INSTITUTE OF MANAGEMENT STUDIES,

BANARAS HINDU UNIVERSITY

TOPIC-MSME FINANCE

Prepared by-

Gauri Mittal

Roll No.

Enrolment No.

Institute of Management Studies,

Banaras Hindu University

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 ACKNOWLEDGEMENT
“It is not possible to prepare a project report without the assistance &
encouragement of other people. This one is certainly no exception.”

I take this opportunity to express my gratitude to my Reporting Deputy

General Manager, respected Mr. Shankar Dey, Zonal Manager Bank Of
India, Zonal Office Varanasi and mentors Dr. Ashutosh Mohan Sir &
Dr. Anindita Chakraborty Ma’am, who supported me throughout this
Summer Internship Project and helped me to make it a success. I am
thankful for their constant guidance, invaluably constructive criticism
and friendly advice during the project work. I am sincerely grateful to
them for sharing their views on a number of issues related to the project.
I express my warm thanks to all colleagues for sparing their precious
time to listen to the facts and findings of the study and enlightening me
on the subject.

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 DECLARATION

I the undersigned solemnly declare that the report of the project work
entitled “MSME Finance” is based on my own work carried out during
the course of my internship under the supervision of my Reporting
Deputy General Manager, respected Mr. Shankar Dey, Zonal Manager
Bank Of India, Zonal Office Varanasi and mentors Dr. Ashutosh Mohan
Sir & Dr. Anindita Chakraborty Ma’am, I assert that statements made
and the conclusions drawn are an outcome of the project work. I further
declare to the best of my knowledge and belief that the project does not
contain any part of any work which has been submitted for the award of
any other degree/diploma/certificate in any university.

(Signature)

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 CERTIFICATE BY MENTOR
“MSME Finance is a work carried out by Miss. Gauri Mittal. The
project report is submitted towards the course of Summer Internship for
fulfillment of the two year, full time ‘Master of Business
Administration’ of Institute of Management Studies, Banaras Hindu
University Varanasi.

Dr. Ashutosh Mohan & Dr.

Anindita Chakraborty
Institute of Management Studies
Banaras Hindu University

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 Introduction

India is not only the world’s largest independent democracy, but also an
emerging economic giant. Without a sound and effective banking
system, no country can have a healthy economy. Banks play a vital role
in the economic development of a country. They accumulate the idle
savings of the people and make them available for investment. They also
create new demand deposits in the process of granting loans and
purchasing investment securities. They facilitate trade both inside and
outside the country by accepting and discounting of bills of exchange.
Banks also increase the mobility of capital. Technological innovation
affects not just banking and financial services, but also the economy and
its capability for continued growth. Today, the banking sector is one of
the biggest service sectors in India. Following a transition from a
product to a customer-centric business model, traditional banks are
trying to reach out to the rural masses and penetrate the non-banking
segment. The success of non-banking financial companies (NBFCs),
payment banks and microfinance companies due to latent credit
demands and increased consumption in the last few years has proved
that there is value for financial services companies in investing in the
rural population. Availability of quality services is vital for the well-
being of the economy. Indian Banking sector supports the world’s
fastest-growing large economy but is grappling with challenges that test
its strength and resilience. Banking sector has to become both more
strategically focused and technologically advanced so as to respond to
consumer expectations while trying to defend market share against an
increasing array of competitors.

Banking in India: An Overview

As per the Reserve Bank of India (RBI), India’s banking sector is

sufficiently capitalised and well-regulated. The financial and economic
conditions in the country are far superior to any other country in the
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world. Credit, market and liquidity risk studies suggest that Indian banks
are generally resilient and have withstood the global downturn well.
Indian banking industry has recently witnessed the roll out of innovative
banking models like payments and small finance banks. RBI’s new
measures may go a long way in helping the restructuring of the domestic
banking industry.
The digital payments system in India has evolved the most among 25
countries with India’s Immediate Payment Service (IMPS) being the
only system at level five in the Faster Payments Innovation Index (FPII).

Market Size
 The Indian banking system consists of:
o 18 public sector banks
o 22 private sector banks
o 46 foreign banks, 53 regional rural banks
o 1,542 urban cooperative banks and 94,384 rural cooperative
banks as of September 2019.
 During FY07–19, deposits grew at a CAGR of 11.11 per cent and
reached US$ 1.86 trillion by FY19. Deposits as of Feb 2020, stood
at Rs 132.35 lakh crore (US$ 1,893.77 billion).
 The total equity funding of microfinance sector grew at the rate of
42 year-on-year to Rs 14,206 crore (US$ 2.03 billion) in 2018-19.

Investments/developments

Key investments and developments in India’s banking industry include:

 In February 2020, The Cabinet Committee on Economic Affairs

has given its approval for continuation of the process of
recapitalization of Regional Rural Banks (RRBs) by providing
minimum regulatory capital to RRBs for another year beyond
2019-20, that is, up to 2020-21 for those RRBs which are unable to
maintain minimum Capital to Risk weighted Assets Ratio (CRAR)
of 9 per cent, as per the regulatory norms prescribed by the
Reserve Bank of India.
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  In October 2019, the Department of Post launched the mobile
banking facility for all post office savings account holders of the
CBS (core banking solutions) post office.
 Deposits under Pradhan Mantri Jan Dhan Yojana (PMJDY) stood
at Rs 1.06 lakh crore (US$ 15.17 billion
 In October 2019, Government e-Marketplace (GeM) signed a
Memorandum of Understanding (MoU) with Union Bank of India
to facilitate a cashless, paperless and transparent payment system
for an array of services.
 Transactions through Unified Payments Interface (UPI) stood at
1.32 billion in February 2020 worth Rs 2,21,995 crore (US$ 31.76
billion).
 In August 2019, the government announced the major mergers of
public sector banks which included United Bank of India and
Oriental Bank of Commerce to be merged with Punjab National
Bank, Allahabad Bank will be amalgamated with Indian Bank and
Andhra Bank and Corporation Bank will be consolidated with
Union Bank of India.
 The NPAs (Non-Performing Assets) of commercial banks has
recorded a recovery of Rs 400,000 crore (US$ 57.23 billion) in last
four years including record recovery of Rs 156,746 crore (US$
22.42 billion) in FY19.
 The board of Allahabad bank approved the merger with Indian
bank for the consolidation of 10 state-run banks into the large-scale
lenders.
 As of September 2018, the Government of India launched India
Post Payments Bank (IPPB) and has opened branches across 650
districts to achieve the objective of financial inclusion.
 The total value of mergers and acquisition during 2017 in NBFC
diversified financial services and banking was US$ 2,564 billion,
US$ 103 million and US$ 79 million respectively @.
 The total equity funding's of microfinance sector grew at the rate
of 42 year-on-year to Rs 14,206 crore (US$ 2.03 billion) in 2018-
19.

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Government Initiatives

 As per Union Budget 2019-20, the government has proposed fully

automated GST refund module and an electronic invoice system
that will eliminate the need for a separate e-way bill.
 Under the Budget 2019-20, government has proposed Rs 70,000
crore (US$ 10.2 billion) to the public sector bank.
 Government has smoothly carried out consolidation, reducing the
number of Public Sector Banks by eight.
 As of September 2018, the Government of India has made the
Pradhan Mantri Jan Dhan Yojana (PMJDY) scheme an open-ended
scheme and has also added more incentives.
 The Government of India is planning to inject Rs 42,000 crore
(US$ 5.99 billion) in the public sector banks by March 2019 and
will infuse the next tranche of recapitalisation by mid-December
2018.

