Introduction

Nishka | June 2013 Page 3

Small and Medium Enterprises are the two pillars

of the Indian economy. After 2006, the theory of

SME was revised as Micro, Small and Medium En-

terprises (MSME). It now plays a crucial role in fuel-

ling our economy by contributing 45% of industrial

output, 40% of exports, employment opportunities

for 60 million people, giving rise to almost 1.3 mil-

lion jobs year-on-year and manufacturing 800 plus

world class quality products for the Indian as well

as the overseas market. SME’s contribution was

pegged at 17% of GDP and is expected to be 30% of

GDP by 2015.

The major advantage of the sector is its employ-

ment potential at low capital cost. The labour in-

tensity of the MSME sector is much higher than

that of the large enterprises. The MSMEs consti-

tute over 90% of total enterprises in most of the

economies and are credited with generating high-

est rates of employment growth and account for a

major share of industrial production and exports.

In recent years the MSME sector has consistently

registered higher growth rate compared to the

overall industrial sector. With its ability and dyna-

mism, the sector has shown admirable innovative-

ness and adaptability to survive in the recent eco-

nomic downturn and recession

The extent of growth seen by this catalytic sector

is due to the visions of Late Prime Minister Ja-

waharlal Nehru who followed a road map to devel-

op the core industry and have a supporting sector

as SMEs. It is seen as a driving engine for the Indi-

an economy as this sector, apart from employment

generation is responsible for value addition by en-

couraging entrepreneurial skills, innovative think-

ing, equitable distribution of nation’s wealth, re-

gional dispersal of industries, priority heights to

the industry’s growth and mobilization of capital

and our nation’s exports.

Despite the phenomenal potential of SMEs the

sector, is still handicapped in various ways.

· The severe problem faced by SMEs is lack of

easy access to bank’s credit, technology, skill

and market. Government and other Financial

Institutions are least bothered about their

growth

· Access to cheap credit in a timely manner is

the major setback for SMEs to expand and

grow

· The present era is the market of skilled man-

power and cutting edge technology, but SMEs

lacking in financial muscle, fail to incorporate

such elements

Though SMEs serve as the backbone of our econo-

my, they are still behind financial inclusion. For a

developing country like India, Industry bodies

should plan out specific strategies not only to pro-

vide financial assistance but also pass conducive

policies to encourage growth and sustainability.

ANINDITA NATH - MBA F1

Page 4

1. In view of the shift in the start date of Basel III im-

plementation, all instructions applicable as on Janu-

ary 1, 2013, except those relating to Credit Valuation

Adjustment (CVA) risk capital charge for OTC deriva-

tives, would become effective from April 1, 2013 with

banks disclosing Basel III capital ratios from the quar-

ter ending June 30, 2013.

2. The Reserve Bank of India released on its website, the Guidelines for “Licensing of New Banks in the Private Sector”

Key features of the guidelines are: · Eligible Promoters: Entities / groups in the pri-

vate sector, entities in public sector and Non-

Banking Financial Companies (NBFCs) shall be eligible to set up a bank through a wholly-owned Non-Operative Financial Holding Company (NOFHC)

· Fit and Proper criteria: Entities / groups should have a past record of sound credentials and in-tegrity, be financially sound with a successful track record of 10 years. For this purpose, RBI may seek feedback from other regulators and enforcement and investigative agencies

· Corporate structure of the NOFHC: The NOFHC shall be wholly owned by the Promoter / Promot-er Group. The NOFHC shall hold the bank as well as all the other financial services entities of the group

· Minimum voting equity capital requirements for

banks and shareholding by NOFHC: The initial minimum paid-up voting equity capital for a bank shall be $5 billion. The NOFHC shall initially hold a minimum of 40 per cent of the paid-up voting equity capital of the bank which shall be locked in

for a period of five years and which shall be brought down to 15 per cent within 12 years. The bank shall get its shares listed on the stock ex-changes within three years of the commence-ment of business by the bank.

