Summer Training Project Report on

SUGGESTIONS TO STIMULATE FINANCING UNDER

MICRO & SMALL ENTERPRISES

Undertaken at

FOR THE PARTIAL FULFILLMENT OF THE REQUIREMENT

FOR THE AWARD OF

POST GRADUATE DIPLOMA IN MANAGEMENT

UNDER THE GUIDANCE OF: UNDER THE SUPERVISION OF:

Ms. Sumedha Shandilya Mr. Ashok Dangayach

SUBMITTED BY:

Ayushi Saxena

PGDM- III SEM

INTERNATIONAL SCHOOL OF INFORMATICS & MANAGEMENT, JAIPUR

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ACKNOWLEDGEMENT

“Successful passage and outcome of every work comes with dedication,

determination and team work. All these turn futile in the absence of a

visionary guidance”

I sincerely wish to acknowledge a deep debt gratitude to Bank of Baroda, Zonal

Office, Jaipur for giving me the opportunity to do summer training in their

organization.

I feel great joy and pleasure in thanking my supervisor Mr. ASHOK

DANGAYACH, Chief Manager, SME Loan Factory without whose constant

encouragement and ever guiding spirit, this project would not have been

completed at all. I convey my special thanks and warm regards to Mr. R.P.Vijay

Senior Manager(Processing Head) who supported me throughout the course of

the project. I would also like to thank Mr. Ramawatar Meena (Senior Manager,

Processing), Mr. Veerendra Bohra (Senior Manager, Processing),Mr. Vishal Jain

(Manager, Marketing) and Mr. Dileep Arya (Senior Manager, Marketing) and Ms.

Parvati Khandelwal (Computer Operator) without their wholehearted co-operation

my training wouldn’t have been successful.

I am indebted to Sumedha Ma’am and all the faculty members, who have

disciplined my mode of work and have been pillars of great strength to me. The

love and affection of my beloved parents that has brought me to this stage are

the most valuable ingredients of my life. I wish convey my love and respects to

them. Finally I convey my heartfelt thanks to friends and all my well-wishers.

AYUSHI SAXENA

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PREFACE

The foundation idea for this work rooted in the intent to work on the criteria of

assessing a company’s financial position before sanctioning loan. As it includes

all practical application of financial aspects viz. Financial Ratios, Fund Flow

Statement, B/s, P&L A/c, Cash Flow Statement etc. So to gain all practical

knowledge in the SME, this project is undertaken.

For preparing the Project Report, I was given various loan proposals to avail the

necessary information. The blend of learning and knowledge acquired during my

practical studies at the company is presented in this Project Report.

Various Inspections in the various industries were also done which gave

exposure related to checking of security and other documents given by the

borrower party.

The rationale behind preparing the Project Report is to study the credit appraisal

basics, history and development of MSME’s ,major players in MSME’s ,

contribution of MSME’s in the growth of Bank &economy and its functional areas

like relationship managing, credit managing, marketing etc.

The Project Report starts with the introduction & history of bank of Baroda, basic

concepts of MSME’s, importance of MSME’s and suggestions to support

financing under micro and small enterprises..

The information presented in this Project Report is obtained from sources like

Bank Personnel, Bank websites, other websites, Bank reports, and Other

literature works.

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DECLARATION

I hereby declare that the project report on “ Suggestions to stimulate

financing under Micro and Small enterprises " is my original work as a part of

the summer training undertaken at SME department of Bank of Baroda, Zonal

office, Jaipur region.

All the information contained in the report has been obtained from the primary

research and data available and searching through internet and books which

provided in depth knowledge about the topic undertaken.

I also declare that all the data presented is true to best of my knowledge which is

fully and specifically acknowledged.

AYUSHI SAXENA

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Executive Summary

The Small and Medium Enterprises (SMEs) play a vital role in the industrial

development of any country. The importance of the SME sector is well

recognized worldwide due to its significant contribution to gratifying various

socio-economic objectives, such as higher growth of employment, output,

promotion of exports and fostering entrepreneurship.

Outlook towards the SMEs is very much important to strengthen it. The premises

for such an outlook that is essential for Indian SMEs to combat the challenges

ahead, are outlined below:

a) SMEs continued to be the thrust area for government policies.

b) The growing economy and the tremendous market potential of the country

promise well for the sustained growth of SMEs in a country.

c) Avenues for employment and decentralized industrial development.

d) Latest policy package for SMEs and envisages 20 percent annual growth

in credit to SME sector from FY 2005, to be doubled by 2012.

e) With the enactment of MSME Act, the sector is set to emerge as the most

vital contributor to the national economy.

f) SIDBI as the apex institution will continue to play its key role in facilitating

timely and adequate credit besides meeting the developmental needs of

the sector.

The constraints come across by the SMEs in India to be export competitive

include product reservations , regulatory hassles- both at the entry and exit

stages , insufficient finance at affordable terms , inflexible labor markets and

infrastructure related problems- like high power tariffs, and insufficient export

infrastructure.

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CONTENTS

Acknowledgement 2

Preface 3

Declaration 4

Executive Summary 5

1. Micro, Small & Medium Enterprises – Introduction 8-29

2. Introduction to Bank of Baroda 30-45

3. Bank of Baroda – SME Loan Factory 46-68

4. Research Methodology 69-71

5. Data Analysis and Interpretation 72-81

6. Findings of the research 82

7. Suggestions 83-85

8. Limitations 86

9. Conclusion 87-88

10.Learning during the Training 89-111

11.Summary 112

12.Bibliography 113

13.Questionnaire 114-117

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MSME–Micro,

Small and

Medium

Enterprises

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The micro, small and medium enterprises (MSME) sector plays an important role

in the economic growth of India. The sector offers a great contribution to the

manufacturing output, employment, and exports of the country. It was estimated

that the MSMEs contribute for 45% of the manufacturing output and 40% of the

exports of the country.

It was estimated that through the fiscal year of 2009-2010, in over 26 million units

throughout the country, about 59 million people were employed in the MSME

sector. The highest growth rate was observed in the MSME sector than that of

the industrial sector. The MSMEs in India are involved in manufacture of about

6000 products that range from traditional goods to high-tech items. The

contribution of goods in MSME sector includes 22% from food products, 12%

from chemical products, 10% from basic metal industry, 8% from metal products,

6% from electrical machinery parts, 6% from rubber plastic products, and 36%

from other products.

Maximum opportunities are provided by the MSME sector for both self-

employment and jobs after agriculture sector. According to the 4th Census with

reference year 20 06-07, employment to about 595 lakhs persons was given

by about 261 lakhs enterprises. During the fiscal year of 2008-09, employment

was given for about 659 lakhs persons by 285 lakhs enterprises. The percentage

growth rate of the number of MSMEs from 2008 to 2009 was found to be 4.53.

An increase in employment growth rate of 5.35% was observed in 2009

compared to the previous year. There has still been a rise in the development of

MSME sector in India.

Considering the growth potential of Indian SMEs, the Government of India has

asked public sector banks to achieve a minimum 20 per cent year-on-year

growth in the funding of SMEs that will lead to double the flow of credit to the

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sector from Rs.67,000crore in 2004-2005 to Rs.1,35,000 crore by 2009-2010.A

small-scale unit is defined as one having original investment in plant and

machinery not exceeding Rs.1 crore. While recognizing the needs for larger

investment in some of the more important segments of small scale industries

(SSIs), the Government has enhanced this to Rs.5 crore for specified industries.

The Government felt that a separate category of medium enterprises (MEs)

needs to be recognized and, accordingly, the new policy package clearly defined

the medium enterprises as those units having investment in plant and machinery

above the small-scale industry limit and up to Rs.10 crores, as recommended by

the Working Group on Flow of Credit to the SSI sector, headed by Mr. A. S.

Ganguly. Across the world different context and definitions are there for small

businesses. However, in India a standard definition for small and medium

enterprises (SMEs) is given in 2006. The Micro, Small and Medium Enterprises

(MSMED) Act, 2006 was imposed by the Ministry of Micro, Small and Medium

Enterprises, Government of India in 2006. A change in economic scenario

changes the definition of SME. The definition of SME for manufacturing sector is

different from that of service sector.

Definition of SME in Manufacturing Sector:

Manufacturing sector includes the firms and businesses which involve

production, processing, or preservation of goods. The definition for SME in

manufacturing sector according to the MSMED Act 2006 is described below. The

cost of land, building and the items specified by the Ministry of Small Scale

Industries are excluded in this description.

When the investment in plant and machinery of the firm does not exceed Rs. 25

lakh, then it is called a micro enterprise. A small enterprise is that having

investment in plant and machinery ranging between Rs. 25 lakh and Rs. 5 crore.

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If the investment in plant and machinery is between Rs. 5 crore and Rs. 10 crore,

then it is said to be a medium enterprise.

Definition of SME in Service Sector:

When the investment in equipment is not above Rs. 10 lakh, then it is called a

micro enterprise. A small enterprise is that one which has the investment in

requirement between Rs. 10 lakh and Rs. 2 crore. When the investment in

equipment is in the range between Rs. 2 crore and Rs. 5 crore, then it is called a

medium enterprise.

The Importance of Small and Medium Enterprises (SMEs) in any economy

cannot be overlooked as they form a major chunk in the economic activity of

nations. They play a key role in industrialization of a developing country like

India.

They have unique advantages due to:-

• Their size.

• Their comparatively high labor-capital ratio.

• need a shorter gestation period.

• focus on relatively smaller markets

• need lower investments.

• ensure a more equitable distribution of national income.

• facilitate an effective mobilization of resources of capital and skills which

might otherwise remain unutilized.

• Stimulate the growth of industrial entrepreneurship.

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According to a UNIDO report,supports for SMEs are generally based on three

assumptions.

• It sustains a broad and diversified private sector and creates employment

and thus benefits the country as a whole.

• Second, a strong SME sector will not emerge without support from the state,

but they suffer disadvantages in the markets because of their size.

• The programs aimed at smallest enterprises, have been justified more in

terms of their welfare impact than their economic efficiency.

Composition of SMEs in India

44%

40%

16%

servicemaufacturingrepairs and maintenance

Indian SME at a Glance

In India, SME sector accounts for around 95% of the industrial units, 40% of the

value added in the manufacturing sector output, 34% of exports and provides

direct employment to 20 million persons in around 3.6 million registered SME

units. Now, the question is, Can it overtake the invasion of foreign companies

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through their innovative, quality, affordable/reasonable and readily available

products?

In developing countries like India, making the SMEs more competitive is

particularly pressing as trade liberalization and deregulation increase the

competitive pressures and reduce the direct subsidies and protection that

Governments offer to SMEs. If our SMEs are to be competitive enough to

withstand and fight back the foreign MNC products, they have to be nurtured.

According to Porter, “the only meaningful concept of competitiveness at the

national level is Productivity, which is the value of output produced by a unit of

labor or capital. Productivity in turn depends on both the quality and features of

products (which determines the prices that they can command) and the efficiency

with which they can be produced. Productivity is the prime determinant of a

nation’s long-run standard of living; it is the root cause of national per capita

income”.

International trade and foreign investment can both improve a nation’s

productivity as well as threaten it. They expose the nation’s industries to the test

of international standards of productivity. An industry will lose out if its

productivity is not sufficiently higher than its rivals to offset any advantage in the

local wage rates. As wage rates in India are sufficiently less to attract multi-

nationals, the only way is to increase the productivity of local small industries.

This means, the increase in the productivity of labor i.e. human resources, the

productivity of capital and that of the process, which in turn relates to the use of

technology that yields quality and innovative products.

As every coin has two sides, similarly, even SME financing has a share in the

overall financing. The following are the issues of SME financing:

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• They are unable to capture market opportunities, which require large

production facilities and thus could not achieve economies of scale,

homogenous standards and regular supply.

• They are experiencing difficulties in purchase of inputs such as raw

materials, machinery and equipment, finance, consulting services, new

technology, highly skilled labor etc.

• Small size hinders the internalization of functions such as market research,

market intelligence, supply chain, technology innovation, training, and

division of labor that impedes productivity.

• Emphasis to preserve narrow profit margins makes the SMEs myopic about

the innovative improvements to their product and processes and to

capture new markets.

• They are unable to compete with big players in terms of product quality,

range of products, marketing abilities and cost.

• And most importantly, absence of a wide range of Financing and other

services those are available to raise money and sustain the business.

• Absence of Infrastructure, quality labor, Business acumen and limited

options / opportunities to widen the business.

The micro, small and medium enterprises face problems at every stage of their

operation, whether it is buying of raw materials, manufacture of products,

marketing of goods or raising of finance. These industries are therefore not in a

position to secure the internal and external economies of scale.

