FINANACIAL SME

8/6/2019 FINANACIAL SME

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A

Project report on

Finance to SMEsAt

State Bank of India

As a part of partial fulfillment of thecurriculum of MBA-I

Submitted

By

Utpal MankadRoll no.-21

To

AES Post Graduate Institute ofBusiness Management,

Ahmedabad


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PREFACE

Today is an era of competition. Existence in todays dynamic world

requires some doing. Skills of different kinds are required to excel

in ones corporate career. Mere studying theories, models and

definitions will not help in the day-to-day functioning. The practical

application of the theory is required. And for management

students, it is must.

So the industrial training from the practical study point of view is

very important for MBA student.

Every year First year MBA students have to undergo industrial

training as per the curriculum of Gujarat University before enteringinto the second year of MBA Course.

Industrial training makes a student enough aware of how, where,

when and up to what extent theoretical knowledge can be used to

solve problems in practice etc.

In MBA, students study the management and administration of

business and get knowledge about handling of the routine

operations and decision-making. Since, there is a vast difference

between theoretical knowledge and practical implication this

training helps the individual to know what he or she is supposed to

do when entering into the corporate world.


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AKNOWLEDGEMENT

I am heartily thankful to the GUJARAT UNIVERSITY, which has

given me the golden opportunity to under go the industrial summer

training and a chance to prepare the project report of an industry

after taking the training for a period of 2 months.

I am also thankful to the authorities and the staff of STATE BANK

OF INDIA Regional Business Office, Main Branch and Commercial

Branch for spending their valuable time in giving me the summer

training and for giving me all the information and suitable guidance

whenever I required.

I am heartily thankful to all the faculty members without whoseguidance and support this work would have been an impossible

task to complete. Their inspiration and encouragement has led me

to get through the task successfully.

I would be failing my duty, if I will not mention my family and

friends for the help and encouragement provided by them.


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TABLE OF CONTENTS

Sr. No. Particulars Page

No.1 Executive Summary 01

2 Objective of Study 02

3 Scope Of Study 03

4 Introduction to SBI 04

5 Introduction to SME sector 07

6 Finance to SME sector 10

7 Procedure of financing SMEs at SBI 14

8 Services provided to SMEs 15

9 Research Methodology 18

10 Introduction to the industrial areas of Rajkot 21

11 Charts and their interpretations 25

12 Findings 35

13 SWOT analysis 37

14 Suggestions \ Recommendations 42

15 Limitation Of Study 43

16 Conclusion 44

17 Bibliography 45

18 Glossary 46

19 Annexure 47


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EXECUTIVE SUMMARY

SME sector in India and especially in Gujarat is getting the

momentum and is spreading its wings across the globe in terms of

growth. It has a vital role to play in the development of the Indian

economy as a whole. SMEs contribute in the fields of increased

production, export promotion and employment generation.

State Bank of India, the largest Indian bank has realized the

importance and potential of the SME sector. Though it is putting

lots of efforts in financing to SMEs, it has a long way to go.

Speeding up the marketing efforts in the industrial areas of Rajkot

will definitely prove to be fruitful in the years to come.

In the dynamic era of growing globalization and service sector, fine

tuning the services will help SBI tremendously.

The marketing efforts implemented through this project have

helped State Bank of India in earning the business of 18 Crores.


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OBJECTIVE OF THE STUDY

The main objective of preparing this report and conducting thesurvey is to know about the procedure of financing SMEs and

finding out the probable reasons of association and non-

association of SMEs located at Rajkot city, with SBI whereby

persuading the SMEs to take the finance from SBI.

Moreover, the study was undertaken with the secondary objectives

of knowing the perceptions of the industrialists of SMEs about SBI

and finding out the current bankers for SMEs and services

provided by them so as to improve the services of SBI.


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SCOPE OF THE PROJECT

The project has been carried out under the State Bank of India,Rajkot. So, the study is limited to the Rajkot city only.

The study has been confined to the industrial area visited, as all

the industrial areas were not covered due to time constraint. In

total, 350 SMEs have been surveyed from two industrial areas

visited, namely; GIDC (Lodhika) Industrial Estate and GIDC AJI

Vasahat.

The study is limited to the convenient sample taken for the survey.

The analysis is based upon the responses and information given

by the respondents.


