto Rs. 50 lacs for Capital Investment/Working Capital under Single Window Concept are considered. Hassle free credit limits upto Rs. 2 lacs under BOB Laghu Udyami Credit Card Scheme to all our existing Tiny/SSI units having satisfactory track record/dealings with the bank for the last 3 years.
Loans are available under following special schemes.
National Equity Fund Scheme fir setting up new projects in tiny/small scale sector and for undertaking expansion, modernization, technology upgradation for existing SSI/Tiny units
Margin Money Scheme of KVIC for setting up industrial/service units in Rural /Semi Urban areas with margin money subsidy upto a maximum amount of Rs. 4 lacs
Technology Upgradation Fund Scheme (TUFS) - loans with interest subsidy of 5% for technology upgradation / modernization by Textile Industrial Units in SSI sector
Credit linked Capital Subsidy Scheme - Loans with 12% capital subsidy for Technology Upgradation to specified industries in SSI sector.
Specialised services at our 38 Specialised SSI branches to SSI units across the country Interaction with our existing and potential SSI entrepreneurs through periodical SSI Club meetings at our Specialised SSI branches for furthering quality of service
A grievance - redressal mechanism is in place at our Branches / Regional / Zonal offices and Corporate Office to redress customers banking related complaints/issues.
RESEARCH OBJECTIVE
To study the
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To study.
To study the
RESEARCH METHODOLOGY DATA ENVELOPMENT ANALYSIS

Measuring Efficiency Data Envelopment Analysis (DEA) is concerned with comparing the efficiency of organizations such as local authority departments, British Telecom districts, schools, retailers and bank branches. It is applied where there are many fairly similar units each of which has multiple inputs and multiple outputs. For instance, to assess the efficiency of petrol stations one might draw up this list of inputs:

number of pumps; population in catchments area; number of cars per head in catchments area; competitors in the catchments area; income of households; state of repair of petrol station; shelf space in convenience store;
And outputs:
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petrol sales; Convenience store sales.
If one simply had a single input and a single output one would define a measure of efficiency as: Efficiency = output / input And normalize it to be less than or equal to 1.
The natural extension to multiple inputs and outputs is to use weighted sums of the inputs and outputs: Efficiency = weighted outputs / weighted inputs = i ui xi / j vj yj The DEA Approach If everyone could agree on a common set of weights {ui, vj} that would be the end of the story. But people cannot agree. This is where DEA comes in. It allows units in the system to choose their own weights in the way which is most advantageous to them. If a unit is inefficient even with the set of weights which is most favorable to it, then there are serious grounds for investigating further. Each unit is considered in turn and its most favorable weights are selected. The efficiency of all other units is computed using this set of weights. The result is that for each unit we obtain a series of relative efficiencies both using those weights most favorable to it and those most favorable to other units. Allowing this flexibility in setting the weights has both strengths and weaknesses. Permitting each unit to show itself in its most favorable light strengthens the
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evidence where units are found to be inefficient and at the same time makes such results more palatable. On the other hand, if too many inputs and outputs are considered, every unit may be efficient on its own terms. The underlying linear model of efficiency is also open to criticism, although this can be addressed to some extent by transforming the raw data (e.g. taking logarithms).
