Description
The PPT explaining about how to finance the SME's.
“An industrial undertaking in which the investment in fixed assets in plant and machinery whether held on ownership terms on lease or on hire purchase does not exceed Rs.10 million.” w.e.f 21.12.1999
?
SMEs are defined most commonly only the following bases: Size of Employment and/or Quantum of capital investment/fixed assets.
In the ASEAN countries in general, the definition is restricted to SMEs in the manufacturing sector only, whereas in the OECD group, the definition is broadened to include all Small and Medium Enterprises.
?
Credit is the prime input to finance both long term and working capital requirement. Is a part of direct lending of commercial bank. Credit outstanding in past stands at 14.2%net bank credit
?
?
Thumb rule :20% of turnover as working capital.
SSI sectors are entitled for priority sector lending from nationalized Commercial Banking. Gap in the credit requirement
?
?
? ? ? ? ?
Economic Development Employment generation Equitable distribution of income Mobilization of capital and entrepreneurial skills Contribution to export earning
Indian Development regulation Act 1951 :Basic framework for postindependence industrialization strategy to a shift towards small scale industries (1991)
? ? ? ? ? ?
SSI is a non-homogenous sector The estimated working units in India is estimated to be 3.57million(2002). Employs 17 million people Accounts for 95% of industrial unit and 40% of total output. Export share is 35% 7% of GDP
? ?
SIDBI(Small Industries Development Bank Of India)
Apex Financial Institution for SSIs ? Major Objective is to reduce the risk perception of bank Launch of a credit guarantee scheme ,Credit Guarantee Fund Trust for Small industries (CGTSI) Reason for assistance: Setting up of new projects Expansion, diversification etc, Development of Infrastructure for SSIs
National Equity Fund Scheme Technology Development and Modernization Fund Scheme Single window Scheme Composite Loan Scheme Venture Capital Scheme ISO 9000 Scheme Micro Credit Scheme
?
Term Loans provided by : State Financial Corporations (SFCs), Small Industries Development Corporations (SIDCs), National Small Industries Corporation (NSIC) and National Bank for Agriculture and Rural Development (NABARD). Refinance by SIDBI
? ?
Lack of access to timely and adequate credit Abid Hussain Committee(1997)
Recommendation: 1. Restructuring of Financial support through State Financial Corporation(SFC) and SIDC(Securities Industrial Development Corporation). 2. Tapping of other sources of funding for SSEs, extending credit rating services to small units 3. Legislative measures for financing
a) Raised the investment limit SSIs from Rs.60 lakhs to Rs.300 lakhs and tiny units from Rs.5 lakhs to Rs.25 lakhs. ? Issued instructions that out of the funds normally available to SSI sector 40% :units with investment in plant and machinery up to Rs. 5 lakhs; 20%:units with investment between Rs. 5 lakhs to Rs.25 lakhs 40%: other units.
?
b) Public Sector to Operationalise more specialized branches c)Extend the ‘Single Window Scheme’ d) Accord benefits of lower spread over the prime lending rate. e)Delegate enhanced power to branch manager
?
Maximum Permissible bank finance(MPBF): Borrowers requirements are assessed based on the past practice/holding levels and the projections should reasonably conform to the past trends.
Applicable :
5crore >=(WC requirement of a SSI borrower) >50crore
Two Methods: I 75% of Working capital gap (Current asset –Current liabilities) financed by bank 25% contributed by borrower II 75% of gap(Current asset-Current liabilities) by MPBF 25% of current assets from Long term resources. Looks at the need of the borrower rather than his or her ability to repay. It is based on the average of operations but not on the fluctuation factor.
?
Cash Budget System: The working capital requirements are determined on the basis of the ‘Cash Gap’ after taking into account the monthly and quarterly projections of cash receipts and outflow.
The Budget provide following information: • Peak level of bank finance required • Current level of bank finance required • Borrower assessed deal in cyclical industries or availing working capital limits >=50 crore
?
Turnover method: Computed on the basis of a minimum of 20% of the projected annual turnover for new as well as existing units enjoying aggregate fund based working capital limit up to Rs. 500 lakh.
? ?
Established in 1991 To examine the aspects of adequacy and timeliness of credit to SSIs
Recommendations:
? SSI sector should obtain 20% of its annual projected turnover as
working capital. ? Setting up of specialized SSI branches ? Village industries and tiny industries with credit limits up to Rs. 1 lakh should have the first claim on priority sector credit to SSI ? Priority to those village/tiny industries while granting credit, which can use working capital efficiently; ? Should fully provide for the working capital requirements of all tiny units up to credit limits ranging from 1- 10 lakh. ? Should prepare budgets in respect of working capital required considering the health of the unit. ? Grievance redressal machinery
?