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INTRODUCTION TO SBI

This project report has been prepared based on the information

collected during the summer training taken with STATE BANK OF

INDIA.

SBI is a world-class nationalized bank. It is considered as one of

the best bank through out the nation. The Gujarat head office of

SBI is situated at Ahmedabad.

SBI is Indias largest bank and currently ranks amongst Asia's top

20 commercial banks. With over 9500 branches in India , 54

foreign offices in 28 countries and advanced technology at

fingertips, State Bank of India is one of the most extensive

commercial bank networks worldwide. SBI is a one-stop shop

providing financial products and services of a wide range for large,medium and small customers, both domestic and international.

Core Banking:

The Core Banking Solution provides the state-of-the art anywhere

anytime banking for the customers. The facility is available at 2704

branches of SBI covering 49% of the Banks business at 612centers and at all the 4715 branches of the Associate Banks

covering 100% of their business at 2341 centers.

HISTORY AND DEVELOPMENT

The origin of the State Bank of India goes back to the first decade

of the nineteenth century with the establishment of the Bank of

Calcutta in Calcutta on 2nd June, 1806.


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Three years later, the bank received its charter and was re-

designed as the Bank of Bengal (2nd January, 1809). A unique

institution, it was the first joint-stock bank of British India

sponsored by the Government of Bengal. The Bank of Bombay

(15th April, 1840) and the Bank of Madras (1st July, 1843) followed

the Bank of Bengal.

These three banks remained at the apex of modern banking in

India till their amalgamation as the Imperial Bank of India on 27 th

January, 1921. When India attained freedom, the Imperial Bank

had a capital base (including reserves) of Rs.11.85 crores,

deposits and advances of Rs.275.14 crores and Rs.72.94 crores

respectively with the network of 172 branches and more than 200

sub offices extending all over the country.

In 1951, when the First Five Year Plan was launched, the

development of rural India was given the highest priority. Thecommercial banks of the country including the Imperial Bank of

India had till then confined their operations to the urban sector and

were not equipped to respond to the emergent needs of economic

regeneration of the rural areas.

In order, therefore, to serve the economy in general and the rural

sector in particular, the All India Rural Credit Survey Committee

recommended the creation of a state-partnered and state-

sponsored bank by taking over the Imperial Bank of India, and

integrating with it, the former state-owned or state-associate

banks.


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An act was accordingly passed in Parliament in May, 1955 and the

State Bank of India was constituted on 1st July, 1955. More than a

quarter of the resources of the Indian banking system thus passed

under the direct control of the State. Later, the State Bank of India

(Subsidiary Banks) Act was passed in 1959, enabling the State

Bank of India to take over eight former State-associated banks as

its subsidiaries (later named Associates).

The State Bank of India was thus born with a new sense of social

purpose aided by the 480 offices comprising branches, sub offices

and three Local Head Offices inherited from the Imperial Bank.

The concept of banking as mere repositories of the community's

savings and lenders to creditworthy parties was soon to give way

to the concept of purposeful banking sub serving the growing and

diversified financial needs of planned economic development.

The State Bank of India was destined to act as the pacesetter inthis respect and lead the Indian banking system into the exciting

field of national development. SBI is a one stop shop providing

financial products / services of a wide range for large, medium and

small customers both domestic and international.

State Bank of India's linkages with Government business, are

widespread. No wonder that out of 9500 branches in India, about

7200 branches are conducting Government business. The large

network of our branches provides easy access to the common

man to deposit their Government dues such as Income Tax,

Corporation Tax, Central Excise and Customs Duty, etc.


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INTRODUCTION TO SMEs

Small and Medium Enterprises or SMEs refer to the companies

whose headcounts or turnover falls below certain limit. The

abbreviation SME started commonly being used in EU and other

international organizations such as the World Bank, United

Nations, and WTO.

Definition of SME:

There is no universal definition of small and medium enterprises.

In some countries, there are certain objective standards, which

classify the units as micro, small or medium enterprises depending

on the number of employees. In some other countries, annual

turnover of the company determines the size of an enterprise. The

concept of size is also a relative phenomenon with reference to the

local economies, since a large company in a small country could

possibly be considered as a small company in a larger country.

