University of Mumbais

ALKESH DINESH MODY INSTITUTE FOR FINANCIAL AND MANAGEMENT STUDIES

A SUMMER INTERNSHIP PROJECT REPORT ON NEW PRODUCT DEVELOPMENT FOR FINANCING SMEs UNDER REGULATORY DEFINATION

A STUDY DONE FOR

SUBMITTED BY, MR. DEEPAK G. VEER SEM-III

IN PARTIAL FULFILLMENT OF THE REQUIREMENT OF THE M.M.S. PROGRAMME FOR THE YEAR 2012-2013

SUBMITTED ON 11th JULY 2012

ACKNOWLEDGEMENT

I am very grateful to Mr.Khajan Singh, Chief Manager, Panvel Branch Bank of Baroda. I express my sincere gratitude to Mr.B.M.Chavan,Sr.Manager Credit, Panvel Branch, Bank of Baroda, for guiding me through this project, sharing his knowledge and experience. I also am very thankful to Mr.C.V.Raghavendra, Credit officer, Panvel Branch, Bank of Baroda, for extending his support and resources for completion of this project Regards, Deepak Veer

Table of contents
SR. NO. 1 2 3 4 5 6 7 8 9 Name of Topic Executive Summary List of Abbreviations List of Tables Overview of Banking Industry About Bank of Baroda Overview of SME sector Baroda SME Product Conclusion Bibliography Page No. 4 6 8 9 17 19 24 55 56

Executive Summary

The summer internship project deals with the New Product Development for Financing SMEs under Regulatory definition. SME is fast growing sector in the Indian Economy. Every Bank has given highest

importance to financing SMEs in their strategically growth plan. It has become necessary to bring policy shift and create free market environment from regulations & interventions in economic activity. Growth resulting from globalization and liberalization is visible most profoundly in the SME segment. The relationship between the banker and the customer has become most crucial and competitive. The technology has entered the scene almost as a natural corollary of liberalization. Market Liberalized policies provide ample opportunities to Indian of the

to compete with developed and developing

countries The

clearance

Micro, Small & Medium Enterprises Development (MSMED) Act, 2006 is a turning point for the development of Indian industry, as it addresses and streamlines entire framework along with key governance & operational issues being faced by the SMEs.

Particulars

Investment in Plant & Machineries of Manufacturing Enterprises

Up to Rs. 25 /- lacks Above Rs. 25 /- lacks and Up to Rs. 500/- lacks Above Rs.500/- lacks and up to Rs.1000/- lacks

Investment in Equipment of Service Sector Enterprises

Up to Rs.10/- lacks

Micro Enterprise Small Enterprises Medium Enterprises

Above Rs. 10/- lacks and Up to Rs.200/-lacks Above Rs.200/- lacks and Up to Rs.500/- lacks.

The SME Loan Policy is framed with the following objectives: To improve flow of credit to SME Sector so as to double the credit to the Sector in 5 years, i.e. by the year 2012.
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 To formulate liberal norms of lending to SME sector, to ensure availability of adequate and timely credit to the sector. To provide guidelines to the branches to dispense credit to SME Sector on liberalized terms. To devise an organizational structure at all levels for handling SM credit portfolio in a more focused manner.

SCOPE OF POLICY This Policy will form a part of Banks Domestic Loan Policy and will interalia cover following:

Composition of SME Sector SME Loan Factory Model Pricing Policy Identifying Thrust Industries Broad guidelines on lending to SME Sector

List of Abbreviations
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TEV TL WC NWC NFB MPBF LC LOC IRR FACR FB CASA CR DSCR DER DTL DPG DTA BD BG
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Techno-Economic Viability Term Loan Working Capital Net Working Capital Non Fund Based Maximum Permissible Bank Finance Letter of Credit Line of Credit Internal Rate of Return Fixed Asset Coverage Ratio Fund Based Current Account/Savings Account Current Ratio Debt Service Coverage Ratio Debt-Equity Ratio Deferred Tax Liability Deferred Payment Guarantee Deferred Tax Asset Discount of Bills Bank Guarantee

CAGR CC PC DP SME

Compounded annual growth rate Cash Credit Packing Credit Drawing Power Small and Medium Enterprises

LIST OF TABLES/CHARTS

SR NO. 1
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Particulars Overview of Banking Sector.

Page No. 9

2 3 4 5 6

Bank of Baroda Organization Structure. Total employee of SME CGTMSE- Guarantee fees Overdraft- Rate of interest KVIC- Subsidy detail

19 22 36 45 48

Overview of the Banking Industry

Figure 1: Overview of Banks The banking system in India was established in 18th century. The first Indian bank which came into existence in1786 was THE GENERAL BANK OF INDIA which is followed by BANK OF HINDUSTAN. Although both these banks do not exists today but these banks have made the foundation of banking system in India. The oldest bank in existence in India is the state bank of India being established as "The Bank of Bengal" in Calcutta in June 1806.The first fully Indian owned bank was the Allahabad bank, which was established in 1865. By the 1990s the market expanded with the establishment of banks such as Punjab National bank in 1895 in Lahore and Bank of India in 1906, in Mumbai - both of which were founded under private ownership. The Reserve bank of India formally took on the responsibility of regulating the Indian banking Sector from 1935 After India's independence in 1947, the Reserve Bank was nationalized and given broader powers. Nationalization The nationalization of banks added a new chapter in the Indian banking system in 1969 when the Indira Gandhi Government nationalized the 14 largest commercial
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banks. A second phase of nationalization of banks took place in 1980 by the nationalization of 6 more commercial banks. The stated reason for the nationalization was to give the government more control of credit delivery. Liberalizations In the early 1990s the Narasimha Rao government embarked on a policy of liberalization and gave license to a small number of private banks, which came to be known as NEW GENERATION TECH-SAVVY BANK which included banks such as UTI Bank, ICICI Bank and HDFC Bank. This move, along with the rapid growth in the economy of India, kick started the banking sector in India, which has seen rapid growth with strong contribution from all the three sectors of banks, namely, government banks, private banks and foreign banks.

