AResearch Proposal

On“Granting Loan to the SME”

 Submitted By:

Manisha B. Prajapati[Batch: 2011-13, Enrollment No.: 117460592058]

Krunal J. Luhar[Batch: 2011-13, Enrollment No.: 117460592103S]

 Submitted to:

Mr.Nikunj R. Thakkar 

MBA SEMESTER IIIR.B.Institute of Management Studies

MBA PROGRAMMEAffiliated to Gujarat Technological University

Ahmedabad

PREAMBLE

SME is fast growing sector in the Indian Economy. Every Bank has given highest importance to financing 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 is visible most profoundly in the SME segment. The relationship between the banker and the customer has become most crucial and competitive.

Particulars Investment in Plant & Machineries of Manufacturing Enterprises

Investment in Equipments of Service Sector Enterprises

Micro Enterprises Up to Rs. 25/- lacs Up to Rs.10/- lacs

Small Enterprises Above Rs. 25/- lacs and up to Rs.500/- lacs

Above Rs.10/- lacs and up to Rs.200/- lacs

Medium Enterprises Above Rs.500/- lacs and up to Rs.1000/- lacs

Above Rs.200/- lacs and up to Rs.500/- lacs

COMMON GUIDELINES/INSTRUCTIONS FOR LENDING TO SME SECTOR:

1. Application Forms for Financial Assistance:

I Application form for credit facilities up to Rs.10/- lacs.

II Application form for credit facilities of over Rs. 10/- lacs and up to Rs.50/- lacs.

III Application form for credit facilities of over Rs. 50/- lacs and up to Rs. 2/- crore

IV Application form for credit facilities over Rs. 2/- crore.

2. Receipt of applications and acknowledgment:An acknowledgment with the date of receipt for credit

application received to be given. A definite date to be intimated to the applicant for discussions, clarifications etc. if considered necessary.

The bank’s decision regarding credit assistance to be communicated to the applicant within the prescribed period.

3. Register of Credit Applications Received: All applications received should be entered in a “Register

of Loan Applications Received” for recording therein the complete particulars such as date of sanction, rejection, reasons for rejection etc.

4. Time norms for disposal of loan applications: In respect of loans up to Rs.25,000/- within a

maximum period of one week of receipt of loan applications complete in all the respects and duly accompanied by a check list.

In respect of other cases for loans above Rs.25,000/- and up to Rs.5.00 lacks, within a maximum period of two weeks on receipt of duly completed loan applications in all the respects and accompanied by a checklist.

5. Types of Facilities:

 

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

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

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

(d) Export Credit facilities like Packing Credit.

(e)Letter of Credit on sight/usance basis for purchase of raw material/capital

goods

(f) Bank Guarantees

6. Assessment of Working Capital Limits:

Limits up to Rs. 5.00 crores:

Limits above Rs. 5.00 crores:

 

Financial Ratios for Credit Appraisal

Sr. Ratio Norms

Micro & Small Enterprises under manufacturing sector and Service Sector falling under regulatory guidelines

Medium Enterprises under

manufacturing sector and

Service Sector falling

under regulatory

guidelines

1 Current Ratio 1.17& above 1.20 & above

2 Debt Equity Ratio

3:1 3:1

3 Average DSCR for Term Loan

1.75 With a condition that in any one year it should not be below 1.00 instead of 1.25 as per extant guidelines.

1.75 with a condition that in any one year it should not be below 1.25

Current Ratio:

While a benchmark current ratio of 1.33:1 is always desirable, it is felt that some relaxations are provided to SMEs in their Current Ratio. They may be permitted to maintain a minimum current ratio of 1.20:1 as against 1.25-1.33:1 stipulated for others. Deviation for this range is not this range are not to be allowed (expected by one level above the sanctioning authority), particular if the rating gets below AA. Borrower has to improve the position by building up the current assets through infusion of more capital/funds.

Current Ratio= Current Assest ÷ Current liability

 

Debt: Equity Ratio:

The following may be accepted as the benchmark in this regard: W/C limits over Rs.5Crores to micro& small enterprises: 3:1. W/C limits to medium enterprises: 3:1. W/C limits up to Rs.5Crores to micro & small enterprises: 4:1. Credit Rating Model Govt./RBI had advised that banks initiate necessary steps to rationalize the cost of loans to SME sector by adopting a transparent rating system with cost of credit being linked to the credit rating enterprise. The bank‟s board had already of the following credit risk models

Debt Equity Ratio= Total Long term Debt ÷ Net Worth

Net Worth= Equity Share Capital + Reserve & Surplus – Misc. Expences

SMALL BUSINESS LOANS

The Bank grants to its customers, falling into the category of small business, loans with the following purposes:

Facing of irregular needs of operational funds;Facing of short-term needs of operational funds;Purchase of professional equipment;Purchase, construction or improvements of business

offices;Participation in investment projects; Participation in

specific national or European programs.

The minimum tenor of the granted by the Bank small business loans is 1 (one) year, and the maximum – 25 (twenty five) years. The tenor of each loan depends on the purpose of the loan and on the type and amount of the provided collateral.