In India, the small-scale industry has been conventionally defined

in terms of the quantum of investment. Globally, the sector has

had more flexibility and has been termed the Small and MediumEnterprise or SME sector. Certain parameters tend to characterize

them: the entities are likely to be unquoted; ownership of the

business is restricted to few individuals, typically a family group;

and they are micro to medium sized businesses that have an

objective larger than self-employment.


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Over the years, the process of graduation of several SSI units into

medium enterprises has been witnessed. Therefore, the Working

Group on Flow of Credit to SSI Sector, appointed by the Reserve

Bank of India, recommended for the creation of a separate

category of Medium Enterprises (ME). While Medium Enterprise

may not qualify for priority sector lending, they must be seen as

closest with SSI.

As per the recommendation of Working Group on Flow of Credit to

SSI Sector, Small and Medium Enterprises (SME) comprising oftiny, small and medium enterprises are defined as follows:

(A) Tiny Industries: Turnover being up to the financial limit of

Rs.2 crores.

(B)Small Industries: Turnover being above Rs. 2 crores butless than Rs. 10 crores.

(C) Medium Industries: Turnover being between Rs. 10 crores

and Rs. 50 crores.

Contribution of SMEs to the Economy:There is a growing worldwide appreciation of the fact that Small

and Medium Enterprises (SMEs) play a catalytic role in the

development process of most economies. This position gets

reflected in the form of their increasing number and rising

proportion in the overall product manufacturing, exports,


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manpower employment, technical innovations and promotion of

entrepreneurial skills.

SMEs contribute to around 56% of manufactured products, 35.8%

of the exports and ranks second in providing employment next only

to agriculture. They have been identified to possess the unique

strength of innovation and have served as incubators for new

technologies and practices.

Within the SME sector, the small sector serves as a green field for

nurturing of entrepreneurial talent and helping the units to grow

into medium and large size. The promotion of SMEs, therefore,

becomes a major area for policy focus, both in developed as well

as developing countries.

For the recently announcedSmall and Medium Enterprises Fund,the Government of India has approved the limit of investment in

plant and machinery above Rs.10 million and up to Rs.100 million

for defining a unit as a Medium Enterprise. Amongst the

developing countries, India has been the first to display special

consideration to SSIs and basic focus has been to make

economical use of capital and absorb the abundant labor supply inthe country.


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FINANCE TO SME SECTOR

In recognition of the contribution and vast potential of the sector inthe economy as well as its inherent infirmities, provision of

adequate credit to this sector has continued to be an element of

banking policy, even though economic and financial policies

themselves have undergone significant transformation, particularly

after the initiation of structural reforms in 1991.

The Indian private sector banks and foreign banks have an

additional outstanding SME portfolio of more than Rs.100 billion. In

the policy context, the Government of India introduced a

comprehensive policy package for SMEs, which included fiscal,

credit, infrastructural and technological measures. The

Government in 1999, to provide more focused attention to the

sector, created an exclusive Ministry dedicated to small industries.

The financial sector needs to step up lending to the sector.

Depending on the requirements of each niche market segment and

sectors, credit delivery would vary from pure debt finance to

providing risk capital or a hybrid of both.

While this kind of funding is readily available, it comes with the

downside of high servicing costs. There in lies the opportunity for

the financial sector. If it can provide credit in small buckets at rates

that are more remunerative than the industrial sector, but

competitive when compared with the unorganized sector, then it

has an attractive new segment to tap.


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While this may appear attractive on paper, there are several

challenges that need to be circumvented successfully, before this

business model becomes viable. Critical among these would be

the management of transaction costs. Since the number of

transactions required to deliver a certain amount of credit will

increase substantially, the financial sector will need to devise

innovative methods of risk appraisal and credit delivery. Of

paramount importance will be the availability of local knowledge.

Measures to promote SMEs:

There exists a well-structured institutional set up both in the public

and private sectors to cater to the credit needs of SMEs. The

Small Industries Development Bank of India (SIDBI) was set up in

April 1990, as the principal financial institution for financing and

development of SSIs and coordination of institutions engaged in

similar activities.