Classification of Banking Industry in India.

Indian banking industry has been divided into two parts, organized and unorganized sectors. The organized sector consists of Reserve Bank of India, Commercial Banks and Co-operative Banks, and Specialized Financial Institutions (IDBI, ICICI, IFC etc.). The unorganized sector, which is not homogeneous, is largely made up of money lenders and indigenous bankers.

An outline of the Indian Banking structure may be presented as follows:1) Reserve banks of India. 2) Indian Scheduled Commercial Banks. a) State Bank of India and its associate banks. b) Twenty nationalized banks. c) Regional rural banks.
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d) Other scheduled commercial banks. 3) Foreign Banks 4) Non-scheduled banks. 5) Co-operative banks.

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Current Trends in the Sector

The growth drivers of the Indian Banking Industry
High growth of Indian Economy: The growth of the banking industry is closely linked with the growth of the overall economy. India is one of the fastest growing economies in the world and is set to remain on that path for many years to come. This will be backed by the stellar growth in infrastructure, industry, services and agriculture. This is expected to boost the corporate credit growth in the economy and provide opportunities to banks to lend to fulfill these requirements in the future. Rising per capita income: The rising per capita income will drive the growth of retail credit. Indians have a conservative outlook towards credit except for housing and other necessities. However, with an increase in disposable income and increased exposure to a range of products, consumers have shown a higher willingness to take credit, particularly, young customers. A study of the customer profiles of different types of banks reveals that foreign and private banks share of younger customers is over 60% whereas public banks have only 32% customers under the age of 40. Private Banks also have a much higher share of the more profitable mass affluent segment. New channel Mobile banking is expected to become the second largest channel for banking after ATMs: New channels used to offer banking services will drive the growth of banking industry exponentially in the future by increasing productivity and acquiring new customers. During the last decade, banking through ATMs and internet has shown a tremendous growth, which is still in the growth phase. After ATMs,
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mobile banking is expected to give another push to this industry growth in a big way; with the help of new 3G and smart phone technology (mobile usage has grown tremendously over the years). This can be looked at as branchless banking and so will also reduce costs as there is no need for physical infrastructure and human resources. This will help in acquiring new customers, mainly who live in rural areas (though this will take time due to technology and infrastructure issues). The IBA-FICCI-BCG report predicts that mobile banking would become the second largest channel of banking after ATMs. Financial Inclusion Program: Currently, in India, 41% of the adult population doesnt have bank accounts, which indicates a large untapped market for banking players. Under the Financial Inclusion Program, RBI is trying to tap this untapped market and the growth potential in rural markets by volume growth for banks. Financial inclusion is the delivery of banking services at an affordable cost to the vast sections of disadvantaged and low income groups. The RBI has also taken many initiatives such as Financial Literacy Program, promoting effective use of development communication and using Information and Communication Technology (ICT) to spread general banking concepts to people in the under-banked areas. All these initiatives of promoting rural banking are taken with the help of mobile banking, self-help groups, microfinance institutions, etc. Financial Inclusion, on the one side, helps corporate in fulfilling their social responsibilities and on the other side it is fueling growth in other industries and so as a whole economy.

Opportunities:-

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Where there are challenges, there must be opportunities. Following are the opportunities for the Nationalized and commercial banks. 1) Rural area customers:Contributing to 70% of the total population in India is a largely untapped market for banking sector. In all urban areas banking services entered but only few big villages have the banks entered. So, That the banks must reach in remaining all villages because majority of Indian still living in rural areas. 2) Offering various Channels:Banks can offer so many channels to access their banking and other services such as ATM, Local branches, Telephone/mobile banking, video banking etc. to increase the banking business. 3) Good Customer Services:Good customer services are the best brand ambassador for any bank for growing its business. Every engagement with customer is an opportunity to develop a customer faith in the bank. While increasing competition customer services has become the backbone for judging the performance of banks. 4) Internet Banking:It is clear that online finance will pickup and there will be increasing convergence in terms of product offerings banking services, share trading, insurance, loans, based on the data warehousing and data mining technologies. Anytime anywhere banking will become common and will have to upscale, such

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up-scaling could include banks launching separate internet banking services apart from traditional banking services.

5) Retail Lendings:Recently banks have adopted customer segmentation which has helped in customizing their product folios well. Thus retail lendings has become a focus area particularly in respect of financing of consumer durables, housing, automobiles etc., Retail lendings has also helped in risks dispersal and in enhancing the earnings of banks with better recovery rates. 6) Indian Customers:The growing Indian banking sector with its strong home country linkages, seek a unique combination of Indian ethnicity and global standards that offers a valuable nice opportunities for Indian banks. The biggest opportunity for the Indian banking sector today is the Indian costumers. Demographic shifts in terms of income level and cultural shifts in terms of life style aspirations are changing the profile of the Indian customer. This is and will be a key driver of economic growth going forward. The Indian customers now seek to fulfill his lifestyle aspirations at a younger age with an optimal combination of equity and debt to finance consumption and asset creation. The consumer represents a market for a wise range of products and services he need a mortgage to finance his house, an auto loan for his car, a credit card for ongoing purchases, a bank account, a long term investment plan to his childs higher education, pension plans for his retirement, a life insurance policy the possibilities are endless and this consumer does not live just in Indias top ten cities. He represents across cities, towns and villages i.e. in rural
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areas. Consumer goods companies are already tapping this potential it is for the banks to make the most of the opportunity to deliver solutions to this market. 7) Other Opportunities:a) To enter new business and new markets b) To develop new ways of working c) To improve efficiency d) To deliver high level of customer services.