· Regulatory framework: The bank will be gov-erned by the provisions of the relevant Acts, rele-vant Statutes and the Directives, Prudential regu-lations and other Guidelines/Instructions issued by RBI and other regulators

3. The latest RBI KYC guidelines for opening new bank accounts make it a lot easier for common man as only one document would suffice as proof of identity and proof of residence

As per the circular, if a customer submits a docu-ment which has his identity details as well as ad-dress details, the bank should not insist on two separate documents for POA (Proof of Address) and POI (Proof of Identity). The circular says, “If the address on the document submitted for iden-tity proof by the prospective customer is same as that declared by him/her in the account opening form, the document may be accepted as a valid proof of both identity and address”. This is in-deed a significant change as customers will not be required to carry two sets of documents if one single document like passport has both address and identity details.

4. Based on the feedback received from Unique Iden-tification Authority of India (UIDAI), RBI has in-structed banks to accept Aadhaar letters for the purpose of POA, if the address provided by the account holder is the same as that on Aadhaar let-ter.

Source: www.rbi.org

RBI COLUMN

R VISHNU VARTHANA MBA F2

MSME- On the Path to Recuperation

Nishka | June 2013 Page 5

The Micro Small and Medium Enterprises (MSME)

sector plays a very significant role in its contribution

to the economic development and growth of the Indi-

an economy. They go hand in hand with the large in-

dustries working as its ancillary units, thus catering to

the needs of the end-customers directly. The gross

domestic product constitutes over 8% from MSME

sector contribution. MSME ‘s also account for about

45% in the manufacturing sector and has about Rs 3.6

crore such enterprises under its wings, providing em-

ployment to over Rs 8 crore people. Hence the im-

pact that MSMEs have created is phenomenal.

Off late due to the slack in demand from the indige-

nous as well as the international markets, the contri-

bution of MSME sector to the total exports had regis-

tered a decline of 4% from 40% to 36%. This has

prompted the MSME ministry to undertake special

packages that can invigorate its momentum. This has

led to doubling up the budget allocation from Rs

11,000 crore to Rs 24,000 crore in the 12th five year

plan. Accordingly, MSME Minister K H Muniyappa has

also asked the concerned officials to come up with a

special package which will later on be taken to the

Cabinet for their approval and help. The expected

outcomes of it would be:

· To generate more employment opportunities and

through the establishment of more micro and

small units across the nation.

· To reduce the troubles in receiving environmental

clearances and the unwieldy process of inspec-

tion.

· As a part of inspiring the youth, it is expected to

launch 100 new enterprises as per Prime Minis-

ter's Employment Generation Programme

(PMEGP) in all the districts of the country every

year. PMEGP in this case is structured in such a

way that it takes into consideration all the strata

of the society and providing subsidy accordingly.

· Increase the MSME export contribution to 40% in

the coming years.

Through the changes proposed, the Government is

trying to re-instil the business confidence of MSMEs

among the end customers. Despite the issue of high-

er interest rates that is affecting a majority of the en-

terprises, the measures that will be taken up is sure

to put the MSME’s back in the limelight.

Sources

http://economictimes.indiatimes.com/news/emerging-businesses/

sme-policy-trends/government-working-on-special-package-for-

msmes/articleshow/19343852.cms

http://crisil.com/research/research_report_sme_report.html

SOUMYA BALAKRISHNAN MBA F1

CREDIT RATINGS: HELPING SMEs ACCESS CAPITAL

Page 6

In today's dynamic environment, increasing focus is being laid on inclusive growth, making the role of the SME sector vital in India's socio economic development.

In our ecosystem, there are several hurdles to growth faced by entrepreneurs; some real and some perceived. They are to do with regulatory set-up, political risk and interference, ineffective legal and enforcement infrastructure, lack of orga-nized information sources and access to capital, to name a few.

Prevailing information asymmetry within the SME

sector impedes supply of adequate quantum of

finance. The banking and financial service institu-

tions are unable to take decisions due to lack of

structured and analyzed information on the SMEs.

In such a scenario, credit rating for the SMEs pro-

vides to be beneficial in building confidence of the

formal channels of lending like banks and other

financial institutions on the SME’s.