As collateral for the granted by the Bank loan the customer may provide:

Guarantying – the guarantors have to be active persons of full age with permanent residence in the country. The guarantors are jointly responsible with the Borrower before the Bank for the total amount of the debt as per the signed Loan Contract, including: principal, interests, fees, commissions and all other expenses for the collection of the debt until its full repayment, as well as when the Bank makes the total debt pre-term and fully payable.

LC DiscountingCash CreditBill DiscountingFinancial Guarantee

Base Rate:Last Updated on November 28th, 2012

Bank Base Rate(%)DBS India 9.00South Indian Bank Limited 9.60State Bank of India 9.75ICICI Bank 9.75Kotak Mahindra Bank 9.75Standard and Chartered Bank 9.75HDFC Bank 9.80The Jammu and Kashmir Bank Limited 10.00Axis Bank 10.00Tamilnad Mercantile Bank Limited 10.00The Catholic Syrian Bank 10.00The Karur Vysya Bank Limited 10.00ING Vysya Bank 10.20State Bank of Hyderabad 10.25State Bank of Mysore 10.25United Bank of India 10.45Vijaya Bank 10.45Central Bank of India 10.50Bank of India 10.50Bank of Baroda 10.50Andhra Bank 10.50Allahabad Bank 10.50Corporation Bank 10.50Punjab National Bank 10.50Syndicate Bank 10.50Union Bank of India 10.50State Bank of Travancore 10.50Bank of Maharashtra 10.50IDBI Bank 10.50Yes Bank 10.50Dena Bank 10.70Canara Bank 10.75Punjab and Sind Bank 10.75Indian Overseas Bank 10.75Karnataka Bank 10.75IndusInd Bank 10.75

ICICI BANK

Features of ICICI Bank Secured SME LoanEligible entities: Sole Proprietorship Firm, Partnership Firms, Private limited

Companies, Public limited Companies

Lending Exposure : Up to Rs 50.0 million for working capital and capital expenditure needs

Acceptable collaterals: Residential/Commercial/Industrial property, liquid securities

Pre-requisites: Minimum one year business operation & audited financial.Also offers Term Loan for purchase of commercial assets & business expansion

needs.

ICICI Bank Secured SME Loan Interest Rates and Charges

Pricing shall be linked to ICICI bank's base  rate* for fund based facility ICICI Bank Base rate at present is 9.75%p.a Loan processing fees shall be charged based on loan amount sanctioned.

A. industry P. corporation

2011 2010 2009 2011 2010 2009current ratio : 0.77 0.79 0.69 current ratio : 0.38 0.48 0.78               current assets       current assets      deposit/advance/investments 69.64 59.58 12.5

deposit/advance/investments 0.64 4.52 0.30

cash & bank bal 20.84 22.26 18.47 cash & bank bal 1.28 0.63 1.32debtors 70.39 97.83 118.16 debtors 12.38 13.33 22.07total 160.87 179.67 149.13 total 14.3 18.48 23.69current liabilities       current liabilities      creditor/provision 28.31 40.71 78.88 creditor/provision 26.81 23.59 24.59secured loan 181.65 186.31 137.57 secured loan 10.67 14.56 5.74total 209.96 227.02 216.45 total 37.48 38.15 30.33TOL/TNW (quasi ) 2.03 2.41 5.95 TOL/TNW (quasi ) 1.69 2.97 3.24

Total Outside Liabilities      Total Outside Liabilities      

Total current lib. 28.31 40.71 78.88 Total current lib. 26.81 23.95 25.45secured loans 192.63 205.9 183.85 secured loans 7.19 10.87 4.79total 220.94 246.61 262.73 total 34 34.82 30.24               Tangiable Net Worth       Tangiable Net Worth      capital 8.66 1.74 0.44 capital 9.81 7.05 5.79unsecured loans 100.30 100.42 43.74 unsecured loans 10.36 4.69 3.54total 108.96 102.16 44.18 total 20.17 11.74 9.33

S. Ind. Kalol S. Ind. Ahmedabad

  2011 2010 2009   2011 2010 2009

current ratio : 1.21 0.65 0.00 current ratio : 1.51 1.46 1.92               current assets       current assets      deposit/advance/investments 27.7 17.28 0.00

deposit/advance/investments 59.25 0.00 0.00

cash & bank bal 11.64 9.59 0.00 cash & bank bal 3.76 4.95 1.35

debtors 53.88 25.43 0.00 debtors 696.00 273.48 157.07

closing stock 67.71 30.9   closing stock 466.79 186.68 71.76

total 160.93 83.2 0.00 total 1225.80 465.11 230.18current liabilities     0.00 current liabilities      

creditor/provision 53.89 23.49 0.00 creditor/provision 71.99 9.29 11.77

secured loan 78.73 104.53 0.00 secured loan 741.78 309.44 108.35total 132.62 128.02 0.00 total 813.77 318.73 120.12               