The major problems confronting the sector have been identified as:

Technology obsolescence

Managerial inadequacies

Delayed Payments

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Poor Quality

Incidence of Sickness

Lack of Appropriate Infrastructure

Lack of Marketing Network

Problem of raw material & power

Export difficulties

Problem of industrial relations

Growing sickness and mortality among these units.

There is lack of trained and experienced employees because small firms cannot

pay high salaries and cannot spend much on training their employees. Small

scale firms find it difficult to recruit and motivate skilled managerial and technical

personnel as they look for better opportunities in the large scale industries.

Therefore, they get the second rate talent or have to depend on family members

who do not have diversified skills.

Although, the primary responsibility for promotion and development of MSMEs

lies with the concerned State/ Union Territory (UT) Governments. But, the

Central Government has always taken active interest in supplementing the efforts

of State/UT Governments through its various regulations, as MSMEs have huge

potential both in terms of creation of wealth and employment as well as for the

proper growth of related sectors of the economy. In India, the Ministry of Micro,

Small and Medium Enterprises are the main central authority which assists the

States/UTs in their efforts to promote growth and development of MSMEs. It has

been implementing several schemes/programs and policies so as to enhance the

global competitiveness of the MSMEs. These relate mainly to simplified systems

and procedures, easy access to capital, positioning the MSMEs in the global

value chain by enhancing their productivity, technology up gradation, quality

improvement, skill development, access to both domestic and international

markets, etc.

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Risks Faced by SME Units

Management Risks

General Management skills / methods / training / attitudes

Perpetuation of the units as an ongoing concern

Financial Risks

Lack of Financial Plans (Too many surprises & ad hoc decisions)

Funds & Cash Flow planning

Marketing Risks

Reach & Net working

Dependence on few customers

Technology Risks (Scope / Costs / Quality)

Need for perpetual R&D

Technology obsolescence

Human Resource Risks

Need for formally trained manpower

Ability to pay competitive wages

In India Micro, Small and Medium Enterprises in agriculture, industry and

services sectors have key role in value addition, employment generation, export

earnings, equitable distribution of national income, regional dispersal of the

industries, productive utilization of entrepreneurial skilland capital. Micro, Small

and Medium enterprise [MSME] sector is heterogeneous, highly dispersed and

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Mostly in the unorganized sector. It includes diverse types of production units,

ranging from traditional crafts too modern high-tech industries and ancillaries that

supply components to most modern large-scale industries. Segments such as

power looms, handlooms, handicrafts, food processing, coir, sericulture, khadi&

village industries and wool, which are mostly unorganized, are fragmented

across various Ministries and are often seen only as rural livelihoods.

However, since these enterprises have been thriving in many prominent cities,

they indeed deserve focused attention of all stakeholders for development and

growth.

This MSME sector in particular contributes about 8% of the country’s GDP, about

45% of manufactured output and about 40% of exports. This, coupled with a high

labor to capital ratio, high growth and high dispersion makes them crucial for

achieving the objectives of inclusive growth. The 11th Five Year Plan [2007-12]

says “MSMEs are more than just GDP earners; they are instruments of inclusive

growth which touch upon the lives of the most vulnerable, the most marginalized

people. Yet this sector in successive Five Year Plans has not received its due”.

It is against this background an attempt is made here to understand the broad

based definition of MSME sector, its contribution to country’s economy, enabling

measures initiated by RBI to boost its development & growth, review credit

Operations and need to optimally utilize the institutional infrastructure already

created since 1970s at enormous cost to further accelerate its planned growth.

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Profile of Indian MSME Sector

S. No. Particulars Value1.

Number of micro and small enterprises

130 Lakhs

2.Employment 410 Lakhs

3.Share in GDP 8-9%

4.Share in manufacturing output 45%

5.Share in exports 40%

Growth in number of SME units

Financial Year Registered(In Lacs)

Unregistered (In Lacs)

Total(In Lacs)

FY’ 03 16 93 109

FY’04 17 97 114

FY’05 18 100 119

FY’06 19 104 123

FY’07 P 20 108 128

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SIZE OF THE MSME SECTOR

Sr. No.Details Micro Small Medium Total

1Manufacturing enterprises

9,74,609 57,666 2,828 10,35,103

2 Service enterprises

5,01,072 15,915 402 5,17,380

3Total number of MSMEs

1,475,681 73,581 3,230 15,52,492

4% distribution of total units

95.05 4.74 0.21 100

5% share of manufacturing units

94.16 5.57 0.27 66.67

6% share of service units

96.85 3.08 0.08 33.33

MICRO, SMALL, MEDIUM ENTERPRISES DEVELOPMENT (MSMED)ACT,

2006

Government of India has set up a new governing body for promotion and

development of Micro, Medium and Small Scale Enterprises via “MSME

Development Act”, which came into force from 2nd October 2006. The President

under Notification dated 9th May 2007 amended the Government of India

(Allocation of Business) Rules, 1961 by which, Ministry of Agro and Rural

Industries (Krishi Evam Gramin Udyog Mantralaya) and Ministry of Small Scale

Industries (Laghu Udyog Mantralaya) have been merged into a single Ministry,

namely, “Ministry of Micro, Small and Medium Enterprises”.

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The Ministry of “Micro, Small and Medium Enterprises” (MSME) is the

administrative Ministry in the Government of India for all matters relating to Micro,

Small and Medium Enterprises. It designs and implements policies and

programmes through its field organizations and attached offices for promotion

and growth of MSME sector. The Office of the Development Commissioner

(MSME) is an attached office of the Ministry of MSME, and is the apex body to

advise, coordinate and formulate policies and programmes for the development

and promotion of the MSME Sector. The office also maintains liaison with Central

Ministries and other Central/State Government agencies/organizations financial

institutions.

In accordance with the provision of Micro, Small & Medium Enterprises

Development (MSMED) Act, 2006 the MSMEs are classified in two classes.

Manufacturing Enterprises: - The enterprises engaged in manufacturing or

Production of goods pertaining to any industry specified in the first schedule to

the Industries (Development and Regulation Act, 1951). The Manufacturing

Enterprise is Defined in terms of investment in Plant & Machinery.

Service Enterprises: - The enterprises engaged in providing or rendering of

services and are defined in terms of investment in equipment.

While for enterprises engaged in the manufacture or production, processing or

preservation of goods:

Micro Enterprise: A micro enterprise is where the investment in plant and

machinery does not exceed Rs. 25 lacs.

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Small Enterprise: A small enterprise is where the investment in plant and

machinery is above 25 lacs but does not exceed Rs. 5 crore.

Medium Enterprise: A medium enterprise is where the investment in

plant and machinery can be more than Rs. 5 crore but should not exceed

Rs. 10 crore.

Service Enterprises are further classified as under:

Micro Enterprises :A micro enterprise is where the investment in

equipment does not exceed Rs. 10 lakh .

Small Enterprises : A small enterprise is where the investment in

equipments more than Rs. 10 lakh but does not exceed Rs. 2 crore .

Medium Enterprises : A medium enterprise is where the investment in

equipment is more than Rs. 2 crore but does not exceed Rs. 5 crore.

India SME exports 

SME’s constitute an important segment of India’s industrial production with a

contribution to 33% of its exports. During FY’ 03-06, India’s total merchandise

exports in US dollar terms witnessed a CAGR growth of 25%, while in the same

period SME exports grew at a CAGR of 24%. The remarkable contribution of

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SME’s in generating employment in the country has been instrumental in

addressing issues pertaining to poverty and inequality of income. As per the

Third All India Census on Small Scale Industries-2001-02, highly populated

states such as Madhya Pradesh, Uttar Pradesh, West Bengal, Maharashtra,

Karnataka and Jharkhand together contributed to around 55.4% of the total

exporting units in India. In terms of distribution of value of exports from the SME

sector, states like Punjab, Haryana, Uttar Pradesh, Tamil Nadu and Maharashtra

together contributed 64.75% of total exports.

Composition of SSI export basket from India

The composition of export basket of SME’s in India has both traditional and non-

traditional commodities in nature. There are few commodity groups which are

exclusively exported by SME’s such as sports goods, cashew etc. In the

commodity group of engineering goods, SME’s constitute around 40% of the total

exports of this commodity group.

Similarly, SME’s in basic chemicals & pharmaceuticals finished leather and

leather products and marine products account for around 44%, 69% and 50% of

the export share in their respective commodity groups. In view of the

Government of India’s ambitious target of average GDP growth rate of 9% during

the 11th Five Year Plan, SME’s have to play a vital role in achieving this target. It

is imperative for the government to address the major issues plaguing the sector

and take further inclusive growth oriented policy initiatives to boost the sector.

This includes measures addressing concerns of credit, fiscal support, cluster-

based development, infrastructure, technology, and marketing among others. As

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mentioned earlier, SME’s constitute 34% of India’s merchandise exports and in

order to increase India’s export share to the global trade, SME’s are expected to

enlarge their scope manifold.

Why SME Loan Factory is called a Factory?

As it provides hassle free and faster sanctioning of credit to SME segment. This

is the hub for Centralized Processing of SME proposals. That is why it is called

as Loan factory.

PREAMBLE

It is a veritable race to the bottom of the pyramid. Just a decade ago, banks on

an aggressive growth path used to eliminate small &medium enterprises (SMEs)

from their portfolio. Then, economic and corporate reform, falling interest rate

and a booming capital market changed the game. The best companies aimed for

global competitiveness, restructured operations, cut costs, reduced borrowings

and met funding needs from the capital market leaving banks to find new

customers.

SME is fast growing sector in the Indian Economy. Every Bank has given highest

importance to financing to SMEs in their strategically growth plan. It has become

necessary to bring policy shift and create free market environment from

regulations & interventions in economic activity. Growth resulting from

globalization and liberalization are visible most profoundly in the SME segment.

The relationship between the banker and the customer has become most crucial

and competitive. The technology has entered the scene almost as a natural

corollary of liberalization. Liberalized policies provide ample opportunities to

Indian Market to compete with developed and developing countries. The

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clearance of the Micro, Small & Medium Enterprises Indian industry, as it

addresses and streamlines entire frame work along with key governance 7

operational issues being faced by the SMEs.

Outstanding Bank Credit to Micro & Small Enterprises

As on

March

Public

sector

Banks

Private

Sector

Banks

Foreign

Banks

All

scheduled

commercial

Banks

Percentage

of MSE

credit to

Net Bank

Credit

2005 67,800 8,592 6,907 83,498 9

200682,434

(21.6)

10,421

(21.3)

8,430

(22.1)

101285

(21.3)7.5

2007102,550

(24.4)

13,136

(26.1)11,637 (38)

127,323

(25.7)7.2

2008151,137

(47.4)

46,912

(257.1)

15,489

(33.1)

213,538

(67.7)11.6

2009191,408

(26.6)

46,656 (-

0.5)

18,064

(16.6)156,128 (20) 11.4

2010 (p)278,398

(45.4)

64534

(38.3)

21,069

(16.6)

364,001

(42.1)13.4

OBJECTIVES

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The SME Loan Policy is framed with the following objectives:

To improve flow of credit to SME Sector so as to double the credit to the

Sector in 5 years, i.e. by the year 2012.

To formulate liberal norms of lending to SME sector, to ensure availability

of adequate and timely credit to the sector.

To provide guidelines to the branches to dispense credit to SME Sector on

liberalized terms.

To devise an organizational structure at all levels for handling SME credit

portfolio in a more focused manner.

To comply with terms of Policy package announced by Hon’ble Union

Finance Minister on 10.08.2005 and further guidelines received from

Reserve Bank of India from time to time for implementation of the Policy

Package.

It can be observed that by and large, SMEs in India MET expectations of the

Government in this respect. SMEs developed in a manner, which made it

possible for them to, achieve the following objectives:

High contribution to domestic production

Significant export earning

Operational flexibility

Location wise mobility

Capacities to develop appropriate indigenous technology

Import substitution

CHARACTERISTICS OF SMEs

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Concentration of functions in one/two persons

Relatively low level of investments, production, sales etc

Lack of professionalism

Low efficiency in business operations

Inadequate R&D

Infrastructural inadequacies

Limited market access

Inadequate exposure to international environment

Governmental Measures

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Recognizing the importance of small and medium enterprises in the growth of

Indian economy in terms of their contribution to country's industrial production,

exports, employment and creation of entrepreneurial base, the Central and State

Governments are undertaking several policy measures and incentives as well as

implementing schemes and programs for promotion and development of these

enterprises. For this, entrepreneurship development and training is one of the

key steps, particularly, for the first generation entrepreneurs.