A fair code of practices has been adopted by the Bank in its day-

today operations while functioning as an apex financial institution

for the sector. Various steps taken by the GOI / RBI to enhance

the flow of credit to SMEs in the recent past include:

(I) Increase in the loan limit of composite loan scheme for SSIs

upto Rs.5 million,

(II) Providing loans to SSIs within the interest rate band of 2

percent above and below the respective bank's PLR,


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(III) Setting up of Technology Bureau for Small Enterprises to

address the technology related needs of SSIs and proposal to

convert TBSE into a full fledged Technology Bank,

(IV) Opening of specialized SSI branches throughout the country,

presently numbering 417,

(VI) Introduction of Laghu Udyami Credit Card for SME borrowers

with satisfactory track record,

(VII) Identification of 60 clusters for focused development by

including their credit requirements in the respective State

Credit Plans, and

(VIII) Setting up of a Credit Guarantee Fund Trust for Small

Industries. In order to boost investment in SSI sector, thebenefits of exemptions of capital gains arising from the

transfer of long term capital assets are allowed, if such capital

gains are invested in the bonds issued by SIDBI.

Issues involved in financing to SMEs:

The business of lending to SMEs can potentially be a highly

profitable initiative. While regulated lending through SIDBI and other

entities has been able to satisfy the demands of this sector to a

certain extent, there is a significant gap between demand and

supply of SME finance. This gap is generally plugged by the

unorganized sectorlocal money lenders and cash in the economy.


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The issues related to the provision of finance to SMEs are as

follows:

1) Non-availability of bank credit to the SME sector is a major issue.

2) Inadequate credit sanction, and

3) Delays in credit sanction. Inadequate sanction takes place

(i) Lack of understanding of business and requirements

of genuine needs,

(ii) Lack of transparency on the part of borrowers,

(iii) Lack of information made available by borrowers to

banks for credit appraisal,(iv) Lack of appreciation on the part of the borrower

regarding bank formalities,

(v) Diversion of funds by borrowers which prevents

bankers from being liberal in credit sanction,

(vi) Lack of coordination between banks and financial

institutions in carrying out a joint appraisal,(vii) Lack of skills in appraising hi-tech projects, and

(viii) Inadequate support from controlling office and legal /

technical cells in banks.

Federation of Indian Small & Medium Enterprise

(FISME):

FISME is an institution, which works for the growth and

development of SMEs in INDIA. FISME is a network that reaches

to more than 100,000 SMEs through state level SME associations

and sectorial associations.

PROCEDURE OF FINANCING SMEs IN SBI


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The procedure followed by SBI to finance SMEs involve followingsteps:

(1) First of all the proposal comprising of all the details regarding

the project from the SME is sought. The proposal should be

prepared in the Performa prescribed by RBI.

(2) if the project is of below Rs. 2 crores, it is handled by Central

Processing Cell (CPC). For projects above Rs. 2 Crores, Retail

Asset Centre for Small Enterprise (RACSE) works on it.

(2)Then the background of the promoter is examined by the

concerned authority of the bank.

(3) If the project is of expansion, the financial statements of the

unit are asked for and the analysis is performed. But if theproject is for establishment of new unit, the economic and

technical viability of the project is checked through experts.

(4) For existing units, various ratios are calculated to use them as

performance parameters. Commonly used ratios are Return on

Capital Employed (ROCE), Inventory holding ratio, Currentratio; Debt- equity ratio etc. asset- liability check is also

exercised.

(5) The SMEs are then given the State Bank Ranking (SBR) from

SB 1 to SB 7 but SBI does not consider the SMEs with


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ranking above SB 4. This ranking helps in deciding the rates

over and above the SBAR or PLR.

(5) Then, the project including all the results is prepared by the

Chief Manager of the processing cell of the respective branch.

(6) The presentation is made by the processing cell in front of the

Credit Circle Committee (CCC).

(7) If it is found satisfactory and as per the standards set, theproposal is accepted and the fund is dispersed to the party.

SERVICES PROVIDED TO SMEs


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Except some portion of the SME cluster, most of the SMEs need

finance from outside to run their business. Finance is the life

blood of business. The same applies here also.

SMEs require fund not only at the time of inception but also at

some other point of time. SMEs require finance mainly for three

reasons, namely;

1) At the time of commencement of the business,

2) At the time of expansion of business, i.e.: acquiring

new unit, acquiring new machinery etc.

3) For day to day requirements

i.e.: Purchasing raw materials,

Repairs and maintenance of machinery,

Transportation, etc.

Banks provide variety of services to SMEs to match with their

needs and to increase the ease of operation with a view to provide

services which are beneficial mutually.