Aligning DEA with an Organizations Aims The implication is that DEA is a tool which needs to be applied with care and judgment. There needs to be a large enough number of similar units and this number must be much greater than the number of inputs and outputs chosen. Value judgments may be needed to constrain weights to ensure that the results are consistent with the purpose of the units. At their least controversial, constraints on weights are simply common-sense. For instance, in a study of prenatal care there were separate measures of output for the numbers of very satisfied mothers, satisfied mothers and not dissatisfied mothers. The weights on these were constrained so that the weight on very satisfied mothers was greater than or equal to that on satisfied mothers which was greater than or equal to that on not dissatisfied mothers. It would be an odd health authority which proclaimed its efficiency by placing greater weight on those who acquiesced to its services than those who were pleased with them. Similarly, few would challenge the need to restrict weights when faced with a finding that Liverpool's Rates Department appeared efficient only by loading its entire output weights onto the number of summons and distress warrants issued with zero weight on the revenue raised. Performance Targets
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When DEA assesses a unit as inefficient, it identifies those other units m* by which the unit has been found to be inefficient. It produces a set of weighting factors {m*} such that the outputs of the inefficient unit could be produced using fewer inputs by a "target" unit comprising a weighted combination of the units m*. (An alternative formulation constrains the inputs and then shows the greater outputs which would be achieved by the composite efficient unit). It is one of the strengths of DEA that it automatically produces targets where it finds units to be inefficient. However, the target which is generated automatically is not necessarily that to which the inefficient unit would aspire and DEA software (such as that developed at Warwick) enables the user to explore the entire efficient frontier which improves on the unit's current performance.
Figure 1: Setting Targets for an Inefficient Unit
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In the diagram there are two outputs, y 1 and y2 whose values are shown relative to a single (fixed) input. The efficient frontier is defined by points P1, P2, P3 and P4. Unit P5 is inefficient and its natural target is the point P* which lies where the ray traced from the origin intersects the efficient frontier (i.e. pro rata increases in the outputs). However, there is no reason why it should not choose any target on the efficient frontier between P' and P": this would amount to increasing one of the outputs more than the other. If it really wanted to, it could choose any point on the efficient frontier at all, but this would raise questions about why it was producing its current levels of the outputs. Using DEA in Practice
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One way in which DEA is used, for instance in studies commissioned by the Audit Commission, is to identify those units worth further investigation (either because they are very good or very bad). The more detailed study then leads on to a report describing best practice and making recommendations. Somewhat similar to this is the use which a brewery made of DEA when required to divest itself of a large number of pubs. Rather than simply selling those which were least profitable, it used DEA to assess the performance of its pubs. Those which were efficient but unprofitable or marginally profitable were sold but those which were inefficient and unprofitable were investigated further to determine whether they could become profitable and should be retained. When DEA is used to set targets one needs to beware of the possibility of undesirable behavioral responses. For instance, if one of the output measures for a university department is the number of papers published, academics may improve their measured efficiency by submitting each minor advance as a fresh paper to a different journal. DEA therefore cannot be used in isolation but must be seen as a tool within the complete cycle of management.
Figure 2: Performance Measurement and Control
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The stages of DEA: defining inputs and outputs; determining value systems; measuring performance; assessing it and setting targets, must all be related to the aims and values of the organization. Within this context DEA becomes part of a mission-driven framework of performance measurement and improvement.
DATA ENVELOPMENT ANALYSIS AND ITS USE IN BANKING