Achievements

Following are the achievements of the government:

 As on March 31, 2019 the number of debit and credit cards issued
were 925 million and 47 million, respectively.
 As per RBI, as of February 14, 2020, India recorded foreign
exchange reserves of approximately US$ 476.09 billion
 India ranks among the top seventh economies with a GDP of US$
2.73 trillion in 2018 and economy is forecasted to grow at 7.3 per
cent in 2018.
 To improve infrastructure in villages, 204,000 Point of Sale (PoS)
terminals have been sanctioned from the Financial Inclusion Fund
by National Bank for Agriculture & Rural Development
(NABARD).
 The number of total bank accounts opened under Pradhan Mantri
Jan Dhan Yojana (PMJDY) reached 373.4 million accounts were
opened (as of August 2019).
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Road Ahead

 Enhanced spending on infrastructure, speedy implementation of

projects and continuation of reforms are expected to provide
further impetus to growth. All these factors suggest that India’s
banking sector is also poised for robust growth as the rapidly
growing business would turn to banks for their credit needs.

 Also, the advancements in technology have brought the mobile and

internet banking services to the fore. The banking sector is laying
greater emphasis on providing improved services to their clients
and also upgrading their technology infrastructure, in order to
enhance the customer’s overall experience as well as give banks a
competitive edge. As per Economic Survey 2018-19, working age
population to grow by 9.7 million per year during 2021-31 and 4.2
million per year during 2031-41.

 India’s digital lending stood at US$ 75 billion in FY18 and is

estimated to reach US$ 1 trillion by FY2023 driven by the five-
fold increase in the digital disbursements.

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 What is MSME? – An Introduction

MSME stands for Micro, Small, and Medium Enterprises. In accordance

with the Micro, Small, and Medium Enterprises Development
(MSMED) Act in 2006, the enterprises are classified into two divisions.

1. Manufacturing enterprises – engaged in the manufacturing or

production of goods in any industry

2. Service enterprises – engaged in providing or rendering services.

What type of business comes under MSME?

1. Companies in the Manufacturing Sector- Enterprises involved in
the manufacturing or production of goods for an industry listed in the
first schedule of the Industries (Development and Regulation) Act,
1951 are included within the scope of MSME meaning.

Also, enterprises employing plant & machinery to add value to a

finished product that results in a distinct name, use or character, come
within the purview of micro small and medium enterprises meaning.

Based on their annual turnover, enterprises are classified under the

following sub-categories.
 

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 o Micro enterprises – Companies whose annual turnover does not
exceed Rs.25 lakh.

o Small enterprises – Companies whose annual turnover is between

Rs.25 lakh and Rs.5 crore.

o Medium enterprises – Companies whose annual turnover is

between Rs.5 crore and Rs.10 crore.
 

2. Companies in the Service Sector -The MSME full form also

extends to enterprises in the service sector. The sub-categorization of
companies in the service sector based on their annual turnover is as
follows.
o Micro enterprises – Companies whose annual turnover is
within Rs.10 lakh.

o Small enterprises – Companies whose annual turnover ranges

from Rs.10 lakh to Rs.2 crore.

o Medium enterprises – Companies whose annual turnover

ranges from Rs.2 crore to Rs.5 crore.

The new MSME definition (May 2020)

On 13th May, Wednesday, the center officially revised the MSME

definition.

In October 2019, Union Minister Nitin Gadkari had said that the revised
definition of micro, small, and medium enterprises may grant a unified
description for all things related to taxation, investment, and more.

The changed definition was to be implemented via an amendment that

would further refine the business scenario for Indian enterprises. The
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Union Cabinet had approved the amendment to change the criteria to
classify MSMEs from “investment in plant and machinery” to “annual
turnover.”

On 13th May 2020, Finance Minister NirmalaSitharaman added the

additional principle of turnover along with the investment.

MSME definition – why the change?

As Finance Minister Nirmala Sitharaman made the announcement about

the change, she also addressed the reasons behind it. She said the new
definition will bring about many benefits that will aid MSMEs to grow
in size.

This was made under Atmanirbhar Bharat Abhiyaan Economic

Package to assuage India’s economic predicament amidst the pandemic.

Combined with all previous economic stimulus efforts, the total amount
of the relief package comes to a whopping Rs. 20 lakh crore.

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Benefits of Having MSME Registration-
 The Credit Guarantee Fund Scheme for Micro and Small
Enterprises (CGS) was launched by the Government of India to
make available collateral-free credit to the micro and small
enterprise sector. Both the existing and the new enterprises are
eligible to be covered under the scheme. The Ministry of Micro,
Small and Medium Enterprises, Government of India and Small
Industries Development Bank of India (SIDBI), established a Trust
named Credit Guarantee Fund Trust for Micro and Small
Enterprises (CGTMSE) to implement the Credit Guarantee Fund
Scheme for Micro and Small Enterprises.

 Reservation of items for exclusive manufacture in SSI sector

statutorily provided for in the Industries (Development and
Regulation) Act, 1951, has been one of the important policy
measures for promoting this sector.
The Reservation Policy has two objectives- Ensure increased
production of consumer goods in the small scale sector
Expand employment opportunities through setting up of small
scale industries.

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  It has made very easy for enterprises that are having MSME
Certificate to obtain Licenses, approvals and registrations on any
field for their business from the respective authorities as they can
produce the Certificate of MSME Registration while making
application.

 Under the International Cooperation Scheme, financial assistance

is provided on reimbursement basis to the State/Central
Government organizations, industries/enterprises Associations and
registered societies/trusts and organizations associated with MSME
for deputation of MSME business delegation to other countries for
exploring new areas of MSMEs, participation by Indian MSMEs in
international exhibitions, trade fairs, buyer seller meet and for
holding international conference and seminars which are in the
interest of MSME sectors.

 The scheme of refund of octroi provided under the Package

Scheme of Incentives, 1993 will be included in the new Scheme up
to 31-3-2006 on the same pattern. Where account-based cess or
other levy is charged instead of or in lieu of octroi, such change
will also be eligible for refund as in the case of octroi.

 At present, IT units in public IT Parks are exempted from stamp

Duty and Registration fees upto 31st March 2006. Now all new
industrial units having MSME Registration and expansions will be
exempted from payment of Stamp Duty and Registration fees.

 Enterprises that have MSME Registration can enjoy Direct Tax

Exemption in the initial year of business, as mention in the scheme
by Government and depending on business activity.

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  Enterprises that have MSME Registration can avail Bar Code
Registration subsidy as mentioned in the scheme.

 Enterprises that have MSME Registration can avail Subsidy on

NSIC Performance and Credit ratings as mentioned in the scheme.

 Enterprises that have MSME Registration are eligible for Industrial

Promotion Subsidy (IPS) as mentioned in the scheme.

 Enterprises that have MSME Registration are eligible for Counter

Guarantee from Government of India through CGSTI.