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About Bank of Baroda

The Maharaja of Baroda, a princely state of British India, by name Sir Sayyajirao Gaekwad III, had the same vision in establishing a bank for servicing the public at large and the citizens of Baroda State, a Gujarathi population in particular. On 20th July 1908, Bank of Baroda was established under the rules of Companies Act 1897, in a small building at Baroda, by the Maharaja with a paid up capital of Rs.10 lacks. The guidelines set by the Maharaja for the bank was to serve the people of the State of Baroda as well as the neighboring regions with money lending, saving, transmission and encouraging the development of arts, science, commerce and trade for the people. Even during the worst financial disaster caused by the First World War, during the period 1913 to 1917, when as many as 87 banks closed their shutters, Bank of India survived the turbulence with its clear vision, ethical standards and financial prudence to grow from strength to strength. There were heroes to sustain the development of this bank to its present glory, from ordinary people as customers and the heirs of the Royal family of Baroda. The success story of the Bank of Baroda is studded with many a leaps and strides it made in the International presence, apart from establishing branches all over the Indian nation, by acquisition of already popular banking entities, as also commencing new commercial banking establishments, in the unique Gujarathi style. During the
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years of 1908 to 2007 (and the century year being round the corner) Bank of Barodas growth owes to the excellence in rendering financial products and services to the national and international population. Countries beginning from America to Zambia, in the alphabetical order have been enjoying the services of Bank of Baroda as of today.

Mission statement
To be a top ranking National Bank of International Standards committed to augmenting stake holders' value through concern, care and compete.

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Overview of the SME Sector

The MSME sector is a significant contributor to the Indian economy. Based on official figures from the Ministry of MSME, November 2008, this sector contributes 8% of National GDP, comprises 50% of Indias total manufactured exports, 45% of Indias total industrial employment and 95% of all industrial units. The SME sector in India, however, has been changing over time, mostly through changes in government policy. In this section we will highlight the definition, profile, size, composition and performance of this sector. Despite its relevance, the MSME sector has for long faced various obstacles to growth. In recognition of these difficulties and succumbing to a long sustained lobbying, the Government of India passed the MSME Development Act of 2006 which brought about major changes in this sector. The basic achievement was a clear and decisive definition of units that fall under micro, small and medium category. The definitions are based on total investment in plant and machinery for manufacturing units and investment in equipments for service units. The new definitions have expanded the plant and machinery limits and now each enterprise level includes larger investments than before. There are also allowances for smaller investments in service enterprises.

Major Industries
In spite of their limitations, the SMEs have made a significant contribution towards technological development and exports. They are established in almost all major sectors in the Indian industry such as: Food Processing Agricultural Inputs Chemicals & Pharmaceuticals Engineering , Electricals , Electronics Electromedical equipment Textiles and Garments Leather and leather goods Bioengineering Sports goods Plastics products Computer Software, etc

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Current Scenario: SMEs In India

Small & Medium industries definition laid down by Govt. in terms of investment in Plant & Machinery:

SSI : Up to INR 1 million (USD 22,000 ) MSI : above INR 1mn and up to INR 10 million (USD 220,000) 13 million plus SME units. Employment generation in SSI: 42 Million people.

Share in Industrial Value Added: 39% Total No. of items Produced: Over 8000, No. of Reserved items: 675

Production : USD 100 billion , Exports : USD 27 billion

SSIs account for 45% of industrial production, 40% of exports, around 17% share in GDP

Ownership pattern : 78% proprietorships, 16% partnerships, 6% Corporate & others

96% industrial units, 3% service enterprises, 1% ancillary units

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Fig.(2)- Total employment of SMEs.

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SWOT Analysis: Strengths:

Contribution to National Economic Growth. Generating Employment and Vitalizing Indian brand to the world. Regional Development. Technological Innovation. Export Market Expansion.

Weakness

Lack of Funds Lack of Marketing Skill Lack of Information. Poor adaptability to changing trade trends. Nonavailability of technically trained human resources. Lack of management skills. Lack of access to technological information and consultant service

Opportunity

WTO regime

Bilateral & Multilateral trade agreements. Enhanced credit support. Support for technological upgradation. Comprehensive support for cluster development. Marketing assistance and export promotion support. Growing domestic and international markets.

Threats
Dumping from developed countries. Distrust between SMEs and Financial Institutions. Poor incentive structures for entrepreneurs. Virtual absence of Enterprise Education. Nontariff barriers from developed countries. Slow improvement in quality to meet the international standards.

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BARODAS SMEs POLICIES -

Baroda SME Loan Pack

Baroda SME Loan Pack provides single line of credit for meeting SME borrowers working capital as well as long term requirements within the overall limit approved by the bank.

PURPOSE

To provide hassle free credit for working capital (fund based and non-fund based) as also long term requirements, taking into account nature of business, cyclical trends, cash flow projections, peak time requirements and any eventuality of unforeseen spurt in the business.

ELIGIBILITY

All Enterprises, i.e. Micro, Small & Medium Enterprises, as defined under MSMED Act, 2006, and other entities with annual sales turnover of Rs. 1/crore to Rs. 150/- crores exclusively banking with our bank/new borrowers desirous of having sole banking arrangement with our bank.

COMPOSITE LIMIT:

4.5 times of borrowers tangible net worth as per last audited Balance Sheet, or, Rs. 5.00 Crores, whichever is lower.

