Foreign Direct Investment
Transcript of Foreign Direct Investment
Financial Assistance To SSIs
Chapter – I
INTRODUCTION
1.1 INTRODUCTION
Industrial finance in its broad connotation means, the provision of funds needed by
industry irrespective of the period of which they are made available. A finely tuned
economy has certain base necessities if it has to remain so. A well developed capital
market is one such pre-requisite. The availability of finance in respect of both quantum
and time does have tremendous impact on industrial development.
Until the nationalization of Banks in 1969, the portfolio of commercial bank
advances have largely geared to finance, trade and commerce, starting essentially as an
urban based financial service, real efforts were begun only in 1956 through ‘pilot’ project
scheme by SBI to look into the credit needs of SSIs. Further, since, 1985as per the
directives of the government, commercial banks begun to provide 40per cent of their total
credit to priority sector at concessional rates. This was mandatory because the commercial
banks had neglected the SSI sector hitherto.
In 1951, the state Financial Corporation’s (SFCs) Act was passed in the parliament
empowering the State Governments to set up financial institutions to cater to the needs of
SSIs. Then, in 1969 and in 1980, 20 major commercial banks were nationalised thereby
opening up new horizons for the financial operations of SSIs in particular clearly financial
support holds the key to entrepreneurship development vis-a-vis the development of
industries.
Saraiya committee notes that – “during the pre-nationalization period the SSI
Sector had to rely on the resources of the disorganised money market for its credit
requirement partly because of the rapidly increasing demands for credit from the large and
medium scale industry and partly because of lack of industry and partly because of lack of
experience on the part of the banks and borrowers”.
One of the universal problems that hinders and unhinges the SSIs is the paucity
and non-availability of adequate finance at right time. In India, SSI sector encompasses a
diverse range of industries ranging from handicrafts to ancillaries and their financial
requirements also differ and hence their needs to be met differently. Though many other
Department Of Studies In Commerce, Shivagangothri Page 1
Financial Assistance To SSIs
elements such as-technology, management, market, etc., are important. Adequate and
timely finance is a necessary pre-condition for the promotion and development of SSIs.
Credit is the lubricant of production, in fact financial assistance is more important than
just the government incentives.
Commercial banks are very important for the promotion of SSIs in the country.
However, the distribution and regional spread of banks were not even and satisfactory.
The initial attempt in financing SSIs was under the State Aid to Industries Act
which provides State Governments to help SSIs in the form of development loan. The next
important attempt was the enactment of the State Financial Corporation’s(SFCs) Act in
September 28, 1951, to facilitate the State Governments to set up SFCs with the object of
providing medium and long-term loans to SSIs. The SBI, the first major public sector
commercial bank, which introduced a liberalized scheme of financial assistance to SSIs in
1956 for the first time. The credit guarantee scheme introduced by the Reserve Bank of
India constituted another milestone in the history of financing of SSIs. The National Small
Industries Corporation (NSIC) introduced a credit guarantee scheme in 1966 to ensure 100
percent finance to SSIs executing Government orders. The introduction of the social
control on commercial banks by the Central Government in 1967 was another important
measure to activate commercial banks in lending to SSIs in an active manner. The
nationalization of 14 major commercial banks in 1969 and 6 major commercial banks in
1980 assured a new era of financing in the country. RBI had stipulated that commercial
banks should provide at least 40 percent of their advances to priority sector, which
included SSIs also, and this was another significant step in financing of SSIs.
The refinance assistance scheme introduced by Industrial Development Bank Of
India (IDBI) together with the credit guarantee scheme provided a favourable climate for
the flow of finance to SSIs. In August, 1987, the Central Government introduced National
Equity Fund (NEF) scheme with the objective of providing support in the form of equity
assistance to SSIs which are engaged in manufacturing activities. The establishment of an
exclusive Apex Bank for small-scale sector known as Small Industries Development Bank
Of India (SIDBI). SIDBI now administrates SIDF, NEF, and other schemes of finance for
SSIs which were hitherto being administered by IDBI.
Department Of Studies In Commerce, Shivagangothri Page 2
Financial Assistance To SSIs
With the above backdrop, the institutional network for financing SSIs can be
drawn as follows:
1. RBI Apex body controlling, monitoring and regulating
the flow Of finance to this sector.
2. IDBI/SIDBI providing support to major financial institutions like
– SFCs and Banks through refinance.
3. Banks 20 Nationalized Commercial Banks, scheduled
Banks, Co-operative Banks and RRBs mainly
providing working capital.
4. SFCs KSFC in case of Karnataka.
5. State Small Industries
Development Corporation KSSIDC in case of Karnataka provides industrial
sheds and supplies raw material.
Industrial Finance
Structure and Perspective
During the British regime, industrialisation was financed by British investments, it
Was claimed by Vera Anstey and others: The results of the British connection have been
instrumental in providing the economy management cover. The incorrectness of this
notion is quite evident. It was emphasised that ‘capital is never taken from England to
India: it is made there and remitted home.’
The British capital invested in India was in reality first realised in India. That
original British investment in India coming from Britain specifically for this purpose was
very small.
Why Required?
Under the Five-Year plans, India has taken to real-time industrial development. To
achieve this, apart from modern technology and management, adequate capital and
financial cover on easy terms became necessary. This is the age of institutional finance,
along with economies of scale in expanding large and medium scale industrialisation.
In today’s context, supply of financial resources is required to meet a number of
requirements.
Department Of Studies In Commerce, Shivagangothri Page 3
Financial Assistance To SSIs
1. To start a new project or a new undertaking, or for the expansion of an undertaking, a
capital base is required right at the take-off stage, for construction of buildings and
installations; acquisition of machinery and equipment: guaranteed availability of
production inputs including raw materials: and to finance warehousing and marketing
services, a sales force and publicity network. The base-capital in fact represents the
installed capacity of the undertaking. Its soundness gives an undertaking the requisite
resilience.
2. In order to function smoothly, with drive and flexibility, the company requires working
capital from one year to the next, to provide for the factors of production, for repair,
maintenance and depreciation, renewal and replacement, warehousing, transport,
advertising and marketing.
3. A promising undertaking should have a competent and thriving apparatus for research
and development in order to keep in tune with the latest developments in science,
technology and management. There should be an adequate R&D budget to update and
update its technology, management practices, financial and budgetary control procedures.
Varieties
The term-lending requires for industrial finance can be of three varieties:
1. Long-term finance is required mainly for the provision of the capital-base or funded
capital to set up an undertaking, or to enable the undertaking to enter a new field or a
market or to set up a new installation, new machinery or a new structure.
The importance of long-term finance in funding the company’s base capital is
clear. The funded capital represents the strength and soundness of the financial structure
and installed capacity and also outlook for progress and advancement.
2. The tenure of medium-term loan is generally for a year or two. Such loans are usually
raised for acquisition of smaller machines and equipments, for repairs and maintenance
and for miscellaneous working capital requirements of intermediate quanta. A company
which lives from hand to mouth cannot prosper and cannot demonstrate vision, foresight,
boldness or imagination. The need for prompt, easy and foresight availability of working
capital is appreciated. It should be adequate and readily available on easy and flexible
terms.
Department Of Studies In Commerce, Shivagangothri Page 4
Financial Assistance To SSIs
Over a period of time, a proportion of the annual working capital should be built
into the co firmament by means of deposits and investments, and other funding
arrangements from its own surplus and resources.
3. Needed for odd and instantaneous requirements, repayable within a year or two, short-
term finance is raised for regular working expenses. Such short-term finance is also
required to stockpile inventory. As a company grows and prospers, such requirements
should be financed by the company itself.
An inadequacy of resources is a positive deterrent to growth, as it makes the
undertaking to resort to conservative and different measures.
The importance of organising a sound and resilient network of institutional finance
cannot be over emphasised. Without this, industrialisation would be slow and stunted.
The circumstances unique to India are the following:
1. To provide adequate and diversified finance
The net workings of commercial banks of sorts, supplemented by ubiquitous
money-lenders before independence, were neither suitable nor adequate, nor did they
sponsor and activate network industrial development. These institutions could not be
expected to grapple with the comprehensive requirements of a fast growing
industrialisation.
The need, therefore, arose for a capital market, to raise share and equity capital, to
buy and sell shares, scrip’s and equities and debentures, and a money market, to undertake
term-lending loans and advances through banks, co-operative and financial institutions.
2. To provide developmental finance
Pioneering ventures were required in virgin areas and fields not yet exploited.
These involved considerable risk-taking and perspicacity, need therefore arose for
institutional finance.
On the emergence of economic planning, particularly from the Third plan, the
programme of national industrialisation took off to a flying start, and a support structure of
banking, money market, stock exchange and institutional finance was also launched and
developed.
Department Of Studies In Commerce, Shivagangothri Page 5
Financial Assistance To SSIs
3. To mobilise indigenous savings
It was essential to organise an institutional network of financial organisation that
could not only mop up and mobilise savings, but could also canalise the same for further
plough-back and investment as industrial finance.
4. To provide sound and growth-oriented investment
In India, even commercial banks were prone to invest in real estates, hotels,
cinema houses and trade ventures, not to speak of private investors. A psychology and
culture for investment into industrial ventures is, therefore, required. This was necessary
to siphon black money, by inducting into investment.
This not only should take shape in share and equity or debenture capital, but also
an investment encouraged by special drives, schemes and programmes.
Small and Medium Sector
These undertakings also do require loans and advances, as well as funded and
working capital, for short, medium and long-terms. The variance is mainly in respect of
quantum.
1. The share and equity markets are prone to finance larger undertakings. The Small and
medium undertakings are compelled to draw mainly from private sources. These,
therefore, have to make to do with comparatively more rigid terms and conditions. Such
rigidity is manifest in the quantum of the loan or advance or financial accommodation, as
also in the terms and conditions.
2. Again, their creditworthiness in terms of collaterals they can offer is limited: Thus for a
Tata Or a Birla or a Hindustan Lever Concern, apart from other tangible collaterals, very
often their goodwill or the marketability of their products are by themselves considered
sufficient collateral, when this is not so, a loan or advance is often accommodated through
overdrafts or promissory notes or against very easy collaterals.
3. The loan applications of small and medium undertakings get a lower priority in the
money and banking markets: These undertakings get a relatively raw deal in priorities
even though their requirements are urgent and vital. Their requests are frequently side-
tracked or written down, and preference given to large-scale undertakings.
Department Of Studies In Commerce, Shivagangothri Page 6
Financial Assistance To SSIs
The usual sources of supply for the small and medium level industries are the
following:
1. Money lenders offer loans and advances freely, but normally on mortgage or
hypothecation of fixed assets, sometimes of the undertaking itself. The rates of interest
charged are high, and often compound. During adverse circumstances the company is
sometimes ruined by loans and liabilities, often resulting even in transfer of ownership.
2. Latterly, commercial banks, comprising the nationalised bank and State Bank network,
have started to finance the small and medium sectors on relatively reasonable terms,
interest and collaterals, with a number of promotional schemes. The SBI providing the
request thrust, such liberalisation started crystallising during late 1960s and early 1970s.
A Credit Guarantee Scheme came in Mid-1960, but was substituted in Mid-1980s
by the Deposit Insurance and Credit Guarantee Scheme.
The beneficial effects of these schemes, properly implemented, are obvious. These
encourage small-range industrial promotion. The government should organise the schemes
on a wider and more viable pattern. The steps so far actually taken are rather tentative and
desultory.
3. A National Small Industries corporation and Small Industries Corporations in certain
states have come such corporations attend to commercial bank loan through appropriate
supports and guarantees, and also to warehousing, transport, marketing, machinery and
equipment and consultancy and management cover. They have also lately started taking a
promotional interest.
Large Scale Sector
The financial needs of large scale sector undertaking are substantial and pervasive
not only for funded capital, but also working capital and also rehabilitation and
development finance.
These requirements are discussed hereafter.
1. Fixed or block or funded capital generally represents installed capacity and is required
for buildings and structures. Machinery and equipment and extensions and
replacements. Once installed or acquired, these represent fixed assets.
Department Of Studies In Commerce, Shivagangothri Page 7
Financial Assistance To SSIs
For large companies such requirements are substantial, and are normally drawn from
sources outside the company. Institutional financial needs are normally met by floating
shares, scrip’s, equities and debentures.
2. Working capital requirement is also largely raised through outside finance, except for
depreciation rehabilitation, renewal, replacement and marginal expansion. Working
capital is required to finance the payroll, contributions to provident, pension,
compensation and depreciation funds, organise procurement o raw materials, stores
and inventories, purchase small equipment, tools and implements, and defray current
expenses.
3. A solvent undertaking shall make adequate provisions for depreciation and
replacement by contributions to funds from its own working capital and as part of its
working expenses when this is not done by some private sector undertakings in the
anxiety to declare dividends even by defaulting on contributions to funds these are
going to create trouble for themselves.
4. For expansion and development progressive public and private sector undertakings
make regular anticipatory contributions to a development fund to finance blocked or
funded capital by floating shares, scrip’s equities or debentures, particularly for large
expansions or for new ventures.
Methods
For the large- Scale undertakings there are four major streams of finance.
1. Such undertakings raise block or funded capital by floating shares, scrip’s, equities and
debentures shares and equities can be preference and ordinary, and of different
denominations, debentures, scrip’s, bonds and promissory notes are also issued and sold to
the public. All these transactions are arranged through commercial bank or financial
institutions.