Entrepreneurship Development Programs (EDPs) of various durations are being

organized on regular basis by a number of organizations, such as, National and

State level Entrepreneurship Development Institutes (EDIs);Micro, Small and

Medium Enterprises Development Institutes (MSMEDIs) - formerly called Small

Industries Service Institutes (SISIs); National and State level Industrial

Development Corporations, Banks and other training institutions/agencies in

private and public sector; etc. These EDPs aims to create new entrepreneurs by

cultivating their latent qualities of entrepreneurship and enlightening them on

various aspects necessary for setting up micro and small enterprises. Besides,

skill development programs (SDPs) and entrepreneurship-cum-skill development

programs (ESDPs) are also being organized by various public as well as private

training institutions. However, there are still wide spread variations in the success

rate, in terms of actual setting up and successful running of enterprises, by the

EDP/SDP/ESDP trained entrepreneurs. Also, new entrepreneurs generally face

difficulties in availing full benefits under available schemes of the Governments /

financial institutions, completing and complying with various formalities and legal

requirements under various laws/regulations, in selection of appropriate

technology, etc.

In order to bridge the gap between the aspirations of the potential entrepreneurs

and the realities, there is a need to support and nurture the potential first

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generation entrepreneurs by giving them handholding support during the initial

stages of setting up and managing their enterprises.

Accordingly, the scheme called 'Rajiv Gandhi Udyami Mitra Yojana (RGUMY)'

has been launched to provide handholding support and assistance to the

potential first generation entrepreneurs, who have already successfully

completed EDP/SDP/ESDP or vocational training from ITIs, through the selected

lead agencies, like 'Udyami Mitras'. This helps such entrepreneurs in the

establishment and management of the new enterprise, in dealing with various

procedural and legal hurdles as well as in completion of various formalities

required for setting up and running of the enterprise, etc.

The work profile of Udyami Mitras include networking, coordinating and follow up

with various Government departments/ agencies/ organizations and regulatory

agencies for channelizing the benefits available under various schemes to the

first generation entrepreneurs and help them in setting up their enterprise.

Some of the other governmental measures for small and medium enterprises

include:-

The Ministry of Micro, Small and Medium Enterprises has been

implementing the 'Scheme of Surveys, Studies and Policy Research' with

a view to regularly/periodically collect, from primary, secondary and other

sources, relevant and reliable data on various aspects and features of

micro, small and medium enterprises (MSMEs) engaged in manufacturing

and services (whether in the category of tiny/small scale industries, khadi,

village industries or coir) as a composite group or specific segments

thereof. It aims to study and analyze, on the basis of empirical data or

otherwise, the constraints and challenges faced by the MSMEs as well as

the opportunities available to them, in the context of liberalization and

globalization of the economy. It further aims to use the results of these

surveys and analytical studies for policy research and designing

- 27 -

appropriate strategies and measures of intervention by the Government,

by itself or in public private partnership mode, to assist and enable these

enterprises in facing the challenges and availing of the opportunities with a

view to enhancing their efficiency and competitiveness as well as

expanding generation of sustainable employment by them. 

Micro, Small and Medium Enterprises Development Act, 2006 has been

enacted to facilitate the promotion and development as well as enhance

the competitiveness of micro, small and medium enterprises and for

matters connected therewith or incidental thereto. For this, it included the

establishment of specific funds, notification of particular

schemes/programs, progressive credit policies and practices, preference

in Government procurements to products and services of these

enterprises, following more effective mechanisms for mitigating their

problems, etc. It provides the first-ever legal framework for recognition of

the concept of 'enterprise' which comprises both manufacturing (those

engaged in the manufacture/production of goods pertaining to any

industry) and service (those engaged in providing/rendering of services)

entities. Under the Act, three tiers of enterprises, namely 'micro, small, and

medium' have been defined for the first time. The Act also provides

statutory consultative mechanism at the national level with balanced

representation of all sections of stakeholders, particularly, these

enterprises, and with a wide range of advisory functions. 

The progressive de-reservation of products in the MSMEs aimed at

providing opportunities for technological up gradation, promotion of

exports and economies of scale, with a view to encourage modernization

and enhance competitiveness in the sector. As on 13 March 2007, 125

items were de-reserved. As on 8th February, 2008, 79 items more were

de-reserved. At present, the total number of items reserved for exclusive

manufacture in the micro and small scale sector is 35. 

- 28 -

The National Manufacturing Competitiveness Program (NMCP) has been

launched to provide support to the manufacturing sector, particularly small

and medium enterprises sector, in their endeavor to become competitive.

It consists of 10 components and programs as the initiatives for

development and promotion of MSMEs. 

Credit is one of the critical inputs for the promotion of small and medium

enterprises. It is a part of the priority sector lending policy of the banks.

Accordingly, several schemes and policies have been undertaken to

provide adequate credit to such enterprises. One of such scheme is

the Credit Linked Capital Subsidy Scheme (CLCSS) which was launched

to facilitate technology up gradation by upfront capital subsidy to small,

micro and medium enterprises, including tiny, khadi, village and coir

industrial units, on institutional finance (credit) availed by them for

modernization of their production equipment (plant and machinery) and

techniques in specified sub-sectors/ products approved under the

Scheme.

Besides, the State and Union Territories (UTs) Governments are executing

several promotional and developmental projects/schemes as well as providing a

number of supporting incentives for development and promotion of MSME sector

in their respective States/UTs. These schemes/ projects are executed

through State Directorate of Industries, who has District Industries Centers

(DICs) under them to implement Central/State level schemes. Around 30 MSME-

DIs and 28 Branch MSME-DIs have been set up in State capitals and other

industrial cities all over the country, with a view to provide assistance/consultancy

to prospective entrepreneurs as well as to existing units; conduct EDPs,

Management Development Programs, Skill Development Programs, etc.

- 29 -

Bank of Baroda

(An Introduction)

Bank of Baroda is a public sector bank

established on July20, 1908. It is one of the

- 30 -

largest banks in India and known as India’s International Bank. It has a network

of over 3411 branches and offices & about 1596 ATMs. Bank of Baroda offers a

wide range of banking products and financial services to corporate and retail

customers through a variety of delivery channels and through its specialized

subsidiaries and affiliates in the area of investment banking, credit cards and

assets management, in its international expansion Bank of Baroda followed the

Indian Diaspora, and especially that of the Gujratis. The bank has received RBI

approval to open various offices in the overseas territory. Its products includes

loans, Credit cards, Savings, Investment vehicles etc. The Corporate office is

situated in Mumbai. Its shares are listed in BSE and NSE.

Backed by the great vision of the founding father, Maharaja Sayajirao Gaekwad

III, Bank has a rich heritage of many flagship achievements, pioneering

endeavors and an undisputedly strong place in the Indian Banking industry

today. The Bank of Baroda has seen many ups and downs over a period of 100

years but stood undaunted to surmount all hurdles, coming out with flying colors

and reinforcing its strong fundamentals. The world was convinced time and again

that this is the Bank with impregnable foundation and immense potential to forge

ahead to contribute to the nation’s economic growth.

Bank of Baroda is one of the oldest banking institutions in India, having been

established in 1908 from a small building in Baroda, Gujarat State. It was set up

with a paid up capital of Rs.20 lakhs by the then ruler of Baroda, Maharaja

Sayajirao Gaekwad.

PROFILE

Bank of Baroda (BOB), India’s third largest bank and prominent among the global

top 200, has a century’s financial experience backing it. Bank of Baroda offers a

wide range of banking products and financial services to more than 70 million

global corporate and retail customers, through various delivery channels, its

- 31 -

specialized subsidiaries and affiliates in the areas of investment banking, credit

cards and asset management. Today, the Bank has significant international

presence with a network of 85 branches/offices in 26 countries including 53

branches/offices of the Bank, 28 branches of its 8 Subsidiaries and 3

Representative Offices in Malaysia, Thailand & Australia.

The Bank also has a Joint Venture in Zambia with 12 branches. During the

current year bank has opened branch at IIford, U.K. & Auckland, New Zealand of

its wholly owned subsidiary-Bank of Baroda (new Zealand) Ltd and 3 Electronic

Banking Service Units in UAE at RAKIA, Ras Al Khaimah, Al Quasis, Dubai and

Sh. Zayed Road, Dubai.

Growing its presence across new geographies and strengthening its equity in

existing markets, Bank of Baroda is on the path to establish itself 'round the clock

around the globe’. The bank is exploring out-of-the-box means to identify novel

ways to tailor its growing repertoire of products and services to meet segment-

specific requirements across geographies. Automation-led process and cost

optimization, orchestration of the offices network and greater attention to

compliance with global regulations are aggressively being focused on to help the

bank achieve its ambitious goals.

HISTORY

Bank of Baroda is having a long, eventful and glorious history of 100 years. HH

Sir Maharaja Sayajirao Gaekwad-III founded the Bank. The Bank made a humble

beginning in 1908 in a small building in Baroda. On 20th July 1908 Bank of

- 32 -

Baroda Limited was registered under the Baroda Companies Act of 1897, with a

paid up capital of Rs.20 lacs and Shri Vithaldas Damodar Thackersey as the first

Chairman.

1908-1959

1908: Maharaja Sayajirao Gaekwad III set up Bank of Baroda (BOB).

1910: BoB established its first branch in Ahmadabad.

1953: BoB established a branch in Mombasa and another in Kampala.

1954: BoB opened a branch in Nairobi.

1956: BoB opened a branch in Dar-es-Salaam.

1957: BoB established a branch in London.

1959: BoB acquired Hind Bank.

1960s

1961: BoB merged in New Citizen Bank of India. This merger helped it increase

its branch network in Maharashtra. BOB also opened a branch in Fiji.

1962: BoB opened a branch in Mauritius.

1963: BoB acquired Surat Banking Corporation in Surat, Gujarat.

1964: BoB acquired two banks, Umbergaon People’s Bank in southern Gujarat

and Tamil Nadu Central Bank in Tamil Nadu state. BoB lost its branch in

Narayanganj (East Pakistan) due to the Indo-Pakistan war. It is unclear when

BOB had opened the branch.

1965: BoB opened a branch in Guyana.

- 33 -

1967: The Tanzanian government nationalized BoB’s three branches there and

transferred their operations to the Tanzanian government-owned National

Banking Corporation.

1969: The government of India nationalized 14 top banks, including BoB. Bob

incorporated its operations in Uganda as a 51% subsidiary, with the government

owning the rest.

1970s

1972: BoB acquired The Bank of India’s operations in Uganda.

1974: BoB opened a branch each in Dubai and Abu Dhabi.

1975: BoB acquired the majority shareholding and management control of

Bareilly Corporation Bank (est. 1928) and Nainital Bank (est. in 1954), both in

Uttar Pradesh. Since then, Nainital Bank has expanded to Uttarakhand State.

1976: BoB opened a branch in Oman and another in Brussels. The Brussels

branch was aimed at Indian firms from Mumbai (Bombay) engaged in diamond

cutting and jewellery having business in Antwerp, a major center for diamond

cutting.

1977: BoB Opened a branch in Imphal .

1978: BoB opened a branch in New York and another in the Seychelles.

1979: BoB opened a branch in Nassau, The Bahamas.

1980s

1980: BoB opened a branch in Bahrain and a representative office in Sydney,

Australia. BoB, Union Bank of India and Indian Bank established IUB

- 34 -

International Finance, a licensed deposit taker, in Hong Kong. Each of the three

banks took an equal share.

1985: BoB (20%), Bank of India (20%), Central Bank of India (20%) and ZIMCO

(Zambian government; 40%) established Indo-Zambia Bank (Lusaka). BoB also

opened an Offshore Banking Unit (OBU) in Bahrain.

1988: BoB acquired Traders Bank, which had a branch network in Delhi.

1990s

1990: BoB opened an OBU in Mauritius, but closed its representative office in

Sydney.

1991: BoB took over the London branches of Union Bank of India and Punjab &

Sind Bank (P&S). P&S’s branch had been established before 1970 and Union

Bank’s after 1980. The Reserve Bank of India ordered the takeover of the two

following the banks' involvement in the Sethia fraud in 1987 and subsequent

losses.

1992:BoB incorporated its operations in Kenya into a local subsidiary with a small

tranche of shares quoted on the Nairobi Stock Exchange.

1993: BoB closed its OBU in Bahrain.

1996: BoB Bank entered the capital market in December with an Initial Public

Offering (IPO). The Government of India is still the largest shareholder, owning

66% of the bank's equity.

1997: BoB opened a branch in Durban.

1998: BoB bought out its partners in IUB International Finance in Hong Kong.