MARGIN: 25%. RATE OF INTEREST:

As per credit rating of the borrower.

SECURITY: 1. Exclusive charge on the assets of the enterprise.

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2. Personal Guarantees of all promoter Directors / Partners.

3.

Charge on the unencumbered personal properties of the partners, promoter Directors, wherever applicable. Third party guarantee in case of credit line above Rs.100.00 lacks to Micro & Small Enterprises as per Regulatory definition. Any other collateral for the credit line above Rs. 25.00 lacks in case of other Enterprises, i.e. Medium Enterprises and Enterprises based on the turnover criteria to maintain asset coverage ratio above 1.25.

4.

5.

OTHER FEATURES:

Loans up to Rs. 100/- lacks to Micro & Small Enterprises will be covered under Credit Guarantee Fund Trust Scheme.

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Baroda Vidyasthali Loan

Baroda Vidyasthali Loan is a special scheme for financing Educational Institutions.

PURPOSE

To meet the financial requirements for setting up the institutions which includes construction of building, purchase of equipment etc. for the new set up as also renovation of the existing facilities, purchase of instruments for imparting education training to the students.

ELIGIBILITY

Educational institutions, Schools, Colleges and other education bodies running education activities Note: HUF are not eligible.

LIMIT

Minimum Rs.25 lacks Maximum Rs.10 crores

SECURITY

Equitable mortgage of Land & Building (not agricultural land). Hypothecation of Instruments & Equipment acquired out of the loan and other assets of the Educational Institution. Personal guarantees of the Promoters of the Institution.

MARGIN

25% of the cost of the project. RATE OF INTEREST Base rate plus 3.50% p.a

REPAYMENT PERIOD
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Maximum 84 months including moratorium period of 1 year, depending upon the projected cash flow.

Baroda Arogyadham Loan

PURPOSE To meet the financial requirements for setting up of new Nursing Home/Hospital including Pathological Laboratory, Expansion/renovation/modernization of existing Nursing Home/ Hospital including Pathological Laboratory, Purchase of medical diagnostic equipments as also office equipments, viz. computers, air conditioners, office furniture, Purchase of ambulance etc and to meet working capital requirements. ELIGIBILITY All entities, i.e. MSMEs, Enterprises other than individuals like Proprietorship, Partnership firms, Private Limited Companies and Trusts engaged in providing medical/pathological diagnostic services to the Society and with turnover up to Rs. 150/- crores. Note: The Promoters should have requisite qualification in any branch of medical science from a recognized University and should have minimum 2 years of work experience. LIMIT

Rural Centers - Rs. 0.50 crores Semi-Urban Centers - Rs. 6.00 crores Urban & Metro Centers - Rs. 12.00 crores

Note:

Working Capital limits up to 10% of the annual sale or gross income, subject to 20% of the above ceiling limit in case of borrowers requiring both Term Loan and working capital facilities. In case of borrowers requiring only working capital limit, 20% of the above ceiling limit.

SECURITY

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

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Hypothecation of medical equipment/office equipment acquired out of loan amount. Personal guarantee of Promoter Directors in case of Limited Companies and Trustees in case of Trusts. Hypothecation of medicines, receivables and other chargeable current assets. Charge on unencumbered assets of Promoter Directors in case of Private Limited Companies, or any other collateral by way of FDR, mortgage of properties in the personal name of the relatives of Promoters, etc.

MARGIN: 25%. Higher margin if collaterals are inadequate RATE OF INTEREST: As per credit rating of the borrower. REPAYMENT PERIOD: 35 months to 84 months including moratorium depending upon the projected cash flow.

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Baroda Laghu Udhyami Credit Card

PURPOSE

To provide hassle free credit facilities to Small business units, retail traders, artisans, village industries, small scale industrial units and tiny units, professionals and self employed persons etc.

ELIGIBILE BORROWERS:

All existing customers in the categories of Small Business, Retail Trade, Artisans, Village Industries, Small Scale and Tiny Units, Professional & Self Employed persons etc. having satisfactory track record / dealing with the bank for last 3 years.

LIMIT:

Maximum up to Rs. 10/- Lacks per borrower.

PERIOD / VALIDITY:

The limit fixed under the scheme will be valid for a period of three years subject to internal annual review based on the conduct / operations of the account.

SECURITY:

Hypothecation of stock in trade, receivables, machinery, office equipment etc. as specified for existing limit.

MARGIN:

25%.

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Baroda Artisans Credit Card (BACC)

PURPOSE To provide adequate and timely assistance to the artisans to meet their credit requirements - both investment needs as well as working capital - in a flexible and cost effective manner. The scheme is implemented in rural and urban areas. ELIGIBILE BORROWERS:

All artisans involved in production / manufacturing process. Preference given to artisans registered with Development Commissioner (Handicrafts). Beneficiaries of other Government Sponsored loan schemes will NOT be eligible for coverage under BACC scheme.

LIMIT:

Maximum Rs. 2/- Lacks per borrower.

MARGIN:

For limits up to Rs. 25,000/- No margin For limits above Rs. 25,000/- but up to Rs. 2 Lacks 15% to 25% margin. Margin is subject to change as per RBI guidelines from time to time or the bank's policy in this regard.

SECURITY:

Hypothecation of assets financed under the scheme..

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Baroda Weavers Credit Card (BWCC)

Baroda Weavers Credit Card is promoted by Ministry of Textiles which aims at providing adequate and timely assistance to weavers to meet their credit requirements.

All weavers and ancillary workers involved in weaving activities would be eligible. Preference would be given to weavers identified under the Third Census of Handloom Weavers as well as to weavers identified by the State Governments Primary Weavers Co-operative Societies/ Self Help Groups (SHGs)/ Consortia/ Producer Companies/ Joint Liabilities Group (JLGs) would be preferred All existing weaver borrowers of the Bank enjoying credit facilities and having satisfactory dealings with the bank will also are eligible.