Public interest in share or debenture capital of progressive established or promising
concerns is encouraging for new undertakings with new and unknown names the response
is not so spontaneous. Such public indifference often lead new ventures to pack the boards
Department Of Studies In Commerce, Shivagangothri Page 8
Financial Assistance To SSIs
of Directors with well-known names as “sleeping director” who are of no or little use in
governance.
2. The practice of inviting deposits is popular with textiles companies in western India
and tea companies in eastern India. The practice started with the managing agency system
in cotton textile, Jute milling and tea gardening and processing with the abolition of
managing agency, the system has lost its punch and preference shown for fixed, recurring
and programmed deposits in commercial banks.
3. The rural and indigenous banks have extended loans and advances to small and
medium scale companies for both funded and working capital. These proved of little use
to large companies, for their requirements were “beyond the means” of such banks.
Commercial banks are lukewarm to provide finance to large undertakings, as these involve
risk taking for loans and uncertainties for equities. The nationalised banks during the
1960s and 1970s however sponsored floating of share and debenture capital for them.
4. From the mid-1950s, but largely during the 1960s 1970s and 1980 a long awaited
specialised institutional structure for floating, dispersal/ and dissemination of industrial
finance came into being. This was already overdue for financial term-lending.
Finance for Small-Scale Industries
While some of the above mentioned sources also provide funds for small-scale
industries, it may be useful to make a separate mention f their sources of funds, as these
industries differ from large-scale industries in such important matters as organisation,
scale of production, collateral or security etc. Their sources are both traditional and
modern, and both are important.
Traditional Sources
An important traditional source of finance is the money lender; He predominates in
the rural areas, and is of some significance in urban areas. However in urban areas it is the
indigenous banker who does much of the financing of small industries. Considerable
Finances flow from these sources. The sources are also important because these often
come to the aid of these industries at very critical times and that too with little fuss. Their
relations with small industries are very close indeed. But the financing from these sources
has not been of much help in ensuring a proper use of funds or in promoting productive
Department Of Studies In Commerce, Shivagangothri Page 9
Financial Assistance To SSIs
activities along healthy lines. Interest charges have been quite high. Repayment conditions
too are stiff.
Modern Sources
As for modern sources concerned, there are several institutions in the field. To
begin with one may mention those almost exclusively meant for small industries (and also
medium industries). These are, for example, the state financial corporation’s so far set up
in 18 states and in operation since 1951. At the state level there are also industrial
development corporations for financing small industries in their respective states. In
addition there are several institutions and schemes of all India level. There is for instance,
the credit guarantee scheme (started in July 1960) and later replaced (In April 1981) by the
deposit Insurance and credit Guarantee corporation. These are meant to ensure guarantee-
support for finance of the weaker section. There are commercial banks offering mostly
short term credit. They have also been helpful in setting up of industrial estates.
Review of Literature
The available literature on SSIs can be grouped under three categories.
Studies relating to the importance of SSIs and its advantage over large scale
industries.
Studies concerned with institutional support to SSIs and
Studies relating to finance to SSIs
Hoselitz deals mainly with the factors differentiating between large scale
Industries and SSIs like employment, investment or power required. Further by analysing
the formal structure of Indian planning process his study emphasis the need for greater
importance for SSIs in the five year plans.
Dr.Trivedi, stress on the Industrial policies of the government and the measures
taken by the government to protect and promote SSIs from Industrial policy, 1948
(Resolution). The author also briefly – analysis the investments made during the plan
periods.
Sandesara (1993) studied the performance of SSIs producing reserved items
collecting data from the second census conducted by the Ministry of SSIs. The study
examined the null hypothesis that the SSI firms producing reserved category items should
Department Of Studies In Commerce, Shivagangothri Page 10
Financial Assistance To SSIs
perform better than the SSIs producing non-reserved items. The study result revealed that
capacity utilization in 1987-88 and aggregate change in production in 1987-88 were both
lower for reserved than for unreserved items. This below par performance of the SSI firms
producing reserved items was surprising as those firms did not have to face competition
from the large firms. The author observed that this could be due to the entrance of excess
SSI firms into the protected areas.
Sonia and Kansai Rajeev (2009) studied the effects of globalization on Micro,
Small and Medium Enterprises (MSMEs) during pre and post liberalization from 1973-74
to 2008-09. They used four economic parameters namely number of units, production,
employment and export and interpreted study results based on Annual Average Growth
Rate (AAGR) calculation. AAGR in pre liberalization period (1973-74 to 1989-90) was
higher in all selected parameters than that of post liberalization period (1991-92 to 2007-
08). They concluded that MSMEs failed to put up an impressive performance in post
reform era.
Bhavani T.A. (2010) highlights the issue of quality employment generation by the
SSIs and negates the short term attitude of increasing the volume of employment
generation compromising with quality. The author argues that employment generation by
the SSIs may be high in quantitative term but very low in quality. Technological up
gradation would enable the small firms to create quality employment improving
remuneration, duration and skill. This structural shift may reduce the rate of employment
generation in the short run but would ensure high-income employment generation in the
long run.
Subrahmanya Bala (2011) has probed the impact of globalization on the exports
potentials of the small enterprises. The study shows that share of SSI export in total export
has increased in protection period but remain more or less stagnated during the
liberalization period. However, the correlation co-efficient in liberalization period is
higher than that of protection period suggesting that the relationship between the total
export and SSI export has become stronger in liberalization period. This may be due to the
drastic change in composition of SSI export items from traditional to non-traditional and
growth in its contribution to total export through trading houses, export houses and
subcontracting relation with large enterprises. Thus, the current policy of increasing
Department Of Studies In Commerce, Shivagangothri Page 11
Financial Assistance To SSIs
competitiveness through infusion of improved technology, finance, and marketing
techniques should be emphasized.
Desai, deals With the sources 0 f finance for S5Is and defines the assessee and the
requirement of working capital for SSIs. There is also a cursory glance on the commercial
Banks Finance to SSIs. Further Desai traces the history of commercial banks' finance to
this sector from 1956 when SBI introduced the Pilot Project Scheme. Desai also deals in
detail the security approach of banks and the terms and conditions of the banks to provide
finance.
Ramakrishna explains about the capital and credit needs of SSI by keeping the
number of people employed as the basis and analyses the role played by state Bank of
India in financing SSIs.
Pareek (Financing of Small Scale Industries in a Developing Economy)
Illustrate the need for finance for SSIs problem of finance and the present institutional
network to provide finance, His study is devoted more towards the operations of
commercial banks and their schemes to provide finance to SSIs.
1.2 IMPORTANCE OF THE STUDY
The prominence for Small-scale sector emanates from two basic premises of
economic development policies viz., the balanced development and sustainable growth of
the economy which calls for certain minimum level of diversification of the economy. In
an economy with a predominant primary sector and agriculture depending on the
monsoon, such a diversification has to be in the direction of industrial sector in general
and small scale sector in particular.
Although agriculture is the backbone of our economy and the largest contributor to
GDP, too much dependence on this sector is unwise. In spite of the fact, that millions of
people depend on agriculture this sector is unable to absorb all and provide productive
employment. There is a widespread disguised unemployment in this sector. There is a
need to diversify economic activities and shift the disguised unemployed from agriculture
to other sectors where they can be productively employed. SSI sector is one of such sector
which is labour intensive and hence, provides scope to absorb such labours.
Department Of Studies In Commerce, Shivagangothri Page 12
Financial Assistance To SSIs
Modern small-scale industries in India were almost non-existent sector of priority
to the II world war. It was during the war period that a number of SSIs were established to
relieve pressures (like-poverty, unemployment, depression, trade deficit and etc.,). After
independence, organised efforts were made for the development of SSIs on the basis of the
report submitted by a team of Ford Foundation experts.
Industrialization in India since independence has been predominantly based on the
development of large scale industries. The policy of the government during the early
planning era was to develop import substituting heavy industries as the “key stone” with
traditional SSI as an adjunct to meet day to day demands.
Industrial development becomes incomplete without the development of SSIs,
since this sector provides an opportunity to utilize the abundant man power and
unexploited resources. Accordingly in the process of reshaping and developing the Indian
economy under the aegis of Five year plans, SSI sector is rapidly coming into prominence.
Importance of the Small scale sector can be gauged by the account given by small
Industries development Bank of India (SIDBI).
1.3 OBJECTIVES OF THE RESEARCH STUDY
Following are the objectives of the study:
1. To analyse the pattern, trends and magnitude of financial assistance given to the SSI
sector in Davangere City.
2. To study the norms of lending and recovery of loan given to SSIs.
3. To know about terms and conditions for providing financial assistance to small scale
and cottage industries.
4. To study the extent of financial assistance provided in the financial year 2012-13 to the
SSI and its recovery position.
5. To evaluate the impact of institutional finance on industrial development.
1.4 NEED FOR THE STUDY
The needs for the study about financing of Small Scale Industry because of the
potential and existing entrepreneurs of small scale industries are facing the financial
problems as their target customers’ demand. The entrepreneur has to approach various
financial institutions which can provide financial assistance to produce the qualitative
Department Of Studies In Commerce, Shivagangothri Page 13
Financial Assistance To SSIs
products based on the adoption of technology. To revise the terms and conditions of
repayment of loans which are costlier in their nature to small scale industry units?
1.5 SCOPE OF THE STUDY
The scope of the study is restricted to the financial assistance given by state Bank
of Mysore Mandipet Branch, Davangere for establishment of small scale and cottage
industries by the selected beneficiaries of Davangere city.
1.6 METHODOLOGY
Methodology is a prime important in any type of study. It is the method and
procedure used to work in the project. In this study the data is collected through primary
and secondary sources of data. The primary data is collected on the basis of questionnaire
and the secondary data is collected from the text books. Annual reports of the District Co-
ordinator of the bank who is personally interviewed together to get information about the
financial assistance extended by the bank branch to those selected beneficiaries.
1.7 LIMITATIONS OF THE STUDY
1. The study is limited Davangere branch of State Bank of Mysore only and its financial
assistance to small scale and cottage industries of Davangere.
2. No comparative study is made with other lending institutions.
3. This is being an academic study; it suffers from time and cost constraints.
4. Accuracy of project report is mainly based on the reactions given by the respondents.
1.8 CHAPTER DESIGN
The first chapter contains the introductory aspects of the study such as review of
literature, Need for the study, objectives of the study, Scope of the study, Methodology
used in the study, limitations of the study.
The second chapter deals with the brief profile of State Bank of Mysore, growth
and development, Organization structure, product and services, business growth, corporate
vision and mission, corporate objective, founding principles and Davangere branch profile
also.
The third chapter deals with the concept of priority sector. This chapter attempts
for orientation of the word “priority sector”, coverage under its definition.
Department Of Studies In Commerce, Shivagangothri Page 14
Financial Assistance To SSIs
The fourth chapter deals with role of Micro, Small and Medium Enterprises, definition, importance, Debatable issues, Opportunities and constraints of globalization, etc.,
The fifth chapter deals with small scale industries meaning and definition of SSIs,
objectives of SSIs, Role of SSIs, Problems faced by small scale industries, registration of
small scale industries.
The sixth chapter deals with state Bank of Mysore credit Schemes to Small Scale
industries, various loans, schemes offered by state Bank of Mysore to Industrialists in
Small scale Sector, procedure followed by the bank to give loans to small-scale industries,
methods and objectives of recovery.
The seventh chapter deals with analysis and interpretation of data covering the
following aspects:-
Qualification of entrepreneurs, nature of unit, organisation form, form of fixed
capital, form of working capital, reasons for opting State Bank of Mysore. Purpose of loan
taken, interest charged and opinion about the financial assistance of State Bank of Mysore.
The eighth chapter covers survey findings, suggestions and conclusions.
Department Of Studies In Commerce, Shivagangothri Page 15
Financial Assistance To SSIs
CHAPTER- 02
PROFILE OF STATE BANK OF MYSORE
2.1 HISTORY OF SBM
There are many banks operating in our country. Some of they are public sector
banks some others are private sector banks where as some others are foreign banks.
Among public sector banks, State Bank of India is the biggest bank. And there are many
other banks like Canara Bank, Punjab National Bank, Indian Bank, Corporation Bank,
Allahabad Bank, Indian overseas Bank and some others. All these banks are doing very
good business all over the country and they have acquired good market share in the
country. They are offering good services and products.
It formally became a nationalized bank of India in the month of March in 1960
when it became a subsidiary and an associate bank of the State Bank of India.
Our Profile
State Bank of Mysore was established in the year 1913 as Bank of Mysore Ltd.
under the patronage of the erstwhile Govt. of Mysore, at the instance of the banking
committee headed by the great Engineer-Statesman, Dr. Sir M.Visvesvaraya.
Subsequently, in March 1960, the Bank became an Associate of State Bank of India. State
Bank of India holds 90% of shares. The Bank's shares are listed in Bangalore, Chennai and
Mumbai stock exchanges.
During 1953, “Mysore Bank” was appointed as an agent of Reserve Bank of India
to undertake Government business and treasury operations, and in March 1960, it became
a subsidiary of State Bank of India under the State Bank of India (Subsidiary Banks) Act
1959.