 The Ministry of Micro, Small and Medium Enterprises gives

protection to MSME Registered Business against delay in
payments from Buyers and right of interest on delayed payment
through conciliation and arbitration and settlement of dispute be
done in minimum time. If any micro or small enterprise that has
MSME registration, supplies any goods or services, then the buyer
is required to make payment on or before the date agreed upon
between the buyer and the micro or small enterprise. In case there
is no payment date on the agreement, then the buyer is required to
make payment within fifteen days of acceptance of good or
services. Further, in any case, a payment due to a micro or small
enterprise cannot exceed forty-five days from the day of
acceptance or the day of deemed acceptance. In case of failure by
the buyer to make payment on time, the buyer is required to pay
compound interest with monthly interest rests to the supplier on
that amount from the agreed date of payment or fifteen days of
acceptance of goods or service. The penal interest chargeable for

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 delayed payment to a MSME enterprise is three times of the bank
rate notified by the Reserve Bank of India.

 The rate of Interest for enterprise that has MSME registration are
lower as compare to other enterprises. Certain targets are set for
banks’ lending to the Micro and Small Enterprises. The banks’
have to achieve a 20% growth in credit to micro and small
enterprises and 10% annual growth in the number of micro
enterprises accounts and 60% of total lending to Micro and Small
Enterprises sector. The banks have to follow the following:

1. 40% of the total advances must go to micro and small

enterprises involved in manufacturing having investment in plant
and machinery up to Rs.10 lakh and for service enterprises having
investment in equipment up to Rs.4 lakh.

2. 20% of the total advance to micro and small enterprises should

go to manufacturing enterprises that have above Rs.10 lakh till
Rs.25 lakh investment in the plant and machinery and for service
enterprises that have investments in equipment above Rs.4 lakh.

3. To simplify, 60% of the advances must go to micro enterprises.

 The Ministry of Micro, Small and Medium Enterprises is operating

a scheme namely “Credit Linked CGSTI Subsidy Scheme
(CLCSS) for technology upgradation of Micro and Small
Enterprises. The scheme was launched in October-2000 and
revised from 29.9.2005. The revised scheme aims at facilitating
technology upgradation of Micro and Small Enterprises (MSEs) by
providing 15% capital subsidy (limited to maximum Rs.15 lakhs)

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 for purchase of Plant & Machinery. Maximum limit of eligible
loan for calculation of subsidy under the scheme is Rs.100 lakhs.
Presently, more than 1500 well established/improved technologies
under 51 sub-sectors have been approved under the Scheme.

 The Ministry of Micro, Small and Medium Enterprises gives

following benefits to enterprises that has MSME Registration
while making application for Government Tenders:

1. Issue of tender sets free of cost

2. Exemption from payment of Earnest Money

3. Waiver of Security Deposit upto the Monetary Limit for which

at the unit is registered.

 Enterprises that have MSME Registration Certificate can avail

Concession on electricity bill by making application to electricity
department along with MSME Registration Certificate.

 Enterprises that have MSME Registration can enjoy Excise

Exemption in the initial year of business, as mention in the Excise
Exemption scheme by Government and depending on business
activity.

 Enterprises that have MSME Registration can avail 15% weightage

in price Preference as mentioned.

 Enterprises that have MSME Registration can avail benefit of 1%

exemption on interest rate on OD as mentioned in the scheme.

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  Enterprises that have MSME Registration Certificate can avail
50% 50% subsidy for patent registration by making application to
respective authority.

Registration Process-
Aadhar number is now compulsory for registering under MSME act. An
application is to be filed online using UdyogAadhar Registration, and
this can be verified using e-Aadhar OTP.

Provisional registration is given in the initial five years if an entity

hasn’t started its business yet. During this period, it can obtain loans
from banks, and apply for various NOCs from regulatory bodies. Once
the entity commences its operations, it can apply for a permanent license
which has a lifetime validity, unless canceled.

Documents Required
The entity has to submit business address proof, copies of purchase and
sale bill, and licenses from regulatory bodies.

a. Business Address Proof

If the premise is self-owned– Allotment letter, possession letter, lease
deed or property tax receipt. If there is a municipal license in the
business name or in the name of the proprietor, partner or director of the
business, no other possession document is required to be submitted.

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If the premise is rented– Rent receipt and a no objection certificate from
the landlord is required. Also, any utility bill or document evidencing the
landlord’s ownership is to be submitted.

b. Copies of Sale Bill and Purchase Bill

Business is required to submit copy of sale bill related to each end
product that it will supply. Also, for each raw material that it will
purchase, a purchase bill has to be submitted.

c. Partnership Deed/ MoA and AoA

If the business is a partnership firm, it has to submit its partnership deed.
If the partnership firm is registered, it has to submit registration
certificate also.
In case of a company, copy of Memorandum of Association and Articles
of Association, and certificate of incorporation has to be submitted. With
it, copy of the resolution passed in general meeting, and a copy of board
resolution authorizing a director to sign the MSME application is also to
be submitted.    

d. Copy of Licenses and Bills of Machinery Purchased

In few cases, the applicant has to submit a copy of industrial license
which is to be obtained by giving an application to Govt. of India.
Further, all bills and receipts related to purchase and installation of plant
and machinery have to be kept safe and required to be submitted on
demand. 

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MSME in India-

The value of Micro Small and Medium Enterprises (MSME) related

products exported during 2017-18 reached $124.4 Bn as per data
received from the Directorate General of Commercial Intelligence and
Statistics (DGCIS).

Total Number of MSMEs registered on UdyogAadhar Memorandum

(UAM) – 6.8 mn (updated upto June-2019)
 Micro – 60,32,100
 Small – 7,28,516
 Medium – 28,611

States with the highest number of MSMEs:

 Maharashtra – 11,04,189
 Bihar – 8,29,694
 Tamil Nadu – 7,91,288
 Uttar Pradesh – 7,06,342
 Madhya Pradesh – 6,45,077
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 UNION BUDGET (2019-20) PROVISIONS

The government has taken several measures to strengthen the Medium,

Small and Micro Enterprises (MSMEs). The highlights of the budget
2019-20 for the Ministry of MSME are as follows:

 An allocation of $1 Bn.
 $50.1 Mn has been allocated under the ‘Interest Subvention
Scheme for Incremental Credit to MSMEs’. This will provide
funding for the 2% rebate on incremental loans up to INR 1 crore
for GST-registered MSME units.

 $85.4 Mn is being provided under the Credit Support Program,

which will ensure seamless credit guarantee to small and medium
enterprises.

 20 large and 100 small Technology Centers are being set up with a
support of $858.12 Mn.

 These technology centers are being set up in the continuation of

the 12 initiatives announced in November 2018.5 These initiatives
are expected to help grow, expand and facilitate MSMEs across the
country.

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COVID-19 special relief to benefit MSME in India

 Collateral free loan of INR 3 trillion (US$39.84 billion) for

MSMEs with a turnover up to INR 1 billion (US$13.24 million).
This will benefit 4.5 million units so that they can resume work
and save jobs. This scheme can be availed till October 31, 2020.

 For stressed MSMEs, subordinate debt provision of INR 200

billion (US$2.65 billion) has been announced for 200,000
MSMEs. 

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  Equity infusion worth INR 500 billion (US$6.6 billion) through
special fund for MSMES that have viable operations but need
handholding due to COVID-19. 