The beneficiaries under the scheme will be issued with a Photo Weaver Credit Card (WCC) indicating sanctioned limit and validity period of credit facility. FIXATION OF CREDIT LIMIT

The maximum limit to individual weavers will be up to Rs 2/- Lacs The Credit Card would normally be valid for 3 years

The limits sanctioned will be secured by way of primary charge over the assets financed. No collateral security is required. All amounts would preferably be covered CGTMSE DOCUMENTATION

D P Note Hypothecation of assets financed out of the loan under the Scheme Letter of installment, in case of loan availed for purchase of tools and equipments Undertaking that the borrower would maintain a minimum required margin Any other relevant documents as per extant guidelines

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Akshaya Mahila Arthik Sahay Yojna

The new age woman seeks opportunities and challenges to be able to support herself and her family. Key Benefits

Enables financial assistance to women in setting up/engaged in:

o o o

Retail Trade. Village or Cottage/Small Scale Industries. Allied agricultural activities.

Focus on women business entrepreneurs and their credit requirements. The interest rate is fixed on the credit rating system at reasonable terms. Simple application procedures. Avail of loans at all branches of Bank of Baroda. To get a detailed list of all the Bank of Baroda branches, All complaints and grievances can be reported to the regional zone offices or directly to the Central office.

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Technology Upgradation Fund Scheme (TUFS) For Textile and Jute Industries
Bank of Baroda grants loans under Technology Up-gradation Fund Scheme launched by Government of India as per guidelines received from time to time from Ministry of Textiles. Bank of Baroda is a nodal agency for determining eligibility and releasing of subsidy for the cases financed by the bank under the scheme. OBJECTIVE To provide encouragement to textile industrial units for taking up technology up gradation and to modernize their production facilities. The scheme envisages 5% interest reimbursement (4 percentage for spinning industry) of the normal interest charged by the bank on the loans availed by the units from the bank for undertaking technology up-gradation/modernization. New units set up with technology as per guidelines of the scheme would also be eligible for the above benefit, or, 15% Credit Linked Capital Subsidy for Small Scale Sector and 20% for Power-loom Sector, or, 5% interest reimbursement plus 10% capital subsidy for specified processing machinery, technical textiles machinery, garmenting machinery and for CAD, CAM, Design Studio, etc. The scheme also provides 25% capital subsidy on purchase of new machinery and equipments for the pre-loom and post-loom operations, handlooms/up-gradations of handlooms and testing and quality control equipments for handloom production units. PROMOTERS CONTRIBUTION

Minimum 20% of the project cost.

AMOUNT OF LOAN

Need based.

PROGRAMME PERIOD

The scheme is in operation for a period upto 31.3.2012.

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Credit Linked Capital Subsidy Scheme (CLCSS)

OBJECTIVE To facilitate Technology Upgradation of Tiny and SSI units in the specified products/sub-sectors as notified by Govt. of India by providing 15% capital subsidy for induction of proven technologies approved under the scheme. LIMIT

Maximum eligible loan under the scheme is Rs. 1/- crore.

RATE OF SUBSIDY

15% or Rs. 15/- Lacks, whichever is higher (Subsidy is calculated with reference to the purchase price of eligible Plant and Machinery approved under the scheme)

The Scheme is in operation for the period up to 31.3.2012.

Eligible units must apply for subsidy support at the time of loan application itself. Term Loans sactioned under the CLCSS scheme are only eligible for subsidy. Claims are to be reached in the Ministry as per the time-frame stipulated by them. That is, within the next quarter of last loan disbursement (Reference date).

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Composite Loans
ELIGIBILITY:

Small Enterprises (Manufacturing Sector) including artisans, village and cottage industrial units and Micro Enterprises in Small Enterprises Sector, and Micro/Small (Service Sector) Enterprises engaged in industrial activities only.

PURPOSE:

Fixed capital investment and / or working capital requirement.

TYPE OF FACILITY: Composite loans. AMOUNT OF LOAN: Up to Rs. 100/- Lacks. MARGIN:

Nil in case of composite loan up to Rs. 25,000/-. 15% - 25% in case of composite loans above Rs. 25000/- and up to Rs. 100/Lacks.

SECURITY:

Charge on assets created out of loan amount and other collateral securities as determined on the merits of each case.

PERIOD OF REPAYMENT:

Minimum 3 years and maximum of 10 years (which can be extended), with initial holiday of 12 months to 18 months.

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Coverage of Collateral Free Loans under Credit Guarantee Fund Trust Scheme for Micro & Small Enterprises (CGTMSE):
PURPOSE:

To provide collateral free loans up to Rs. 100/- lacks to Micro & Small Enterprises, as defined under MSMED Act, 2006.

ELIGIBILITY:

The coverage of the Scheme is extended to all new and existing Micro and Small Enterprises (both in the Manufacturing Sector as well as in the Service Sector) as defined under MSMED Act, 2006.

LIMIT:

The eligible loan limit under the Scheme is Rs.100 lacks. A borrower, who has availed certain credit facilities secured by collaterals and/or third party guarantees and is sanctioned distinct/separate credit facility without collateral security/third party guarantee, can be covered under CGTMSE scheme.

SECURITY:

"Primary security" in respect of a credit facility shall mean the assets created out of the credit facility so extended and/or existing unencumbered assets which are directly associated with the project or business for which the credit facility has been extended. This means if a borrower is sanctioned working capital facility only, a charge can be created on the fixed assets of the unit even though the same are not financed by the Bank and the same will not be treated as collateral security. Similarly in case of sanction of Term/Demand loan on standalone basis, charge taken on current assets will not be treated as collateral security.