Varieties of services provided to SMEs by bank mainly involve thefollowing:

1) Cash credit

2) Term loan

3) Current account

4) Letter of credit discounting

5) Export Packing Credit (EPC)


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6) At par cheques and drafts

7) Outstation clearing

Brief description of each service provided to SMEs is as follows:

(1) Cash credit:

Cash credit is the amount allowed to the customer for use for a

stipulated time period at a specified rate. This amount is given

by the bank mainly for the purpose of purchasing goods from

suppliers. The rate of CC is decided based on the size of the

CC limit. The interest is charged only on the unpaid amount.Generally the CC is used to fulfill working capital requirements.

CC is given to the customers who have good credit in the

market.

(2) Term loan:

The loan given for acquiring any fixed asset or to renovate or torepair the existing ones is called Term loan. The SMEs are

segregated in categories like SB-1 SB-2, SB-3, etc. based upon

the ranking given to the SME by the concerned examiner. The

interest rate for the term loan is decided over and above the

SBAR (State Bank Advance Rate) or PLR (Prime Lending Rate)

based on the category of the SME. Current SABR/PLR is12.75%.

(3) Current account:

Current account refers to the account from which any number of

withdrawals can be made by the account holder. This facility is

generally availed by a merchant or a businessman, who has to


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withdraw money frequently. No interest is given on the current

account deposit.

(4) L/C discounting:

L/C is a short form of letter of credit. Banks provide L/C

discounting for purchasing of goods, in case the person wants

to purchase on credit. The bank takes the responsibility of

paying the amount of purchase in case the customer defaults.

This is exercised through issuing letter of credit to the customer

by bank. The bank charges the commission for providing thisservice.

(5) Export Packing Credit (EPC):

Export Packing Credit (EPC) is same as Cash Credit but the

only difference is that it is provided for an export purpose. The

rates of EPC are less than Cash Credit as a part of promotingexports.

(6) At par cheques and drafts:

This is a facility whereby the cheques are transferable and

drafts are both issuable and transferable without any

commission. These facilities were chargeable earlier by banks.

(7) Outstation clearing:

In this service, outstation cheques are accepted and cleared in

the bank. This service is chargeable.


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RESEARCH METHODOLOGY

Data Sources :

It refers to the ways of collecting the information or data. Thereare mainly two types of data sources available like:-

Primary Data

Secondary Data

(1) Primary data:

Primary data means the data generated for the first time for a

particular purpose.

The data about SMEs has been collected through survey. 350

SMEs have been personally visited and the questionnaires are

filled up.

(2) Secondary data:

Secondary data refers to the data which has already been

generated and is available for use.

The data about some of the SMEs visited has been extracted

from the book of GIDC Lodhika Industrial Association (GLIA).

Other data has been extracted from websites and linksmentioned in the bibliography.

Research Approach :

Research approach refers to the way of conducting the study.

In this study, analytical approach has been used.


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Research instrument:

Research instrument refers to the tools available with the

surveyor for the survey. The mainly used research instruments

are:

Questionnaires

Interviews

Observation etc.

The instrument used for conducting the survey is

questionnaire. The questionnaire is made up of open-ended

questions.

Sampling unit:

Small & Medium Enterprises (SMEs) of two industrial areas,

namely; GIDC (Lodhika) Industrial Estate and GIDC AJI

Vasahat, are used as a sampling unit.

Sampling size :

In total, 350 SMEs were visited and surveyed. Out of which

250 units were from GIDC (Lodhika) Industrial Estate and 100

units were of GIDC AJI Vasahat.

Sampling Procedure:

Sampling Procedure refers to the type of sampling method

used to conduct a survey. Various sampling methods can be

Simple random sampling, Stratified random sampling,

Convenient Sampling etc. Sampling Procedure used in

preparing this project is convenient sampling


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Contact Methods:

It refers to the method used for contacting the sampling

units. There are various contact methods available namely:

Personal contact

Telephonic contact

Contact though mail

E-mail, etc.

Here, personal contact method is used to conduct a study.

Each and every SME has been visited personally and the

data has been gathered.