 A fund of funds with corpus of INR 100 billion (US$1.3 billion)

will be set aside to assist the capacity expansion of these units,
including enabling them to get listed on the market should they
choose that. 

 Global tenders not allowed for government procurement of up to

INR 2 billion (US$26.5 million).

 To compensate for cancelled trade fairs, the Indian government

will set up online market linkages.
 A reduction of 25 percent on the Tax Deducted at Source (TDS)
and Tax Collected at Source (TCS) from May 14, 2020 to March
31, 2021. 

 The deadline for all income tax return filings will be extended
from July 31, 2020 to November 30, 2020. 

 The Vivaad se Vishwas scheme, addressing disputes on indirect tax

payments, has been extended till December 31, 2020. 

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 What is FINANCE? – An Introduction
Finance is defined in numerous ways by different groups of people.
Though it is difficult to give a perfect definition of Finance following
selected statements will help you deduce its broad meaning.

In General sense,
"Finance is the management of money and other valuables, which can be
easily converted into cash."

According to Experts,
"Finance is a simple task of providing the necessary funds (money)
required by the business of entities like companies, firms, individuals
and others on the terms that are most favourable to achieve their
economic objectives."

According to Entrepreneurs,
"Finance is concerned with cash. It is so, since, every business
transaction involves cash directly or indirectly."

According to Academicians,
"Finance is the procurement (to get, obtain) of funds and effective
(properly planned) utilisation of funds. It also deals with profits that
adequately compensate for the cost and risks borne by the business."

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1. Investment Opportunities
In Finance, Investment can be explained as anutilization of money for
profit or returns.
Investment can be done by:-
Creating physical assets with the money (such as development of land,
acquiring commercial assets, etc.),
Carrying on business activities (like manufacturing, trading, etc.),
andAcquiring financial securities (such as shares, bonds, units of mutual
funds, etc.).
Investment opportunities are commitments of monetary resources at
different times with an expectation of economic returns in the future.

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2. Profitable Opportunities
In Finance, Profitable opportunities are considered as an important
aspiration (goal).
Profitable opportunities signify that the firm must utilize its available
resources most efficiently under the conditions of cut-throat competitive
markets.
Profitable opportunities shall be a vision. It shall not result in short-term
profits at the expense of long-term gains.
For example, business carried on with non-compliance of law, unethical
ways of acquiring the business, etc., usually may result in huge short-
term profits but may also hinder the smooth possibility of long-term
gains and survival of business in the future.

3. Optimal Mix of Funds

Finance is concerned with the best optimal mix of funds in order to
obtain the desired and determined results respectively.
Primarily, funds are of two types, namely,
Owned funds (Promoter Contribution, Equity shares, etc.), and
Borrowed funds (Bank Loan, Bank overdraft, Debentures, etc).
The composition of funds should be such that it shall not result in loss of
profits to the Entrepreneurs (Promoters) and must recover the cost of
business units effectively and efficiently.

4. System of Internal Controls

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Finance is concerned with internal controls maintained in the
organization or workplace.
Internal controls are set of rules and regulations framed at the inception
stage of the organization, and they are altered as per the requirement of
its business.
However, these rules and regulations are monitored at various intervals
to accomplish the same which have been consistently followed.

5. Future Decision Making

Finance is concerned with the future decision of the organization.
A "Good Finance” is an indicator of growth and good returns. This is
possible only with the good analytical decision of the organization.
However, the decision shall be framed by giving more emphasis on the
present and future perspective (economic conditions) respectively.

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 MSME FINANCE

Indian economy thrives through the means of enterprise creation as one

of the prime movers of the economy. In this direction, “Make in India
and Made in India” movement is integral to entrepreneurship
development across the country. Therefore, Micro, Small and Medium
Enterprises (MSMEs) play a vital role for strengthening the Indian
economy.

MSMEs have been contributing to spreading entrepreneurial culture

through business innovations. Unique feature of MSMEs is that they are
widely dispersed across sectors of economy producing diverse range of
products and services to meet local as well as global markets. Needless
to mention that the contribution of MSME is 8 per cent of GDP, 45 per
cent of manufacturing output and 40 per cent of exports of the country
and uniquely they are least investment driven with high returns.
Employment creation is next to agriculture, thus MSME sector has
potential of tapping individuals to associate with economic activities by
way of self-employment.
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One of the priorities of the Government is the inclusive concept in
enterprise creation. In this endeavor, this compilation would benefit all
those entrepreneurs including first generation, women, scheduled tribes,
scheduled castes, handicapped, ex-servicemen, marginalized
communities, etc., for enabling them in creating enterprises.

Ministry of MSME has a number of schemes and programs to help and

assist entrepreneurs’ especially small businesses.

MSME loans are loans offered by several financial institutions to meet

various business related expenses on credit. Such loans come with
specific eligibility criteria which the applicant needs to meet. MSME
loans are defined by the Indian Government and RBI as loans for
business enterprises for support in terms of finance, infrastructure and
other areas.The principal point was to encourage a stream of credit to
MSME area without the requirement for insurance or any outsider
certification. The target of the plan is to offer significance to the venture
practicality and secure the credit office on the benefit that is being
financed.

The Government of India provides Micro, Small and Medium

Enterprises(MSME) loans to individuals who are looking for loans to
invest money on small enterprises without pledging any collateral. This
scheme provides funding assistance to banks and other financial
institutions so that they in turn can lend collateral free credit to MSMEs.
The objective of this scheme is to provide loans of up to Rs. 100 lakhs
without collateral or a third-party guarantee.
The scheme provides term loans and/or working capital extended by
many lending institutions to old or new micro and small enterprises. The
credit facility or loan should be borrowed by only a single institution.
Other eligibility criteria depend upon the banks or NBFCs policies. The
guarantee cover under the scheme is for the agreed repayment period of
29 | P a g e
the term loan. For individuals who have availed for a working capital,
the guarantee cover is of 5 years or block of 5 years.
Business loans are availed by enterprises so that they can fund their
various needs like buying machinery, raw material or other
requirements. Working capital loans are availed to fund a company’s
financial needs on a daily basis. MSME schemes can provide small to
medium sized businesses with the funds they need for their businesses to
grow!
Businesses must meet specific eligibility criteria mentioned under the
schemes to enjoy the benefits extended by an MSME loan.
After what is MSME loan, also know that loans for MSMEs (Micro,
Small and Medium Enterprises) come with variable tenor, making these
advances conveniently affordable.Available at affordable interest rates,
the loan can be repaid in easy EMIs over the tenor. The government lays
down specific criteria for a business’s classification as an SME or
MSME. Below are the specified conditions for MSME loans.

The Government of India has provided various schemes for MSME

Finance. Some of which are mentioned hereunder-

30 | P a g e
CGTMSE (Credit Guarantee Funds Trust for
Micro and Small Enterprises)-

CGTMSE (Credit Guarantee Funds Trust for Micro and Small

Enterprises) was introduced to establish a strong credit relief system and
promote a better credit flow for the MSME sector. Under the CGTMSE
scheme, the loan is backed without any external collateral or third party
guarantee.