Apparently this was a response to regulatory changes following Hong Kong’s

reversion to the People’s Republic of China. The now wholly owned subsidiary

became Bank of Baroda (Hong Kong), a restricted license bank.

- 35 -

BoB also acquired Punjab Cooperative Bank in a rescue.

BoB also incorporate wholly owned subsidiary BOB Capital Markets Ltd.for

Broking Business.

1999: BoB merged in Bareilly Corporation Bank in another rescue. At the time,

Bareilly had 64 branches, including four in Delhi.

In Guyana, BoB incorporated its branch as a subsidiary, Bank of Baroda Guyana.

BoB added a branch in Mauritius, but closed its Harrow Branch in London.

2000s

2000: BoB established Bank of Baroda (Botswana).

2002: BoB acquired Benares State Bank (BSB) at the Reserve Bank of India’s

request. BSB was established in 1946 but traced its origins back to 1871 and its

function as the treasury office of the Benares state. In 1964, BSB had acquired

Bareilly Bank (est. 1934), with seven branches; it also had taken over Lucknow

Bank in 1968. The acquisition of BSB brought BOB 105 new branches.

2002: Bank of Baroda (Uganda) was listed on the Uganda Securities Exchange

(USE).

2003: BoB opened an OBU in Mumbai.

2004: BoB acquired the failed Gujarat Local Area Bank, and returned to

Tanzania by establishing a subsidiary in Dar-es-Salaam. BoB also opened a

representative office each in Kuala Lumpur, Malaysia, and Guangdong, China.

- 36 -

2005: BoB built a Global Data Centre (DC) in Mumbai for running its centralized

banking solution (CBS) and other applications in more than 1,900 branches

across India and 20 other counties where the bank operates. BoB also opened a

representative office in Thailand.

2006: BoB established an Offshore Banking Unit (OBU) in Singapore.

2007: In its centenary year, BoB’s total business crossed 2.09 lakh crores, its

branches crossed 1000, and its global customer base 29 million people.

2008: BoB opened a branch in Guangzhou, China (02/08/2008) and in Kenton,

Harrow United Kingdom.

2008: BoB opened a joint venture life insurance company with Andhra Bank and

Legal and General (UK) called India First Life Insurance Company

2009: The Bank of Baroda registered with the Reserve Bank of New Zealand,

enabling it to trade as a bank in New Zealand (2009/09/01)

2010: Malaysia awarded a commercial banking license to a locally incorporated

bank to be jointly owned by Bank of Baroda, Indian Overseas Bankand

AndhraBank. The new bank, India BIA Bank (Malaysia), will reside in Kuala

Lumpur, which has a large population of Indians. Andhra Bank will hold a 25%

stake in the joint-venture, Bank of Baroda will own 40% and IOB the remaining

35%.

- 37 -

BANK NETWORK

OVER SEAS SUBSIDIARIES

Bank of Baroda (Botswana) Ltd.

Bank of Baroda (Kenya) Ltd.

Bank of Baroda (Uganda) Ltd.

Bank of Baroda (Guyana) Inc.

Bank of Baroda (Trinidad & Tobago) Ltd.

Bank of Baroda (Tanzania) Ltd.

Bank of Baroda (Ghana) Ltd.

Bank of Baroda (New Zealand) Ltd.

Joint Venture

India-Zambia Bank Ltd. (Lusaka)

Representative Offices

Australia, Malaysia, Thailand.

Indian Subsidiaries:

1. BOB Assets Management Co. Ltd.

2. BOBCARDS Ltd.

3. BOB Capital Market Ltd.

- 38 -

(1) Bahamas (2) Belgium (3) Botswana (4) Bangkok (5) China (6) Fiji Island (7)

Guyana (8) Hong Kong (9) Kenya (10) Mauritius (11) Malaysia(12) South Africa

(13) Seychelles (14) Sultanate of Oman (15) Singapore (16) Tanzania (17)

Uganda (18) UAE (19) UK (20) USA (21) Zambia (22) Australia (23) Bahrain (24)

Ghana (25) Trinidad & Tobago (26) New Zealand

- 39 -

International Net work

At present, the Bank has an overseas network of 72 branches / offices in the

following 26 countries as under:

POSITION

- 40 -

BOARD OF DIRECTORS OF BANK OF

BARODA

NAME DESIGNATION

1. Shri M.D. Mallya Chairman & Managing

Director

2. Shri N. S. Shrinath Executive Director

3.Shri Rajiv Kumar

Bakshi

Executive Director

4. Shri Alok Nigam Director

5. Shri R. Gandhi Director

6. Shri Ajay Mathur Director

7. Shri V.B. Chavan Director

8.Dr.(Smt.) Masarrat Shahid

Director

9. Shri Satya Dev

Tripathi

Director

10.Dr. Dharmendra

Bhandari

Director

11. Dr. Deepak B.

Pathak

Director

12. Shri Maulin Vashnav Director

Bank of Baroda is at 3rd position in India’s top 5 Public sector banks after State

Bank of India and Punjab National Bank. After BOB are IDBI and Bank of India.

BANK’S MISSION STATEMENT of 2011-12

“Business Growth through sales and service excellence.”

BANK’S VISION

1. To regain the leadership spot among the public sector Banks in India.

2. To acquire at least 2 million customers every year.

3. To double the retail assets and fee based income

4. To bring at least 300 to 400 of the top 500 Corporate in the Bank’s Loan book

5. To transform the top 500 branches into best-of-the-breed sale and service

centers, through improved ambience, processes, people and technology.

6. To pursue best global practices for delivering best value to the customers.

- 41 -

PRODUCTS AND SERVICES

Given below is the list of services offered by the Bank of Baroda:

Retail Banking

Rural / Agri Banking

Wholesale Banking

SME Banking

Wealth Management

De mat account

Product Enquiry

Internet Banking

NRI Remittances

Baroda e-trading

Interest Rates

Deposit Products

Loan Products

ATM / Debit cards

- 42 -

International Services

NRI Services

FGN Currency Credits

ECB (External Communication Borrowings)

FCNR (B) Loans

Offshore Banking

Finance in Export and Import

Correspondent Banking Facility

International Treasury

- 43 -

“ACCOLADES AND AWARDS WON BY THE BANK”

Sr. No Name of the

Award

Year Area Organization

conferring the

award

1 Excellence in

Finance

Communication

Award

2006 Outstanding contribution

in financial

communications

Association of

Business

Communications of

India (ABCI)

2 Golden Peacock

Innovation Award

2007 Innovation Golden Peacock

3 Outlook Money

NDTV Money

Award

2007 Best Bank in Home Loan

Category

Outlook Money

NDTV Money

4 Employer Branding

Award

2007 Managing Health at work ITM Business

School

- 44 -

5 Amity Leadership

Award

2007 Sectoral Excellence Amity Business

School

6 SKOCH

Challenger Award

2007 Change Management SKOCH Consultants

Pvt. Ltd.

7 MIDAS Award 2007 Marketing Effectiveness MIDAS Awards,

New York

8 Bank of the Year 2009 Urban Development Workhardt

Foundation

9 Silver Award 2010 Rendering Financial

Services

Dainik Bhaskar

Group

10 Best Bank Award 2010 Significant progress in all

fields

Business India

Magazine

11 Bank of the Year

2010

2010 Continuous progress Banker Magazine,

UK

12 Financial Inclusion

Award

2011 For tap the potential

asset of unskilled

unemployed youth of

India to impart them

training by setting up

Baroda Swarojgar Vikas

Sansthan(BSVS) Baroda

R-SETI Centers.

SKOCH

Consultancy Pvt.

Ltd.

- 45 -

Bank of Baroda –

SME Loan Factory

- 46 -

ORGANIZATIONAL SET UP

Bank of Baroda has set up SME Department at Corporate Office headed by the

General Manager with a view to take quick decisions. Bank of Baroda has 60

Specialized SME branches all over India.

SME LOAN FACTORY- Objectives

To grab vast business opportunities available and with an aim to extend

focused attention to Industries & Service Sector, Bank Of Baroda has

come out an unique model in the form of SME LOAN FACTORY

exclusively for SMEs.

It is a revolutionary step taken by Bank of Baroda amongst the

nationalized Banks. Is envisages setting up of Centralized Processing Hub

to ensure speedy appraisal and sanctioning of proposals of SME Sector

within a time bound schedule.

The models works on assembly line principles with simplified processes

using latest technology and in-house skilled men power to deliver focused

services to SME customers.

A team of relationship Officers / Relationship Managers have been

stationed at different key places spread over the micro segment of the city

who will reach out to SME customers.

At present 36 SME Loan Factories have already been operationalised all

over India with deployment of team of experts.

FEATURES OF THE MODEL

Team of officers having expertise in the area of credit with positive

approach is selected.

- 47 -

Instead of appointing DSAs (Direct Selling Agents), bank has appointed

officers from existing dedicated team only.

The hubs main role is ensuring speedy appraisal & sanctioning of

proposals pertaining to SME Sector in a time bound program.

The team members reach out to different market segments.

It’s important feature is working of the SME Loan Factory on assembly line

principles with simplified processes.

We have two nodes to take care of the marketing/ sales (SALES HUB)

and credit processing/ sanction (CREDIT HUB), under a single umbrella of

the SME Loan Factory.

ELIGIBLE ENTITIES

Manufacturers Hospitals Dressmakers

Traders Hotels Coaching classes

Educational institutions Auto dealers Repairers etc.

The total outstanding in MSME Sector works out to Rs 27,365 crore as on 31st

March 2011. The growth in lending to MSME Sector during the last three years is

given in the table below:

GROWTH INLENDING:

Year Growth (%, YoY)

2008-09 24.18%

2009-10 43.98%

2010-11 29.63%

- 48 -

PERFORMANCE OF S.M.E. (JAIPUR) :

PERIOD TARGET (In Cr.) ACHIEVED (In Cr.)

1.04.2010 to

31.03.2011

575.00 652.10

Industry wise sanctions and disbursement during the period 1/04/10 to

31/03/11

Sr.

No. Industries Proposal Sanctioned Proposal disbursed

    No. Amount(cr.) No. Amount (cr.)

1 Engineering 5 50.89 3 48.99

2

Auto & Auto

ancillaries 1 1.50 1 1.50

3 Textile 16 35.39 14 34.40

4 Chemical 8 3.67 8 3.67

5 Plastic 8 13.37 6 12.79

6 Iron & Steel 20 61.41 18 57.91

7. Other manufacturing 91 270.52 79 195.79

8 Real estate 3 42.07 2 32.07

9 Construction s 19 71.11 16 64.64

10 Educational institutes 6 54.72 5 32.42

11 Hotels 1 1.50 1 1.50

- 49 -

12 Other service sector 8 8.93 7 7.93

13 Trading sector        

  (a) Retail 8 19.78 8 19.78

  (b) Wholesale 18 17.24 13 9.80

  Total 212 652.10 181 523.19

INITIATIVES TAKEN BY BANK IN MSME FINANCING DURING 2010-11

1. During this year, the Bank introduced five new customer-centric, area-specific

products to suit the local cluster needs along with the renewal of eight existing

customer-centric area-specific products.

2. The Bank sponsored a workshop on “Management Skills to Source Financing

and Management of Technology by SMEs” for entrepreneurs organized by the

AIMA at Faridabad.

3. The Bank introduced “Protrack” -- an e-tracking system for the SME credit

proposals with a view to have control over the turnaround time.

4. The Bank celebrated SME Festival from 1st January 2011 to 28th February

2011 in order to give boost to SME advances. Some concessions in the rate of

interest and service charges were announced for loans sanctioned during the

celebration period.

5. The Bank participated in the Workshops arranged by CGTMSE on Bank Credit

to Micro & Small Enterprises and the Role of Credit Guarantee.

6. The Bank accorded higher importance to Increase the flow of credit to MSME

with a special emphasis on Micro Enterprises.

- 50 -

7. The Bank focused on collateral free credit under the CGTMSE scheme

through a special campaign.

8. The Bank achieved total customer relationship through enhanced cross

selling, locational meetings, and involvement of trade bodies at the national and

state levels.

9. The Bank placed emphasis on continuous knowledge updating and skill

building of processing/marketing officers attached to its SME factories with the

help of external and internal training outfits.

SME PRODUCTS

1. BARODA Overdraft against Land & Building

2. Baroda SME Loan Pack

3. Baroda Vidyasthali Loan

4. Baroda Arogyadham Loan.

5. SME Short Term Loans

6. SME Medium Term Loans

7. Composite Loans

8. Baroda SME Gold Card.

9. Collateral Free Loans under Credit Guarantee fund trust Scheme for Small

Enterprises.