December, 1997, Reserve Bank of India has appointed a One-Man Committee under the Chairmanship of Shri S.L. Kapur, to suggest measures for improving the delivery system and simplification of procedures for credit to small scale industrial sector.
Recommendations: i) Special treatment to smaller units among small industries; ii) Enhancement in the quantum of composite loans; iii) Removal of procedural difficulties in the path of SSI advances;
iv) Sorting out issues relating to mortgages of land including removal of stamp duty and permitting equitable mortgages;
v) Allowing access to low-cost funds to Small Industries Development Bank of India (SIDBI) vi) Non-obtaining of collaterals for loans up to Rs.2 lakhs;
vii) Setting up of a collateral reserve fund viii) Setting up of a Small Industries Infrastructure Development Fund ix) Change in the definition of sick SSI units; x) Giving statutory powers to State Level Inter-Institutional (SLIIC); xi) Setting up of a separate guarantee organization and opening of 1,000 additional specialized branches; and xii) Enhancement of SIDBI's role and status to match with that of National Bank for Agriculture and Rural Development (NABARD). Kapur Committee has made 126 recommendations out of which RBI has already accepted 40 recommendations for implementation
? ?
The incidence of sickness in the small-scale sector has been a subject of great concern and debate. at least 3lakh units declared as sick and out of production, accounting for 10% of the recorded units.
Problems faced : 1. Bottlenecks: delay in granting loans, high cost of funds, delayed payments etc. • New time limit : fortnight upto 25,000 and 8-9 weeeks beyond that. • Reduction in ban rate and availability of floating rate loans 2.Delay in settlement of Dues: adversely affected the recycling of funds and business operation of SSI units. The Delayed Payment Act since amended in 1998 3. Marketing: some of the units are very small and so are their individual outputs. Some of the measures are:a) State to exempt from contract security e) Protection against restrictive and monopolistic trade practices c) Prompt payment measures 4.Sickness
? ?
The incidence of sickness in the small-scale sector has been a subject of great concern and debate. at least 3lakh units declared as sick and out of production, accounting for 10% of the recorded units.
Problems faced : 1. Bottlenecks: delay in granting loans, high cost of funds, delayed payments etc. • New time limit : fortnight upto 25,000 and 8-9 weeeks beyond that. • Reduction in ban rate and availability of floating rate loans 2.Delay in settlement of Dues: adversely affected the recycling of funds and business operation of SSI units. The Delayed Payment Act since amended in 1998 3. Marketing: some of the units are very small and so are their individual outputs. Some of the measures are:a) State to exempt from contract security e) Protection against restrictive and monopolistic trade practices c) Prompt payment measures 4.Sickness
?
Sick SSI Unit
• Borrowal Account – substandard-six months
• Erosion of net worth up to 50% • Effective from March 2002
?
Viability of Sick SSI Units
• Repayment Terms • Repays obligation within 5yrs of obtaining relief package • Repayment of Restructured Debts less than 7yrs • Tiny/Decentralized Sectors/units < 5 & 7 yrs
?
Rehabilitation Package
• Within 6 months
• Holding operation for 6 months
?
Relief & Concession
• Interest due on cash credits and term loans • Unadjusted Interest dues • Term Loans • Working Capital Term Loans • Cash Losses • Working Capital
• Contingency Loan Assistance
• Promoters Contribution
?
Causes of Sickness
• Limited Financial Resource
• Lack of organizational , Financial & Managerial Skills • Diversion of funds • Non Availability of Power Supply • Marketing Difficulties • Delayed & Inadequate Credit • Obsolete Technology • Globalization
?
Types of sickness
• Sickness at Birth
• Induced Sickness • Genuine Sickness
?
SIDBI Scheme
• Revival Committee(District Level , State Level , State Level Inter
Institutional) • Problems
? ? ? ?
? • • • •
Infrastructure Information Technology Credit
Institutional Support to SSI
SSI Board Small Industries Service Institute Product cum Process Development Centre Small Industries Development Bank of India? Direct Assistant Scheme ? Indirect Assistance Scheme ? Promotional & Development Activities ? Single Window Scheme
?
Infrastructural Support
• Industrial Parks
• Free Trade Areas • Export zones • Technology Development & Modernization Fund • National Equity Fund
?
Time Norms
• Loan Applications
? <=25000->1 week ? >25000 & <2 Lakh ->2weeks ? >2Lakh->9 weeks
? ?
Cash Margin from SSI borrowers Research Activities on Credit Related Policies Category Investment in Plant and Machinery Up to Rs.5 lakh % To total SSI advances 40
Cottage industries khadi and village industries artisans and tiny industries
– do –
Other SSI units
Rs.5 lakh - Rs.25 lakh Rs.25 lakh - Rs.100 lakh
20
40
doc_521564346.pptx
The PPT explaining about how to finance the SME's.