Here, the MSME loan sanctioned by the Member Lending Institution

(MLI) is backed by the scheme which provides the guarantee cover for a
large portion of the loan amount. Under CGTMSE scheme, both new
and existing medium, small, and micro enterprises, including service
enterprises are eligible for a maximum credit cap of Rs. 2 crore.
31 | P a g e
CGTMSE also offers rehabilitation assistance to the units. Any MSME
unit that is in a bad condition due to the factors beyond the control of
management is supported by the CGTMSE rehabilitation assistance.
The maximum credit cap of Rs. 1 crore is offered to the dilapidated
MSME units.

Eligibility of CGTMSE Scheme

CGTMSE scheme is offered to various institutions which are as follows:

 Scheduled Commercial Banks

 Regional Rural Banks (RRBs)
 National Small Industries Corporation (NSIC)
 North Eastern Development Finance Corporation (NEDFi)
 Small Industries Development Bank of India (SIDBI)

CGTMSE scheme aids all new and existing medium, small, and micro
enterprise borrowers who fulfil the conditions mentioned below:

 The trust guarantees up to 75% of the defaulted principal amount

for all categories and up to 85% of the defaulted principal amount
for selected category of borrowers. The maximum guarantee cap is
kept at Rs. 62.50 lakh / Rs. 65 lakh for the credit facilities up to Rs.
50 lakh.

 Associated charges such as penal interest, commitment charge, and

service charge including any other levy / expenses are not covered
by the scheme

 Small and micro enterprises owned and / or operated by women

are also eligible for a guarantee cover of 80% and all the
credit/loans in the North East Region (NER) for credit facilities are
eligible for a guarantee of Rs. 40 lakh. Other aspects such as retail
trade, educational institutions, agriculture, training institutions, and
self-help groups (SHGs) are not eligible for guarantee cover under
the scheme.

32 | P a g e
 Mudra Bank Schemes-

The primary product of Pradhan Mantri Mudra Yojana will be refinance

for lending to micro businesses and units. The 2015 Budget has
proposed the creation of Micro Units Development Refinance Agency
(MUDRA) Bank, with a corpus of Rs.20, 000 crores, and credit
guarantee corpus of Rs.3,000crores.
Nature of Assistance- The primary product of MUDRAwill be
refinance for lending to micro businesses / units under the aegis of the
PradhanMantri MUDRAYojana. The initial products and schemes under
this umbrella have already been created and the interventions have been
named ‘Shishu’, ‘Kishor’ and ‘Tarun’ to signify the stage of growth /
development and funding needs of the beneficiary micro unit /
entrepreneur as also provide a reference point for the next phase of
graduation / growth for the entrepreneur to aspire for:

 Shishu : covering loans up to Rs. 50,000/-

 Kishor : covering loans above Rs. 50,000/- and uptoRs. 5 lakh
 Tarun : covering loans above Rs. 5 lakh and uptoRs. 10 lakh

33 | P a g e
Who can apply- Businesses/entrepreneurs/units covered would include
proprietorship/partnership firms running as small manufacturing units,
shopkeepers, fruits/vegetable sellers, hair cutting salons beauty parlours,
transporters, truck operators, hawkers, co-operatives or body of
individuals, food service units, repair shops, machine operators, small
industries, artisans, food processors, self-help groups, professionals and
service providers etc. in rural and urban areas with financing
requirements up-to Rs.10 lakhs.

Theproductsinitiallybeinglaunched are as under:

• Sector/activity specific schemes, such as schemes for business
activities in Land Transport, Community, Social & Personal
Services, Food Product and Textile Product sectors. Schemes
would similarly be added for other sectors / activities.
• Micro Credit Scheme (MCS)
• Refinance Scheme for Regional Rural Banks (RRBs) /
Scheduled Co-operative Banks.
• MahilaUddyami Scheme
• Business Loan for Traders & Shopkeepers
• Missing Middle Credit Scheme
• Equipment Finance for Micro Units MUDRA would also
adopt a credit plus approach and take up interventions for
development support across the entire spectrum of beneficiary
segments. The highlights of such proposed interventions /
initiatives are as under:
• Supporting financial literacy
• Promotion and Support of Grass Root Institutions
• Creation of Framework for “Small Business Finance Entities”
• Synergies with National Rural Livelihoods Mission
• Synergies with National Skill Development Corporation

34 | P a g e
 • Working with Credit Bureaus
• Working with Rating Agencies

How to apply- Application by eligible individuals and institutions

can be sent to the Nodal Officer of the respective regions. The details of
the Nodal officer can be found at http://www.mudra.org.in/ Nodal-
Officers-MUDRA.pdf.

SIDBI Schemes-

 Growth Capital and Equity Assistance

Description - Providing capital to MSMEs to invest in marketing,
brand building, creation of distribution network, know-how, R&D,
etc.

Nature of assistance- Assistance in the form of mezzanine/

convertible instruments, subordinated debt and equity.

35 | P a g e
 Who can apply-MSMEs

How to apply- Online enquiry

 Refinance for Small Road Transport Operators (SRTOS)

Description - Cost of chassis, body, initial taxes, insurance,

working capital, for new vehicles only.

Nature of assistance- Re-financing.

Who can apply - Small road transport operators.

How to apply- Through SFCs, SIDCs, banks.

 General Refinance

Description - Setting up MSEs, or expansion, modernization,

diversification, etc.

Nature of assistance - Financial assistance

Who can apply - All forms of MSEs

How to apply - Apply to SFCs/SIDCs/banks

 Refinance for Textile Industry under Technology Upgradation

Fund (RTUF)

Description - Installation of machinery in a new unit, or replacing

the existing machinery, or for expansion.

Nature of assistance - Re-financing

36 | P a g e
 Who can apply - Textile industries

How to apply - Apply to SFCs/SIDCs/banks

 Acquisition of ISO Series Certification by MSE Units

Description - On the basis of procedural expenses and instruments

required, loan to be determined.

Nature of assistance - Financial support for ISO certification

Who can apply - MSEs with two years performance and not in
default

How to apply - Apply to SFCs/SIDCs/banks

 Composite Loan

Description - Assistance for equipment and/or working capital as

also for work sheds.

Nature of assistance - Loan, not exceeding Rs.25 lakh

Who can apply - Artisans,micro-units,village andcottage industries

How to apply - Apply to SFCs/SIDCs/banks

 Single Window

Description - Provides term loans for fixed assets and loan for
working capital

Nature of assistance - Loans for fixed assets and working capital

37 | P a g e
 Who can apply - New projects in MSE sector

How to apply - Apply to SFCs/SIDCs/banks

 Rehabilitation of Sick Industrial Units

Description - Provides assistance to sick units

Nature of assistance - Assistance for rehabilitation of potentially

viable sick MSEs

Who can apply - Potentially viable MSEs, cottage and village units

How to apply - Apply to SFCs/SIDCs/banks

 Development of Industrial Infrastructure forMSME Sector

Description - Setting up of industrial estates/ development of

industrial areas, including such projects found eligible under the
KVIC model

Nature of assistance - Financial support for industrial infrastructure

Who can apply Promoters ofindustrialinfrastructure

How to apply - Apply to SFCs/SIDCs/banks

 Integrated Infrastructural Development (IID)

Description - Improving infrastructure facilities for MSEs

Nature of assistance - Ceiling on project cost is Rs.500 lakh; cost

in excess of Rs.500 lakh may be met by the State/UT Government

Who can apply - Public sector corporations, NGOs

38 | P a g e
 How to apply - Apply to SFCs/SIDCs/banks

 Bills Re-discounting Equipment

Description - Deferred payment for setting up of new MSME units;

for expansion, diversification, modernisation, replacement,
addition of balancing equipment, etc.