MARGIN:

The credit guarantee cover is available up to 75% of the amount in default in respect of credit facilities up to Rs. 50/- lacks extended by the Lending Institution to an eligible borrower subject to maximum guarantee cover of Rs. 37.50 lacks and 50% for the facilities over Rs. 50/- lacks and up to a

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limit of Rs. 100/-, i.e. maximum of Rs. 62.50 lacs. In case of following categories of borrowers, guarantee cover is available up to 80% of the amount in default. a) Loans to Micro enterprises up to Rs. 5 lacks(85%). b) Loans to Micro and Small enterprises operated and/ or owned by women. c) All loans in North East Region including the State of Sikkim.

GUARANTEE FEE:

Guarantee fee has been reduced as under, depending on the size of the limit as against the original fee structure of 2.5% (one time fee) and 1% Annual Service Fee. Particulars One time Guarantee fee 1.00% 1.50% 0.75% Annual Service fee 0.50% 0.75% Applicable as per the borrowing limit as stated above.

Credit facility up to Rs. 5/- lacks Credit facility above Rs. 5/- lacks. Loans in North East Region including the State of Sikkim.

SME Short Term Loans

PURPOSE:
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To meet temporary shortfall / mismatch in liquidity, for meeting genuine business requirements only.

ENTERPRISES GROUP:

Micro, Small & Medium Enterprises as per Regulatory definition and all other entities with annual sales turnover of Rs. 1/- crore to Rs. 150/- crores.

ELIGIBILITY CRITERIA

Satisfactory credit rating for the last three years Latest Balance Sheet etc. should be available. Satisfactory financial performance in terms of sales / turnover and profits. Negative variance, if any, should not be more than 10%. Satisfactory dealings with the Bank for at least three years.

LOAN AMOUNT:

Up to 25% of the existing Fund based Working capital limits (depending on the Credit Rating), subject to a minimum of Rs. 10 Lacks and maximum of Rs. 250 Lacks.

PERIOD:

Not exceeding 180 days minimum 90 days

SECURITY

First charge / Equitable mortgage of fixed assets of the company / firm or extension of existing first charge / equitable mortgage of fixed assets, ensuring that there is a minimum asset cover of 1.25. Extension of Charge on current assets for the additional facility ensuring that adequate drawing power is available. Extension of all existing guarantees of Directors / Third party guarantees to cover the additional facility.

RATE OF INTEREST:
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As applicable to existing working capital facilities.

PROCESSING CHARGES:

25% concession in applicable charges.

SME Medium Term Loans

PURPOSE:

To augment enterprises working capital gap and to help in improvement of current ratio and also for meeting genuine business requirements. The facility will also be available for repayment of secured and unsecured Loans

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of other banks or institutions, but not for any purpose, which is not related to the enterprises activity. ENTERPRISES GROUP:

Micro, Small & Medium Enterprises as per Regulatory definition and all other entities with annual sales turnover of Rs. 1/- crore to Rs. 150/- crores.

ELIGIBILITY CRITERIA

Satisfactory credit rating for the last three years Latest Balance Sheet etc. should be available. Satisfactory financial performance in terms of Sales/turnover and profits. Negative variance, if any, should not be more than 10%. Total Debt-equity ratio should not be higher than 4.5:1 and total Term Liability and equity ratio should not be more than 3:1. Average DSCR should not be less than 1.75:1 Satisfactory dealings with the Bank for at least Three years.

LOAN AMOUNT:

Up to 25% of the existing fund based Working capital limits (depending on the Credit Rating), subject to a minimum of Rs. 25 Lacks and maximum of Rs. 500 Lacks.

PERIOD:

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

SECURITY

First charge / Equitable mortgage of fixed assets of the Company / firm or extension of existing first charge/ equitable mortgage of fixed assets, ensuring that there is a minimum asset cover of 1.25

RATE OF INTEREST:
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As per credit rating for the additional loan Prepayment penalty of 1%, if loan is prepaid within -24- months of drawdown

PROCESSING CHARGES / UPFRONT FEE:

25% concession in applicable charges.

Baroda SME Gold Card

Baroda SME Gold Card envisages provision of additional limit of 10% of the assessed eligible bank finance for Working Capital to Micro, Small & Medium Enterprises as per Regulatory definition and all other enterprises with annual sales turnover of Rs. 1/- crore to Rs. 150/- crores, on request along with regular application for Working Capital limits to meet emergent requirements.

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PURPOSE:

To provide hassle free on the spot assistance to take care of borrowers emergent requirements and tie up temporary mismatch in liquidity arising out of delayed payment by buyers, tax payment, execution of bulk orders, etc.

ELIGIBILITY

Accounts in Standard Category for last 2 years, with credit rating of BOB-4 and above and enjoying working capital limits of Rs. 25/- Lacks and above. Accounts having sole banking arrangement with our bank/proposed to be financed under Sole Banking arrangement.

RATE OF INTEREST

As per Credit Rating and as applicable for regular Cash Credit facility.

PERIOD

12 months to be allowed on 4 occasions during the year for a maximum period of 2 months on each occasion with a minimum gap of 15 days between two drawls.

SECURITY

As applicable to regular Cash Credit facility.

DOCUMENTATION

No additional documentation/formalities required at the time of availing facility every time as the 10% additional limit will be a part of the regular sanction.

Scheme for Financing Energy Efficiency Projects

PURPOSE:

Financing SMEs for acquisition of equipments, services and adopting measures for enhancement of energy efficiency/conservation of energy.