10. Term Loans and Working capital finance.

11. Loans under Technology Up gradation Fund/Credit Linked Subsidy Scheme.

- 51 -

12. Loans under National Equity Fund Scheme.

13. Baroda Artisans Credit Card

14. Baroda Laghu Udyami Credit Card.

FEATURES OF THE PRODUCT

Bank of Baroda has posted skilled own employees who are stationed at

micro level in the market.

Liberal approach for the SMEs.

No hidden charges in any of the products.

The products have very competitive rate of interest.

Time Bound Turnaround Time of SME Proposals.

Simplified Processing and System.

A Unique product launched SME Loan Pack, which is a single line of

credit for fund-based, non-fund based long term requirements.

Area specific products have been designed taking into consideration

specific geographical requirement of the cluster.

BRIEF DETAILS OF SME PRODUCTS

1. BARODA SME LOAN PACK

Baroda SME Loan Pack provides single line of credit for meeting SME borrowers’

working capital as well as long-term requirements within the overall limit

approved by the bank.

- 52 -

PURPOSE:

To provide hassle free credit for working capital (fund based and non-fund

based) as also long-term requirements, taking into account nature of business,

cyclical trends, cash flow projections, peak time requirements and any

eventuality of unforeseen spurt in the business.

ELIGIBILITY:-

Micro, Small and Medium Enterprises (Manufacturing and Service sector )

other than retail trade- as per regulatory definition irrespective of

geographical location, i.e. rural, semi-urban, urban, metro areas.

All other entities with their annual sales turnover of Rs. 1 crore to Rs. 150

Crore and new infrastructure and real estate projects, where the project

cost is up to Rs. 50 Crores.

COMPOSITE LIMIT:

4.5 times of borrower’s tangible net worth as per last audited Balance Sheet, or,

Rs. 5.00 Crores, whichever is lower.

MARGIN: 25% .

2. BARODA OVERDRAFT AGAINST LAND AND BUILDING

Baroda Overdraft against land and building is a unique product for financing

working capital requirements/long term margin requirements of SME borrowers

against the security of unencumbered land and building belonging to the unit or

Promoters of the unit.

PURPOSE:

To meet Fund based working capital requirements.

- 53 -

ELIGIBILITY:-

SMEs as per expanded definition established in the line of business for a

minimum period of 2 years and financed/ proposed to be financed under sole

banking arrangements.

LIMIT:-

Minimum:Rs. 25.00 Lakhs(for rural, semi-urban, urban, metro branches)

Maximum: Rs. 50.00 Lakhs (for Rural branches)

Rs. 200.00 Lakhs (for Semi-Urban) Rs. 500.00 Lakhs (for Urban and Metro

branches)

SECURITY:-

Mortgage of factory land and building and/or any other property (Land & Building)

belonging to promoters, viz. Directors, who will also stand as guarantors,

Proprietor or Partners.

In case of residential/commercial building, age of property should not be more

than 25 years.

MARGIN:-

40% of the market value of property mortgaged. Regional head is authorized to

reduce the margin upto 35% in deserving cases.

3.COMPOSITE LOANS

ELIGIBILITY:-

Small Scale Industrial Units (including artisans, village and cottage industrial

units and tiny units in SSI Sector), and Small Scale Service & Business

Establishments engaged in industrial activities only.

- 54 -

PURPOSE:-

Fixed capital investment and / or working capital requirement.

AMOUNT OF LOAN :Up to Rs. 100/- Lakhs.

MARGIN:

Nil in case of composite loan up to Rs. 25,000/-.

15% - 25% in case of composite loans above Rs. 25000/- and up to Rs. 100/-

Lakhs.

SECURITY:

Charge on assets created out of loan amount and other collateral securities as

determined on the merits of each case.

PERIOD OF REPAYMENT:

Minimum 3 years and maximum of 10 years (which can be extended), with initial

holiday of 12 months to 18 months.

4. BARODA VIDHYASTHALI LOAN

Baroda Vidyasthali Loan is a special scheme for financing Educational

Institutions.

PURPOSE:

To meet the financial requirements for setting up the institutions which includes

construction of building, purchase of equipment etc. for the new set up as also

renovation of the existing facilities, purchase of instruments for imparting

education training to the students.

- 55 -

ELIGIBILITY:

Educational institutions, Schools, Colleges and other education bodies running

education activities set up by firms, company, trusts etc (Note: HUF are not

eligible.)

LIMIT:

Minimum Rs.25 lacs

Maximum Rs.10.00 crores

SECURITY:

Equitable mortgage of Land & Building (not agricultural land).

Hypothecation of Instruments & Equipment acquired out of the loan and

other assets of the Educational Institution.

Personal guarantees of the Promoters of the Institution.

MARGIN

25% of the cost of the project.

5. BARODA AROGYADHAM LOAN

PURPOSE: -

To meet the financial requirements for setting up of new Nursing Home/Hospital

including Pathological Laboratory, Expansion/renovation/modernization of

existing Nursing Home/ Hospital including Pathological Laboratory, Purchase of

medical diagnostic equipments as also office equipments, viz. computers, air

conditioners, office furniture, Purchase of ambulance etc and to meet working

capital requirements.

- 56 -

ELIGIBILITY: -

Micro, Small and Medium Enterprises as per regulatory definition

irrespective of geographical location, i.e. rural, semi-urban, urban, metro

areas.

All other entities with their annual sales turnover of Rs. 1 crore to Rs. 150

Crore and new infrastructure and real estate projects, where the project

cost is up to Rs. 50 Crores.

Note: The Promoters should have requisite qualification in any branch of medical

science from a recognized University and should have minimum 2 years of work

experience.

LIMIT: -

Rural Centers - Rs. 0.50 crores

Semi-Urban Centers - Rs. 6.00 crores

Urban & Metro Centers - Rs. 12.00 crores

Notes:

Working Capital limits up to 10% of the annual sale or gross income, subject to

20% of the above ceiling limit in case of borrowers requiring both Term Loan and

working capital facilities.

SECURITY:-

1. Equitable mortgage of Land & Building/premises of Nursing Home/Hospital

2. Hypothecation of medical equipment/office equipment acquired out of loan

amount.

3. Personal guarantee of Promoter Directors in case of Limited Companies and

Trustees in case of Trusts.

4. Hypothecation of medicines, receivables and other chargeable current assets.

- 57 -

5. Charge on unencumbered assets of Promoter Directors in case of Private

Limited Companies, or any other collateral by way of FDR, mortgage of

properties in the personal name of the relatives of Promoters, etc.

MARGIN:

25% on the chargeable assets.

6. MARGIN MONEY SCHEME ENDER RURAL EMPLOYMENT GENERATION

PROGRAM OF KVIC

OBJECTIVES:

To generate employment in rural area.

To develop entrepreneurial skills among the rural unemployed youth.

To achieve the goal of rural industrialization.

To facilitate participation of Financial Institutions for higher credit to rural

industries.

ELIGIBILITY:

Individual entrepreneurs above 18 years of age.

Self-Help Groups

Institutions

Co-operative Societies

Trusts

Public Limited Companies owned by State/Central Government

- 58 -

ELIGIBLE PROJECTS:

1.Any village industry (except those mentioned in the negative list by KVIC)

located in the rural areas, in Manufacture as also Service Sector, and in which,

the fixed capital investment per head of a full time artisan or worker does not

exceed Rs. 50,000/-

2. Sponsoring of the Project is not mandatory.

3. KVIC would impart training to the beneficiary.

CEILING LIMIT PER PROJECT:

Rs. 25/- Lakhs (exclusive of cost of land)

MARGIN: 5% of the Project cost in respect of beneficiaries belonging to

SC/ST/OBC/ women/PH/Ex-Servicemen/Minority and those located in Hill,

Border & Tribal area/North East Region/Sikkim/Andaman & Nicobar Islands &

Lakshadweep.

10% in case of other beneficiaries.

MARGIN MONEY:

For projects costing up to Rs. 10/- Lakhs - 25% of the Project cost.

For Projects costing above Rs. 10/- lacs and up to Rs. 25/- Lakhs – 25% of Rs.

10/- Lakhs + 10% of the remaining cost of the Project.

In case of SC/ST/OBC/women/PH/Ex-Servicemen/Minority and those located in

Hill, Border & Tribal area/North East Region/Sikkim/Andaman & Nicobar Islands

& Lakshadweep, margin money will be 30% of the Project cost up to Rs. 10/- lacs

plus 10% of the remaining cost of the Project. Margin Money is calculated on the

actual bank loan availed + borrower’s own contribution

- 59 -

7. COLLATERAL FREE LOANS UNDER CREDIT GUARANTEE FUND

SCHEME FOR MICRO AND SMALL ENTERPRISES

PURPOSE:

To provide collateral free loans up to Rs.50/- lacs to Micro & Small Enterprises

(both in the Manufacturing Sector as well as in the Service Sector)

ELIGIBILITY:

Micro & Small Enterprises (both in the Manufacturing Sector as well as in the

Service Sector)

LIMIT:

Term Loan and/or Working Capital / Non Fund Based facility like Letter of Credit,

Guarantee etc. up to an aggregate limit of Rs.50/- lacs to a single borrower.

SECURITY:

Current/fixed assets of the unit. No collateral / third party guarantee.

GUARANTEE FEE:

A onetime guarantee fee (Joining fee) at specified rate (currently 0.75% p.a. of

the credit facilities sanctioned and annual service fee @ 0.75% p.a.

BANK’S INITIATIVE

50% of the guarantee fee is shared by the bank with the borrowers (loan up to 25

lacs) to reduce the cost to the borrower.

- 60 -

8. BARODA SME GOLD CARD

Baroda SME Gold Card envisages provision of additional limit of 10% of the

assessed eligible bank finance for Working Capital to existing Small & Medium

Enterprises, on request along with regular application for Working Capital limits

to meet emergent requirements.

PURPOSE:

To provide hassle free on the spot assistance to take care of borrowers’

emergent requirements and tie up temporary mismatch in liquidity arising out of

delayed payment by buyers, tax payment, execution of bulk orders, etc.

ELIGIBILITY:

Accounts in Standard Category for last 2 years, with credit rating of “BOB 4” and

above and enjoying working capital limits of Rs. 25/- Lakhs and above.

Accounts having sole banking arrangement with our bank.

MARGIN:

Nil

RATE OF INTEREST:

As applicable for regular Cash Credit facility.

PERIOD:

12 months to be allowed on 4 occasions during the year for a maximum period of

2 months on each occasion.

SECURITY:

As applicable to regular Cash Credit facility.

- 61 -

9. SME SHORT TERM LOANS

PURPOSE:

To meet temporary shortfall / mismatch in liquidity, for meeting genuine business

requirements only.

ENTERPRISES GROUP:

Small and Medium-sized corporate, business and Trading houses (including

partnership firms).

ELIGIBILITY CRITERIA:

Satisfactory credit rating for the last three years (BOB 4 and above) and

for 4 half years in case of accounts where credit rating is done on half

yearly basis.

Satisfactory dealings with the Bank for at least five years.

LOAN AMOUNT:

Up to 25% of the existing Fund based Working capital limits (depending on the

Credit Rating), subject to a minimum of Rs. 10 Lakhs and maximum of Rs. 250

Lakhs.

PERIOD:

Not exceeding 180 days – minimum 90 days

- 62 -

SECURITY:

First charge / Equitable mortgage of fixed assets of the company / firm or

extension of existing first charge / equitable mortgage of fixed assets,

ensuring that there is a minimum asset cover of 1.50.

Extension of Charge on current assets for the additional facility ensuring

that adequate drawing power is available.

Extension of all existing guarantees of Directors / Third party guarantees

to cover the additional facility.

10.SME MEDIUM TERM LOANS

PURPOSE:

To augment enterprise’s working capital gap and to help in improvement of

current ratio and also for meeting genuine business requirements. The facility will

also be available for repayment of secured and unsecured Loans of other banks

or institutions, but not for any purpose, which is not related to the enterprises

activity.

ENTERPRISES GROUP:

Small and Medium-sized corporate, business and trading houses (including

partnership firms).

ELIGIBILITY CRITERIA

Satisfactory credit rating for the last three years

Latest Balance Sheet etc. should be available.

Satisfactory financial performance in terms of Sales/turnover and profits.

Negative variance, if any, should not be more than 10%.

Debt-equity ratio should not be higher than 2.5:1 and average DSCR

should be not less than 1.75:1.

Satisfactory dealings with the Bank for at least Three years.