Third Party Assessment

The third party assessment of an SME enables four key benefits:

· Firstly, a good rating can help gain faster and cheaper credit. The agencies that provide rat-ing for MSMEs, such as Crisil Ratings, SME Rat-

ing Agency of India (SMERA), ICRA, Credit Analysis and Research (CARE), Onica and Fitch, have tie ups with several banks to offer preferential interest rates based on ratings

· Secondly, better opportunities are available to rated SMEs as the independent risk evaluation of SMEs by an unbiased third party lends cred-ibility to them and opens doors for them while dealing with MNCs and corporates.

· Third, it provides tools for improvement by highlighting the strengths and weaknesses enabling opportunities for self correction.

· And lastly, government seems to favour rated SMEs which in light with the new budget re-quirement to the ministries and CPSEs of pur-chasing at least 20% of actuals from SME, may lead to huge benefits for the sector.

However, SMEs get deterred by the rigour of the

rating discipline and fear of being rated below av-

erage. The common belief amongst the MSMEs is

that full disclosure may result in lack of control

over their business and bring unwarranted atten-

tion to their business. For the smaller SMEs, the

cost of having organized finances is also perceived

too high. They can often access unorganized sec-

tor finance without having to go through the rat-

ing process. On the other hand, research globally

has proved that it is better to possess low ratings

than stay non-rated.

Source:

http://www.smeworld.org/story/sme-

finance/Credit-Ratings.php

ASHA JOSE MBA F1

12TH PLAN ROAD MAP FOR SMEs

Nishka | June 2013 Page 7

The 12th Five Year Plan Document will now be sta-

ple for next half decade to take the nation ahead

as a smart economy. As noted the vision is

“Faster, Sustainable and more Inclusive Growth.”

The aim is to get back to 9 per cent growth by the

end of the plan period.

The Growth of the MSME Sector must be a central

focus of India's Manufacturing strategy. This is the

foundation for a strong Manufacturing Sector

providing more employment with less capital. It is

the entry point for the workers and entrepreneurs

who move through it to large-scale enterprises.

Census indicates that in Manufacturing 94.9% are

Micro, 4.9% are Small and just 0.2% are Medium. It

is but natural that with almost everyone is Micro,

the entire spending ought to be for 'Capacity

Building' and to ensure that Micros grow into

Small on large scale so that by the end of Plan pe-

riod, in the year 2017, we have at least 10% Medi-

um and 25% Small Enterprises in Manufacturing.

To achieve such a transformation the role of

'enabling environment' is critical.

Road Map- A variety of strategies and recommen-

dations and rightly so, have been made in the doc-

ument of 12th Plan for the robust growth of

MSME Sector on the issues of

· Credit & Finance

· Technology up gradation

· Infrastructure Development

· Marketing & Procurement and

· Institutional Structure

All these have been, time & again deliberated at

various forums. Introduction of Insolvency Act,

Liberalization of Labour Laws, Changes in Appren-

ticeship Act, amending MSMED Act, Restructuring

DICs etc. has also been insisted. Clusters develop-

ment is further stressed, and Clusters Stimulation

Cell is also recommended.

On 'Single Window' the document

notes,”decentralized Single Window System

should be established with appropriate geograph-

ical spread. The Single window System, governed

by a common minimum standard, should, rather

than being a coordination office, be endowed

with access to relevant information and sufficient

delegation of powers from all concerned regula-

tors, including Central, State, Local and Sector

regulators. This would help reduce the start-up

time for businesses by providing all requisite ap-

provals and licenses if any, through the Single win-

dow System.” A team of Business Facilitation

Officers is also advised.

The whole crux - who will implement all the

roadmap and when? What was said in earlier years

is being again told in different way in the 12th Plan

also. Everybody knows where the shoe is pinch-

ing. But alas! Will the 12th Plan provide a takeoff

stage to Indian MSME Sector is anybody's guess!

Source

http://www.smeworld.org/story/top-stories/12th-five-

year-plan-india-sme-sector-growth.php

JAYAKALA A.K MBA F2

MARKET ROUND UP

Page 8

ANKIT MEHROTRA MBA F2

1. Travelling in trains is set to become costlier as the increase in reservation fee and superfast charg-

es announced in the Rail Budget come into effect from April 1.

2. The combined output of eight core sector industries, which together account for 38% in the index

for Industrial Production, contracted for the first time since 2005, falling 2.5% in February.