Now the bank is an Associate Bank under State Bank Group and the State Bank of
India holds 92.33 percent of shares. The Bank’s shares are listed in Bangalore, Chennai,
and Mumbai stock exchanges.
The bank has a record of uninterrupted profits since 1913 and has declared
dividend every year since 1913.
Department Of Studies In Commerce, Shivagangothri Page 16
Financial Assistance To SSIs
“To give real service, you must add something which cannot be bought or measured with
money” - Sir M. Visvesvaraya
2.2 MILE STONES OF STATE BANK OF MYSORE:
1913- The Bank was established as ‘Bank of Mysore ltd.’, on 19 May With an
authorised capital of Rs.20.00 lakhs.
Commenced its business on 2 October 1913.
1953- During the year, the Bank was appointed as an Agent of Reserve Bank of
India to conduct Government business and treasury operations.
1959- With effect from the 10th September, the bank was constituted as State Bank
of Mysore as a subsidiary of State Bank of India, under State Bank of India
(Subsidiary banks) Act, 1959 enacted through an act of parliament, (Act No.38 of
1959s).
Mysore bank is the first bank to finance for commercial crops like coffee, Tobacco,
etc.,
1959- The Bank has formulated schemes for financing coffee planters/coffee
traders against coffee curers’ certificate, financing coffee traders, coffee exporters
and coffee curers who also engage in trading.
Department Of Studies In Commerce, Shivagangothri Page 17
Financial Assistance To SSIs
The bank actively participated in all Government sponsored schemes and
contributed its share of financial assistance or the economically weaker sections
through DIR, IRDP, Prime Minister Rojgar Yojna and SUME schemes.
The Bank has sponsored two Regional Rural Banks, Cauvery Grameena Bank and
Kalpataru Gramin Bank which were merged to form Kaveri-kalpataru Gramin
bank, headquartered at Mysore with more than 300 branches for growth of
agriculture and rural industries.
The Bank, as a part of State Bank group has been engaged in financing agriculture
and MSME in 1960 and introduced the concept of need based rather than security
oriented finance and the entrepreneur scheme under which technically qualified
persons were financed the entire requirement up to Rs.2 lakhs.
The Bank has correspondent and agency arrangements all over the world and
offers spot services in 18 major approved currencies.
State Bank of Mysore handles a significant part of day-to-day banking business of
both the Central and State Governments in the State of Karnataka and is a banker
to various Public sector undertakings in various sectors of Economy.
The Bank has been actively participating in welfare banking needs of public
through its community services like Blood donation camps, Health Check up
camps, Donation of ceiling fans, water coolers etc for the needy schools.
The Bank is a member of society for Worldwide Inter Bank Financial Tele
communication (SWIFTs) which was established to offer cost effective and fast
transmission of financial messages globally, 2 branches of Bank are presently
covered under the scheme and an additional 15 branches are proposed to be
covered under SWIFT shortly.
1992-The State Government has also taken up vigorously ‘ASHRAYA’, a new
housing scheme for weaker sections and ‘VISHWA’, a new rural and cottage
industry scheme. A new programme called ‘AKSHAYA’ has also been launched
to help the children in primary education. The Konkan Railway Project and the
New Mangalore Port Project are also progressing satisfactorily.
Department Of Studies In Commerce, Shivagangothri Page 18
Financial Assistance To SSIs
1994- Several important measures have been introduced in the busy season credit
policy of November 1993 and slack season credit policy of May 1994, announced
by Reserve Bank of India.
Branch Network
The Bank has widespread network of 905 Branches (as on 31.12.2013) and 9
Extension Counters spread all over India including 6 Small and Medium Enterprise
Branches, 4 Industrial Finance Branches, 3 Corporate Accounts Branches, 7 Specialized
Personal & Services Banking Branches, 9 Agricultural Development Branches, 3
Government Business Branches, 2 Specialized NRI Branches, offering wide range of
services to the customers besides 5 Service Branches and 1 Asset Recovery Branch
rendering backup support to the Bank.
Human Resources
The Bank has a dedicated workforce of 10,479 employees consisting of 3,738
supervisory staff and 6,741 non-supervisory staff (as on 30.06.2013). The skill and
competence of the employees have been kept updated to meet the requirement of our
customers keeping in view the changes in the business environment.
2.3 ORGANISATIONAL SETUP
While the Chairman of State Bank of India is also the Chairman of the Bank, The
Managing Director is assisted by two Chief General Manager and 13 General Managers.
Managing Director Mr Sharada Sharma
Chief General Manager (Retail Banking) Mr Kalyan Mukherjee
Chief General Manager(Commercial Banking) Mr Saswata Chaudhuri
General Manager (Human Resource & General Administration) Mr Bibhupada Nanda
General Manager (SAMG) Mr J Ramakrishnan
General Manager (Priority Sector, Rural Banking & Financial Inclusion) Mr K Lakshmisha
General Manager (Corporate Banking - Head Office) Mr Rajiv Mathur
General Manager (Risk Management and Credit Policy and Procedures, IT) Mr Parthasarathy N
General Manager (Treasury) & Chief Financial Officer Sri Viswanathan V
Department Of Studies In Commerce, Shivagangothri Page 19
Financial Assistance To SSIs
General Manager (Retail NW Bangalore) Mr Nageswara Rao
General Manager(Vigilance) Mr Vijay Dube
General Manager(New Business,Govt Business & BPR) Mr A Karunanithi
General Manager (NW - Delhii) Mr Ravinder Kumar Madaan
General Manager (Retail Network Mysore) Mr S Bangara Raju
General Manager (Inspection & Audit) Mr Subhabrata Ray
General Manager (Personal Banking) Mr Ashok K Pradhan
2.4 MANAGEMENT COMMITTEE OF THE BANK
Mr Sharad SharmaManaging Director
Mr.Kalyan MukherjeeChief General Manager
(Retail Banking)
Mr.Saswata Chaudhuri Chief General Manager(Commercial Banking)
Mr Bibhupada NandaGeneral Manager
(Human Resource & General Administration)
Mr J Ramakrishnan General Manager
( SAMG).
Mr Lakshmisha KGeneral Manager
(Priority Sector, Rural Banking & Financial Inclusion)
Mr Rajiv MathurGeneral Manager
(Corporate Banking - Head Office)
Mr Parthasarathy NGeneral Manager
(Risk Management and Credit Policy and Procedures)
Mr Viswanathan VGeneral Manager
(Treasury) & Chief Financial Officer
Department Of Studies In Commerce, Shivagangothri Page 20
Financial Assistance To SSIs
Mr K Nageshwara RaoGeneral Manager
(Retail NW Bangalore)
Mr VIJAY DUBEGeneral Manager
(Vigilance)
Mr A KarunanithiGeneral Manager
( New Business,Govt Business & BPR)
Mr Ravinder Kumar MadaanGeneral Manager (NW - Mumbai)
Mr S Bangara Raju General Manager
(Retail Network Mysore)
Mr Subhabrata Ray General Manager (Inspection &
Audit)
Mr Ashok K PradhanGeneral Manager
(Personal Banking)
2.5 FINANCIAL PROFILE
The Paid-up Capital of the Bank as on 31.12.2013 is Rs 48.01 crores of which
State Bank of India holds 90% share. The Bank has achieved a Capital Adequacy Ratio of
11.19% under Basel III guidelines. The Bank has an enviable track record of continuously
earning profits and payment of uninterrupted dividend since its inception in 1913. The
Bank earned a net profit of Rs. 167 crores for the nine months period ended December
2013.
Department Of Studies In Commerce, Shivagangothri Page 21
Financial Assistance To SSIs
2.6 BUSINESS PROFILE
Total Deposits of the Bank as at the end of December 2013 stood at Rs. 57,419
crores and the total Advances stood at Rs. 46,225 crores including an export credit of
Rs. 1,709 crores. The Bank is a major player in Foreign Exchange dealings also and has
recorded a merchant turnover of over Rs 21,543 crores and a trading turnover of over Rs
2,01,929 crores for the nine months period ended December 2013.
2.7 BALANCE SHEETS OF SBM
Liabilities: Particulars Rs. In Crores
Capital & Liabilities
Mar-13 Mar-12 Mar-11 Mar-10
12 Months 12 Months 12 Months 12 Months
Total Share Capital 46.80 46.80 46.80 36.00
Equity Share Capital 46.80 46.80 46.80 36.00
Share Application Money
0.00 0.00 0.00 0.00
Preference Share Capital 0.00 0.00 0.00 0.00
Reserves 4,285.73 3,365.92 3,052.67 2,037.40
Revaluation Reserves 0.00 575.81 583.85 591.89
Net Worth 4,332.53 3,988.53 3,683.32 2,665.29
Deposits 56,969.04 50,186.30 43,225.47 38,880.00
Borrowings 3,854.20 4,425.59 3,307.95 2,274.01
Total Debt 60,823.24 54,611.89 46,533.42 41,154.01
Other Liabilities & Provisions 2,076.98 1,803.15 1,815.73 1,589.64
Total Liabilities 67,232.75 60,403.57 52,032.47 45,408.94
Assets:
Department Of Studies In Commerce, Shivagangothri Page 22
Financial Assistance To SSIs
Particulars Rs. In CroresAssets Mar-13 Mar-12 Mar-11 Mar-10
12 Months 12 Months 12 Months 12 Months
Cash & Balances with RBI 2,404.67 3,025.85 2,705.68 2,765.62
Balance with Banks, Money at Call
1,100.09 336.86 234.60 213.85
Advances 44,932.57 39,835.31 34,029.81 29,535.86
Investments 16,774.58 14,732.70 12,927.14 11,494.41
Gross Block 2,020.85 1,192.02 1,127.62 1,107.10
Accumulated Depreciation 0.00 442.60 402.62 374.11
Net Block 2,020.85 749.42 725.00 732.99
Capital Work In Progress 0.00 0.00 0.00 0.00
Other Assets 0.00 1,723.44 1,410.23 666.20
Total Assets 67,232.76 60,403.58 52,032.46 45,408.93
Contingent Liabilities 13,026.14 13,641.75 13,333.64 20,057.35
Bills for collection 4,754.94 4,649.42 4,099.18 51.60
Book Value (Rs) 925.76 729.22 662.28 575.94Source: Annual Report
2.8 PROFILE OF STATE BANK OF MYSORE, MANDIPET BRANCH,
Department Of Studies In Commerce, Shivagangothri Page 23
Financial Assistance To SSIs
DAVANGERE
Establishment
State Bank of Mysore is a premier bank in Karnataka, with all India presence is
100 year young servicing all sections of communities in and outside the service.
Davangere branch of State Bank of Mysore was one of the earliest branches
opened outside Bangalore precisely on 24th December, 1913. The branch which is housed
in its building at mandipet, a busy commercial centre has grown along with the commerce
of the Davangere city. Despite the establishment of the other banks, Davangere branch has
maintained its glories and leadership among the banking sector in city.
Department Of Studies In Commerce, Shivagangothri Page 24
Financial Assistance To SSIs
Chapter-III
ROLE OF MICRO, SMALL AND MEDIUM ENTERPRISES (MSMEs)
3.1 MSME OVERVIEW
The Micro, Small and Medium Enterprise sector is crucial to India’s economy.
There are 29.8 million enterprises in various industries, employing 69 million people. The
sector includes 2.2 million women-led enterprises (~7.4 percent) and ~15.4 million rural
enterprises (51.8 percent In all, the MSME sector accounts for 45 percent of Indian
industrial output and 40 percent of exports. Although 94 percent of MSMEs are
unregistered, the contribution of the sector to India’s GDP has been growing consistently
at 11.5 percent a year, which is higher than the overall GDP growth of 8 percent. Poor
infrastructure and inadequate market linkages are key factors that have constrained growth
of the sector. The lack of adequate and timely access to finance has been the biggest
challenge. The financing needs of the sector depend on the size of operation, industry,
customer segment, and stage of development. Financial institutions have limited their
exposure to the sector due to a higher risk perception and limited access of MSMEs to
immovable collateral. Potential Interventions to Increase Access to MSME Finance
Building on the efforts already underway, there are several potential interventions that can
be undertaken to expand the access to MSME finance in India through enabling
infrastructure, liquidity management and risk management. Some of these potential
interventions include:
Enabling infrastructure
Encourage securitization of trade-receivables in the sector through conducive legal
infrastructure.
Promote institutions to syndicate finance and provide advisory support to MSMEs
in rural and semi-urban areas.
Incentivize formation of new MSME-specific venture funds by allowing existing
government equity funds to make anchor investment in venture funds.
Department Of Studies In Commerce, Shivagangothri Page 25
Financial Assistance To SSIs
Liquidity management
Improve debt access to non-banking finance companies focused on these
enterprises and provide regulatory incentives for participation in the sector.
Develop an IT-enabled platform to track MSME receivables to facilitate
securitization of these trade receivables, or alternatively expand the scope of
SIDBI and NSE’s IT-platform NTREES to facilitate securitization.
Provide credit guarantee support for MSME finance to non-banking finance
companies.
Risk Management
Develop a better understanding of financing patterns of service enterprises in the sector.
Expand the scope of the sector’s credit information bureau to collate and process
important transaction data, including utility bill payment.
Strengthen the recently established collateral registry and create stronger linkages
with other financial infrastructure.