- 63 -

LOAN AMOUNT:

Based Up to 25% of the existing fund Working capital limits (depending on the

Credit Rating), subject to a minimum of Rs. 25 Lakhs and maximum of Rs. 500

Lakhs.

PERIOD:

Not exceeding –36- months, to be repaid in equal quarterly or half-yearly

installments.

SECURITY: -

First charge / Equitable mortgage of fixed assets of the Company / firm or

extension of existing first charge/ equitable mortgage of fixed assets, ensuring

that there is a minimum asset cover of 1.50

11. SCHEME FOR FINANCING ENERGY EFFICIENCY PROJECTS

PURPOSE:

Financing SMEs for acquisition of equipments, services and adopting measures

for enhancement of energy efficiency/conservation of energy.

ELIGIBILITY

SME units financed by bank as also other units desirous of shifting their account

to Bank of Baroda.

LIMIT:

Up to 75% of the total project cost, subject to maximum of Rs. 1/- crore.

(Minimum amount of loan Rs. 5/- Lakhs).

- 64 -

PROJECT COST MAY INCLUDE THE FOLLOWING:

Cost of acquisition/modification/renovation of equipment/software.

Cost of alterations to existing machinery.

Cost of structural / layout changes.

Cost of energy audit/consultancy.

Preparation of Detailed Project Report (DPR).

RATE OF INTEREST:

Bank’s BPLR from time to time.

REPAYMENT:

Maximum 5 years, including moratorium, if any.

SECURITY:

For Sole Banking Accounts: Extension of first charge on all fixed assets.

For Consortium/Multiple Banking Accounts: first charge on equipments

acquired out of loan and collateral, if any, with the total security coverage

being not less than 1.25.

Grant from IREDA:

IRDEA, at present, gives a grant of Rs. 25,000/- for projects costing Rs. 1/- crore

or below to meet partial cost of Energy Audit. This grant is available for the first

100 projects (SME Sectors only) approved by them.

12. SCHEME FOR FINANCING EXISTING BORROWERS UNDER SME

SEGMENT FOR PURCHASE OF NEW VEHICLES

NATURE OF FACILITY:

Demand Loan / Term Loan

PURPOSE:

- 65 -

For acquiring any type of new vehicle eligible for Registration with Regional

Transport Authority.

LIMIT:

Maximum Rs. 50/- lacs.

ELIGIBILITY:

Proprietorship firms, Registered Partnership concerns, Private Limited

Companies, Limited Companies, Trusts, and Co-operative Societies (Except

individuals) under SME Segment with credit rating up to BOB-6.

MARGIN:

10 % of total cost of transport vehicle i.e. inclusive of initial insurance premium,

RTO Tax, Octroi, body building charges & other incidental charges in case of

new vehicle.

RATE OF INTEREST:

2.25% below BPLR with monthly rests, irrespective of credit rating.

NOTE: Though rate of interest is declined from credit rating, Credit Rating is to

be carried out for each account as per extant guidelines

PERIOD:

Maximum 60 months subject to review every year. The facility to be included in

the regular review proposal.

REPAYMENT OF TERM LOAN:

In 60 monthly installments depending upon the cash flow. Interest to be serviced

every month.

SME LOAN POLICY OF BANK OF BARODA

- 66 -

OBJECTIVES

The SME Loan Policy is framed with the following objectives:

To improve flow of credit to SME Sector so as to doubles the credit to the

Sector in 5 years, i.e. by the year 2010.

To formulate liberal norms of lending to SME sector, to ensure availability

of adequate and timely credit to the sector.

To provide guidelines to the branches to dispense credit to SME Sector on

liberalized terms.

To devise guidelines to the branches to dispense credit to SME credit

portfolio in a more focused manner.

To comply with terms of policy package announced by Hon’ble Union

Finance Minister on 10.08.2005 and further guidelines received from

Reserve Bank of India from time to time for implementation of the Policy

Package.

SCOPE OF POLICY

This Policy will form a part of Bank’s Domestic Loan Policy and will cover

following:

Composition of SME Sector—Micro, Small and Medium enterprises in

Manufacturing and Service areas.

Broad guidelines on lending to SME Sector—regarding application norms,

time norms, submission of credit proposal, type of facilities, assessment of

requirement, margin, rate of interest, penal interest, credit rating, collateral

free loans, techno-economic viability study and financial analysis

SME Loan Factory Model—includes credit and sales hub.

Pricing Policy—as per the facility and amount demanded.

Identifying Thrust Industries—includes

o IT & IT enabled services

- 67 -

o Drugs & Pharmaceuticals

o Auto components, Auto Ancillary units

o Food and Agro based industries

o Textile machineries

o Dyes & intermediates

o Engineering equipments

o Chemicals

o Defense equipments manufacturing Units

TYPES OF FACILITIES - SME Units may be granted a variety of credit facilities

for their different needs which will include the following:

(a) Term Loan / Demand loan / Deferred Payment Guarantee: For

acquisition of capital goods (including second hand), fixed assets,

vehicles, plant &machinery, purchase of land, construction of buildings

etc.

(b) Working Capital by way of Cash Credit, Overdraft etc for:

1. Purchase of raw material, components, stores, spares and maintenance of

stock of these items at minimum level and stock in process and finished goods.

2. Finance against receivables including receipted challans / invoices. 3. Meeting

marketing expenses where the units have to incur large-scale expenditure

towards marketing of their products.

(c) Bills Purchase / Discounting under L/c or outside L/c.

(d) Export Credit facilities like Packing Credit, FBP / UFBP.

(e) Letter of Credit

(f) Bank Guarantees

- 68 -

Research

Methodology

Research Methodology

- 69 -

The Research part of the project included finding the factors that will stimulate

financing in micro and small enterprises and whether the approach of Bank of

Baroda is satisfactory.

The research work followed by the

1. Analysis of existing facilities i.e. various loans granted by Bank of Baroda

to the SME Companies particularly of Jaipur region.

2. Effective working of SME Loan Factory.

3. Recommendations for the requisite improvement in the lending criteria of

a SME Loan Factory.

Title of the Study

“Suggestions to stimulate financing under micro and small enterprises “

RESEARCH OBJECTIVES

To gauge the level of satisfaction of existing customers (who are enjoying

various loan facilities) of Bank of Baroda.

To prepare a loan scheme for the SMEs.

To suggest the ways and benefits of cluster approach of Banks in

Financing SMEs in India

To give recommendations towards enhancements of lending and effective

working of SME Loan Factory.

RESEARCH TYPE

- 70 -

Exploratory Research: It has the goal of formulating problems more

precisely, clarifying concepts, gathering explanations, gaining insights and

eliminating impractical ideas.

SAMPLE SIZE

Existing Customers* of Bank of Baroda (15 in number).

*- Existing customers here means those who are enjoying various facilities of

Bank of Baroda till March 2011.

RESEARCH AREA

Manufacturer and / or Exporter organizations in Sitapura Industrial Area and

Bagru Industrial Area, Jaipur Region (Rajasthan).

SOURCES OF THE RESEARCH DATA

Primary Data : Questionnaire.

Secondary Data : Internet and Books.

- 71 -

Data Analysis And

Interpretation

ANALYSIS OF THE RESEARCH

- 72 -

The following graphs with their elaboration will explain the analysis done to draw

conclusions out of the data generated with the help of questionnaire used for the

research purpose:

Fig. 1

60%20%

20%

Private Ltd.PartnershipProprietary

The Figure 1 represents the Ownership pattern of various Companies.

Out of the 15 Companies

60 % are Private Ltd.

20 % are Partnership.

20 % are Proprietary.

This reveals that larger part of the Organizations includes Private Limited.

Partnership and Proprietary Companies hold equal portions in SME.

- 73 -

Fig. 2

100%

Public BanksPrivate BanksCooperative BanksRegional Banks

The Figure 2 represents the Categories of Banks which are approached for

loans and advances. Here, we can see that all the Organizations approached for

Public Sector Banks.

This reveals that facilities provided by Public Sector Banks for SMEs are

comparatively good and Organizations belief on Public Sector banks. Other

banks should also make efforts to contribute in the growth of SME sector.

- 74 -

Fig. 3

Awareness in the customers regarding schemes

provided by the Bank

27%

73%

YesNo

The Figure 3 represents the number of the existing clients out of the sample size

15 that whether they are aware of the loans and advances schemes given by the

Bank of Baroda to the SMEs.

Out of 15 Clients, only 27 % are aware of the schemes provided by the Bank.

Rest 73 % is unaware about all the loans and advances schemes given by the

Bank to the SMEs.

- 75 -

Fig. 4

Limit of the credit taken by the customers

20%

47%

20%

13%

upto 25 lakhs25 lakhs - 1 crore1 crore-5 crores5 crores - 10 croresabove 10 crores

The figure 4 indicates the Limit of the Credit taken by the existing customers.

This reveals that mostly customers have taken loan in the Rs. 1 crore and 5

Crores range that is 47 %. There are equal number of customers who have taken

loan in the range of 25 lacs to 1 crore and 5 crores to 10 cores.

Only 13 % have taken loan more than 10 crores that is only 2 customers out of

15 have taken loan which is above 10 Crores.

- 76 -

Fig. 5

In Future, whether the customers will opt for Bank of

Baroda for Loans and Advances

60%27%

13%

yesNot thinked yetNo

This figure represents the number of customers that will opt for bank of Baroda if

in future; they will have a loan requirement.

Out of the total sample size, 60 % will opt for Bank of Baroda. 27 % have not

thinked yet. And 13 % will never opt for Bank of Baroda for their loan

requirement.

- 77 -

Fig. 6

Customers having accounts in other Banks

40%

60%

YesNo

This Figure indicates the percentage of customers who have accounts in other

Banks.

40 % of the customers have account in other Banks while 60 % do not have

account in the Bank other than Bank of Baroda.

- 78 -

Fig. 7

Key factors that motivated the Customers to take Loan

from Bank of Baroda

87%

13%

long term business relationsNear Branch

This figure shows that 87 % Customer’s motivation is long term business

relations while the remaining 13 % customers took loan from Bank of Baroda

because it is the nearby Branch to their Organization.

The bifurcation on the basis of these key factors shows that yet the Bank has to

do a lot in the same direction so that the motivation level of the existing

customers can be increased and it can motivate to the new customer to take loan

willingly from the Bank of Baroda.

- 79 -

Fig. 8

Whether Bank of Baroda’s products are sufficient or not

74%

26%

yesno

This figure shows that the 74 % of the customers are satisfied with the Bank’s

Products and they feel that the products are sufficient to the SME sector. While

26 % customers feel that SME products provided by the Bank is in-sufficient.

Fig. 9

- 80 -

Services provided by the Bank

40%

47%

7%7%

Very SatisfiedSatisfiedNeutralDis-satisfiedvery Dis-satisfied

This figure represents the level of satisfaction regarding the services provided by

the Bank among the existing Customers.

40 % of the customers are highly satisfied by the services of Bank. Near about 7

% customers are neutral and 7 % are dis-satisfied with the services of the Bank.

So the Bank should concentrate on increasing the level of satisfaction among the

customers.

FINDINGS OF THE RESEARCH

- 81 -

We have surveyed the two industrial areas in Jaipur i.e. Sitapura and

Bagru Industrial Area. It is seen that most of the Industries in Sitapura

area are dealing in Garment as it is declared as non-pollution area and in

Bagru area, the Industries are dealing mainly in the production of Iron and

steel bars, rods etc.

There is little bit support provided by the government/banks to the

Industries.

All the firms expect low rate of Interest loans from the Banks.

Most of the firms want that the Government should provide various

subsidies and rebates.

Cash Credit, Term Loan, Bank Guarantee and Letter of Credit are the

most demanded facilities in the Industry.

There is lack of motivation among customers to take loan from Bank of

Baroda.

Most of the customers are not aware of the Bank’s new schemes.

There is a lot of scope seen in the nearby future of SMEs.

SUGGESTIONS

- 82 -

To improve the flow of credit to MSE sector and to achieve the various targets

and commitment for the MSE sector, the bank should adopt the following

strategies:

1. The SMEs should need more and more awareness of the facilities

provided the Government and the Banks.

2. The Bank should invest in Customer Relationship Management in which

the following actions can be taken :

a) Bank should provide or give information (related to a particular concern

for e.g. information of sanction, disbursement, letters that bank posts

etc.) to the party through direct calls.

b) Bank should send greetings or gifts or sweets to its all customers on

various occasions.

c) Timely processing should be there i.e. if Bank says that we will

sanction a proposal within 15 days, then it should be done in the given

time.

d) Bank should fulfill all its promises given to the customers.

e) Bank rules should be clear related to the different charges and

concessions. It helps in long-term customer relationship.