Nature of assistance - Usance of bills; normally 2-5 years

Who can apply - Manufacturer - sellers / purchaser - users of

indigenous machinery / capital equipment, one of whom should be
in the small scale sector

How to apply - In the prescribed proforma issued by SIDBI.

 Bills Re-discounting - Equipment (Inland Supply Bills)

Description - Bills on MSME supplies already discounted by

buyer/seller re-discounted with SIDBI

Nature of assistance - Unexpired usance - not more than 90 days

Who can apply - MSME suppliers

How to apply - Apply to scheduled commercial banks

39 | P a g e
NABARD Schemes-

 ProducerOrganizations DevelopmentFund (PODF)

Description - Credit facilities for production, aggregation,

processing, marketing, etc.

Nature of assistance - Fund assistance to credit support, capacity

building and market linkage organizations

Who can apply - Marketing federations/corporations/ cooperatives

How to apply - Apply to banks

 Dairy Venture Capital Fund

Description - Milch animals

Nature of assistance - 50% of the outlay as interest free loan

Who can apply - Individuals

How to apply - Apply through banks

40 | P a g e
  Establishing Poultry Estates and Mother Units forRural
Backyard Poultry

Description - Assistance for poultry development in every form

Nature of assistance - For unit of 1,500 chicks per batch: Rs.1.36

lakh

Who can apply -Individuals

How to apply - Apply through banks

 Establishment/Modernization of Rural Slaughterhouses

Description - Subsidy based creditlinkforruralslaughterhouses

Nature of assistance - 50% of the total financial outlay as capital

subsidy
Who can apply - Organizations, partnership firms, NGOs and
entrepreneurs

How to apply - Apply to banks

 Commercial Production Units of Organic Inputs

Description - For vegetable market waste based compost,

fertilizers and pesticides production

Nature of assistance - Subsidy @ 25% of the capital cost of the

project

Who can apply - Individuals

How to apply -Apply to banks

41 | P a g e
  Poultry Venture Capital Fund

Description - To encourage poultry farming in non-traditional

states, and to provide employment opportunities in backward areas

Nature of assistance - 25% of outlay as back ended capital subsidy,

10% margin, rest bank loan

Who can apply - Farmers, NGOs, cooperatives, SHGs, etc.

How to apply -Visit DAHD website

 Credit Linked Capital Subsidy (CLCS)

Description - The scheme is meant for technology up-gradation of

Micro & Small Enterprises.

Nature of assistance -Technology up-gradation of MSEs in the

specified products/sub-sectors by way of induction of well-
established and improved technologies approved under the scheme
for which capital subsidy is extended by the government.

Who can apply - SMEs.

How to apply - Need to apply through cooperative banks, RRBs’;

and commercial banks.

 SwarozgarCredit Card

Description - This scheme provides adequate, timely and

uninterrupted credit, i.e., working capital including consumption
needs and/or block capital requirements from the banking system
in a flexible, hassle free and cost effective manner. The scheme is
implemented through rural banks.

42 | P a g e
 Nature of assistance - Working capital including consumption
needs and/or block capital.

Who can apply - Small artisans, Handloom weavers and other self-
employed persons including Micro - entrepreneurs, SHGs, etc.

How to apply - Apply to nearest Rural Banks.

 NABARD Warehousing scheme

Description - Reserve Bank of India (RBI) issued guidelines for

creation of ‘Warehouse Infrastructure Fund’ (WIF) in NABARD.
With a view to operationalising the WIF, NABARD has
formulated a scheme viz., NABARD Warehousing Scheme
(NWS), which envisages extension of loans to Public and Private
Sectors for construction of warehouses, silos, cold storages and
other cold chain infrastructure. Funds under this scheme would be
utilized for meeting the growing demand for storage capacity for
agricultural commodities in the entire country and also in the wake
of enactment of National Food Security Act, 2013.

Nature of assistance - Loans will be provided for projects

involving creation of storage infrastructure, with a minimum
capacity of 5,000 MT, for agricultural and allied produce including
construction of warehouses, silos & cold storage. Priority will be
given for the projects proposed in the eastern & north-eastern and
food grain deficit states.

Who can apply - Agencies owned/ sponsored by State/Central

Govt, Panchayati Raj institutions, cooperatives (and their
Federations), Farmers ProducersOrganisations (FPOs), Federations
of Farmers Collectives, Apex marketing boards, Private
Companies, Individual Entrepreneurs.

43 | P a g e
 How to apply - Loans will be provided in respect of only those
storage projects, which not only conform to the norms laid down
by the Warehousing Development and Regulatory Authority
(WDRA), but also give an undertaking for obtaining
accreditation/registration from WDRA on completion of the
Infrastructure.

Documents required for MSME loans

General documents required for MSME loans-

When applying for an MSME loan, the required documents

normally include KYC documents, entity documents and financial
statements. Here is a list that can serve as a general MSME loan
document checklist.

44 | P a g e
  Identity proof: PAN card, Aadhar card, driving license, passport,
voter’s ID, etc.

 Address proof:Aadhar Card, Ration card, electricity bill, lease

agreement, trade license, etc.

 Financial documents: Last two years ITR, Audited Balance

Sheets and Profit and Loss statements (if any), Estimated and
Projected Financial Statements, last 6 months’ bank statements,
etc.

 Business proof: Registration certificate, memorandum and articles

of association, other certificates of business’ existence.

Specific documents as per your business type

The documents required for MSME loans that you need to produce
differ as per business type.

 Sole proprietorships: Registration certificate, ITR or another

proof of business identity. In case you are a Self-Employed
Professional (SEP), you should produce proofs of your
qualification. For self-Employed Non-Professionals (SENP) like
retailers and traders, proof of business suffices.

 Companies: Certificate of incorporation, memorandum of

association, articles of association.

 Partnership firms: Registration certificate, partnership deed.

 Private limited companies: Registration certificate, articles and

memorandum of association.
45 | P a g e
 PSB Loans in 59 Minutes

On 2nd November 2018, PM Narendra Modi announced a small Diwali

Gift for the MSMEs (Micro, Small and Medium Enterprises) in India.
The government of India introduced a quick business loan portal for the
individuals who wish to expand their existing business. Under this
scheme MSMEs can get loan amount from Rs. 1 Lakh to Rs. 5 Crore in
less than 59 minutes from public and private sector banks and Non-
Banking Financial Companies (NBFCs).
PSB Loans in 59 minutes is an online marketplace, which enables the
business individuals to apply for Business Loan at an interest rate
of 8.50% onwards. This initiative was taken to ease the MSME
Business and promote self-employed business model in India by
reducing the loan approval process and long queues at the bank. PSB
Loans in 59 minutes aims at approving the business loan in 59 minutes

46 | P a g e
thus reducing it significantly from a long 30 day process and expected to
be disbursed in 7-8 working days, if approved.