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ELIGIBILITY

SME units financed by bank as also other units desirous of shifting their account to Bank of Baroda.

LIMIT:

Up to 75% of the total project cost, subject to maximum of Rs. 1/- crore. (Minimum amount of loan Rs. 5/- Lacks).

Project cost may include the following:

Cost of acquisition/modification/renovation of equipment/software. Cost of alterations to existing machinery. Cost of structural / layout changes. Cost of energy audit/consultancy. Preparation of Detailed Project Report (DPR).

RATE OF INTEREST:

Base rate plus 4.00% p.a

REPAYMENT:

Maximum 5 years, including moratorium, if any.

SECURITY:
a.

For Sole Banking accounts: Extension of first charge on all fixed assets. For Consortium/Multiple Banking accounts: first charge on equipments acquired out of loan and collateral, if any, with the total security coverage being not less than 1.25.

b.

Grant from IREDA:

IRDEA, at present, gives a grant of Rs. 25,000/- for projects costing Rs. 1/crore or below to meet partial cost of Energy Audit. This grant is available for the first 100 projects (SME Sectors only) approved by them.

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Baroda Overdraft Against Land and Building

Baroda Overdraft against land and building is a unique product for financing working capital requirements/long term margin requirements of SME borrowers against the security of unencumbered land and building belonging to the unit or Promoters of the unit, or, close relatives of the promoters. PURPOSE:
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To provide hassle free credit to SME borrowers to meet working capital requirements/augment long term margin requirements.

ELIGIBILITY

All Enterprises, i.e. Micro, Small & Medium Enterprises, as defined under MSMED Act, 2006, and other entities with annual sales turnover of Rs. 1/crore to Rs. 150/- crores exclusively banking with our bank/new borrowers desirous of having sole banking arrangement with our bank.

LIMIT:

Minimum :Rs. 25.00 lacks(for Rural/Semi-Urban/Urban/Metro branches) Maximum: Rs. 50.00 lacks(for Rural branches) Rs. 200.00 lacks(for Semi-urban branches) Rs. 500.00 lacks(for Urban & Metro branches)

SECURITY: 1. Mortgage of factory land and building and/or any other property (Land & Building) belonging to the unit, promoters of the unit, or close relatives of the promoters, (viz. father, mother, wife, son and daughter only provided they stand as guarantors). Note: In case of residential/commercial building, age of property should not be more than 25 years at the time of sanction). 2. Personal guarantees of all Promoter Directors/owners of property. 3. Third party guarantee, if available. 4. Charge on unencumbered personal properties of the Promoter Directors, if available. 5. Hypothecation of stocks/book debts. MARGIN: 40% of the market value of property mortgaged (valuation of the property will be carried out by the value on banks approved panel/Government approved value) RATE OF INTEREST: For Micro & Small Enterprises in Manufacturing & Base rate plus
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Service Sector (As per Regulatory definition) For Medium Enterprises in Manufacturing & Service Sector (As per Regulatory definition) For other Enterprises, i.e. with annual sales turnover of Rs. 1/- crore to Rs.150/- crores. PERIOD: 12 months. OTHER FEATURES:

3.25% p.a. Base rate plus 4.00% p.a. Base rate plus 4.50% p.a.

Simplified assessment methods. Submission of stock/book debts statements on half yearly basis. Annual inspection of securities. Non-fund based facilities like LCs, Guarantees, allowed by earmarking Overdraft facility. Valuation of properties once in 3 years.

Prime Minister's Employment Generation Programme (PMEGP)

Prime Ministers Employment Generation Programme (PMEGP) is a credit linked subsidy programme administered by the Ministry of Micro, Small and Medium Enterprises, Government of India. Khadi & Village Industries Commission (KVIC), is the nodal agency at national level for implementation of the scheme. At
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state level the scheme is implemented through KVIC, KVIB and District Industries center. Objective:

To generate employment opportunities in rural as well as urban areas through setting up of self employment ventures. To provide continuous and sustainable employment to a large segment of traditional and prospective artisans and unemployed youth, so as to help arrest migration of rural youth to urban areas.

Scope:

The scheme is applicable to all viable (technically as well as economically) projects in rural as well as urban areas, under Micro enterprises sector. The maximum cost of the project admissible under manufacturing sector is Rs.25 lacks and business/services sector is RS.10 lakhs. Only one person from family is eligible for obtaining financial assistance under the scheme. Assistance under the Scheme is available only for new projects The assistance under the scheme will not be available to activities indicated in the negative list under the scheme.

Eligible Entrepreneurs / Borrowers:

Any individual, above 18 years of age The beneficiaries should have passed at least VIII standard, for setting up of project costing above Rs.10 lacks in the Manufacturing Sector and above Rs. 5 lacks in the business /Service Sector, Self Help Groups (including those belonging to BPL provided that they have not availed benefits under any other Scheme). Institutions registered under Societies Registration Act,1860 Production Co-operative Societies Charitable Trusts.

