SME LENDING

Neha JainNaveen Panchal

Malay Srivastava Vishal Patil

• SME play vital role for growth of Indian economy by contributing 45% of industrial output, 40% of exports and employing 60 million people and creating 1.3 million jobs every year and produce 8000 quality products.

IndiaClassification Manufacturing Enterprises Service Enterprises

Micro Upto Rs.25 lakh Upto Rs.10 lakh

Small Above Rs.25 lakh & upto Rs.5 crore

Above Rs.10 lakh &upto Rs.2 crore

Medium Above Rs.5 crore & upto Rs.10 crore

Above Rs.2 crore & upto Rs.5 crore

Source : Ministry of Small Scale Industries vide its notification No. S.O. 1722(E) dated October 5, 2006.

Top 5 GDPs of World v/s IndiaCountry (Rank)

GDPIn $

trillion

GDP(In Rs. trillion)(@ 45.02,

31 March 2010)

SME % GDP

(2010-2011)

Loan Value as % of GDP

USA(1) 14.582 657.4 51 4.93

China(2) 5.878 265.02 58.5 48.67

Japan(3) 5.497 247.82 - 35.90

Germany(4) 3.309 149.206 53.8 -

France(5) 2.560 115.410 56 10.64

India(9) 1.729 77.947 8 4.34

(World GDP $ 63.044 trillion )(World Bank, 2010)Source: www.CGAP.org (Independent Evaluation Group) www.data.worldbank.org , European Commision (SBA Fact Sheet) ASSOCHAM, www.gov.cn(China Government Website)

Competitors

• Indian Bank Crore Rs(Advances)• SBI 1,10,812• ICICI 71720 • PNB 45296• Canara Bank 29958• Bank Of Baroda 27365• Bank Of India 21000• UCO Bank 15727• Central Bank of India 11901

StakeHolders

• End User SME(http://rbidocs.rbi.org.in/rdocs/content/PDFs/78396.pdf)

• Rating Agency.• Banks.• Promoters• Employee.• Government.• Government Schemes.• Government Bodies like NABARD, PFC.• RBI.• Lobbyist.• NBFC.• Venture capitalist.• IT service providers.

Value Parameters

• No. of Branches.• Geographical coverage.• Interest Rate.• Transparency.• Information Confidentiality.• Efficiency in Operation.• Fees and Charges.• Interest.• Services(Funded, Non funded, Value Added Services,

Internet Banking).• Collateral/Security.

FRONT END DISTRIBUTION CHANNELS

In-house

•Relationship managers•Websites•Existing customers Database. •Branches

External agencies

•Direct Sales Agent ( 1% of lending amount)•Charted Accountants (1-2% of lending amount)•Rating Agencies.

11

WORKFLOW FOR SME SALES TEAM

Lead genera-

tion

Proposal genera-

tion Activities performed Contacting customer for preliminary information In-principle check on viability of lending

Compilation of proposal Proposal generated

Given to local Credit Hub

Industry association

tie-ups

Branch walk-in

Outbound tele-calling

Sales referrals

Events

Sales Coordinator

Head Sales

Advertising (SMS, Internet,

Inbound Call Centre)

. . .

Relationship Manager (RM)

Relationship Officer (RO)

Sales team

Parameters for Loan consideration

Indiv

idual

• Integrity

• Intentions

• Educational Background

• Past Experience in the Sector

• Owners Capital

• Capability to Pay back

Organization

• Credit Rating

• Debt Equity ratio

• Balance Sheet

• Feasibility of the Product

• Lenders experience with the organization

• Asset and Mortgages offered

Value parameters from Borrowers Perspective

• Interest Rate.• Turn around Time.• Collateral.• Pre sanction amount facility.• Documentation.• Products/Schemes available.• Relationship with Bank.

WORKFLOW FOR SANCTION AND DISBURSEMENT PROCESS (1/2)

14

File with appraisal note

In-principle decision to go-ahead with proposal or not, together with Credit Officer

5

File with inspection report

Receipt of proposal

1

Credit Suppor

t Officer

Credit Officer

Sanc-tioning Authorit

y

Check on complete-ness of proposal

2

Proposal

Data entry for credit rating and financial analysis

3

Complete proposal

Study of file, pre-sanction visit, customer meeting and raising customer queries

4

File with ratios and credit rating

Request for advocate, valuer and TEV reports (where required)

6

Returned to RM/RO for completion

Incomplete proposal

Satisfactory response to customer queries, preparation of appraisal note

7

2 day

4 day

6 day

8 day

10 day

12 day

14 day

Time meter for cases where TEV is not required

WORKFLOW FOR SANCTION AND DISBURSEMENT PROCESS (2/2)

15

Credit Suppor

t Officer

Credit Officer

Sanc-tioning Authorit

y

Issue of final sanction letter with signature from Credit Officer

11

Decided files

Check on advocate, valuers and TEV reports

9

File with reports

Preparation and stamping of documents

12

Execution of documents in presence of Branch Officer/ Manager

13

Vetting of documents by advocate

14

Disburse-ment by Branch

Sanctioned and vetted documents released for disbursement

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

8

Final sanction by Sanc-tioning Authority

10

File with reports

2 day

4 day

6 day

8 day

10 day

12 day

14 day

Time meter for cases where TEV is not required

Need Gap

• Back end1. Documents are submitted by the client at the

front end of the branch and are forwarded to SME factory for due diligence and processing

2. CMA data is developed using balance sheet and P&L account and gives the current status and the future projection for 5-6yrs

3. Every CA prepares the CMA data in their own format

Consulting Service

• Small Business diversification.• Paid Consulting not affordable.• Time and Energy Spend to know the Registrations

and other procedures.• Delays in complying with the preconditions can

frustrate entrepreneurs.• Bank provide consultancy to help start business

in terms of assistance to expedite the startup. This will enhance customer experience.

SME Groups

• A single Entity will become guarantor.• Derisking.• Leveraging.• Pressure for Repayment.• Reduced Transaction cost.

Women Entrepreneur

• Many Incentives from Government.• Dedicate Cell to track and cater Women

Entrepreneur.• Eg: Financing women-owned SMEs (Nigeria)

and Women Entrepreneurs’ Package (Turkey)

Interest Rate Deregulation

• RBI taking steps towards Interest Rate regulation.

• Interest Rate war will set in.• Help SME entrepreneurs.

Recommendation by RBI

Thank You