Facilitate greater debt access to non-banking finance companies.
3.2 GOVERNMENT POLICIES REGARDING MICRO, SMALL AND MEDIUM ENTERPRISES (MSMEs)
After independence, the Govt. took up the policy of accelerating industrialization
since Second Five Year Plan. The Policy resolution 1948 emphasized that cottage and
small-scale industries can ensure best utilization of local resources, achieve ‘local-self-
sufficiency’ in production, increase employment generation through rehabilitation of
displaced persons and ensure balanced economic growth. Industrial Policy Statement 1977
introduced the concept of District Industries Centres (DICs) for SSIs to ensure supply of
raw materials and machinery, market survey of the district, generating new business ideas,
arrangement of credit facility, maintenance of quality of products etc. The Industrial
Policy Statement 1980 took some path breaking measures like increase in Investment limit
for tiny, small, and ancillary units, withdrawal of industrial location restriction,
elimination of provisions regarding expansion, increase in private participation. The New
Industrial Policy in 1991 emphasized on raising the investment ceiling for the purpose of
definition of a small unit to 6 million ( Rs 7.5 million if the unit concerned undertakes to
export 30 percent of its output or if it is an ancillary unit i.e. a firm supplying at least 50
Department Of Studies In Commerce, Shivagangothri Page 26
Financial Assistance To SSIs
percent of its output to large scale industries) , allowing other investors (including large-
scale enterprises and foreign investors) 24 percent equity participation in a small-scale
unit, introduction of the Act on delayed payment to small and ancillary enterprises,
encouraging banks to open specialized SSI Branches and giving better priority to the
sector in their annual credit budgets .Comprehensive Policy Package for SSIs and Tiny
Sector 2000 increased the exemption for excise duty limit from 50 lakhs to Rs One crore
to increase competitiveness, conducted the third census of small-scale industries and
motivated the SSI associations to develop and operate testing laboratories. As per the
Policy Package for SME 2005-06 Small and Medium Enterprises were recognized in the
services sector, and treated at par with SSIs in the manufacturing sector and emphasized
on Cluster Development Model.
3.3 DEFINITIONAL ASPECT OF MICRO, SMALL AND MEDIUM ENTERPRISES (MSMEs)
The definition of Small Scale Industries has undergone changes for many times.
The main criterion for definition was mainly the investment level & number of employees.
The chart below shows the changing pattern of SSI definition.
Changing pattern of Investments in SSIsYear INVESTMENT LIMIT (Rs.)
1955 1950 Up to Rs. 0.5 million in fixed assets
1965 Up to Rs. 0.75 million in Plant & Machinery
1975 Up to Rs. 1 million in Plant & Machinery
1980 Up to Rs. 2 million in Plant & Machinery
1985 Up to Rs. 3.5 million in Plant & Machinery
1995 Up to Rs. 6 million in Plant & Machinery
2000 Up to Rs. 30 million in Plant & Machinery
Source: Ministry of Small Scale Industries
A major change took place in 2006 with the enactment of MSME Development
Act, 2006.
In accordance with the provision of Micro, Small & Medium Enterprises
Development (MSMED) Act, 2006 the Micro, Small and Medium Enterprises (MSMEs)
are classified into two categories.
Department Of Studies In Commerce, Shivagangothri Page 27
Financial Assistance To SSIs
(a) Manufacturing Enterprises
The enterprises engaged in the manufacture 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 level in plant &
machinery.
(b)Service Enterprises
The enterprises engaged in providing or rendering of services and are defined in terms
of investment in equipment. The limit for investment in plant and machinery / equipment
for manufacturing / service enterprises, as notified are as under:
Manufacturing Sector
Enterprises Investment in plant & machinery
Micro Enterprises Does not exceed twenty five lakh rupees
Small Enterprises More than twenty five lakh rupees but does not exceed
five crore rupees
Medium Enterprises More than five crore rupees but does not exceed ten
crore rupees
Service Sector
Enterprises Investment in equipments
Micro Enterprises Does not exceed ten lakh rupees:
Small Enterprises More than ten lakh rupees but does not
exceed two crore rupees
Medium Enterprises More than two crore rupees but does not
exceed five core rupees
Source: MSME Development Act 2006, Ministry of the District Industry Centres
(DIC) MSME, Government of India.
3.4 IMPORTANCE OF MSME DEVELOPMENT ACT, 2006
With the introduction of new MSME Act 2006, the Govt. has tried to resolve some
major issues related to the MSMEs like complicated bureaucratic registration procedures,
lack of finance, lack of managerial skills etc. The most important thing the Act has done is
Department Of Studies In Commerce, Shivagangothri Page 28
Financial Assistance To SSIs
to increase the significance of the sector and to offer a clear definition of MSMEs. Further,
the act mandated the composition of the National Board of MSME with clear long run
objective of overseeing and regulating the development of micro, small and medium
enterprises in India. The broad functions of this board are to manage cluster development,
train entrepreneurs, develop infrastructure and promote financial access to this sector. The
MSME Act 2006 has frame worked a strict rule regarding payment of dues by increasing
penalties substantially for delay in payment. For example, the Act mandates that all
payments be made within 45 days failing which the creditor must pay compound Interest
which is higher than the bank rate notified by the RBI. As noted in section 2.1, registration
in the MSME sector is voluntary and unregistered firms constitute a significant proportion
of the total firms constitute a significant proportion of the total. As a result, proper
maintenance of records becomes extremely difficult. The new MSME Development Act
2006 has made the registration procedure much simple and less time taking.
3.5 DEBATABLE ISSUES INITIATED BY THE MSME DEVELOPMENT ACT, 2006
Two policies introduced by the MSMED Act, 2006 have initiated much debate.
One is proposed Procurement Preference Policy and the other is Exit Policy or a Close of
Business (COB) policy. The first policy will determine how much supplies should be
purchased by the Govt. Agencies from the MSMEs and the second policy will determine
when and how to close a sick MSME unit.
The first policy tends to create a cold war between the small and medium
enterprises. The Federation of Associations of Cottage and Small Industries (FACSI) has
placed a demand for a separate policy exclusively for the small units regarding the
purchase of supplies. Many women run small and cottage industries have asked for
separate quota for themselves. Thus, the issue has taken a complicated shape.
Regarding the Close of Business (COB) two major issues remain unsettled. The
first one is at what level The Govt. should intervene to close a sick MSME unit. The
second issue is about the relative priorities of different parties associated with the MSME
units like owners, shareholders and employees, in case of conflict.
The Act has expanded the investment range and has clubbed small and medium
enterprises. In the process of doing so, it does not consider the ‘crowding out’ effect of
Department Of Studies In Commerce, Shivagangothri Page 29
Financial Assistance To SSIs
smaller firms within the sector. MSME sector falls into the Priority Sector where the
banks and many other financial institutions have to extend at least 40% of their total
portfolio. As the investment level have been increased many bigger firms fall into MSME
category. The banks prefer to extend their stipulated percentage of loan to those
comparatively bigger firms effectively crowding out smaller firms. Thus the small units
again get back to their original position of lack of working capital and some financially
strong firms get benefited. One possible solution that can be offered is to create own
priority package for different sectors to negate the crowding off effect of the large firms.
Another major problem for MSMEs is their less capacity of collective bargaining in the
credit market. MSMEs with net worth less than Rs.100 million cannot raise capital
through stock market. Thus they became fully dependent on banks and have to take loans
at a higher rate than the Prime Lending Rate (PLR).The larger businesses can bargain with
the banks and often can get loans at a lower rate. One possible solution may be to regulate
the banks more effectively and establish a uniform rate of lending.
Out of the total counts of MSMEs, a significant portion is run by the women
entrepreneurs and they must be provided sufficient encouragement. The Act is not very
specific about this area. This gap can be fulfilled by allowing some reservation of
procurement preference policies in women-run small units, creation of shared facilities for
female employees like day care services and single window interfaces to reduce the
information gap etc.
3.6 OPPORTUNITIES AND CONSTRAINTS OF GLOBALIZATION FROM THE VIEW POINT OF MSMEs
Concept of Globalization
Globalization may be defined as the process of integrating various economies of
the world without creating any hindrances in the free flow of goods and services,
technology, capital and even labour or human capital. Therefore, it signifies
internationalization plus liberalization, through which the world has become a small global
village.
Department Of Studies In Commerce, Shivagangothri Page 30
Financial Assistance To SSIs
3.6.1 OPPORTUNITIES
Exposure to foreign markets
Globalization has opened up the economy and integrated it with the world
economy. The MSMEs enjoy the benefits of selling their products and services to the
world market rather than being confined into domestic market. The free economy ushers
in accessibility to bigger markets, greater linkages for SMEs with larger companies and
marketing outfits, improved manufacturing techniques and processes.
Flow of foreign investment and technology
The MSMEs in India suffer from outdated technology and sub-optimal scale of
operation. Many foreign companies have tied up with Indian MSMEs and helped them to
use better technology, managerial skill etc. Thus, a proper collaboration between the small
and large companies can help small firms to develop technology base through Research &
Development activities, contribution from the technological institutes, universities etc.
Emerging areas of business
MSMEs have been able to identify many uncommon but highly promising
business areas like outsourcing, medical transcription, clinical research trials, sub-
contracting, ancillarization and many new technologies like biotechnology,
nanotechnology etc which are attractive for the new generation MSME entrepreneurs.
Less Govt. Intervention
As the economy is mainly market driven; there is less Govt. intervention, red tapes,
less control on import and export etc. The MSMEs would be allowed to work in a free
environment.
Employment generation
Being labour-intensive in nature, the MSMEs make significant contribution in
employment generation and expanding industrial network in rural areas. This sector
nurtures the traditional skills and knowledge based small and cottage industries. The
workers inherit and transfer skills from generation to generation. The handicrafts and other
products produced by this sector have good demand in market. The MSMEs have been a
Department Of Studies In Commerce, Shivagangothri Page 31
Financial Assistance To SSIs
good source of employment generation and can be even more if the sector gets support in
terms of infusion of technology, capital and innovative marketing techniques etc.
Better performance by the MSMEs
Before globalization, the MSME sector was a highly protected sector. Suddenly,
after globalization they discover that many of such protective measures were withdrawn
and they have to fight for their existence. This competitiveness in domestic and global
market may bring out superior performance.
Better Customer Satisfaction:
As the domestic market gets competitive, small and medium firms try to satisfy the
consumers in every possible way. They try to produce products as per the needs and
preferences of the consumers and satisfy the customers in best possible way.
Short and long term capital
In a liberalized economy, banks would try to find out new avenues of giving
credits to increase their profitability. Thus, supply of funds may be easier. Development in
money market would initiate development in capital market.
Export contribution
The products produced by MSME sector (like sports goods, readymade garments,
woollen garments and knitwear, plastic products, processed food and leather products,
handicrafts etc) have an excellent foreign market. As per the results of fourth MSME
census (2006-07), this sector has registered an export earning of Rs 202017 crores in
2007-08.
Removal of Regional disparity
People from remote areas have the tendency to migrate to urban areas in search of
jobs. This creates excessive pressure on urban areas and initiates social and personal
problems. This problem can be addressed by setting up a network of micro, small and
medium enterprises in economically backward areas. MSME sector can take care of local
needs, improve economic condition of the area and most importantly, can bring a
qualitative change in the economy of the country.
Department Of Studies In Commerce, Shivagangothri Page 32
Financial Assistance To SSIs
Better industrial relations
The MSMEs are less prone to industrial disputes. However, the truth behind the
scene is the workers in small sectors are mostly from unorganized sector and cannot raise
their voice collectively. Thus, apparently, they share harmonious relation with the firm
owners.
3.6.2 CONSTRAINTS
Process of globalization has resulted in some serious constraints on the MSMEs
Financing Problems
Financing has always been a major problem for the small and medium industries in
India. The MSMEs mostly depend on internal sources of finance (personal savings, loan
from relatives, and loan from local money lenders) than that of institutional financing by
banks and other financing institutions.
Extreme competition
The MSMEs face ruthless competition from the large domestic firms and
multinationals armed with improved technology, managerial ability, skilled workers,
marketing skills, better product quality, and wide range of products. The small firms find
it difficult to maintain their existence as the cases of merger and acquisition are
continuously increasing.
Poor Technology Base
There exists considerable heterogeneity among the MSMEs in India. A small
percentage of firms operate with sophisticated technology base whereas majority of firms
use outdated technology. They suffer from low productivity and poor product quality. Due
to their small size, they can not enjoy large-scale production economies.
Lack of infrastructure
Infrastructural lacking includes inadequate power supply, transportation, water
supply etc. Small firms cannot bear the cost of setting up independent power supply unit.
They have to depend on irregular power supply from the electricity boards. Inadequate
Department Of Studies In Commerce, Shivagangothri Page 33
Financial Assistance To SSIs
transportation system increases cost of production. The MSMEs producing beverages,
tobacco products, medicines etc face the problem of inadequate water supply. As per the
study conducted by Keshab Das and Sebastian Morris (2001), out of 1063 surveyed firms,
716 firms (more than sixty-seven percent) confessed that they have serious infrastructural
problems.
Lack of Skilled workers
Though India has no shortage of human resource, most of them are unskilled
workers. Large firms pay higher remuneration and employ skilled workers. The MSMEs
have to operate with unskilled or semi-skilled workers. Thus, the MSMEs suffer from low
managerial capabilities.