Data Envelopment Analysis Data Envelopment Analysis (DEA) is a way of assessing the comparative performance of units within an organization, e.g. branches of a bank, schools within a Local Education Authority, and sales outlets of a retailer. These units must perform broadly comparable functions but may vary in size, environment, resources used and results achieved. DEA seeks to measure their efficiency in terms of how well each unit performs when compared with its peers. CONSIDER AN EXAMPLE
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A bank has 4 branches within which there are two types of labor: supervisors and trainees, and a single measure of output: thousands of transactions processed. The data are as shown in the table. Branch 1 2 3 4 Inputs Supervisory Hours 2 4 2 1 Outputs Transactions (000) 1 1 1 1
Trainee Hours 3 1 2 4
Clearly branch 1 is doing worse than branch 3 because it uses the same number of supervisory hours but more trainee hours to achieve the same output. But you cannot make direct comparisons with branches 2 and 4. These results are typical: pair wise comparison normally doesn't get very far. In order to make progress we make some assumptions. Consider two possible sets of inputs and outputs, P1, P2. In our example they could represent branches 1 and 2, i.e. the sets {2, 3; 1}, {4, 1; 1}. Then we assume that:
given any two possible sets of inputs and outputs, P1, P2, any weighted average of these is also possible, i.e. we can define new sets of inputs and outputs of the form [ P1 + ( 1 )P2 ] for 0 < < 1;
there are constant returns to scale, i.e. if you double the inputs you can double the outputs; You can dispose of excess inputs and outputs at zero cost.
Assumption 1 means that we can make a new possibility by weighting branch 3 by 0.5 and branch 4 by 0.5 to yield: 0.5 * {2, 2; 1 } + 0.5 * { 1, 4; 1 } = { 1.5, 3; 1 }
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This combination can now be compared directly with branch 1. It uses the same trainee hours but fewer supervisory hours to achieve the same result and so is clearly more efficient. Using other values of and considering combinations of branches 2 and 3 as well as branches 3 and 4 we can define the efficient frontier, B2 B3 B4 as shown in Figure 1.
Figure 1: Combinations of Trainee and Supervisory Hours to Achieve 1 Unit of Output
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These are possible ways of producing 1 unit of output which are efficient in the sense that for each ratio of supervisory to trainee hours it is not possible to achieve the output with fewer hours' labor. Assumption 3 means that any point in the shaded area above the efficient frontier is also a possible way of achieving the outputs. It is known as the production possibility set. Points strictly within the interior, such as B1, are inefficient. Their efficiency is defined as the proportion by which their inputs could be reduced while retaining the mix of inputs, i.e. how far one could move along the radius from the origin before reaching the efficient frontier. The efficiency of B1 is thus the ratio OM/OB1 = 0.857. The point M is known as the target and B3 and B4 are B1's efficient peers. Issues with the DEA Approach
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In using DEA one is making a fundamental leap of faith with assumption 1, that convex combinations of observed possibilities will work. DEA should only be used where this is credible. On the other hand, assumption 2, about constant returns to scale, can be relaxed (and is in the Warwick DEA software). Assumption 3 is more generally applicable, although there will be some situations where it is not. DEA tackles problems which might also be tackled using regression. DEA offers the advantage that it identifies an efficient rather than an average level of output against which the performance of individual units is judged. Further, while in regression we must specify in advance the functional form linking inputs to output, that is not necessary in DEA. This makes it possible to consider multiple inputs against multiple outputs in DEA while in regression we must either have a single input with multiple outputs or a single output with multiple inputs. Set against this there is a greater risk of distortion of results by outliers. It is normal to do several runs with different sets of inputs and outputs and check that the results are robust. Uses in Banking Two approaches are used in applying DEA in banking:
the production view, in which branches are viewed as using labor, capital, space, etc to process transactions, make sales of financial products, etc; The intermediation view, in which branches are viewed as collecting funds and deposits from the neighborhood and intermediating them into loans and other income-earning activities.
These two views are complementary and can be integrated into an overall assessment, as shown in Figure 2. Figure 2: Integrating DEA Assessments in Banking
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The intermediation view was used in a sales maximization model at a UK bank. Branches were considered as using resources of sales people, opening hours, market size, customer base, transactions processed and facilities. The outputs were mortgage applications, insurance sales and savings accounts sales. This model assumed fixed returns to scale and market size was one of the main inputs. The model served to measure the efficiency of branches in generating business within their markets and comparisons were made primarily among branches with similar types of market. This model was supplemented by a resource optimization model which took direct staff costs as its input and considered mortgage applications, insurance sales, savings account sales and transactions as outputs. This model used variable returns to scale and was used to set target values to emphasize to branches the potential to improve performance. The Bank of Finland (i.e. the Finnish central bank) uses DEA in its Financial Markets Department to monitor banks operating in Finland. It uses the production view and seeks to assess the efficiency of banks' payment and account transaction services. The inputs are the number of branches, number of ATMs, the use of labor and the number of computer terminals used. The outputs are the number of transactions handled by clerks, the number of ATM transactions, cash withdrawals and loans processed. Its model uses variable returns to scale and seeks to identify banks' overall efficiency and decompose it into that part which is
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attributable to the scale at which the unit is operating and the rest, which is attributable to management. As well as studies across banks, the Bank of Finland also does cross-time studies to compute Malmquist indices. These decompose changes in a unit's productivity over time into that due to the unit's becoming more efficient and that due to shifting of the boundary. Outcome from DEA Assessments The main outcome from DEA assessments tends to be the identification of efficient peers as role models for each inefficient unit and the setting of targets. This gets away from the underlying theory of DEA and its applicability, which may well be open to challenge. It therefore acts as a spur to improvement within the normal processes of management. At a higher level, DEA assessments may be used to gauge the level of returns to scale with a view to long-term changes in the structure of an organization, e.g. whether to reduce the number of branches or concentrate transaction processing.
Data Collection
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We have considered secondary data for the research study. SECONDARY DATA: mainly consists of books, periodicals, magazines, Internet etc.
STUDY ON BANK FINANCING FOR THE SSI SECTOR SURVEY PROFILE