Through above-mentioned points, the Bank can increase customer satisfaction

as well as the motivation level of customers and eventually it will attract the other

concerns also.

3. Banks should increase the staff.

4. Services should be made easy for the convenience of the customers.

- 83 -

5. Sanction of loan is very time-taking process so it should be made easier

and shorter so that less time is involved.

6. If a proposal does not satisfy all the rules and regulations, the Bank should

give suggestions to the customer that how he can fulfill these conditions. It

will build good brand image of the Bank.

7. Government should give benefits in various subsidies and rebates.

8. The bank should increase the number of personnel in the SME

Department so that the complaints of the clients of delaying the

sanctioning of proposal can be listened and solved properly.

9. There should be one IT personnel in each department which will help in

the work process and problem.

10.There should be less time duration for the documentation work done for

the customers who are applying for loan.

11.The bank should find out the key problem areas where the development of

SME is lacking.

12.Adequate marketing contacts & reach should be managed.

13.Simplified loan application forms in bilingual formats should be made

available for loans to Micro Enterprises.

14.Region wise and branch wise targets should be fixed for lending to MSE

sector and monthly review notes on Region wise performance should be

placed to Top Management.

- 84 -

15.SME branches and specialized SME branches should be opened at

potential centers, identified clusters and industrial estates to enhance the

flow of credit to MSE sector. The reason behind this is that distances

create problems to the customers.

16.Latest technology should be adopted for on line submission of MSE credit

applications, tracking of applications and for MIS requirements.

17. New credit products should be developed for MSE sector to meet the

emerging requirements of the sector from time to time.

18.Bank should improve the ability of R & D and innovations.

19.Financial Institutions should strengthen the willingness to extend credit to

SME and emerging industries.

20.Bank should wisely utilize SME credit products in line with government

policies.

21.There should be system software which automatically checks the CMA

Data.

22.Bank requires a strong anti-virus in every system.

23.Bank should introduce new and advance technology in systems because

system is working at MS 2003.

24.System speed and net connection speed is also very slow. So Bank

should work in this area as there is a requirement of fast working net

connection and system.

- 85 -

25.There should be more space in the SME Loan Factory for the proper

sitting arrangements for the customers.

LIMITATIONS OF THE RESEARCH

Sample size was considerably small in size.

Sample comprised of existing customers of Bank of Baroda only.

Lack of interaction with Proprietors / Directors of the Manufacturing

concern due to non-co-operation of the company management.

Customers of bank of Baroda (particularly of Jaipur region) are situated in

far-flung areas that are why approach to all was a cumbersome task.

(Therefore only Bagru Industrial area and Sitapura were the research

areas).

CONCLUSION OF THE SECTOR

- 86 -

Opportunities in the MSMEs are enormous due to the following factors

Less Capital Intensive

Extensive Promotion & Support by Government

Reservation for Exclusive Manufacture by small scale sector & Project

Profiles

Funding - Finance & Subsidies

Machinery & Raw Material Procurement

Manpower Training & Technical & Managerial skills

Tooling & Testing support

Reservation for Exclusive Purchase by Government

Growth in demand in the domestic market size due to overall economic

growth

Increasing Export Potential for Indian products & export promotion

By its less capital intensive and high labor absorption nature, SSI sector has

made significant contributions to employment generation and also to rural

industrialization. This sector is ideally suited to build on the strengths of our

traditional skills and knowledge, by infusion of technologies, capital and

innovative marketing practices. This is the opportune time to set up projects in

the small-scale sector. It may be said that the outlook is positive, indeed

promising, given some safeguards. However, the bug bear of the sector has

been the inadequacies in capital, technology and marketing. The process of

liberalization will therefore, attract the infusion of just these things in the sector. 

- 87 -

“ TO THE ORGANIZATION”

Access to the field areas which full-time sales officers are unable to tap

due to lack of time.

Preparation of the new scheme and making aware customers about all the

facilities of Bank of Baroda will be helpful for the bank.

Although Bank is growing at a very fast pace, but still lack at some points

regarding awareness and motivation among the new customers. So they

should work in the concerned area.

“ TO THE INTERN”

The summer internship gives a rendezvous with the corporate world,

which prepares the intern to be a full-time member of it.

This is a simulation process , which prepares the intern to handle the real

life business situations.

Last but not the least, it enhances knowledge related to the SME Loan

Factory.

- 88 -

Learning during

the Training

- 89 -

- 90 -

HOW SME-LF WORKS?

On complete Proposal On Incomplete

Proposal

File with Ratios

- 91 -

Credit support officerCredit officer

Sanction authority

Receipt of proposal

1.

Check on completeness of

proposal

2.

Data entry for credit rating and financial

analysis

Returned to

BO/ Party for

CompletionStudy of file, pre-sanction visit, raising customer queries and

customer meeting

3.

5.

Sending Queries to the party and the Branch

4.

Request for advocate, valuer and TEV reports

(Where required)

6.

Satisfactory response from customer of queries and preparation of Appraisal Note

7.

- 92 -

Receipt of advocate, valuers and TEV reports (where required)

8.

Check on advocate,

valuers and TEV reports

9.

Final sanction by sanction authority

10.

Issue of final sanction letter with

signature from credit officer

11..

Preparation and stampings of documents

12.

Execution of documents in

presence of Branch Officer/ Manager

13.

Sanctioned & vetted Document released for disbursement

14

Disbursement by

Branch

Workflow for sanction and disbursement

process

STUDY OF CREDIT MONITORING APPRAISAL (CMA)

There is a particular format to represent the various direct & indirect expenses,

profit, various assets & liabilities, capital etc. for the parties who wants to get

loans from the bank, is known as CMA.

In the CMA a party gives its brief detail of operating expenses, profit & loss

account, balance sheet items etc. that shows the complete picture of financial

position of the party in concern.

In the study of credit monitoring appraisal the financial position is analyzed. Its

study gives the knowledge of how should company represents all its financial

affairs.

If the information is available in the general form, it can be filled in the standard

format known as CMA. Therefore in CMA study, the preparation of it is also

included.

CIBIL

CIBIL is the CREDIT INFORMATION BUREAU (INDIA) LIMITED. It is India’s

first credit information bureau – is a repository of information, which contains the

credit history of commercial and consumers borrowers. CIBIL provides this

information to its members in the form of credit information reports. Its official

website is www.cibil.com Banks, Financial Institutions, State Financial

Corporations, Non-Banking Financial Companies, Housing Finance Companies

and Credit Card Companies are the members of CIBIL. These members are

provided with a user Id and Password for accessing it. Bank of Baroda has 5 %

stake in CIBIL. From this site, a CIBIL Information Report is created which is a

factual record of a borrower’s credit payment history compiled from information

- 93 -

received from different credit grantors. Its purpose is to help credit grantors make

informed lending decisions – quickly and objectively.

A CIBIL report shows history of various accounts of the borrower. All should be

standard. And no account should be sub- standard, settled, written-off or

overdue.

ECGC:

ECGC is Export Guarantee Corporation of India Limited. It was established in the

year 1957 by the Government of India to strengthen the export promotion drive

by covering the risk of exporting on credit. A username and password is given to

all Banks to access it. It is the fifth largest credit insurer of the world in terms of

coverage of national exports.

ECGC provides a credit risk insurance covers to exporters against loss in export

of goods and services and offers guarantees to banks and financial institutions to

enable exporters to obtain better facilities from them.

Banks are concerned about the financial strength and the performance of the

borrowers. It is necessary that all borrowers are of good credit risk and there

should not be any shadow of doubt about the safety of the funds lent. The

investigation process carried out by the Bank for taking a credit decision is called

"credit analysis". The main source of information for judging the viability and

financial strength of operations of the borrower, are financial statements which

consist of two parts, viz. Balance Sheet and Profit & Loss Account and these

should be studied together for a meaningful analysis. The system or approach for

analyzing a balance sheet depends upon the purpose for which the study is

undertaken. Our purpose of analyzing the financial statements is different from

that of an investor, government authority etc.

- 94 -

CREDIT ANALYSIS

While analyzing a credit proposal, several factors, apart from analysis of

statements, are taken into account. The process of credit analysis can broadly be

divided into the following major heads :

(a) Promoters and their business background

(b) Nature of the industry/business

(c) Factors of production

(d) Past financial record, present position and future profitability

(e) Financial Planning

(f) Borrower's integrity

(g) Purpose of advance

(h) Repayment program

(i) Security and other terms and conditions

(j) Associate concerns, if any, and their performance

(k) Promoters'/Borrowers' dealings with our Bank and other banks, where

applicable

The entire gamut of credit appraisal can be segregated into 7 sections is under:

Borrower appraisal

Man behind the project should be very competent and banker would willingly

Grant a credit facility to a borrower, if he has sufficient confidence in the borrower

- 95 -

That it will not be necessary to seek the help of a court for its recovery.

5 C’s of the borrower -

Character—integrity of the borrower and his intention to repay. Character

is constituted by honesty, sobriety, good habits, personality, the ability and

willingness to keep his word under all circumstances, reputation of the

people with whom he deals etc.

Capacity--- ability of the borrower to manage an enterprise or venture

successfully with the resources available to him.

Capital:--ability to meet the loss, if borrower has some stake in the

business, he may not take much interest in its success.

Collateral

Conditions

For this Banks are following the KYC (Know your customer) norms, which

include:

Customer identification

Customer verification

Document verification

Credit report on borrowers

Application form

Borrower’s past dealing with the branch

Reports from persons having dealing with the borrower

Reports from the guarantors

Reputation in the line of trade in which he is engaged in

Reputation in the society, community

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Credit information from other banks and financial institutions

Credit information from RBI

Technical Appraisal:

Availability of basic infrastructure:-Land, Location, Power, Water

Licensing/ Registration Requirements

Selection of technology: availability, application, Plant size and

production capacity, availability of skilled technical personnel/

training facility, continuous updating, availability of suitable raw

material and consumables

Management Appraisal

Individuals, proprietary concerns, partnership firms, corporate borrower

Financial Appraisal

Refers to the study of the following:

Determination of the cost of the project.

Assessment of the source of funds/means of financing the project

Break even analysis

Profit & Loss statement and balance sheet of last 3 years

Cash flow projections

Projected balance sheet

Ratio Analysis

Economical analysis

Project should yield best possible return to the society in general and the

investor in particular.

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Sensitivity analysis—the process of computing the IRR and the repaying

capacity of the borrower for different values of each of these parameters is called

the sensitivity analysis.

Market Appraisal

General market prospects for the product

Position of the product vis-à-vis the competitors

Size of the market and share of the proposed unit.

Pricing structure

Raw material

Marketing strategy thrust

Financial Ratios for Credit Appraisal (Not applicable in case of takeover of

accounts)

Following ratios can be accepted for granting credit facilities to SME units

falling as per regulatory guidelines or SMSs as per expanded coverage.

Sr.

no

Ratio Norms

Micro and Small

Enterprises

under

manufacturing

sector and

service sector

falling under

regulatory

guidelines

Medium

Enterprises

under

manufacturing

sector and

service sector

falling under

regulatory

guidelines

Units covered

under SME

Sector as per

expanded

definition and

outside the

purview of

regulatory

definition

1 Current Ratio 1.17 & above 1.20 & above 1.33 & above

2 Debt Equity Ratio 3:1 3:1 3:1

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( Total Term

Liability /

Tangible Net

Worth)

3 FACR (Fixed

Assets / Term

Debts)

Not below 1.25 Not below 1.25 Not below1.25

4 Average DSCR

for Term Loan

1.75 with a

condition that in

any one year it

should not be

below 1.25 as

per extant

guidelines.

1.75 with a

condition that in

any one year it

should not be

below 1.25

1.75 with a

condition that in

any one year it

should not be

below 1.25

The above ratios are indicative and deviations can be considered by the

sanctioning authority / competent authority on case-to-case basis, depending on

industry specific problems of unit etc. incorporating justification for the same in

the sanction note.

CREDIT RATING

The exercise of assessing the credit record, integrity and capability of a

prospective borrower to meet debt obligations. Credit rating relates to

companies, individuals and even countries. The rating agencies in India are

Credit Rating and Information Services of India Limited (CRISIL), ICRA, and

Credit Analysis and Research (CARE).

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CRISIL RATING MODELS

Eleven models for Credit Risk rating of all commercial advances i.e. existing as

well as new with exposure of Rs.25 lacs and above (FB+NFB) for implementation

have been introduced by our Bank.

New CRISIL Rating Models for commercial advances are based on two-

dimensional rating methodology specified under Basel II Accord requirements.