Marketing and Distribution Problems
Marketing is probably the most neglected and less explored problem for Micro and
Small firms. Most of them do not have any well formulated marketing strategy, market
research programmes, innovative advertisement techniques etc. Most of the MSMEs do
not have adequate monetary support to develop marketing section and many are not aware
of modern low-cost marketing techniques (blogging, sending mails, developing website
for the company).
Delayed payments
The small firms find it difficult to recover their dues from the large firms and even
from Govt. departments due to complex payment procedure and corruption. Due to lack of
funds, they cannot employ credit collection machineries (like factoring services). The
large firms force them to offer long credit period and even pay advance to ensure timely
supply of materials.
Gradual withdrawal of Reservation Policy
Reservation Policy, introduced in 1967 emphasized that some products would be
earmarked for exclusive production by the small enterprises and Non-MSME units can
undertake manufacture of reserved items only if they undertake 50 percent export
obligations. Withdrawal of reservation policy allowed MNCs and large domestic firms to
produce reserved items without any restrictions and increased the degree of competition
for the small firms. However, Several Expert Committees like Abid Hussain (1995), Shri
Department Of Studies In Commerce, Shivagangothri Page 34
Financial Assistance To SSIs
T.S. Vijayaraghavan (1997), Confederation of Indian Industries (CII) (1997) etc
concluded that reservation policy is no longer helpful for MSMEs as MSME units with no
reservation facility have performed better than those units with reservation support.
Moreover many MSMEs do not produce the reserved items and many MSME
Entrepreneurs do not consider it a relevant policy.
Mindset Problems
The mindset of the many MSME entrepreneurs has not yet changed. They still
expect protection policies and preferential treatment for the MSMEs. Fortunately, this
tendency is low in the new generation entrepreneurs. Workshops, success story based
approach may help reduce this tendency even more.
Outflow of wealth
Globalization process seems to favour the developed countries and the
multinationals more than that of developing countries and the MSMEs. The MNCs use
domestic wealth, infrastructure, and local unskilled workers at a lower cost and repatriate
huge profits to their own countries.
More prone to global fluctuations
A well liberalized economy reacts more sharply with the changes in global market.
The demand and supply would be determined by global fluctuations and not by the needs
of the consumers.
Social welfare areas neglected
The MNCs are more willing to produce consumer goods to maximize their profit.
The qualitative services like health, education etc which require huge investment but
generate less and time taking return on investment, would be neglected.
Department Of Studies In Commerce, Shivagangothri Page 35
Financial Assistance To SSIs
CHAPTER-IV
PRIORITY SECTORS
4.1 MEANING AND DEFINITION OF PRIORITY SECTOR
The meaning of the priority sectors was elaborated at the conference of custodians
of nationalized banks held in New Delhi in July 1970 by the finance minister in the
following words:
“When we talk of Priority Sector, the emphasis is on the needs of the common
man, the man who is engaged or is willing to be engaged in a productive Endeavour,
which is socially useful and economically viable but is handicapped for lack of finance on
reasonable terms”.
Thus the Priority or neglected sectors included those areas of economic activities
which are socially desirable but have been inadequately financed or wholly neglected by
commercial banks earlier.
The rationale of Priority Sector lending was one of the causes for nationalization of
the top 14 banks in 1969. However, it was the working group on the Priority Sector
lending and the 20 – point Economic Programme chaired by Dr. K.S. Krishnaswamy
which clearly spelt out the concept. “The concept of Priority Sector lending is mainly
intended to ensure that assistance from the banking sector floes in an increasing manner to
those for a significant proportion of the national product, have not received adequate
support of institutional finance in the past”.
Generally for commercial banks lending to priority sector connotes Agriculture
and Small – Scale Industries. This concept is in the aggregate sense. These will have sub
– sectors comprising of very under-privileged group. This group has been termed as
“weaker – Sector”.
More than 80 percent of the Priority Sector advances are directed towards
agriculture and Small – Scale Industries. For all practical purposes, therefore, the need for
identifying the weaker sections assumes importance only in these two categories.
Department Of Studies In Commerce, Shivagangothri Page 36
Financial Assistance To SSIs
Besides, the definition covers retail traders transport operators professional and
self – employed persons, Education, Housing loans to weaker section and also small
business under the term “Priority Sector”.
Traders whose annual turnover does not exceed Rs. 4 Lakhs have been brought
under this category. Transport operators owning a fleet of vehicles not exceeding 6,
including the one proposed to be financed could be included in the Priority Sector.
But special attention will be given to the needs of single vehicle owners or
operators. Professionals and self employed persons whose barrowing limits do not exceed
Rs. 2 Lakhs have to be included in the category of Priority Sector, small business man
whose business equipment does not exceed Rs. 4 Lakhs can be included in this category.
Certain vital sectors of the economy are declared as Priority Sectors by the
government / RBI from time to time in order to ensure that the bank credit flows in an
increasing measures to these sectors.
4.2 SEGMENT OF PRIORITY SECTOR
The following are the different segment of priority sector:
Agricultural
Small scale industries
Small road and operating transporter
Retail trade
Small business
Professional and self employed persons
State sponsored organization for scheduled castes and scheduled Tribes
Education
Housing
Consumption loans
Loans to self help groups (SHGs) / NGOs / Micro credit
Food and agro based processing sectors
Software industries
Venture capital
Department Of Studies In Commerce, Shivagangothri Page 37
Financial Assistance To SSIs
The definition and coverage of Priority Sector is based on the RBI guidelines issued from
time to time which are communicated by the bank.
4.3 NORMS FOR LENDING UNDER PRIORITY SECTORS
The bank shall adhere to the norms of lending such as quantum of financial
margin, security norms; rate of interest etc, based on the guidelines evolved in this regard
form time to time.
4.4 TARGETS UNDER PRIORITY SECTORS
Advance to Priority Sector 40% of net bank credit
Agriculture 18 % of net bank credit both direct and
indirect [ indirect agriculture advance only up
to 4.5% of the net bank credit shall be
reckoned for the purpose]
Small Scale Industries 40% of small scale industries advance
shall be for unit original investment in
Plant and machinery up to 5 lakhs.
20% of Small Scale Industries advances shall
be for units with original investment plan &
Machinery of above Rs. 5 Lakhs but up to
Rs. 25 Lakhs.
The remaining 40% shall be for units with
investment in Plant & Machinery (original
cost) exceeding Rs. 25 Lakhs.
Weaker section advances 10% of net bank credit
DRI advances 1 % of previous year Total advan
Department Of Studies In Commerce, Shivagangothri Page 38
Financial Assistance To SSIs
CHAPTER V
SMALL SCALE INDUSTRIES
5.1 INTRODUCTION
Small Scale industries play a key role in the industrialization of developing
country. This is because they provide immediate large scale employment and have a
comparatively higher labour – capital ratio: They have a shorter gestation period and
relatively smaller markets to be economic. They need lower investments offer a method of
ensuring a more equitable distribution of national income and facilitate an effective
mobilization of resources of capital and skill which might otherwise remain unutilized and
they stimulate the growth of industrial entrepreneurship and promote a more diffused
pattern of ownership and location.
Small Scale Industries units are those engaged in the manufacturing, processing or
preservation of goods and whose investment in plant and machinery (Original Cost) does
not exceed Rs. 1 Crore. These would interalia included units engaged in mining or
quarrying serving and repairing of machinery. In the case of ancillary units, the investment
in plant and machinery (original cost) should also not exceed Rs. 1 Crore to be classified
under Small Scale Industries.
5.2 DEFINITION OF SMALL SCALE INDUSTRIES
Professor Larving Fisher, defined real economic development as “shifting of an
working population from primary to secondary and from secondary to territory sector”.
Small Scale Industries units are those engaged in manufacturing, processing or
preservation of goods with investment in plant and machinery (original cost) not to
exceeding Rs. 1 Crore.
In case of ancillary also the investment in plant and machinery (original cost)
should not exceed Rs. 1 Crore to get classification under Small Scale Industry.
The investment limit of Rs. 1 Crore for classification as Small Scale Industries has
been enhanced to Rs 5 Crore in respect of certain specified items like hand tools,
pharmaceuticals and drugs and stationery by government of India.
Department Of Studies In Commerce, Shivagangothri Page 39
Financial Assistance To SSIs
The status of “Tiny enterprises” may be given to all Small Scale units whose
investment in plant and machinery is up to Rs. 25 Lakhs, irrespective of the location of the
unit.
Small Scale service / Business Enterprises (SSSBE) having investment in fixed
assets (excluding land and building) upto Rs. 10 Lakhs and registered as such are
classified as Small Scale Industries.
Artisans, village and cottage industries has been defined as Artisan (irrespective of
location) or small industrial activities viz, manufacturing, processing, preservation and
servicing, in village and small towns with a population not exceeding 50000, involving
utilization of locally available natural resources and human skills (where individual credit
requirement does not exceed Rs. 50,000/-)
Fiscal commission (1949-50) defined SSIs as “One operated with hired labour of
usually 10 to 15 hands”
According to SSIs board (1954) “an industrial unit using power and employing less
than 50 persons and without using power and employing less than 100 persons and with
capital assets not exceeding Rs. 5 Lakhs in considering as Small Scale.
But in 1966 SSIs was defined as “one which had capital investment in plant and
machinery not exceeding Rs. 7.5 Lakhs irrespective of number of persons employed”
In July 1980 the government of India has given another definition on plant and
machinery not exceeding Rs 20 Lakhs.”
In 1985 the Investment limit was raised to 35 Lakhs. In May 1990 the investment
limit was raised to 60 Lakhs and the investment limit was Rs. 75 Lakhs in the case of
Small Scale Industries which undertook export obligation of at least 30% of their annual
outputs in the third year.
Small Scale Industrial units
Export oriented Small Scale
Industrial units.
Ancillary industrial undertakings.
Department Of Studies In Commerce, Shivagangothri Page 40
Financial Assistance To SSIs
Tiny enterprises.
Small Scale services and business enterprise.
Power looms.
Industrial Estates.
Manufacture of common salt.
Ship breaking.
Tea manufacturing.
Water mills.
Food and Agro based processing sector.
Investment in securitized Asset.
Classification of Small Scale Industries
Features of Small Scale Industries
1. Structural Feature of Small Scale Industries
This may be classified under three broad categories:i. Some industries are started on a Small – Scale but they are likely to develop into
medium sized units within a short time like medium – scale industries these are capital
intensive relatively large investment in block assets and are generally in the corporate
sector, organize as public or private limited companies or as co-operative societies in
these concerns. Borrowed capital is higher than owned capital these concerns are in an
Department Of Studies In Commerce, Shivagangothri Page 41
Small Scale Industries TraditionalKhadiVillage IndustriesHand LoomSericultureModernPower Looms Small ScaleExport orientedAncillariesWith Power
Financial Assistance To SSIs
advantageous position to offer adequate security by way of block assets of stocks; they
are also able to provide the necessary information for the consideration of loan
applications. The concerns in this group are comparatively will managed and have a
good sales turnover.
They can be generally considered creditworthy for institutional financing. Biscuits,
Paints, Pans, Oil, Engines, Grinding wheels etc come under this category.
ii. Under the second category some units started on a small – Scale and are likely to
remain so far long time in view of the specialized nature of demand for their products,
though specialized types of machines are required by this sector. They do not require
any large – scale investment in block assets generally these are organized as non –
corporate concerns, partnerships, proprietary or joint family concerns. These concerns
have little block assets to after as security, though they maintain sufficient stocks.
The managerial ability of these concerns also varies considerably from unit to unit,
their own resources are blocked either in holding stocks or in giving short term credits
units producing Agarbatties, Bolts, Nuts, Oil stoves etc come under this category.
iii. The third category covers concerns which began as cottage industries but later
developed into Small – Scale Industries or as feeder units to large – scale industries,
this group however, forms the smallest segment among the Small Scale Industries, such
concerns are mostly organized as proprietary or partnership concerns, barrowed capital
is relatively insignificant in their resources and the availability of institutional finance
negligible – Being more labour intensive, the tangible assets of these units are limited.
iv. Their management as well as maintenance of records are rather poor. Units producing
Toys, Confectionery coil, Springs etc come under this category. Under the second
category some units started on a small – Scale and are likely to remain so far long time
in view of the specialized nature of demand for their products, though specialized types
of machines are required by this sector. They do not require any large – scale
investment in block assets generally these are organized as non – corporate concerns,
partnerships, proprietary or joint family concerns. These concerns have little block
assets to after as security, though they maintain sufficient stocks.
Department Of Studies In Commerce, Shivagangothri Page 42
Financial Assistance To SSIs
The managerial ability of these concerns also varies considerably from unit to unit,
their own resources are blocked either in holding stocks or in giving short term credits
units producing Agarbatties, Bolts, Nuts, Oil stoves etc come under this category.
v. The third category covers concerns which began as cottage industries but later
developed into Small – Scale Industries or as feeder units to large – scale industries,
this group however, forms the smallest segment among the Small Scale Industries, such
concerns are mostly organized as proprietary or partnership concerns, barrowed capital
is relatively insignificant in their resources and the availability of institutional finance
negligible – Being more labour intensive, the tangible assets of these units are limited.