The survey attracted responses from 100 individual SSI units. The participating SSI units exhibited a wide range of product mix that included items like sacks, bags and tarpaulins, paraffin wax, foundry materials, stainless steel castings, measuring instruments, aroma & fine chemicals, auto components, shoes, gas cylinder valves, mixer machine, spices and other foodstuffs, adhesives, copper pipes, coir products, rubber goods, natural essential oils, welding electrodes, cooling tower and heat exchanger, sports goods and telecommunication products.
STUDY ON BANK FINANCING FOR THE SSI SECTOR HIGHLIGHTS
Working Capital Financing

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There has been some improvement over time in the availability of working capital finance from banks to the SSI units. Five years ago 35% of the respondents were getting between 10% to 20% of their projected annual turnover as working capital loans Now 42% of the respondents are getting between 10% to 20% of their projected annual turnover as working capital loans Despite the above improvement nearly a third of the participating SSI units are presently getting less that 10% of their projected annual turnover as working capital loans from their respective banks.
Interest rate on working capital loans

The rate of interest charged by banks to the SSI units for advancing working capital loans has come down over the last five years. A larger number of SSI units are now paying interest in the 12% to 14%. Five years ago 47% of the respondents have reported that for working capital loans they were charged interest in the range of 14% to 16% five years ago. 17% of the respondents were paying interest in the range of 12% to 14% on their working capital loans Now
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51% of the respondents are paying interest in the range of 12% to 14% on their working capital loans. Only 12% of the respondents are paying interest in the range of 14% to 16%. While the rate of interest charged to the SSI units have gone down, some of the banks have increased the frequency of compounding from quarterly compounding to monthly compounding. This increases the financial burden and also negates the benefits of reduced interest rates.
Interest rate on term loans

41% of the respondents are paying interest in the range of the 12% to 14% for term loans for a period of five years on average. While 23% said that they are paying interest in the range of 14% to 16%, another 16% reported paying interest between 16% to 18% on their term loans. . 50% of the respondents have said that the bank authorities do not provide reasons in case of refusal of loan applications. . 70% feel that the banks are not giving adequate publicity to various schemes relating to SSIs. . 59% of the respondents said that obtaining funds from banks is moderately difficult. Another 20% felt that it is an extremely difficult process. . Problem faced by SSI units Delay in loan sanction and disbursement Lack of transparency with regard to sharing of information Inadequate discretionary power with the bank manager Absence of collateral security norms Inadequate publicity by banks of various schemes for the SSI sector Present composite loan limit of Rs 25 lakh is inadequate
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BANK FINANCING FOR THE SSI SECTOR Operational issues

The processing fee is charged by the banks even on limits not sanctioned, as the same needs to be paid with the application. Most of the bank branches do not have forex facility. This proves to be a major hindrance for SSI exporters as they receive payments in foreign currency. In computing maximum permissible bank finance, banks give a lot of weight age to stocks. This methodology adversely affects those SSI units which through efficient inventory management have reduced their stocks and have greater bills receivables on their books. The time taken for collection of cheques deposited for realization is inordinately long.
Suggested remedial measures

1. The decision on the loan application should be taken in a time bound manner. Once all the required documents have been filed by the applicant, the application should be reviewed and a stand taken within 4 weeks. 2. Information relating to credit appraisal done by the banks should be shared with the applicants. It would be helpful if the banks inform the units the areas where their performance has fallen below the rating parameters and counsel the units to perform better and measure up. 3. In case the loan application is rejected, the bank must apprise the applicant about the reasons for not granting the loan. This will help the applicants in rectifying his application the next time he applies for a loan. 4. There should be devolution of greater authority at the branch manager level. Further, as the branch manager is generally overworked with responsibilities vested in him, officers should be specified in all branches, who would be 83

responsible for loans to the SSI sector for limits within the sanctioning power of the branch manager. 5. Guidelines on the amount of collateral required for different loan amounts (both fresh loans and renewals) should be specified by the RBI and implemented by the banks. 6. The present collateral-free loan limit is Rs 5 lakh. Further, as per the SSI charter of some of the banks, units with good track record and financial position are eligible for collateral-free loans over Rs 5 lakh and upto Rs 15 lakh. This limit for collateral-free loans should be enhanced further 7. Information on all loan schemes pertaining to the SSI sector should be made readily available. The banks should interact regularly with customers by way of mailers and keep them updated with regard to changes in such schemes. 8. The present composite loan limit for SSIs, which is Rs 25 lakhs, should be revised upwards. 9. Banks should revert to quarterly compounding of interest on working capital loans where it is presently being done on a monthly basis. 10. The processing fee should be commensurate with the loan amount sanctioned. 11. Forex facility should be available at greater number of bank branches. 12. For the benefit of those SSI units which through improved inventory management have reduced their stock, the banks must give consideration to other factors for computing maximum permissible bank finance.
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13. The period of collection and credit of cheques should not exceed three days. In case it takes longer for the cheque to be cleared, banks should compensate the clients by paying penal interest for the inconvenience caused.
STUDY ON BANK FINANCING FOR THE SSI SECTOR INTRODUCTION