Eligibility Criteria:

For the Business which already exist the borrower should be GST, IT
compliant and should have Six Months Bank Statement. The Loan
Eligibility will be determined on the following factors:

 Income/Revenue
 Repayment Capacity of the Borrower
 Existing credit facilities
 Other factors set by the Financial Lender

Features and Benefits:

 Loan Amount starting from Rs 1 Lakh to Rs 5 Crore: PSB

Loans in 59 minutes helps in providing loan amount starting from
Rs 1 Lakh to Rs 5 Crore to all the business individuals so any
business requirement small or big can be met easily with the
mentioned loan amount.

 Rate of Interest: The rate of interest for PSB Loans in 59 minutes

starts from 8.50% onwards.

 Minimal Documentation: With PSB Loans in 59 minutes, the

entire process of a Small Business Loan for MSMEs is expected to
become super quick and hassle free that too with minimal
documentation.

 Advanced Technology Backed Loans: PSB Loans in 59 minutes

processes the loans without human intervention till the stage of
47 | P a g e
 sanction or the disbursement. The analysis process is done from
the various sources of the loan applicant’s financial profile.

 Apply at Multiple Banks: PSB Loans in 59 minutes provides a

convenient process for the loan applicants who can apply for a
Small Business Loans at multiple times in one go.

 Safe and Secure: The platform understands the safety of the

information given by the Loan Applicants. The entire data of the
applicants is safe and secure with the highest level of security

 Integration with Govt. Facilities: PSB Loans in 59 minutes is

integrated with the latest facilities like Income Tax
Return, GST, Bank statement so it helps in decision making of the
loan application

48 | P a g e
 Details of the Loan
GST Details Details of Income Tax
Required

Details of Proprietorship/
Partners/ Director And E-KYC Documents of the
Last 6 months’ Bank Loan Applicant
Statement in PDF Format

Loan Applicant with existing business can apply for small business
loan with the following documents:

 GST Details: GST Identification Number (GSTIN) and GST User

Name

 Details of Income Tax: Latest 3 years’ ITR in XML format

 Last 6 months’ Bank Statement in PDF Format: The Loan

Applicant can upload Bank Statement for maximum 3 bank
accounts on the portal. It is preferable to upload the Bank
Statement having the major bank activities

 Details of the Loan Required

 Details of Proprietorship/ Partners/ Director

 E-KYC Documents of the Loan Applicant

49 | P a g e
 DATA COLLECTION AND ANALYSIS OF
VARANASI BANK LTD*.
*The name of the Bank and the data reported are hypothetical.

 AGE LIMIT OF THE CLIENTS

50 | P a g e
 It was found that 76% of the surveyed clients are between 30-50
years. For SME banking in India, it would be risky to provide
loans above 60 aged clients Figure : Age limit of the clients
40

35

30

25

20

15

10

0
Category 1 Category 2 Category 3

 EDUCATIONAL QUALIFICATION OF THE CLIENTS

In the survey, it was found that most of the proprietors are H.S.C
pass. In India, a common perception about the SME customers is
that they are educationally not much advanced. The result of the
surveyed clients also reflects that perception.

51 | P a g e
 Educational Qualification
Below SSC SSC High School Graduation

4% 8%

14%

34%

40%

 DIFFERENT CATEGORIES OF BUSINESS

In the survey, it was found that trading concern is the major
portion of the interviewed SME proprietors. 80% of the proprietors
run the trading business while manufacturing percentage is 16%
and service only 4%. In terms of the business sectors, textile &
fabrics is the leading business type (38%). The others plastic and
retail products( 18%), paper and book (4%), engineering works
(4%), furniture and wood products (8%), agro business (14%), iron
and steel (8%) and electronics (6%).

Business Type
4%

16%
Manufacturing
Trading
Serivces

80%

52 | P a g e
 Business Sector

18%

Plastic and Retail

40% 4% Paper and Books
Textiles ad Fabrics
Others

38%

 BUSINESS EXPERIENCE OF THE PROPRIETORS

It was found that the maximum portion of the sample lies in the
range of 5-10 years (22), the second highest is 10-15 years (10).
That means most of the proprietors are quite experienced in their
line of business.
25

20

15

10

0
<5 5-10 yr 10-15 yr 15-20 yr More than 20

53 | P a g e
  MAJOR USE OF THE SME LOAN
It is observed that the loan is mostly used for purchasing raw
materials. 58% respondents agreed that the most use of this loan is
for purchase of raw materials. Salary and daily expense (28%) is
second most used purpose of the loan. Paying the creditors is
another use of the loan. 14% respondents agreed to the fact.

Use of Loan
8%
14%

Pay Creditors
Salary and Daily Expenses
Raw Materials purchase
Other
28%

50%

 WAITING PERIOD BETWEEN LOAN APPLICATION AND

SANCTION

Customers were asked how much time they had to wait for the loan
to disburse. Most of the respondents (48%) said that it took less
than 1 (one) month between loan application and sanction. 24%
respondents said that it took around 1 month to get the loan. 18%
respondents said that it took between 1 to 2 months and 10%
replied that it took more than 2 months to get the loan.

54 | P a g e
 Waiting Period
1%

15%

Less than 1 Month

Around 1 Month
1-2 Month
48% More than 2 Months

36%

 SATISFACTION LEVEL ON THE SERVICE OF

VARANASI BANK LTD.

The respondents were given 5 levels of satisfaction starting from

Highly Satisfied to Highly dissatisfied. In response, 8 respondents
gave their opinion that they are highly satisfied, 24 are satisfied, 3
are neutral, 9 are dissatisfied and 6 are highly dissatisfied with the
SME services
30

25

20

15

10

0
Highly Satisfied Satisfied Neutral Dissatisfied Highly Dissatisfied

55 | P a g e
 DETERMINATION OF PROBLEMS FACED BY BANK-

SME bankers revealed some problems or risks that bank faces in

SME management. Problems or risks associated with SME loans
for bank are as follows:

1. Limited opportunity to offer flexible repayment options for

private loan borrowers prior to default: Currently, Varanasi
Bank has this type of problems for the term SME loan facilities.
The borrowers become defaulter if they fail to pay 3 installments
in a row and if they face some problems VARANASI BANK
authorities find it hard to provide the flexible repayment options to
them.

2. Confusion with borrowing terms and conditions: According

to the bank officials, another problem with the client is the
confusion with the borrowing terms and conditions. Most of the
SME proprietors are not experienced in transacting with banks and
for this reasons they are not easy to handle. Managing them is a bit
problematic for the bankers due to this reason.

3. Inaccurate information regarding the borrower: The CIB

(Credit Information Bureau) is the base for the information of the
prospective clients of the bank. Currently the bankers are facing
constant challenge due to inaccuracy in the CIB report of the
borrowers. Problems are created when classified loans are not
mentioned in the CIB report and the classified borrowers get the
loans.

56 | P a g e
 4. Collateral Risk: Risks with collateral means that whether the
collateral is under possession of the owner, whether the collateral
is the correct property shown by the borrower etc. This type of
problem is very common case in Bangladesh and maximum loans
become irregular or default due to this problem.

5. Risks with Documentation: Applying SME loans from the

banks with fake or faulty documents is a common thing for the
borrowers. In order to ensure safety lending, banks must ensure the
originality of the documents related to the mortgaged properties.