Their management as well as maintenance of records are rather poor.
Units producing Toys, Confectionery coil, Springs etc come under this category:
The managerial ability of these concerns also varies considerably from unit to unit, their
own resources are blocked either in holding stocks or in giving short term credits units producing
Agarbatthies, Bolts, Nuts, Oil stoves etc come under this category.
5.5 SPECIAL FEATURES
Small Scale Industry has gained a firm place in industrial scenario due to special
features which it has. They are quite unique in nature.
Department Of Studies In Commerce, Shivagangothri Page 43
Artisan Skilled
Financial Assistance To SSIs
i. In every economy for every rupee invested, they created more and more job
opportunities. They offer an opportunity to absorb surplus, man power and make use of
their inherent skills and talent possessed by them.
ii. Financial resources normally concentrate in big industries which has created a problem
of concentration of economic power, which is deemed as social evil in all the advanced
countries. Small Scale Industries will not give birth to such problems. Small Scale
Industries are very much needed in socialistic and democratic setup.
iii. Small Scale Industries works as a bed for emergence of organizational talent and
entrepreneurship. Big enterprises dampen such entrepreneurial skills.
iv. Small Scale Industry effective mobilization of resources of capital and skill which
might otherwise remain untapped.
v. Big enterprise leads to social problems like slums, educational problems, housing
problems. Small Scale Industry will not lead to such problems.
vi. Many a times, Small Scale Industry acts as auxiliary units to main units.
vii. Proportion of output in Small Scale Industries is 5 times greater than big units for their
output of capital investment.
viii. Generally Small Scale Industries make use of indigenous technology and local material
for production.
ix. For Small Scale Industries state need not spend lot of money for creating
infrastructures.
5.6 BENEFITS OF SMALL – SCALE INDUSTRIES
Small Scale Industries play vital role in the economic growth of developing countries.
i. Utilization of Resources: Small – Scale Industries facilitates the tapping of resources
which otherwise would remain unused. These resources included entrepreneurship
capital labour and raw materials.
Department Of Studies In Commerce, Shivagangothri Page 44
Financial Assistance To SSIs
ii. Employment Generation: Since they are fairly labour intensive Small Scale Industries create employment opportunities at a relatively low capital cost.
iii. Generation of Foreign Exchange: Small Scale Industries facilitate substantial
foreign exchange earnings. A wide range of consumer and simplex procedure goods
so Small – Scale Industries is going to be generation of foreign exchange.
iv. Formative and Productive: It is the small units which are highly innovative though
they do not maintain their own research and development wings.
v. Individual tastes, Fashions and Personalized Service: Small Scale firms are quick
in studying changes in tastes and fashions of consumers and in adjusting the
production process and production accordingly, small firm seen to have an edge in
industries that all for personalized service.
vi. Diversification of Industrial Structures: Small Scale Industries contribute
significantly to the strengthening of the industrial structure, for many more articles
can be produced more economically on a Small Scale than on a large scale.
vii. Entrepreneurial Development: Small Scale Industries serve as seedbeds of
entrepreneurship they serve a developing economy not only by their output of goods.
viii. Small is Beautiful : “Small is Beautiful”, said E.F. Schumacher, he maintains that
man’s current pursuit of profit and progress, which promotes giant organizations and
increased specialization, has in fact resulted in gross inefficiency. Environmental
pollution and inhuman working conditions.
ix. Dispersal over wide areas: It is only small scale units which have a tendency to
disperse over wider areas according to the second all India census of Small – Scale
units.
x. Happier in Work : People who work in small enterprises are happier in their work
than those who work in large ones in spite of lower wages and poor standards of
safety, comfort and welfare facilities.
Department Of Studies In Commerce, Shivagangothri Page 45
Financial Assistance To SSIs
5.7 OBJECTIVES OF SMALL – SCALE INDUSTRIES
i. The basic objective of these industries are to create immediate and permanent
employment on a large scale at a relatively small cost
ii. To meet a substantial part of the increased demand for consumer goods and simple
procedures goods.
iii. To facilitate the mobilization of resources of capital and skill which might otherwise
remain inadequately utilized.
iv. To bring about an integration of the development of these industries with the rural
economy on the one hand and with large scale industry on the other.
Further, these industries are said to offer a method of ensuring a more equitable
distribution of the national income and of avoiding some of the problems that unplanned
urbanization tends to create.
Basically small industries are important for national for national development
programmes because they can make a definite contribution to the realization of the central
purpose of such a problem i.e., to bring about an efficient utilization of natural. Human
and capital resources of the country for the achievement of pre – determined ends.
5.8 ROLE OF SMALL – SCALE INDUSTRIESSmall- Scale Industries play a strategic role in the progress of a country, these
industries, by and large, represents a stage in economic transition from. Traditional to
modern technology, the transitional nature of this process is reflected in the diversify of
these industries. Some small scale units use simple skills and machinery while many other
units use modern and sophisticated technology, the challenge of economic growth is to
accelerate the productivity of agriculture and industry by improving their techniques of
production, so far as industries are concerned, this will involve the adoption of a
progressively superior technology, particularly in semi – urban and rural areas.
Department Of Studies In Commerce, Shivagangothri Page 46
Financial Assistance To SSIs
5.9 PROBLEMS FACED BY SMALL – SCALE INDUSTRIES
Small – Scale Industries quite often face distinctive problems there are:
i. Difficulty in obtaining credit from commercial banks because their inability to
provide security.
ii. Inability to offer liberal credits terms in the sale of their products.
iii. Absence of management expertise often management is by one person who
performs a number of functions usually with no formal training.
iv. Difficulty in completing with imported products due to production cost.
v. Difficulty with competition from other local entrepreneurs in the same line of
business competing for the limited local market.
vi. Difficulty in obtaining industrial land in towns and cities. The shortage of industrial
land is giving rise to more and more backward operations.
vii. Difficulties in identifying appropriate technology and technical assistance.
viii. The manner in which both the needs of the economy and linkage existing industry
can best be served.
ix. Survey if the material and human resources of the countries to identify the regions or
areas for the development of Small – Scale and Medium – Scale Industrial
enterprises.
x. Identification of industrial projects for development.
xi. Project preparation and evaluation.
xii. Financial or credit support and investment promotion.
xiii. Technology development and applications such as the designing of proto type
machines for products identified according to country resources and requirements.
xiv. Industrial training, skill formation and entrepreneurship development.
xv. Linkages between large industries and small industries and the creation of sub –
contracting facilities at the national regional and international levels.
xvi. Quality control and testing facilities.
xvii. Procurement of raw – material and equipment.
xviii. Scientific and industrial research.
xix. Identification and assistance to enterprises which are experiencing difficulties.
xx. Management and re – organization or restructuring of small and medium scale
enterprises through various schemes.
Department Of Studies In Commerce, Shivagangothri Page 47
Financial Assistance To SSIs
xxi. Local initiative and productivity increases through modernization.
xxii. Regional and international technical and financial assistance.
xxiii. Creation of institutions and changes in prevailing institutional arrangements.
5.10 SMALL SCALE INDUSTRIES IN INDIAN CONTEXT [IMPORTANCE]
Small Scale Industries are not of recent origin. They were the principal source of
income and employment and the production were noted for the excellent and artistic skill.
Professor, Webber Wrote “The skill of the Indians in the production of delicate
Woven fabrics, in the mixing of colors, the working of metals and precious stones, the
preparation of essence and in all manner of technical art, was from early times enjoyed a
worldwide celebrity”.
Professor, Webber’s words signify the prominence and glory of the products of the
cottage and Small Scale Industries.
The frequent definition of Small Scale Industry itself will signify the importance of
Small Scale Industry itself will signify the importance of Small Scale Industries in our
country.
Small Scale Industry is the second biggest sector next to agriculture in our
economy. The real significance of Small Scale Industry can be explored from different
angles of view. They should be developed reasons should be given due weight age for the
following reasons:
i. Labour oriented
India has abundant manpower resources. Primary sector is already
overburdened. In the secondary sector, big enterprises cannot employ huge human
folk. The left over sector is Small Scale Industries which can provide a large volume
of employment generated by Small Scale Industry rose to 96 Lakhs by 1985-86 from
67 Lakhs in 1979-80 with a growth rate of 80% with its inherent nature of labour
investment so Small Scale Industries has gaining momentum even today.
Department Of Studies In Commerce, Shivagangothri Page 48
Financial Assistance To SSIs
ii. Capital light
Ours is a developing economy and suffers form the serious problems of
shortage of capital which is very important for the growth of secondary sector Small
Scale Industries needs only few lakhs investment whereas big, medium sized units
need crores of Rupees. Small Scale Industry offers a higher degree of employment
from this given investment. It has been estimated that for an investment of Rs. 1 Lakh
in Small Scale Industry employment opportunity if to 55 persons whereas it is only 6
persons in big industries.
iii. Skill
Large industries require technology which is on imported one, but small
enterprises doesn’t require such an imported technology. They make use of inherited
skills of intellectual for the production. Further they don’t need services of highly
skilled personnel.
iv. Small Scale Industry provides employment without affecting main occupation namely
agriculture. The illiterate masses of rural area undertake work in off seasons in these
industries.
v. They mobilize the untapped capital and skill that may otherwise remain untapped in
this vast country. Large industries cluster around big cities and therefore cannot attract
these resources.
vi. Indigenous technology, light capital and limited skill will breed the new rural
entrepreneurs.
vii. Concentration of big industries given birth a large number of administrative and social
problems like law and order problem, congestion, creation of slums – government will
be forced to make heavy investment on overheads i.e. Roads, water supply, Schools,
Hospitals, Housing etc. Small Scale Industries will check the evils of concentration of
big industries and urbanization.
viii. Small Scale Industries have relatively shorter generation period when compared to big
industries.
Department Of Studies In Commerce, Shivagangothri Page 49
Financial Assistance To SSIs
ix. Large industries give birth to the problem of concentration, economic power and
wealth in few hundreds. Small Scale Industries helps in dispersal of economic power.
x. Big industries generally concentrate in particular region keeping rest of the country in
isolation, such to sided development will hamper economic development of rest of the
country. Small Scale Industry ensures balanced economic growth of the country.
xi. Small Scale industry can develop handicraft and promote aesthetic values.
xii. Small Scale Industry units have made suitable and valuable contribution even in the
sphere of exports. The volume of exports in 1984-85 has been at the rate of 3685
crores. The exports have substantially increasing.
xiii. Neither technology nor input are helpful to Small Scale Industries absolutely they
depend on local materials; market for them will be of national and international in
nature.
5.11 Target for lending to Small Scale and Medium enterprises sector
Lending to Small Scale Industries fall under priority sector and lending to medium
enterprises [industry] fall under non – priority sector. Reserve Bank of India has advised
to double to credit flow to Small and Medium Enterprises sector by the year 2009-10 i.e.,
in 5 years. Accordingly, targets are being set by the bank within the Small Scale Industry
sector fallowing sub sector targets are stipulated by Reserve Bank of India:
i. 40% of the total credit to Small Scale Industry to go the cottage industries, khadi and
village industries, Artisans and Tiny industries with investment in plant and machinery
upto Rs. 5 lakhs.
ii. 20% of the total credit to Small Scale Industries units with total investment in plant and
machinery over Rs. 5 lakhs and upto Rs. 0.25 lakhs.
Department Of Studies In Commerce, Shivagangothri Page 50
Financial Assistance To SSIs
CHAPTER-IV
STATE BANK OF MYSORE CREDIT SCHEMES TO SMALL – SCALE INDUSTRIES
6.1 VARIOUS LOANS SCHEMES OFFERED BY STATE BANK OF MYSORE
TO INDUSTRIALISTS IN SMALL – SCALE SECTOR
Loans to Small Scale Industries
Eligibility: - Any individuals / partnership firm public or private ltd companies desirous
of promoting Small Scale Industry with investment in Plant and Machinery not exceeding
Rs. 1 crore.
Extent of Finance:- Need based [both fund based and non-fund based].
Margin:- Working capital / Medium term loan
a) No margin up to Rs. 25,000/-
b) Credit limit over Rs. 25,000/- flexible approach – 15% - 25% depending on the merits of each case.
Primary Security:- Assets created out of bank finance
Collateral Security:- obtention of collateral security exempted
a) Up to Rs. 5 Lakhs
b) Over Rs. 5 Lakhs and up to Rs. 15 Lakhs, based on good track
record satisfactory financial position
c) Over Rs. 15 Lakhs at the discretion of the Bank
Rate of Interest:- Slab rate in conformity with the quantum of limit and also on credit
rating, ranging from 11.56% to 13.75% per annum [for the present]
Export finance:- a) establishment of letter of credit b) Pre – shipment finance c) Post – shipment finance
d) Assistance against Duty drawn back
Department Of Studies In Commerce, Shivagangothri Page 51
Financial Assistance To SSIs
Flexi [SSI] Term Loans
Introduction: - Finance to Small Scale Industry is extended in the form of term loan, cash
credit, demand purchase etc, with the main focus in monitoring of end – use of funds.
Taking into account the growing financial requirements of the sector and also the
flexibility required by Small Scale Industries units to survive in today’s highly competitive
environment a general purpose high value Small Scale Industry units.
Nature of facility: - Term Loan
Eligibility: - Small Scale Industries barrowers with a record of cash profit for at least 3
years and whose account are classified as Standard Assets.