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INDUSTRIAL AREAS OF RAJKOT

Rajkot is an industrial hub of Saurashtra. The first industrial estate

in India was established in AJI area of Rajkot in the year 1955.There are many industrial areas in and around Rajkot city including

17 GIDC areas. As per the scope of this project, two major

industrial areas namely, GIDC-Lodhika and GIDC-AJI are covered

to conduct a study.

The brief introduction of both the areas is as follows:

(1) GIDC-Lodhika (Metoda):

GIDC (Lodhika) Industrial Estate is located at the distance of 15

kms from Rajkot city on Kalawad Road. This Industrial Estate is

spread in over 421 hectares of land. As information furnished, it

has been divided into 1200 plots. At present, there are 750 SMEs

engaged in industrial production of various items. All the plots of

industries of this Estate are allotted and are in various stages of

development of starting the industrial activity.

Status of plots allotted and operational units in the IndustrialEstate

Status of plots/units No of plotsNo of plots allotted 1200Operational units 750Merged plots 400Non-operational plots 50

Total plots 1200


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GIDC (Lodhika) Industrial Estate is one of the well planned

Industrial Estates of the GIDC. This industrial association was

established in 1995. The estate has three portals on the entry

points namely;

Kranti Gate

Almighty Gate

Kisan Gate

The facilities like bank, telephone exchange, post office areavailable. The estate is connected with the city and is served by

the State Transport buses. The roads and buildings department

of the government of Gujarat has undertaken the job of

widening the Rajkot-Kalawad state highway no. 23 to four lane

highway. This will facilitate the transportation between the city

and the industrial area.

The following table gives industry wise classification of units inthe estate:

Product wise break up of operating industries

Type of industry No. of units

Machine tools 220

Casting 50Forging 45Cement product 30Cold storage 10Marble Granite 20Medicine 10Plastic industries 115Packaging 45Food products 35Others 160

Total 750


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Inherent strengths of GIDC (Lodhika) Industrial Estate:

Pollution free environment

Availability of labor

Availability of power

Four lane link road with Rajkot city

Availability of water from Narmada canal system

The following table shows the economic performance of the SMEs

operating at GIDC (Lodhika) Industrial Estate.

Economic aggregates for SMEs operating in GIDC (Lodhika)Industrial Estate

Investment Rs.313.2 Cr.

Annual Turnover Rs. 800 Cr.

Annual export Rs. 250 Cr.

Employment 12,000 employees

GIDC (Lodhika) Industrial Estate has an excellent track record of

social service. The association has donated 2000 Sq. m. of land to

the Rotary Club of Rajkot for construction of 175 houses, a

hospital and a school building for the earth quake affected people

of Kutch.

Upgradation of infrastructure at GIDC (Lodhika) Industrial Estate

would help SMEs in the estate to leapfrog in terms of investment,

turnover, export and employment.


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(2) GIDC- AJI Vasahat:

GIDC- AJI Vasahat is situated on the bank of the river AJI. It is

spread in 90acres of land with around 250 plots and sheds. It hasbeen developed in two phases. The Phase-I was developed in

1973 and the Phase-II was developed in 1980.

Most of the SMEs situated here are operating in following areas:

Casting

Machine tools

Corrugated box

Forging

Furniture

The inherent strengths of the area are as under:

The area is located in the city itself thereby getting all thefacilities needed.

There are many banks located on the 80ft link road,

providing all the needed banking facilities very easily.

Being situated in the city, labour and transportation

facilities are available at a lower cost along with other

amenities.


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Interpretation:

From among the SMEs visited, 75% of the industries cater to

the local market or the inland market.

21% of the industries are into exports and some of them are

availing the benefits of operating as a 100% Export Oriented

Unit (EOU).

4% of the SMEs are not exporting directly but are involved in

the indirect export through agents.

The inability of the SMEs to export is due to their scale of

operation, lack of capital and sufficient margin available in

local market.


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Interpretation:

From among the industries visited, the highest 48% of the

SMEs follow the Partnership format of the organization. As

the people dont have enough capital to operate as a sole

proprietor, they indulge in forming up the partnership

concern.

30% of the units are following Private Limited format. Most of

the industries operating on a fairly vast scale are of thisnature.

21% of the industries are of the Sole Proprietorship nature.

They are operating at a very low scale and can be included

in the category of tiny units. Most of them are involved in the

process like casting, machining, fabrication etc.

The percentage of units following the Public Limited format is

meagerly 1%.