“An industrial undertaking in which the investment in fixed assets in plant and machinery whether held on ownership terms on lease or on hire purchase does not exceed Rs.10 million.” w.e.f 21.12.1999
?
SMEs are defined most commonly only the following bases: Size of Employment and/or Quantum of capital investment/fixed assets.
In the ASEAN countries in general, the definition is restricted to SMEs in the manufacturing sector only, whereas in the OECD group, the definition is broadened to include all Small and Medium Enterprises.
?
Credit is the prime input to finance both long term and working capital requirement. Is a part of direct lending of commercial bank. Credit outstanding in past stands at 14.2%net bank credit
?
?
Thumb rule :20% of turnover as working capital.
SSI sectors are entitled for priority sector lending from nationalized Commercial Banking. Gap in the credit requirement
?
?
? ? ? ? ?
Economic Development Employment generation Equitable distribution of income Mobilization of capital and entrepreneurial skills Contribution to export earning
Indian Development regulation Act 1951 :Basic framework for postindependence industrialization strategy to a shift towards small scale industries (1991)
? ? ? ? ? ?
SSI is a non-homogenous sector The estimated working units in India is estimated to be 3.57million(2002). Employs 17 million people Accounts for 95% of industrial unit and 40% of total output. Export share is 35% 7% of GDP
? ?
SIDBI(Small Industries Development Bank Of India)
Apex Financial Institution for SSIs ? Major Objective is to reduce the risk perception of bank Launch of a credit guarantee scheme ,Credit Guarantee Fund Trust for Small industries (CGTSI) Reason for assistance: Setting up of new projects Expansion, diversification etc, Development of Infrastructure for SSIs
National Equity Fund Scheme Technology Development and Modernization Fund Scheme Single window Scheme Composite Loan Scheme Venture Capital Scheme ISO 9000 Scheme Micro Credit Scheme
?
Term Loans provided by : State Financial Corporations (SFCs), Small Industries Development Corporations (SIDCs), National Small Industries Corporation (NSIC) and National Bank for Agriculture and Rural Development (NABARD). Refinance by SIDBI
? ?
Lack of access to timely and adequate credit Abid Hussain Committee(1997)
Recommendation: 1. Restructuring of Financial support through State Financial Corporation(SFC) and SIDC(Securities Industrial Development Corporation). 2. Tapping of other sources of funding for SSEs, extending credit rating services to small units 3. Legislative measures for financing
a) Raised the investment limit SSIs from Rs.60 lakhs to Rs.300 lakhs and tiny units from Rs.5 lakhs to Rs.25 lakhs. ? Issued instructions that out of the funds normally available to SSI sector 40% :units with investment in plant and machinery up to Rs. 5 lakhs; 20%:units with investment between Rs. 5 lakhs to Rs.25 lakhs 40%: other units.
?
b) Public Sector to Operationalise more specialized branches c)Extend the ‘Single Window Scheme’ d) Accord benefits of lower spread over the prime lending rate. e)Delegate enhanced power to branch manager
?
Maximum Permissible bank finance(MPBF): Borrowers requirements are assessed based on the past practice/holding levels and the projections should reasonably conform to the past trends.
Applicable :
5crore >=(WC requirement of a SSI borrower) >50crore
Two Methods: I 75% of Working capital gap (Current asset –Current liabilities) financed by bank 25% contributed by borrower II 75% of gap(Current asset-Current liabilities) by MPBF 25% of current assets from Long term resources. Looks at the need of the borrower rather than his or her ability to repay. It is based on the average of operations but not on the fluctuation factor.
?
Cash Budget System: The working capital requirements are determined on the basis of the ‘Cash Gap’ after taking into account the monthly and quarterly projections of cash receipts and outflow.
The Budget provide following information: • Peak level of bank finance required • Current level of bank finance required • Borrower assessed deal in cyclical industries or availing working capital limits >=50 crore
?
Turnover method: Computed on the basis of a minimum of 20% of the projected annual turnover for new as well as existing units enjoying aggregate fund based working capital limit up to Rs. 500 lakh.
? ?
Established in 1991 To examine the aspects of adequacy and timeliness of credit to SSIs
Recommendations:
? SSI sector should obtain 20% of its annual projected turnover as
working capital. ? Setting up of specialized SSI branches ? Village industries and tiny industries with credit limits up to Rs. 1 lakh should have the first claim on priority sector credit to SSI ? Priority to those village/tiny industries while granting credit, which can use working capital efficiently; ? Should fully provide for the working capital requirements of all tiny units up to credit limits ranging from 1- 10 lakh. ? Should prepare budgets in respect of working capital required considering the health of the unit. ? Grievance redressal machinery
?