Purpose :- Any genuine commercial purpose such as sharing of net working capital,
capital expenditure, substitution of high cost debt, research and development expenditure,
quality up gradation to ISO standard etc. Loan for acquisition of Land and Building,
Building construction, up – gradation and renovation of officer, show rooms, godowns,
purchase of equipments, vehicles etc.
Quantum of Finance: - Maximum of Rs. 50 Lakhs
Margin: - 25%
Primary security: - Extension of hypothecation / pledge charge over current and fixed
assets.
Collateral Security: - Extension of charge over existing collateral additional tangible
security such as immovable property, Bank deposits etc., wherever required. Personal
guaranty of proprietors / partners / promoters.
Repayment: - In monthly / quarterly instalments as per normal cash generation cycle in 3
years period in deserving cases, the repayment period can be extended up to 5 years.
Interest: - As per interest rate applicable to term loan
Insurance: - Will be covered for all assets changed to the bank.
Department Of Studies In Commerce, Shivagangothri Page 52
Financial Assistance To SSIs
SME Credit Plus
This scheme is designed to meet the unforeseen expenditure of the Small scale
Industries with excellent track record.
Nature of facility: - Clean cash credit.
Eligibility: - The existing Small Scale Industries barrowers whose account has been
classified as Standard Assets of the past two consecutive years.
New borrowers also considered for facility on merits.
Limits: - An amount equal to 20% of the aggregate working capital limit will be
sanctioned to eligible Small Scale Industry barrowers, subject to a maximum of Rs. 25
Lakhs.
The barrowers are free to utilize the facility for 12 times in a year. There should be
a gap of at least 15 days between the date of the complete repayment of the outstanding in
the account and the date of the next utilization. In any case, an amount once drawn cannot
be outstanding for more than 2 months.
Purpose: - For contingencies like repairs to machinery, labour payments, tax payments,
additional purchase of raw-materials for execution of bulk orders received from customers
etc.
Security: - The facility will be extended by way of clean cash credit and no primary
security is required. The available security by way of collateral to other sanctioned limits
will be extended to cover the SME credit plus limit.
Interest: - At the rate applicable to working capital limits.
Insurance: - No insurance coverage is necessary as the limit is clean in nature.
Annapurna
Scheme for financing women for establishing food catering unit.
Introduction: - Now a day’s lifestyle of the people is changing at faster pace especially in
metro and big cities. Women have stepped out of the house to bear more responsibilities
for becoming financially independent and have joined hand in office jobs at different
levels as well as in running self – employment activities. Mainly people have money but
Department Of Studies In Commerce, Shivagangothri Page 53
Financial Assistance To SSIs
they are facing shortage of time for preparing food - specially, the working couples. This
scheme provides for financing women for selling breakfast / food / lunch packs etc.
Target group: - Women individual / partnership
Maximum Loan: - Rs 50,000/-
Type of Loan: - Composite Term loan. The working capital portion financed not more
than 50% of composite term loan.
Purpose of the loan :- The term loan component can be used for purchase of items like
utensils and cutlery, gas connection, refrigerator, mixer-cum- grinder / Blender / food
processor, hot case, utensil stand, Tiffin Boxes, working table, kitchen fan, exhaust Fan /
Electrical chimney, water Filter etc.
Repayment: - Up to 36 equal monthly instalments with one month moratorium period.
Margin: - 10%.
Rate of interest: - 8.50% [Subject to change from time to time].
Security: - Hypothecation of assets created out of Bank loan.
Guarantee: - a) One guarantor with sufficient means
b) In case the applicant is unmarried women, the loan has to be put
through in the joint names of father / guarantor of the applicant.
Insurance: - To cover up to the extent of capital assets created out of bank finance.
Stand – By Line of Credit [Term Loan]
Introduction: - It is observed that Bank receives multiple requests from valued barrowers
during a year requesting for sanction of term loans for capital expenditure towards
expansion, modernization etc. entails considerable delay. Therefore, stand – by – term
loan facility is introduction to the benefit of high rated barrowers.
Eligibility: - Small Scale Industry and C & I barrowers rated SBM – 3 above are eligible for the facility.
Department Of Studies In Commerce, Shivagangothri Page 54
Financial Assistance To SSIs
Quantum of Finance :- To the extent of 2 times the cash accruals of the previous year
with a maximum limit of Rs. 50 Lakhs for Small Scale Industry units and Rs. 200 Lakhs
for C & I units.
Nature of Facility: - Term Loan
Period of Loan: - 3 to 5 years
Purpose: - To meet any genuine purpose like acquisition of machinery and other capital
expenditure etc. The Stand – by – line of credit [Term Loan] will be sanctioned as a
separate limit (not as sub limits) along with regular limits.
Margin: - As applicable to Term Loans.
Security
Primary Security: - Change over assets acquired
Collateral Security: - As decided by the sanctioning authority.
Interest: - As applicable to Term Loans
Insurance: - To cover all the assets charged to the Bank.
Repayment: - In monthly / quarterly instalments as per normal cast generation cycle.
6.2 METHOD AND OBJECTIVES OF RECOVERY
i. Method of Recovery [Loan recovery policy 40 cir 290/2004]
Persuasion / Personal contacts
Seizure and disposal of securities has been advised of branches through various
circulars, as per the guidelines in force circles are empowered to permit disposal of
securities without referring to head office in respect of all LPD accounts subject to
the followings
a) If does not involve any concession and / or it does not result in under –
realization of securities when compared to the ruling market value.
Department Of Studies In Commerce, Shivagangothri Page 55
Financial Assistance To SSIs
b) If does not involved paring away any portion of the sale proceeds to the
borrowers when the debt is not fully cleared. If any one of the above conditions is
not fulfilled. Then the proposals are to be referred to head office.
c) Enforcement of securities under SARFAEST act,
d) Legal Action: Legal action is last resort adopted for recovery of the dues. Before
initiating legal action, bank has to exhaust all other avenues of recovery and after
considering the prospects of recovery. Thoroughly examine the pros and cons of
filling suit.
The following are the various steps the banks have to resort towards recovery
through legal action:
Serving of legal notices
Filing of suit / initiating proceedings under Revenue recovery act / referring to
DRTs / lok adalats.
Obtaining interim orders from the URT / DRT like appointment of court recover,
obtaining injunction orders seeking attachment of assets owned by the IDRs etc.
Filing of appeals whenever necessary.
Execution of decrees
Initiating insolvency proceedings
Initiating criminal proceedings, whenever necessary
Taking steps for winding up of the company
Purchase and sale of Non – banking assets acquired in arising out of loan recovery
proceedings.
Pursing ECGC / CGFS claims settlement
Settlement through compromise
ii. Objectives of loan Recovery Policy
Minimize the incidence of fresh NPAs
Effective monitoring of the barrower accounts
Proper classification of accounts under SPECIAL WATCH category and close
monitoring thereof.
Recovery of critical amount to avoid slippage
Department Of Studies In Commerce, Shivagangothri Page 56
Financial Assistance To SSIs
Reduce the level of NPAs by recovery, adopting various legal and non – legal
measures
Enforcement of securities invoking provisions of SARFAEST Act.
Filing suits in appropriate civil courts
Winding up the company
Settlement through compromise
Sales of assets to asset reconstruction companies
Timely revival / rehabilitation of the potentially sick and viable units
Execution of decrees within one year of abstention of the decree orders.
Upgrading the accounts by recovering the overdue amount
Re – structuring / Re – phasing of accounts whenever possible
Prevent deterioration in the quality of the assets
Regular inspection of securities (movable / immovable)
Department Of Studies In Commerce, Shivagangothri Page 57
Financial Assistance To SSIs
CHAPTER-VII
SURVEY ANALYSIS AND INTERPRETATION
7.1 INTRODUCTION
The area which is chosen for the purpose of study the financial assistance to small
scale industries in Davangere city by SBM. I have conducted survey with an intention to
bring out the opinions regarding Financial Assistance of State Bank of Mysore to Small
Scale Industry.
The following is the statement given by SBM, Davangere about the financial
assistance given to small scale industries.
Table showing the year wise financial assistance to SSIs by SBM, Davangere
Financial Year No. of beneficiaries Total amount% age of increase or
decrease
2009-2010 150 68,21,000 --
2010-2011 163 64,73,000 -5.10%
2011-2012 175 75,84,000 +17.16%
2012-2013 200 1,88,75,000 +48.88%
Source: Annual Report
The above statement is given by State Bank of Mysore, Mandipet branch,
Davangere about the financial assistance given to small scale industries.
Here, the last 4 years’ statements are available to compare year by year.
In the financial year 2009-10 the total beneficiaries are 150, who are got the
financial assistance from State Bank of Mysore at Davangere is Rs. 68,21,000/-.
In 2009-10, there is a decreasing in beneficiaries compared to last year, in this
financial year there is 163 beneficiaries are, the amount is Rs. 64,73,000/- And the
amount is also decreased by 5.10%, When compared to last year the trend is decreased.
In the year of 2010-11 the no. of beneficiaries are increased by 12. The total no. of
beneficiaries is 175, and the total loan amount given them to Rs.75,84,000/- The trend is
Department Of Studies In Commerce, Shivagangothri Page 58
Financial Assistance To SSIs
increased year by year, because when compared to the last year, the beneficiaries are
increased by 25 and the amount is increased by Rs.11,11,000/- a good trend.
The financial year of 2011-12, the beneficiaries are increased by 25 And the
amount provided to them is Rs.1,88,75,000/- Compared to last year, the amount is
increased by 48.88%, A good trend.
7.2 TABLES AND DIAGRAMS
The survey is conducted through direct interview by following the questionnaire
method for the 25 respondents; the result of this survey was interpreted in the following
tables and graphical diagrams. Those tables are given below…
Age wise classification of Respondents
Gender wise classification of Respondents
Monthly income of Respondents
Education Level of Respondents
Respondents’ Previous Occupation
Nature of industry of the Respondents
Type Of Organization of the Respondents
Classification of Respondents on the basis of Fixed Capital
Classification of Respondents on the basis of Amount of Working Capital
Reasons for opting State Bank of Mysore
Purpose of Loan taken
Loan barrowed under different Schemes
Amount of Loan Borrowed from the Bank by the Respondents
Department Of Studies In Commerce, Shivagangothri Page 59
Financial Assistance To SSIs
Table No.1
Age wise classification of Respondents
Age wise classification of respondents play an important role and influencing
factor for the establishment of business. The age wise classification represents their urge
to become entrepreneurs.
Table Showing Age wise classification of the Respondents
Age Wise Classification No. of Respondents Percentage
Below 25 Years 02 08%
25 to 40 years 21 84%
Above 40 Years 02 08%
Total 25 100%Sources: Survey Data
Chart No.1: Chart Showing Age wise classification of the Respondents
Below 25 Years
25 to 40 years
Above 40 Years
05
1015
2025
2
21
2
No. of Respondents
From the above table shows that, among the 25 respondents, 84% respondents were
between the age group of 25 to 40 years and rest of the respondents belongs to the age
group of Below 25 years & above 40 years i.e., 8%.
Department Of Studies In Commerce, Shivagangothri Page 60
Financial Assistance To SSIs
Table No.2
Gender Wise Classification of Respondents:
Education level of Entrepreneurs is one of the influencing factors for growing their
business. It helps in the acquisition of the required knowledge for a job, which also helps
in traditional skill.
Table Showing Gender Wise Classification of Respondents
Gender Wise Classification No. of Respondents Percentage
Male 21 84%
Female 04 16%
TOTAL 25 100%
Sources: Survey Data
Chart No.2: Chart Showing Gender Wise Classification of Respondents
Male
Female
05
1015
2025
No. of Respondents
From the above table shows that, among the 25 respondents, 84% were male and
16% were female, who have transaction with this bank, the number of male who utilizes
the service offered by the bank is more when compared to female.
Department Of Studies In Commerce, Shivagangothri Page 61
Financial Assistance To SSIs
Table No.3
Monthly Income of Respondents
Table Showing Monthly Income of Respondents
Range of Monthly Income No. of Respondents Percentage
Below Rs.10000 1 4%
Rs.10000 to Rs. 25000 4 16%
Rs.25000 to Rs.50000 5 20%
Rs. 50000 & Above 15 60%
TOTAL 25 100%
Sources: Survey Data
Chart No.3: Chart Showing Monthly Income of Respondents
Below Rs.10000
Rs.10000 to Rs. 25000
Rs.25000 to Rs.50000
Rs. 50000 & Above
0 2 4 6 8 10 12 14 16
1
4
5
15
No. of Respondents
Table no. 4
Educational Level of Entrepreneurs
Education level of Entrepreneurs is one of the influencing factors for growing their
business. It helps in the acquisition of the required knowledge for a job, which also helps
in traditional skill.
Department Of Studies In Commerce, Shivagangothri Page 62
Financial Assistance To SSIs
Classification of Entrepreneurs on the Basis of Educational Qualification
Education Level No. of Respondents Percentage
Up to SSLC 1 4%
PUC 16 64%
Graduate 2 8%
Post Graduate 6 6%
Total 25 100%
Sources: Survey data
Chart No.4: Chart Showing Classification of Entrepreneurs on the Basis of Educational
Qualification
Up to SSLC PUC Graduate Post Graduate02468
1012141618
1
16
26
No. of Respondents
The above table shows that the 64% of respondents are educated up to PUC and 8% of
entrepreneurs are educated up to Graduation like B.Com, B.Sc, B.A and 24% of respondents are
educated only up to SSLC.