3. Passenger car sales for March fell over 20% led by an across-the board sharp decline posted by

leading carmakers that included Maruti Suzuki, Hyundai India, Tata Motors & Volkswagen, among

others.

4. Coal shipments to India, the world’s fourth-biggest importer of the fuel, rose 9.6% to 9.65 million

tonnes in February from a year earlier.

5. The Reserve Bank of India has allowed core investment companies or CICs to set up a joint ven-

ture company for undertaking insurance business with risk participation, subject to safeguards.

6. The government is ready with the direct taxes code (DTC) to shower goodies on taxpayers as it

faces the prospects of an early election.

7. The Foreign Trade Policy (FTP) may announce incentives of about Rs 30 billion, including an am-

nesty scheme for traders who have defaulted on their export obligation.

8. The Government may modify its proposal to increase the excise duty from 27% to 30% on sports

utility vehicle (SUV), introduced in the Budget for 2013-14.

9. The telecommunications ministry has asked Vodafone, Bharti and Idea Cellular to stop 3G services

outside their licensed zones and imposed penalty on both carriers.

10. To provide insurance cover to domestic refineries that process crude oil imported from Iran, the

government is planning to set up a Rs 20 billion insurance fund.

11. The Asian Development Bank (ADB) scaled down its projection for India’s growth in 2013-14 from

6.5% to 6%.

Repo Rate: 7.25%

Reverse Repo Rate: 6.25%

CRR: 4%

SLR: 23%

CBLO (as on 7th May): 7.27 bps

Inflation as for Apr 2013:

WPI: 4.89 %

Food inflation: 4.89%

Forex Reserve (as on 14th May): $291.9662 billion

IIP growth rate (for Apr 2013): 1.0 %

91 Days T bills (as on 27th May): 7.2689%

10 year G- Sec Yield (as on 27th May): 7.71%

Exports during April 2013: $24.16437 billion

Imports during April 2013: $41.95173 billion

Source: Finance Ministry, Office of Economic Advisory, HDFC Securities Reports, Ministry of Com-

merce

MARKET ROLLERS

Page 9 Nishka | June 2013

ANUBHA MBA F1

PHOTO FIND

Page 10

Source

http://www.hsbcinvestdirect.co.in/equity/

MarketCommentary.do?

reqCode=marketCommentryPopUp&row_id=1&pa

ge=3

T KIRUTHIKKA DEVI MBA F2

Nishka | June 2013

FINANCE BUZZ

Page 11

NAVEEN KUMAR M MBA F2

Whipsaw

When a share price moves in one direction and then abruptly reverses direction. Whipsaws are dangerous to

traders because the first movement may throw up a buy signal, completely wrong-footing the trader when the

price subsequently tumbles.

Delta

In finance, delta is a ratio that measures the change in price of an option to the change in price of the underly-

ing stock. For call options, delta is always positive; for put options, delta is always negative.

Syndicate

A Syndicate is when a group of lenders like investment banks join together to underwrite, structure, market,

and distribute a new security offering. Globally there are three types of underwriting for syndications; Under-

written Deal, Best Efforts Syndication, or Club Deal. Those who work in syndicate groups are often responsible

for marketing, pricing and distributing the new security.

Vega

A measure of the sensitivity of an option or warrant price to changes in the volatility of the underlying asset.

Usury

Charging an unacceptably, and sometimes illegally, high rate of interest on a loan.

Scalper

A trader who buys and sells quickly to take advantage of small price fluctuations. Usually a scalper is ready to

buy at the bid and sell at the asked price, providing liquidity to the market. The term 'scalper' is used because

these traders attempt to 'scalp' a small amount on a trade.

Penny Shares

Literally, any share costing less than 100p, but in a recent paper on the subject, the Financial Services Authority

designated penny shares as shares which have limited liquidity - in other words, that are hard to buy and sell in

quantity without moving the price.

Poison Pill

A tactic employed by a target company to make a hostile takeover less attractive by, for example, giving bond

holders certain rights to redemption at a premium in the event of a takeover.