The SSI sector in India has over the years surpassed the growth targets and has emerged as an important contributor to the growth and development of Indias economy. The SSI sector is a key driver of economic growth and contributes substantially to Indias total industrial production, exports and employment generation. Statistics available for the year 2002-03 show that the sector accounted for almost 40% of the industrial value added and 34% of the countrys total exports. The 3.6 million SSI units in the country produced over 8000 items and provided employment to about 20 million people. Keeping in mind its importance, the government of India has been helping it through supportive policy measures with focus on improving the credit flow to this sector. In the last decade two high level committees were set up with the express objective of studying the credit delivery system in place for the SSI units and suggesting measures for improving the same. These were the Nayak Committee (1991-92) and the Kapur Committee (1997-98). Besides these two committees, a special SP Gupta Study Group (1999-2000) on development of small enterprises was set also set up. Besides forming these special groups, recommendations and announcements have also been made in successive budgets for improved credit flow to the SSI sector.
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While several of the recommendations made by the special groups have been incorporated by the banks in their policy charter for SSI lending, several voices have been raised about the SSI units not being adequately benefited by the policy measures announced. The units have expressed concerns with regard to the problems faced on the bank-financing front. With the view to assess the actual experience of the SSI units and to bring out the most pressing problems in respect of bank financing, we has conducted the present survey.
STUDY ON BANK FINANCING FOR THE SSI SECTOR
1. SOURCES OF FINANCE
An overwhelming majority of the respondents have cited obtaining funding from banks as their most important source of finance. Bank financing does not cater to the entire financing requirement and is generally supplemented by promoters own contribution, loans from state financial corporations and financial institutions and borrowings from relatives and friends.
2. RESPONDENTS VIEW ON OBTAINING FUNDS FROM BANKS
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When asked to rate their experience with their respective banks while obtaining funds, the respondents did not project a rosy picture. While 59% of the respondents said that obtaining funds from banks is moderately difficult, another 20% felt that it is an extremely difficult process. It is their contention that the banks do not consider the SSI units as valuable customers and this attitude gets reflected in all stages right from obtaining information to filing of documents to sanctioning and disbursement of loans. 3. WORKING CAPITAL FINANCING A) Amount of loan sanctioned The Nayak Committee set up by the Reserve Bank of India in December 1991 had mentioned as one of its recommendations that the SSI units should obtain 20% of its annual projected turnover by way of working capital. Following this the RBI issued a number of guidelines advising the banks to grant working capital to the extent of 20% of the projected annual turnover. Study of the SSI charter of some of the public sector banks by us revealed that the banks have incorporated this norm.
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An analysis of the responses received shows that there has been some improvement over time in the grant of working capital loans to the SSI units by the banks. While five years ago 35% of the respondents were getting between 10% to 20% of their projected annual turnover as working capital loans, the proportion has improved to 42% at present. The banks would do well if they could provide greater assistance to nearly the third of the respondents who have been getting less than 10% of their projected annual turnover as working capital loans.
PROPORTION OF PROJECTED ANNUAL TURNOVER MADE AVAILABLE AS WORKING CAPITAL LOANS TO SSIs
40 30 20 10 0 0-10% Present 3 years ago 5 years ago 30 34 33 10-20% 42 40 35 20-30% 20 16 22 more than 30% 8 10 10
B) Rate of Interest Charged 88
Presently 3 years ago 5 years ago
Less than 10% 12 6 5
10-12% 20 6 14
12-14% 51 21 17
14-16% 12 42 47
16-18% 5 23 17
18-20% 0 2 0
INTEREST RATE CHARGED ON WORKING CAPITAL LOANS