Table No. 5
Respondents’ Previous Occupation:
Table Showing Classification of Respondents on the Basis of their previous Occupation
Previous Occupation No. of Respondents Percentage
Agriculturist 15 60%
Business Man 10 40%
Employee 0 0%
Department Of Studies In Commerce, Shivagangothri Page 63
Financial Assistance To SSIs
Others 0 0%
Total 25 100%
Sources: Survey data
Chart No.5: Chart showing Respondent’s previous occupation
Agriculturist Business Man
EmployeeOthers
02468
10121416
15
10
00
No. of Respondents
Among of 25 respondents, 40% of respondents are of business background, 60% of
respondents were of the Agriculture background, and no one belongs to employee and other
sectors.
Table No. 6
Nature of industry of the Respondents:
Table Showing Nature of Industry of the Respondents
Nature of Industry No. of Respondents Percentage
Production 5 20%
Processing 17 68%
Service 03 12%
Any other 0 0%
Total 25 100%
Sources: Survey data
Department Of Studies In Commerce, Shivagangothri Page 64
Financial Assistance To SSIs
Chart No. 6: Chart showing nature of Industry
The respondents are classified on the basis of the nature of industry into four types as follows:
Out of 25 respondents, 5 units belongs to production, 17 units belongs to processing
industry and 3 units are belongs to service and no units to other indust
Table No. 7
Form of Organization of the Respondents:
Table Showing Form of Organization of the Respondents
Form of Organization No. of Respondents Percentage
Sole Trading Concern 19 76%
Partnership 6 24%
Joint Stock Company 0 0%
Total 25 100%
Sources: Survey data
Chart No.7: Chart Showing Form of Organization of the Respondents
Department Of Studies In Commerce, Shivagangothri Page 65
5
17
3
No. of Respondents
Financial Assistance To SSIs
Sole Trading ConcernPartnership
Joint Stock Company
0
5
10
15
2019
6
0
No. of Respondents
The above table shows that, out of 25 respondents, 19 respondents are belongs to Sole
Trading Concern and 6 respondents are belongs to Partnership and no one respondents is in the
form of Joint Stock Company.
Table No. 8
Classification of Respondents on the basis of Fixed Capital:
Table Showing Classification of Respondents on the basis of Fixed Capital
Fixed Capital [Rs] No. of Respondents Percentage
Below 5,00,000 12 48%
5,00,000 to 10,00,000 10 40%
10,00,000 and above 3 12%
Total 25 100%
Sources: Survey data
Chart No.8: Chart Showing Classification of Respondents on the basis of Fixed Capital
Department Of Studies In Commerce, Shivagangothri Page 66
Financial Assistance To SSIs
0
2
4
6
8
10
12
Below 5,00,000
5,00,000 to 10,00,000
10,00,000 and above
12 10
3Below 5,00,0005,00,000 to 10,00,00010,00,000 and above
From the above table, it is clear that fixed capital of 48% respondents is presently below
Rs. 5,00,000, 40% of units the present fixed capital is between Rs. 5,00,000 to Rs. 10,00,000 and
12% of respondents having the fixed capital of Rs. 10,00,000 and above.
Table No. 9
Classification of respondents on the basis of Amount of Working Capital
Table Showing Classification of respondents on the basis of Amount of Working Capital
Working Capital [Rs] No. of Respondents Percentage
Below 5,00,000 6 24%
5,00,000 to 10,00,000 14 56%
10,00,000 and above 5 20%
Total 25 100%
Sources: Survey Data
Department Of Studies In Commerce, Shivagangothri Page 67
Financial Assistance To SSIs
Chart No.9: Chart Showing Classification of Respondents on the basis of Amount of Working Capital
Below 5,00,0005,00,000 to 10,00,000
10,00,000 and above
02468
101214
6
14
5
No. of Respondents
From the above data, we may find that, present working capital is Rs 5,00,000/- and below
in case of 24% (i.e. 6 out of 25) of respondent units, between Rs 5,00,000/- to Rs
10,00,000/- in case of 56% (i.e. 14 out of 25) of units. Finally, 20% of respondents (i.e. 5
out of 25) are having more than Rs 10,00,000/- as working capital presently.
Table No. 10
Reasons for opting State Bank of Mysore:
The respondents opting State Bank of Mysore because of so many reasons such as
repayment period is more, rate of interest is low, less procedure, quick sanction of loan and other.
Table showing Reasons for which respondents opted SBM
Reasons No. of Respondents Percentage
Repayment Period is more 8 32%
Rate of Interest is low 6 24%
Less Procedure 4 16%
Quick sanction of loan 7 28%
Department Of Studies In Commerce, Shivagangothri Page 68
Financial Assistance To SSIs
Other 0 0%
Total 25 100%
Sources: Survey Data
Chart No.10: Chart showing Reasons for which respondents opted SBM
Repayment
Period is more Rate of Interest
is lowLess Procedure Quick sanction
of loanOther
0123456789
8
6
4
7
0
No. of Respondents
From the above table, it is clear that 8 Respondents stated that they opt State Bank of
Mysore because of repayment period is more, 6 Respondents opt State Bank of Mysore because of
Rate of Interest is low, 4 Respondents opt State Bank of Mysore because of Less Procedure, 7
Respondents opt State Bank of Mysore because of Quick sanction of loan.
Table No. 11
Purpose of Loan taken:
The Small – Scale Industrial entrepreneurs are taken loan assistance from State Bank of
Mysore for various purposes such as establishment of units, expansion of existing unit,
modernization of existing unit etc.
Table Showing Classification of Respondents on the purpose of Loan taken from SBM
Purpose of Loan No. of Respondents Percentage
Establishment of unit 18 72%
Department Of Studies In Commerce, Shivagangothri Page 69
Financial Assistance To SSIs
Expansion of Existing unit 2 08%
Modernization 4 16%
Other 1 4%
Total 25 100%
Sources: Survey Data
Chart No.11: Chart Showing Classification of Respondents on the purpose of Loan taken from SBM
Establishment of unit Expansion of
Existing unit ModernizationOther
0
5
10
15
2018
2 4
1
No. of Respondents
The above table indicates that, out of 25 respondents, 18 respondents borrowed loan from State
Bank of Mysore for establishment of unit and 2 respondents borrowed loan for the purpose of
expansion of existing unit and 4 respondents taken loan from State Bank of Mysore for the
purpose of Modernization and 1respondent has taken loan from State Bank of
Mysore for other purpose.
Table No.12
Loan borrowed under different Schemes:
The Small – Scale industrial entrepreneurs are taken loan form State Bank of Mysore
under various schemes such as Flexi Term Loan, SME Credit Plus, Annapurna, and Stand – by
Line Credit etc.
Table Showing Loan borrowed under different Schemes
Schemes No. of Respondents Percentage
Flexi Term Loan 2 8%
SME Credit Plus 19 76%
Department Of Studies In Commerce, Shivagangothri Page 70
Financial Assistance To SSIs
Annapurna 2 8%
Stand – by Line Credit 2 8%
Total 25 100%
Sources: Survey Data
Chart No.12: Chart Showing Loan borrowed under different Schemes
Flexi Term LoanSME Credit Plus
AnnapurnaStand – by Line
Credit
0
4
8
12
16
20
2
19
22
No. of Respondents
Above table indicates that out of 25 respondents, 2 respondents have taken loan under the scheme
Flexi Term Loan, 19 respondents have taken loan under the scheme SME Credit Plus, 2
respondents are taken fund under the scheme Annapurna and 2 respondents have taken fund under
the scheme Stand – by line credit from State Bank of Mysore.
Table No. 13
Amount of Loan Borrowed from the Bank by the Respondents:
Table Showing Amount of Loan Borrowed from the Bank by the Respondents
Amount No. of Respondents Percentage
Up to Rs. 50,000 1 4%
Above Rs. 50,000 – Rs.
1,00,000
6 24%
Above Rs. 1,00,000 – Rs.
5,00,000
15 60%
Above Rs. 5,00,000 03 12%
Department Of Studies In Commerce, Shivagangothri Page 71
Financial Assistance To SSIs
Total 25 100%
Sources: Survey Data
Chart No.13: Chart Showing Amount of Loan Borrowed from the Bank by the Respondents
Up to Rs. 50,000
Above Rs. 50,000 – Rs. 1,00,000
Above Rs. 1,00,000 – Rs. 5,00,000
Above Rs. 5,00,000
0 2 4 6 8 10 12 14 16
1
6
15
3
No. of Respondents
Out of 25 respondents, 7 respondents has taken fund up to Rs. 50,000/-, 6 respondents has taken
fund of Rs. 50,000/- to Rs. 1,00,000/-, 15 respondents taken the fund of Rs. 1,00,000/- to Rs.
5,00,000/- and 3 respondents have taken fund above Rs. 5,00,000/-, from the State Bank of
Mysore.
CHAPTER – 8
Major Findings, Suggestions & Conclusion
8.1 Findings of the Survey
Department Of Studies In Commerce, Shivagangothri Page 72
Financial Assistance To SSIs
8.2 Suggestions
8.3 Conclusion
CHAPTER-VIII
FINDINGS, SUGGESTIONS AND CONCLUSION
8.1 Findings of the survey:
Department Of Studies In Commerce, Shivagangothri Page 73
Financial Assistance To SSIs
From the study of financial assistance to Small Scale Industries, the following findings are
identified:
i. Most of the respondents are from the background of Business and Agriculture who have started
small – Scale Industries.
ii. According to survey, majority of respondents have PUC and Post Graduation qualification
because of they have undertaken businesses like Brick industries, Garments, Saw mills etc…
iii. From the survey it was found that most of respondents have fixed capital below Rs 5, 00,000
which is enough for the type of industry like Brick industries, garments, saw mills, tyre
retreading, etc…
iv. From the survey we can consider that most of the respondents’ nature of the industry is
processing and Production.
v. It was found that, the most of the respondents’ form of Organization is sole trading concern and
partnership. Their size of investment is less.
vi. From the survey it was found that most of respondents have fixed capital below Rs. 5,00,000
which is enough for the type of industry like Brick industries, garments, saw mills, tyre
retreading etc…
vii. From the survey it was found that most of respondents have working capital between Rs. 5,
00,000 to Rs. 10, 00,000.
viii. Most of the respondents opted State Bank of Mysore as its repayment period is more and
interest rate is low.
ix. Most of the respondents’ borrowed loan for the establishment of new unit and expansion of
existing unit.
x. Most of the respondents have taken loan under the scheme SME Credit Plus because most of
the respondents are men and their type of industries are Brick industries, garments, saw mills,
tyre retreading etc…
xi. Business persons have taken loan under Annapurna Scheme for garments business; they have
taken loan under Flexi Term Loan for Brick Industries.
xii. Most of all the respondents didn’t face any problem while taking the loan from State Bank of
Mysore.
xiii. Most of the respondents’ amount of loan barrowed from bank is up to Rs. 5,00,000 to Rs.
10,00,000.
xiv. Most of the respondents repay the money to the Bank according to the schedule of SBM.
xv. By the survey we come to know that, the large numbers of respondents have satisfied with
respect to financial assistance of State Bank of Mysore.
xvi. Most of the respondents said that interest charged by State Bank of Mysore is reasonable one.
Department Of Studies In Commerce, Shivagangothri Page 74
Financial Assistance To SSIs
8.2 Suggestions:
The followings are the suggestion given to the Small Scale industrial entrepreneurs and to
the corporation.
i. The interest rate charged on loan should be low for improving Small Scale Industry and to face
competition from other big industries.
ii. The Government of India should encourage the financial institutions like commercial banks to
provide various programmes to the Small Scale Industries at free of cost for growth and
development of these industries.
iii. For the development of Small Scale industries, it is essential that the methods of production
are to be modernized. Research institutions are to be established in order to evaluate
technology. For this purpose State Bank of Mysore has to provide financial assistance. The
terms and conditions of State Bank of Mysore with regards to the procedure of availment of
loan for Small Scale Industries should be simplified:
iv. If a unit is eligible for subsidy, the unit should be allowed to utilize it fully. The Bank should
release the subsidy in time.
v. While evaluating the projects, sufficient freedom should be given to the applicants for the
selection of Plant and Machinery, equipments and when they should be procured.
vi. Financial assistance is to be given based on the needs rather than on security offered.
8.3 Conclusion:The bank plays vital role in providing finance to the needy people and helps to develop our
country. Different type of banks serves the different classes of people, and also helps the people to
overcome their financial problems in their day to day life. Hence, there is a necessary of banks in
the modern era to overcome the problems of every citizen.
The growth and performance of Small Scale Industries in Davangere City is not so good
because of problems like less demand, problem of raw materials etc, so these industries are in need
of financial assistance and support by the financial institutions.
State Bank of Mysore which provides financial assistance to Small Scale Industries for
various purposes is playing a very important role in the development of Small Scale industry units
in India.
.
Department Of Studies In Commerce, Shivagangothri Page 75
Financial Assistance To SSIs
Department Of Studies In Commerce, Shivagangothri Page 76