CROSSWORD

Page 12

ACROSS

2. Inability of a debtor to pay their debt

5. Numerical expression based on a statis-tical analysis of a person's credit files, to represent the creditworthiness of that person

9. Allows a business to draw money against its sales invoices before the cus-tomer has actually paid.

11. Borrower's pledge of specific property to a lender, to secure repayment of a loan

Down

1. Process that allows a private or public company - or a sov-ereign entity - facing cash flow problems and financial dis-tress, to reduce and renegotiate its delinquent debts in order to improve or restore liquidity and rehabilitate so that it can continue its operations.

3. Independent financial institution aimed to aid the growth and development of micro, small and medium-scale enter-prises (MSME) in India.

4. Debt reduction strategy, whereby one who owes on more than one account pays off the accounts starting with the smallest balances first while paying the minimum on larg-er debts

6. Obligation owed by one party (the debtor) to a second party, the creditor

7. Financial transaction whereby a business sells its accounts receivable (i.e., invoices) to a third party (called a factor) at a discount

8. Consumer credit reporting agency in the United States, considered one of the three largest American credit agen-cies along with Experian and TransUnion.

10. Enterprise where the investment in plant and machinery (their original cost excluding land, building and items specified by the Ministry of Small Scale Industries) does not exceed Rs.25 lakh.

ABHISEK SAHU MBA F2

Nishka | June 2013

FINANCE QUIZ

Page 13

1. What is the investment limit on plant & machinery for a micro enterprise under the manufac-turing sector?

2. What percentage of goods do large/medium scale industries need to mandatorily export, in case they manufacture an item reserved for small scale industry?

3. What is the percentage estimate of the total exports in India that the SME sector accounts for?

4. Name the act that determines the licensing policy for industries in India.

5. What is the percentage of contribution by MSME sector for the GDP?

6. Which is the MSME hub of India?

7. What is the approximate employment provided by the MSME sector in India?

8. What is the minimum limit on the advances given by banks to MSME sector that should go for micro enterprises with an investment of up to 5lakh?

9. How many specialized bank branches are opened as on 2011 for lending to MSME sector?

10. What is the status given by banks to the MSME sector for lending?

AMOGHAVARSHA P MBA F2

Nishka | June 2013 Page 14

PHOTO FIND

1. Logo of SME chamber of India

2. Mr.Jim Yong Kim, President of World

Bank

3. Mr.Chandrakant Salunkhe, President of

SME Chamber of India and SME Export

Promotion Council

4. Logo of Indian Industries Association

5. Logo of Aspen Network for Develop-

ment Entrepreneurs (ANDE)

6. Mr. Rajiv Mundhra, President of Indian

Chamber of Commerce

ACROSS

2. INSOLVENCY—is the inability of a debtor

to pay their debt

5. CREDIT SCORE—is a numerical expression

based on a statistical analysis of a person's

credit files, to represent the creditworthi-

ness of that person

9. DISCOUNTING—allows a business to draw

money against its sales invoices before the

customer has actually paid.

11. COLLATERAL—is a borrower's pledge of

specific property to a lender, to secure re-

payment of a loan

DOWN

1. RESTRUCTURING—is a process that allows

a private or public company - or a sover-

eign entity - facing cash flow problems and

financial distress, to reduce and renegoti-

ate its delinquent debts in order to im-

prove or restore liquidity and rehabilitate

so that it can continue its operations.

3. SIDBI—is an independent financial institu-

tion aimed to aid the growth and develop-

ment of micro, small and medium-scale

enterprises (MSME) in India.

4. DEBT-SNOWBALL—debt reduction strate-

gy, whereby one who owes on more than

one account pays off the accounts starting

with the smallest balances first while pay-

ing the minimum on larger debts

6. DEBT—is an obligation owed by one party

(the debtor) to a second party, the creditor

7. FACTORING—is a financial transaction

whereby a business sells its accounts re-

ceivable (i.e., invoices) to a third party

(called a factor) at a discount

8. EQUIFAX—is a consumer credit reporting

agency in the United States, considered

one of the three largest American credit

agencies along with Experian and TransUn-

ion.

10. MICRO—enterprise where the investment

in plant and machinery (their original cost

excluding land, building and items speci-

fied by the Ministry of Small Scale Indus-

tries) does not exceed Rs.25 lakh.