December, 1997, Reserve Bank of India has appointed a One-Man Committee under the Chairmanship of Shri S.L. Kapur, to suggest measures for improving the delivery system and simplification of procedures for credit to small scale industrial sector.
Recommendations: i) Special treatment to smaller units among small industries; ii) Enhancement in the quantum of composite loans; iii) Removal of procedural difficulties in the path of SSI advances;
iv) Sorting out issues relating to mortgages of land including removal of stamp duty and permitting equitable mortgages;
v) Allowing access to low-cost funds to Small Industries Development Bank of India (SIDBI) vi) Non-obtaining of collaterals for loans up to Rs.2 lakhs;
vii) Setting up of a collateral reserve fund viii) Setting up of a Small Industries Infrastructure Development Fund ix) Change in the definition of sick SSI units; x) Giving statutory powers to State Level Inter-Institutional (SLIIC); xi) Setting up of a separate guarantee organization and opening of 1,000 additional specialized branches; and xii) Enhancement of SIDBI's role and status to match with that of National Bank for Agriculture and Rural Development (NABARD). Kapur Committee has made 126 recommendations out of which RBI has already accepted 40 recommendations for implementation
? ?
The incidence of sickness in the small-scale sector has been a subject of great concern and debate. at least 3lakh units declared as sick and out of production, accounting for 10% of the recorded units.
Problems faced : 1. Bottlenecks: delay in granting loans, high cost of funds, delayed payments etc. • New time limit : fortnight upto 25,000 and 8-9 weeeks beyond that. • Reduction in ban rate and availability of floating rate loans 2.Delay in settlement of Dues: adversely affected the recycling of funds and business operation of SSI units. The Delayed Payment Act since amended in 1998 3. Marketing: some of the units are very small and so are their individual outputs. Some of the measures are:a) State to exempt from contract security e) Protection against restrictive and monopolistic trade practices c) Prompt payment measures 4.Sickness
? ?
The incidence of sickness in the small-scale sector has been a subject of great concern and debate. at least 3lakh units declared as sick and out of production, accounting for 10% of the recorded units.
Problems faced : 1. Bottlenecks: delay in granting loans, high cost of funds, delayed payments etc. • New time limit : fortnight upto 25,000 and 8-9 weeeks beyond that. • Reduction in ban rate and availability of floating rate loans 2.Delay in settlement of Dues: adversely affected the recycling of funds and business operation of SSI units. The Delayed Payment Act since amended in 1998 3. Marketing: some of the units are very small and so are their individual outputs. Some of the measures are:a) State to exempt from contract security e) Protection against restrictive and monopolistic trade practices c) Prompt payment measures 4.Sickness
?
Sick SSI Unit
• Borrowal Account – substandard-six months
• Erosion of net worth up to 50% • Effective from March 2002
?
Viability of Sick SSI Units
• Repayment Terms • Repays obligation within 5yrs of obtaining relief package • Repayment of Restructured Debts less than 7yrs • Tiny/Decentralized Sectors/units < 5 & 7 yrs
?
Rehabilitation Package
• Within 6 months
• Holding operation for 6 months
?
Relief & Concession
• Interest due on cash credits and term loans • Unadjusted Interest dues • Term Loans • Working Capital Term Loans • Cash Losses • Working Capital
• Contingency Loan Assistance
• Promoters Contribution
?
Causes of Sickness
• Limited Financial Resource
• Lack of organizational , Financial & Managerial Skills • Diversion of funds • Non Availability of Power Supply • Marketing Difficulties • Delayed & Inadequate Credit • Obsolete Technology • Globalization
?
Types of sickness
• Sickness at Birth
• Induced Sickness • Genuine Sickness
?
SIDBI Scheme
• Revival Committee(District Level , State Level , State Level Inter
Institutional) • Problems
? ? ? ?
? • • • •
Infrastructure Information Technology Credit
Institutional Support to SSI
SSI Board Small Industries Service Institute Product cum Process Development Centre Small Industries Development Bank of India? Direct Assistant Scheme ? Indirect Assistance Scheme ? Promotional & Development Activities ? Single Window Scheme
?
Infrastructural Support
• Industrial Parks
• Free Trade Areas • Export zones • Technology Development & Modernization Fund • National Equity Fund
?
Time Norms
• Loan Applications
? <=25000->1 week ? >25000 & <2 Lakh ->2weeks ? >2Lakh->9 weeks
? ?
Cash Margin from SSI borrowers Research Activities on Credit Related Policies Category Investment in Plant and Machinery Up to Rs.5 lakh % To total SSI advances 40
Cottage industries khadi and village industries artisans and tiny industries
– do –
Other SSI units
Rs.5 lakh - Rs.25 lakh Rs.25 lakh - Rs.100 lakh
20
40
doc_521564346.pptx