Note: Existing units (Under PMRY, REGP or any other scheme of Government of India or State Government) and the units that have already availed Government Subsidy under any other scheme of Government of India or State Government are not eligible.
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Selection of beneficiaries: The beneficiaries will be identified & selected at the district level by a Task Force consisting of representatives from KVIC/State KVIB/ State DICs and Banks and headed by the District Magistrate / Deputy Commissioner / Collector concerned. Subsidy Entitlement & Bank Finance: Subsidy from KVIC and the bank finance depends on the cost of project as per details given below: Bank finance Subsidy from KVIC Urban area General Category beneficiary / institution Special category beneficiary/institution 90% 95% 15% 25% Rural area 25% 35% Promoter's contribution 10% 5%

Rate of Interest: As applicable to MSE Sector. Repayment: 3 to 7 years with an initial moratorium not exceeding 6 (six) months. Security: 1. Assets created out of the bank's finance. 2. Personal guarantee of the proprietor / promoter. 3. No collateral security up to Rs. 5 lacks. 4. Eligible units will be covered under Credit Guarantee Fund scheme for Micro & small Enterprises CGMSE. (excluding Margin Money / subsidy component

Loans under Interest Subsidy Eligibility Certificate Scheme of Khadi & Village Industries Commission (KVIC-ISEC)

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Purpose
To finance institutional financing agencies for lending to Khadi & Village Industries

Eligibility
Institutional financing agencies Khadi & Village Industries Commission, State Khadi & Village Industries Boards, Registered Institutions, Cooperative Societies Subsidy Interest subsidy limited to the difference between the actual rate of interest charged by the Bank and 4% borne by the borrowers Note: Bank Finance Cell of KVIC will issue Interest Subsidy Eligibility Certificate. On the strength of these Certificates, the eligible institutions may negotiate with Bank for finance assistance. However, the final decision to accept or reject any loan to the eligible borrower is vested with the Bank. Claims should be commuted on the loan amount indicated in the ISEC or an actual availment whichever is less based on the day to day transactions.

Schemes for Professionals and Self Employed

Best suited for individuals conducting business independently, with or without hired labor. Enables them to purchase equipment (including PC for professional use), acquiring new or repair existing business premises, tools and working capital requirement.
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Key Benefits

Can be used for the purchase of any necessary equipment, like a personal computer (PC) for professional use. Repair and renovation of existing equipment. Acquisition and repairs to business premises, or tools. To generate working capital. All the accounts rated as A+ will be entitled for loans at a lower interest rate. Simple application procedures. Avail of loans at all branches of Bank of Baroda. To get a detailed list of all the Bank of Baroda branches, All complaints and grievances can be reported to the regional zone offices or directly to the Central office.

Small Roads and Water Transport Operators

This product is primarily targeted at Road Transport Operators who may be individuals or an association of not more than six individuals. Key Benefits

Assists in the purchase of any vehicle, such as:

o

Human driven like handcart, cycle rickshaw etc.

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o o

Animal driven like bullock cart, camel cart, Tonga, etc. Power driven like mechanized cycle rickshaw, auto-rickshaw, taxies, mini buses, tempos, trucks, & motor Lorries. Fishing boats, barges etc. to be used as public transport carrier for transport of goods or passengers.

Simple application procedures. Avail of loans at all branches of Bank of Baroda. To get a detailed list of all the Bank of Baroda branches. All complaints and grievances can be reported to the regional zone offices or directly to the Central office.

Scheme for Business Enterprises

This product is primarily for service providing business enterprises and not a professional services unit. Software development centers, X-Ray Clinics, Photographic Labs, Operators of Cable TV Networks, Crches, and Beauty Parlors can avail of facilities under this plan. Key Benefits

Loans can be availed of:

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o o o o o

For purchase of necessary equipment. For repairing or renovation of existing equipment. For acquiring or repairing business premises. For purchase of tools and For working capital requirements.

Simple application procedures. Avail of loans at all branches of Bank of Baroda. To get a detailed list of all the Bank of Baroda branches, All complaints and grievances can be reported to the regional zone offices or directly to the Central office.

Working Capital Finance

A firm's working capital is the money it has available to meet current obligations (those due in less than a year) and to acquire earning assets. Bank of Baroda offers corporations Working Capital Finance to meet their operating expenses, purchasing inventory, receivables financing, either by direct funding or by issuing letter of credit. Key Benefits

Funded facilities, i.e. the bank provides funding and assistance to actually purchase business assets or to meet business expenses.

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Non-Funded facilities, i.e. the bank can issue letters of credit or can give a guarantee on behalf of the customer to the suppliers, Government Departments for the procurement of goods and services on credit. Available in both Indian as well as Foreign currency.

Term Finance
Under Term Finance, Bank of Baroda, offers the following:

Fund Based Finance for capital expenditure / acquisition of fixed assets towards starting / expanding a business or industrial unit or to swap with high cost existing debt from other bank / financial institution. Non-Fund Based Finance in the form of Deferred Payment Guarantee for acquisition of fixed assets towards starting / expanding a business or industrial unit.

Conclusion:
SME is fast growing sector in the Indian Economy. Every Bank has given highest importance to financing SMEs in their strategically growth plan.

SMEs contribution to national GDP is projected to go up to by a minimum of 5% and touch 22% share of Indias GDP by 2012, since over 55% of SME aggressively upgrading themselves technologically to reduce their input costs and increase production and exports.

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The World Bank has approved 400 million dollar additional financing loan to the Small Industries Development Bank of India (SIDBI), which is aimed at improving access to finance for Small and Medium Enterprises (SMEs).

SMEs continue to be the thrust area for Government policies.

The growing economy and the tremendous market potential of the country augur well for the sustained growth of SMEs in the country. Panacea for employment and decentralized industrial development. With the enactment of MSME Act, the sector is all set to emerge as the most significant player in national economy. SIDBI as the apex institution will continue to play its key role in facilitating timely and adequate credit besides meeting the developmental needs of the sector.

BIBLIOGRAPHY
1) 2) 3) 4)

Ministry of Micro, Small And Medium Enterprises(www.msmse.gov.in) Reserve Bank of India Website (www.rbi.org.in). Bank of Baroda Website (www.bankofbaroda.com). Investment Information and Credit Rating Agency of India Limited (www.icra.in). Money Works For Me Website (www.moneyworks4me.com)

5)

6) Panvel Branch, Bank of Baroda.

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7)

First Post.Com (www.firstpost.com).

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