60 50 40 % of 30 respondents 20 10 0
Presently 3 years ago 5 years ago Less than 10% 1214% 1618%
The rate of interest charged to the SSI units for grant of working capital loans have come down over the years. While five years ago 47% of the respondents were paying interest at the rate of 14% to 16% on their working capital loans, the proportion paying the same came down to 42% three years ago. Presently only 12% of the respondents are paying interest at the rate of 14% to 16% on their working capital loans. 89

Further analysis of the responses received shows that a large part of the number of small scale units that were earlier paying interest in excess of 14% have now come into the 12% to 14% bracket. Infact 51% of the respondents have reported that they are currently paying 12% to 14% rate of interest on their working capital loans. In the context of interest rate to be charged from the SSI units, Indian Banks Association vide a circular dated 5th March 2003 had advised all its member banks to take appropriate follow up action to the Finance Ministers appeal made during the budget regarding charging interest from SSIs in the band of 2% above or below the PLR. With the present average PLR for the banks being around 11%, there are still SSI units being charged at rates higher than those stipulated in the norms. This shows that the benefit of the softening interest rate regime has not been passed on fully to the small-scale units and that there exists scope for further reduction in the rates charged to them.
4. TERM LOANS
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INTEREST RATE CHARGED ON TERM LOANS

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40 35
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30 25 20 15 10 5 0 less than 10% 10-12% 12-14% 14-16% 16-18% 18-20% 2 2 16 23 16
On rates charged by banks on term loans (around 5 years), 41% of the respondents checked the 12% to 14% bracket. While 23% said that they are presently paying interest in the range of 14% to 16%, another 16% reported paying interest between 16% to 18% on their term loans. These responses again bring to light the fact that the SSI sector in India has to pay interest that is much higher than the rates being charged to some of the other sectors.
PROBLEMS AND SUGGESTED REMEDIAL MEASURES

The analysis of the feedback received from the respondents from the SSI sector has brought out the following issues that they would like to be addressed at the earliest. The participants in the survey have also suggested measures by way of which the banks can improve credit delivery and services rendered to them. 1. Delay in loan sanction and disbursement While the banks should observe all prudent norms while evaluating the loan applications, the decision on the loan application should be taken in a time bound manner. Presently, the amount of paperwork and formalities required is a big impediment and as a first step the banks should address this issue. Once all the
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required documents have been filed by the applicant, the application should be reviewed and a stand taken within 4 weeks. 2. Lack of transparency with regard to sharing of information Information relating to credit appraisal done by the banks is kept confidential. It would be helpful if the banks inform the units the areas where their performance has fallen below the rating parameters and counsel the units to perform better and measure up. In case the loan application is rejected, the bank must apprise the applicant about the reasons for not granting the loan. This will help the applicants in rectifying his application the next time he applies for a loan. In the survey 50% of the respondents have said that the bank authorities do not provide reasons in case of refusal of loan applications.
3. Inadequate discretionary power with the bank manager Powers delegated to the branch heads of SSI bank branches are inadequate. Most decisions on credit proposals are not taken at the branch level and hence approvals take a lot of time. To rectify this situation, there should be devolution of greater authority at the branch manager level. Further, as the branch manager is generally overworked with responsibilities vested in him, officers should be specified in all branches, who would be responsible for loans to the SSI sector for limits within the sanctioning power of the branch manager.
4. Collateral security norms There are no formal guidelines from the RBI with respect to collateral security that should be insisted upon for SSI advances. Guidelines on the amount of
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collateral required for different loan amounts (both fresh loans and renewals) should be specified by the RBI and implemented by the banks. The present collateral-free loan limit is Rs 5 lakh. Further, as per the SSI charter of some of the banks, units with good track record and financial position are eligible for collateral-free loans over Rs 5 lakh and upto Rs 15 lakh. The respondents have pointed out that they are not benefiting from this provision despite having a good track record. They have asked for proper implementation and enhancement of the limit for collateral-free loans. 5. Inadequate publicity given to various schemes and facilities provided by banks for SSIs Information on schemes like collateral-free and composite loan schemes is not available to majority of the SSI units. In the survey, a whopping 70% have said that the banks are not giving adequate publicity to various schemes relating to SSIs. As a result SSI entrepreneurs are not aware of such schemes and are unable to take advantage of the same. Information on all loan schemes pertaining to the SSI sector should be made readily available. The banks should interact regularly with customers by way of mailers and keep them updated with regard to changes in such schemes. 6. Composite loan limit The present composite loan limit for SSIs, which is Rs 25 lakhs, has been reported as being inadequate by some of the respondents and they have accordingly called for an upward revision of this limit. 7. Operational issues The following operational concerns have emerged from our interaction with the members of the SSI sector and the same should be dealt with expeditiously. . In the case of some banks the frequency of compounding interest charged on working capital loans has been increased from quarterly compounding to monthly
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compounding. This has had the effect of increasing the financial burden on the SSI units. . The processing fee is charged by the banks even on limits not sanctioned, as the same needs to be paid with the application. . Most of the bank branches do not have forex facility. This proves to be a major hindrance for SSI exporters as they receive payments in foreign currency. . In computing maximum permissible bank finance, banks give a lot of weightage to stocks. This methodology adversely affects those SSI units which through efficient inventory management have reduced their stocks and have greater bills receivables on their books. . The time taken for collection of cheques deposited for realization is inordinately long. While in the case of local cheques it takes about a week for clearance, in case of inter state cheques the time taken stretches up to 10 days or even more. With modern communication facilities being adopted by banks, the period of collection and credit should be brought down and should not exceed three days. In case it takes longer for the cheque to be cleared, banks should compensate the clients by paying penal interest for the inconvenience caused.
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BANK FINANCING FOR THE SSI SECTOR SMALL SCALE INDUSTRY