Eleven Models are applicable to Large Corporate, SME (Manufacturing Sector),

SME (Services), Traders, Banks, NBFCs, Brokers, Infrastructure (Power),

Infrastructure (Roads & Bridge), Infrastructure (Ports) and Infrastructure

(Telecom)

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The risk rating flow chart under CRISIL NEW rating models is as under:

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Composite Rating

(Indicator of expected loss i.e. EL)

Obligor (Borrower) Rating

(Indicator of Probability of Default i.e. PD)

Evaluation of Credit worthiness of an Obligor

(Borrower).

Facility Risk Rating (indicator of Loss given default i.e. LGD)

Evaluation of Riskiness of a Facility

Obligor (Borrower) Rating

1. Industry Risk

2. Business Risk

3. Financial Risk

Project Risk Rating

1. Project Implementation

2. Post Implementation

Project Implementation Risk

1. Construction Risk

2. Funding Risk

Post Project Implementation

1. Industry Risk

2. Business Risk

These Models involves three types of ratings

1. Obligor (Borrower) Rating

2. Facility Rating

3. Composite Rating

Obligor (Borrower) Rating is indicative of credit worthiness of an obligor or the

Probability of Default (PD) and it is based on the assessment of past and

projected Cash flows of the company.

For assessment of an obligor, the rating structure consists of evaluation by way

of four models viz.

1. Industry Risk – The assessment of this module which is external to borrower

and is done by assessment of industry related macroeconomic parameters like

demand supply gap / capacity utilization level / financial ratios like ROCE / OPM

etc. applicable to the specific industry and having different risk weights.

2. Business Risk – The assessment of this module is based on internal working

of the Borrower and relates to parameters such as after sales service, distribution

set up, capacity utilization etc. The parameters, which are only relevant to a

particular industry, are selected for scoring having different risk weights.

3. Financial Risk – The assessment of this module is based on internal working

of the Borrower and relates to parameters such as past (not in case of a green

field/infrastructure company under implementation stage) and projected

financials. The CMA based data input sheet is uploaded into the software and the

same allows computation of financial rating automatically based on the

computation of financial ratios like Net Profit Margin, Current Ratio, DSCR,

Interest Coverage etc.

102

4. Management Quality – The assessment of this module is based on internal

working of the Borrower’s management and relates to parameters such as past

repayment record, quality of information submitted, group support, etc.

Obligor rating grades range from BOB 1 to BOB 10. Obligor grade is used for

deciding about the investment grade or non-investment grade borrower in

absolute terms.

Grade no. Nature of grades Description

I. BOB-1 Investment grade- highest safety

II. BOB-2 Investment grade- high safety

III. BOB-3 Investment grade- high safety

IV. BOB-4 Investment grade- adequate safety

V. BOB-5 Investment grade- moderate

safety

VI. BOB-6 Investment grade- moderate

safety

VII. BOB-7 Sub Investment grade- inadequate

safety

VIII. BOB-8 Sub Investment grade-high risk

IX. BOB-9 Default substantial risk

X. BOB-10 default

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Facility Rating is carried out for each and every facility separately which is

based on the Basel approach for the calculation of Loss Given Default (LGD).

Facility rating grade ranges from FR 1 to FR 8 with least risky to highest risky

advances facility in that order.

Grade no. Nature of

grade

Description

1. FR-1 Highest-safety

2. FR-2 Higher-safety

3. FR-3 High-safety

4. FR-4 Adequate-safety

5. FR-5 Reasonable-safety

6. FR-6 Moderate-safety

7. FR-7 Low-safety

8. FR-8 Lowest-safety

Composite Rating is the matrix or the combination of PD and LGD and indicates

the Expected Loss (EL)in case the facility is defaulted. The composite rating is

worked out automatically by software based on the matrix of Obligor (Borrower)

Grade (BOB Rating) and Facility Rating Grade (FR Rating).

Composite rating grade ranges from CR 1 to CR 10. Bank has accepted BOB

6 as the cut off point for the acceptance of an obligor based on obligor rating

carried out as the applicable model Scoring Models for Educational Loan, Baroda

Traders’ Loan have also been approved by the Board rolled out for

implementation. Efforts are being made to have scoring model for all retail

products keeping in view Basel II Accord.

104

Grade no. Nature of

grade

Definition

1. CR-1 Minimum expected loss

2. CR-2 Lower expected grade

3. CR-3 Low expected grade

4. CR-4 Reasonable expected

grade

5. CR-5 Adequate expected loss

6. CR-6 Moderate expected loss

7. CR-7 Extra expected loss

8. CR-8 High probability of loss

9. CR-9 Higher probability of

loss

10. CR-10 Highest expected loss

Proposal from the new borrowers (i.e. borrowers approaching Bank for the first

time) may be entertained with minimum rating category of “Moderate Safety”

‘BOB-6’ (CRISIL Rating Model) fresh / increase facilities to the existing borrower

having credit rating below “BOB-6” to be considered on merits by sanctioning

authority up to 75% of normal lending powers as stated above.

WORKING CAPITAL ASSESSMENT

DEFINITION

105

A firm's working capital is the money it has available to meet current obligations

(those due in less than a year) and to acquire earning assets.

Or

Working Capital is the amount required in different forms at successive stages

of operation during the net operating cycle period of an enterprise.

Concept of Working Capital

Balance Sheet Concept Operating Cycle Concept

Gross Working Capital Net Working Capital

Total Current Assets Current Assets- Current Liabilities

WORKING CAPITAL GAP

Difference between gross working capital and current liabilities excluding bank-

106

Working Capital Gap = Gross Working Capital – Current liabilities*

Borrowing is known as working capital gap.

*Current liabilities excluding Bank borrowings.

ARGUMENT IN FAVOUR OF WORKING CAPITAL Positive Net Working

Capital is an indicator of the financial soundness and the ability to face

depression and contingencies firmly by an enterprise. Positive Net Working

Capital provides better margin of protection to short-term creditors and investors.

APPRAISAL OF BANK FINANCE

The appraisal of bank finance for working capital thus involves the following

steps:

Estimation of the level of Gross Working Capital

Estimation of the level of Current Liabilities

Computation of Net Working Capital Gap

Computing the share of NWC gap required to be brought by the borrower

as margin

Computation of the level of Bank Finance.

ESTIMATING WORKING CAPITAL REQUIREMENT

Following methods are generally used in estimating working capital for the future

period:

107

FINISHED GOODS

RAW MATERIAL WORK IN PROCESS

1. Operating Cycle Method: To estimate the gross working capital

requirements, the understanding of the operating cycle of

manufacture/production is very important:

CREDIT SALES

DEBTORS CASH

CASH SALES

Flow chart: Operating cycle of a manufacturing/production concern

COMPONENTS OF GROSS WORKING CAPITAL

1. Raw material

2. Consumable stores and spares

3. Stock in process

4. Finished goods

5. Receivables

6. Cash and Bank of Baroda balance

7. Other Current Assets

2. Tondon or chore committee recommendations

(Maximum Permissible Bank Finance system)

CURRENT LIABILITIES CURRENT ASSETS

108

Creditors for purchase Raw materials

Other Current Liabilities Stock-in-process

Total Current liabilities other

than Bank Borrowings

Finished Goods

Bank borrowings including bills

Discounted with bankers

Receivables including bills

discounted with bankers

Total Current Liabilities

Other Current Assets

Total Current Assets

I Method II Method

Total Current Assets Total Current Assets

Less: Current Liabilities other than Bank

of Baroda borrowings

Less: 25% of current assets

Working capital Gap Working capital Gap

Less: 25% of working capital gap Less: current liabilities other than

Bank borrowings

Maximum Permissible Bank finance Maximum Permissible Bank

finance

3. NAYAK COMMITTEE RECOMMENDATIONS FOR SSI INDUSTRIES

109

The method originally proposed for SSI borrowers and later made applicable for

all borrowers with Fund based working capital limits up to Rs.5 crore, the

computation is made at 20% of projected gross sales as follows:

Gross working capital minimum of 25% of projected gross sales

Borrower’s margin 20% of gross working capital

4. CASH BUDGET METHOD

The method applicable for the assessment of working capital finance more than

Rs.1000 lac from the banking system for all types of borrowers. As in SME only

proposals upto 1000 lacs are considered thus this method does not apply over

here.

PRELIMINARY STUDY OF TWO PROPOSALS

Proposal is a request in the form of documents made by the party/ organization/

individual to get the requisite loan from the bank.

In the preliminary study an officer confirms that the documents are complete or

not and whether it fulfills the required rules and regulations. It also includes the

detail study of financial position and the validity of documents

PREPARING A QUERRY LETTER

110

In the case of any problem or query related to the proposal the officer who is

studying it prepare a letter to the branch manager or directly to the party to

collect the required information, known as query letter.

111

SUMMARY

Reading texts and scoring high doesn’t hold a higher position in the professional

courses, they stand equally on the platform with the ability to apply these texts in

the field work and perform.

“Summer Training” is the most vital part in professional courses like MBA as it

not only gives an understanding of the corporate world & its functioning but also

Grooms and matures an individual. This contribution of summer training prepares

a student to step out in the corporate world and start performing in the minimum

possible time.

I personally feel more confident now, with clear understanding and enlarged

horizon towards the work culture of the Indian corporate sector. It also gives me

a sense of immense pleasure to have done my Internship whole heartedly,

contributing the level best and learning not only about the functional aspect of the

work profile of the internship program but also about team- building, superior

subordinate relationship, crisis management, co-operation and co-ordination,

formal and informal groups, etc.

Given a thought today to the almost two months spent as a trainee in Bank of

Baroda, makes me realize that it was all applicably of the teachings and

guidance of the faculty members of my college ( International School of

Informatics &Management ) & all other teachers in my life.

Bank of Baroda’s priorities and strategies for supporting MSMEs are relevant and

effective.

This is not a conclusion of the experience I had during the course of internship

but it’s a beginning of a never ending process of learning while performing whole

heartedly.

112

BIBLIOGRAPHY

BOOKS REFERRED

Instruction Booklet no. 5, Bank of Baroda.

Bank’s Circulars related to the SME Loan Factory

Bank’s Domestic loan Policy

Kothari, C.R., 2004, Research Methodology, New Delhi, New Age International

(P) Limited, Publishers.

NEWSPAPER REFERRED

Economic Times

Times of India

WEBSITES REFERRED

www.msme.com

www.bankofbaroda.com

www.ministryoffinance.com

www.sisijaipur.gov.in

www.bankofbaroda.com/download/sme-policy

www.cc.iift.ac.in/sme/NEWS/02272009_SBI%20to%20restructure

%2041,000%20SME%20accounts%20by%20March%20end.pdf

113

QUESTIONNAIRE

Name of the Organization:

Address:

Representative:

Designation:

Email id:

Contact No. :

Activity / Deals in:

Ownership pattern of the Company:

1. Proprietary

2. Partnership

3. Private Ltd.

4. Public Ltd.

Which category of bank you approach for loans and advances?

1. Private Banks

2. Public Sector Banks

3. Cooperative Banks

4. Regional Banks

114

Are you aware of the loans and advances schemes given by the Bank to

SMEs?

1. Yes

2. No

What is the limit of Credit you want or you have taken?

1. Upto Rs. 25 lakh

2. Rs. 25 lakh to Rs. 1 Crore

3. Rs. 1 Crore to Rs. 5 Crores

4. Rs. 5 Crores to Rs 10 Crores

5. Above rs. 10 Crores

In future, if you have loan requirement, will you opt for Bank of Baroda?

1. Yes

2. Not Thinked yet

3. No

Give reasons, why not?

______________________________________________________________________

Do you have account in other Banks also?

1. Yes

2. No

115

Availability of funds from financial institutes / Banks (loan facilities)

1. Very easy

2. Easy

3. Module

4. Difficult

5. Very difficult

Do you think that Indian SME s globally Competitive?

1. Yes

2. No

Is the Bank of Baroda’s SME Products sufficient to make Indian SME

globally Competitive?

1. Yes

2. No

Please mark your opinion about the services provided by the Bank of

Baroda

1. Very satisfied

2. Satisfied

3. Neutral

4. Dis-satisfied

5. Very Dis-satisfied

116

Are you satisfied with the working of the SME Department of Bank of

Baroda?

1. Yes

2. no

What are the key factors that motivated you to take loan from Bank of

Baroda?

________________________________________________________________

Any suggestions to stimulate financing?

________________________________________________________________

________________________________________________________________

Filled by …………………………………….

Designation …………………………………….

Signature …………………………………….

Contact no. …………………………………….

117