TOL/TNW (quasi ) 10.12 7.30 0.00 TOL/TNW (quasi ) 3.47 2.25 3.66Total Outside Liabilities     0.00 Total Outside Liabilities      

total current lib. 53.89 23.49 0.00 total current lib. 71.99 9.29 11.77

secured loans 169.4 161.13 0.00 secured loans 741.78 309.44 108.35

Unsec 52.5 16.49   Unsec 162.78 28.96 111.00

total 275.79 201.11 0.00 total 976.55 347.69 231.12               Tangiable Net Worth       Tangiable Net Worth      

capital 27.24 27.56 0.00 capital 281.64 154.28 63.09

total 27.24 27.56 0.00 total 281.64 154.28 63.09

om & co. Ahmedabad (Vasudev) W Industries

2011 2010 2009 2011 2010 2009current ratio : 2.99 1.34 1.46 current ratio : 1.24 0.96 3.52               current assets       current assets      

deposit/advance/investments 4.21 3.49 0.21 deposit/advance/investments 0.32 0.32 0.97cash & bank bal 4.14 1.61 1.23 cash & bank bal 1.19 3.26 0.28

debtors 848.72 289.35 401.36 debtors 11.02 8.68 3.48

closing stock 75.22 47.17 60.74 closing stock 24.05 21.25 21.27

total 932.29 341.62 463.54 total 36.58 33.51 26.00        current liabilities       current liabilities      

creditor/provision 76.09 57.94 106.80 creditor/provision 6.09 6.44 4.06

secured loan 236.13 197.69 209.67 secured loan+OD 23.46 28.64 3.32

total 312.22 255.63 316.47 total 29.55 35.08 7.38TOL/TNW (quasi ) 2.77 2.96 4.43 TOL/TNW (quasi ) 8.13 7.77 8.45Total Outside Liabilities       Total Outside Liabilities      

Total current lib. 76.09 57.94 106.80 Total current lib. 11.02 6.56 4.47

secured loans 236.13 197.69 209.67 secured loans 19.56 25.76 2.05

Unsec 117.88 26.25 77.98 Unsec 40.63 39.38 35.47

total 430.10 281.88 394.45 total 71.21 71.70 41.99               Tangiable Net Worth       Tangiable Net Worth      

capital 155.00 95.20 88.99 capital 8.76 9.23 4.97

total 155.00 95.20 88.99 total 8.76 9.23 4.97

Bulk Pack ABC

2012 2011 2009 2012 2011 2010current ratio : 1.51 0.78 0.84 current ratio : 1.90 1.92 1.53               current assets       current assets      deposit/advance/investment 59.25 92.65 122.43 deposit/advance/investments 0.08 0.00 3.95cash & bank bal 3.76 15.35 10.42 cash & bank bal 13.62 1.9 1.50debtors 696.00 59.02 19.69 debtors 71.90 36.71 15.46closing stock 466.79 600.98 730.49 closing stock 21.89 23.1 15.58

total 1225.8 768.00 883.03 total 107.49 61.71 36.49        current liabilities       current liabilities      creditor/provision 71.99 959.44 1040.85 creditor/provision 56.56 32.07 23.87secured loan 741.78 30.62 8.87 secured loan 0.00 0.00 0.00total 813.77 990.06 1049.72 total 56.56 32.07 23.87TOL/TNW 12.26 18.59 24.33 TOL/TNW 35.09 35.88 38.37Total Outside Liabilities       Total Outside Liabilities      Total current lib. 936.69 959.44 1040.85 Total current lib. 56.56 32.07 23.87secured loans 22.19 30.62 8.87 secured loans 0.00 0.00 0.00Unsec 41.26 0.40 18.24 Unsec 66.62 43.63 16.42total 1000.14 990.46 1067.96 total 123.18 75.70 40.29               Tangiable Net Worth       Tangiable Net Worth      capital 81.61 53.28 43.90 capital 3.51 2.11 1.05total 81.61 53.28 43.9 total 3.51 2.11 1.05 TOL/TNW(Quasi) 7.80 18.44 16.89 TOL/TNW(Quasi) 0.81 0.70 1.37

RESEARCH METHODOLOGY

Objectives: Primary Objective To know how capital investment loan is granted to SME To know creditworthiness of business units found out Secondary Objective To know what type of guarantee should be provided by the Bank while taking

loan To know what type of credit facilities are provided to SME by the Bank.

Sources of data collection:

The study that is conducted being a descriptive one the research sources of data used by:

Secondary data For concluding the detailed study of this topic it is necessary to have some of

the secondary information which is collected from the Website

Data Analysis: Tools and Techniques: Ratio Analysis by use of Excel or SPSS .

Limitation of the study

All the information needed for the project was not available because of confidentiality issue.

Sometimes it was tough to get an appointment and meet Kajal Maa’m.

We collect the data from Ms. Kajal (Assistant Manager of Kumbhat Advisors Pvt. Ltd.) about the SME and Bank loan guarantee.

List of references

http://www.rbi.org.inhttp://www.just4uloan.comwww.sme.comwww.icici.comMs. Kajal (Assistant Manager of Kumbhat Advisors

Pvt. Ltd.)http://www.way2goals.com/BaseRate.php

Thank You