BANK FINANCING FOR THE SSI SECTOR

SSI SECTOR IN INDIA A BRIEF

BANK FINANCING FOR THE SSI SECTOR

Dr. S.P. Gupta Study

Group on Development of Small Enterprises

BANK FINANCING FOR THE SSI SECTOR

BANK FINANCING FOR THE SSI SECTOR

BANK FINANCING FOR THE SSI SECTOR

BANK FINANCING FOR THE SSI SECTOR

BANK FINANCING FOR THE SSI SECTOR

BANK FINANCING FOR THE SSI SECTOR

BANK FINANCING FOR THE SSI SECTOR

TIME SERIES DATA FOR SSIS IN INDIA

No. of units (millions)

Fixed investment (at current prices) (Rs. billion)

Production (at current prices) (Rs. Bn.)

Employment Nos. in million

BANK FINANCING FOR THE SSI SECTOR

GROWTH OF SSI EXPORTS Cooperative Statement of Export Performance

BANK FINANCING FOR THE SSI SECTOR

Status Classification of SSIs

SECOND CENSUS 1987-88 42.20% 48.00% 9.90% 62.20%

80.48% 16.84% 2.01% 96.24% 0.52% 3.24%

78.00% 16.03% 3.78% 87.28% 1.57% 11.15%

BANK FINANCING FOR THE SSI SECTOR

50.19% 15.23% 6.84% 1.70% 7.69%

51.01% 10.37% 4.57% 1.41% 5.15%

3.08 4.0 6.98 30.93 8.54 79.7%

1.60 0.93 1.23 7.38 6.29 50.6%

10.00 6.75 2.73 12.50

4.62 1.10 3.94 8.00

BANK FINANCING FOR THE SSI SECTOR

Ministry of SSI and ARI

SIDO NSIC FFDC

Other Partners UNIDO

BANK FINANCING FOR THE SSI SECTOR IP&P WIPO

CMC Web Tech TBSE

Financial Institutions SIDBI RBI

BANK FINANCING FOR THE SSI SECTOR CGTSI

Training Institutes NIESBUD NISIET ITC SEPTI IIE - Guwahati

Other Web References Other Web Links CSIR

BANK FINANCING FOR THE SSI SECTOR Toy Association

Stone Association CODISSIA

HELPING HANDS OF SSI SECTOR IN INDIA

BANK FINANCING FOR THE SSI SECTOR

BANK FINANCING FOR THE SSI SECTOR

BANK FINANCING FOR THE SSI SECTOR

BANK FINANCING FOR THE SSI SECTOR

BANK FINANCING FOR THE SSI SECTOR

Performance and policy initiatives in SSI sector during 2004-05

Performance of small scale sector

BANK FINANCING FOR THE SSI SECTOR

Policy initiatives in SSI sector during 2004-05

BANK FINANCING FOR THE SSI SECTOR

CREDIT - THE LIFELINE OF BUSINESS

BANK FINANCING FOR THE SSI SECTOR

Institutional Arrangement: Small Industries Development Bank of India

BANK FINANCING FOR THE SSI SECTOR