6. Moral Hazard: Even when loans are made to the SMEs, it may
so happen that the owners of these SMEs take higher risks than
they otherwise would without lending support from the banks.

7. Unsecured Lending: Unsecured loans consist of maximum

portion of the total SME portfolio. In this type of lending, personal
guarantee of the proprietor and his/her relative or some other
persons is considered as the main security. But when the borrower
fails to repay the loan, the bank faces difficulty in recovering that
because personal guarantee is not sufficient for lawsuit and other
legal steps. 8. Monitoring Activity: In most of the cases, lack of
proper monitoring of the SME loans causes default loans. Most
SME loans are term loans and that is why the officers have to
monitor closely the monthly repayments.

LOANS AND ADVANCE POSITION OF VARANASI BANK

LTD
Varanasi Bank Ltd. is currently poised among the top ranked banks
in Uttar Pradesh. Their relentless endeavor to succeed leads them

57 | P a g e
 to enhance their loan portfolio each and every year. From the
figure it can be observed that, the total advance increased from
2015 to 2019.
6000

5000

4000

3000

2000

1000

0
2015 2016 2017 2018 2019

PERFORMANCE OF VARANASI BANK LTD IN SME SECTOR

As a third generation bank, Varanasi Bank Ltd is continuously
trying to increase it's loan portfolio in various sectors. In SME,
they are also trying to increase it.

Advance in Recent Years

800
700
704.42
600 628.89
500 Advance in Recent Years
505.13
400
300
200
212.17
100 127.75
0
2015 2016 2017 2018 2019

58 | P a g e
 PERCENTAGE OF SME LOAN TO TOTAL LOAN OF
VARANASI BANK
Varanasi Bank has been one of the top private banks in financial
sector. Over the last few years the management is trying hard to
enhance the SME exposure. The portion of SME Loan over the last
few years reflects the fact. From the figure, it can be observed that
the disbursed SME loan increased from the last year in 2015 and
2019.
7000

6000

5000

4000
Total Loan
3000 SME Loan

2000

1000

0
2009 2010 2011 2012

 SWOT ANALYSIS OF SME DIVISION OF VARANASI

BANK LTD.
The SWOT Analysis on VARANASI BANK's SME division is
presented below: Strengths
1. Dynamic Human Resource
2. Countrywide distribution network and coverage
3. Continuous development in creating innovative products
4. Fast Loan approval process and monitoring

59 | P a g e
 5. Skilled risk management system

Weakness
1. VARANASI BANK is yet to establish itself as a brand
2. SME Loan portfolio lacks sectoral diversification
3. Customer perception about the Bank or it's service is
not satisfactory
Opportunities
1. New geographic territories for SME operation
2. Workshops and trainings for the SME Officers
3. Management of the Bank is giving priorities to
enlarge the SME Loan exposure for less
4. provisioning than the traditional CC Loans Offering
lower interest rate than other banks can give and
edge to VARANASI BANK SME
5. Raising the customer service can help VARANASI
BANK attract more SME customers.

Threats
1. Current market of SME is too competitive and
VARANASI BANK might lose a big portion of
it's prospective clients to other banks and NBFIs.
2. Current political situation is too vulnerable and
the proprietors are currently reluctant in availing
SME loans.
3. Lack of proper monitoring for SME loans might
become a threat for Bank's overall performance
in the long run
4. Global Market recession

60 | P a g e
 FINDINGS
From The data collection the following things are found:

1. VARANASI BANK SME authority should carefully choose the

proprietors while disbursing the SME loan. Because overly aged persons
cannot pay the SME loans. The maximum age limit for taking any SME
loan program is 60 years according to VARANASI BANK SME policy.

2. Inexperienced proprietors are not encouraged to gain the SME loans.

From the data, it was found that most of the proprietors have 5-10 years
of experience who are currently getting the SME loan.

3. Most of the interviewed proprietors use this SME loan for purchasing
raw materials. The other major use of the SME loan is for meeting salary
and daily expenses.

4. Most of the proprietors (48%) said that it took less than 1(one) month
between loan application and sanction. 24% proprietors said that it took
around 1 month to get the loan. That means VARANASI BANK SME is
serving the clients quite well in terms of granting SME loans.

5. According to the proprietors those who apply for the loan,

VARANASI BANK SME service should be more attractive in time
length between loan applications and loan payment. Inexperienced
marketing force is also the negative thing to discourage the proprietors
to the loans. This means that the VARANASI BANK Management
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should make some proper steps to organize the whole SME marketing
and disbursement process for better results.

6. After taking the loans from VARANASI BANK, some proprietors

said that they are either highly satisfied or just satisfied with the SME
loan of Varanasi Bank Ltd. It means that more than 60% of the
proprietors think that the service level of Varanasi Bank Ltd is quite
good and it’s also quite satisfactory to the clients.

7. The problems or risks regarding SME loans for the bankers are like
flexible repayment options for borrowers, confusion with borrowing
terms and conditions, wrong information, risks with guarantee,
documentation risk, moral hazard problems with unsecured loans,
monitoring activity etc.

8. Compared to other banks (public and private)Varanasi Bank Ltd has

not been successful in increasing their SME Portfolio over the years, but
the growth they are showing is good.

9. SME market is highly competitive and VARANASI BANK might

lose a big portion of its future client portion to the other banks, but
VARANASI BANK has a strong human resource and experienced SME
team which can help the bank achieve the future targets successfully.

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 RECOMMENDATIONS
For achieving the best possible targets, the bank should take following
some steps. These can be-

1. Regular checking of the SME portfolio should be made more

successful

2. Interest rate of SME should be made more competitive in order to

expand the SME portfolio

3. Loan documentation process needs to be more effective in order to

reduce guarantee risk and loan default

4. VARANASI BANK authority should provide adequate training to

their SME officers so for that they can get new SME clients and also
credit analysts should be recruited to reduce pressure on existing
employees

5. The banking industry is extremely competitive and continuously

changing. Competitor banks are introducing new products and services
and taking new actions to manage SME risk. So, VARANASI BANK
should put more time and money in developing new SME products

6. All possible information should be preserved at head office about the

borrowers.

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 CONCLUSION
As a third generation private commercial bank, Varanasi Bank Ltd. has a
good possibility to be a leading bank in the economy of Bangladesh. To
achieve that, they need to find out the areas where they can expand. In
recent years, their performance in SME sector compared to other banks
is not so much satisfactory, but they showed a regular growth from 2015
to 2019. This means that they have the possibility to be one of the best
banks in SME sector. SME is a successful sector in Bangladesh which
can be important for all the banks in the near future. All the banks are
always trying to maximize their SME collection. That is why, to keep up
with other banks in Bangladesh, Varanasi Bank Ltd. It need to know the
problems of the future SME clients and try to find the best possible way
which will make good connection with their new clients and achieve
their goals.

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 BIBLIOGRAPHY
1. https://www.bankofindia.co.in/

2. https://www.investopedia.com/

3. https://www.wikipedia.org

4. https://www.msme.gov.in/

5. https://www.udyogaadhaar.gov.in

6. https://www.dcmsme.gov.in/

7. https://www.makeinindia.com/

8. https://msme.gov.in/sites/default/files/MSME_Schemes_English_0.pdf

9. UNION BUDGET (2019-20)

10. https://www.cleartax.in/

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