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Interpretation:

10% of the industries visited are associated with Central

Bank of India and Bank of India each. The reason for Central

Bank of Indias highest exposure is existence of their branch

at the GIDC (Lodhika). It is the only nationalized bank

situated at GIDC (Lodhika).

9% of the market is shared by State Bank of Saurashtra

(SBS), Corporation Bank and HDFC Bank each. The majorreason for more exposure covered by these banks is the

level of service.

Bank of Baroda and ICICI each cover 6% of the market

share.

State Bank of India surprisingly gets only 5% of the market

share. The figure is an eye-opener for SBI for deciding the

future course of action.

The category Others include several banks, the data of

which can be referred from the annexure at the end of theproject.


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Interpretation:

The reason given, for selecting the present bank, by 25% of

the SMEs is that they are dealing with the particular bank

from a long time. They can change the bank only if they get

substantial benefit in terms of interest rates. They would not

like to change the bank for a minor interest rate difference.

23% of the SMEs have selected and continued to deal with

the banks on the basis of services provided by banks. As perthem the present bank is providing satisfactory services and

they have no reason to change the bank in near future.

16% of the SMEs have given importance to the PROXIMITY

factor at the time of selecting the bank. Especially, in GIDC

(Lodhika), there are only two banks, namely; Central Bank ofIndia and District Commercial Co-operative Bank. So, even if

their services are not satisfactory, SMEs have to choose

these banks for ease of operation.

14% of SMEs have selected the banks without considering

any particular factor, while 4% industries have reasons likegood relations with the bank or with the bank staff and fast

processing each.

Only 3% of the industries have considered lower interest rate

as a criterion of selection. This shows that customers can not

be retained only on the basis of interest rate benefits, good


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quality of the services have also to be present to back up

other things.


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Interpretation:

Hefty 63% of the industries have not opted State Bank of

India for dealing because State Bank of India has never

approached them. So, State Bank of India needs to market

itself aggressively to have substantial market share in Rajkot.

15% of SMEs have not selected State Bank of India

considering the proximity factor. State Bank of Indias

nearest branch is situated at almost 15 kms from GIDC(Lodhika) Industrial Estate; however the project of opening

up the branch at the link road is in process. This will bring

considerable business to the bank.

Higher interest rate charged and delayed services of

State Bank of India as well as satisfactory services renderedby the present banks of SME contribute to the extent of 3%

as a reason for not selecting State Bank of India.


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F INDINGS

The findings, based on the customer responses, are as under:

The major reason for non-association of SMEs with SBI is

lack of marketing efforts by SBI. Hefty 63% of the SMEs

visited, have not been approached by SBI.

From among the SMEs visited, 75% of the industries cater to

the local market or the inland market.

The highest 48% of the SMEs follow the Partnership format

of the organization. As the people dont have enough capital

to operate as a sole proprietor, they indulge in forming up the

partnership concern.

State Bank of India surprisingly gets only 5% of the SME

market share. The figure is an eye-opener for SBI for

deciding the future course of action.

The reason given, for selecting the present bank, by 25% of

the SMEs is that they are dealing with the particular bank

from a long time. They can change the bank only if they get

substantial benefit in terms of interest rates. They would not

like to change the bank for a minor interest rate difference.

Many customers are not satisfied with the quality of services

provided by the SBI staff. I.e. Rude behavior, not attending

the customers properly, delays in providing services like

monthly statements, approving the proposals.

Another problem is frequent transfers of the authorities and

the subordinate staff. It results in customers having to start

from the scratch.


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The problems faced by customers are as follows:

Lack of professionalism.

Delay in attending the customers and providing

services like providing monthly statements, passbook

printing.

Getting the finance from SBI is a very time-consuming

process.

Greater amount of documentation is involved in taking

finance from SBI, which makes customers prefer other

banks.

Most of the customers are not ready to change their

dealings from present bankers because of the reasons

like family relations, rapid services, convenience and

association with the present bank from

commencement.

Some customers find the behavior of the staff

undisciplined and rude.

People are not yet ready to change their mindsets and

attitude towards the functioning of the government

organizations and so towards SBI.


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SWOT ANALYSIS

The overall evaluation of companys strengths, weakness,

opportunities and threats is called SWOT Analysis. The external

environmental analysis and the internal environmental analysis are

conducted to arrive at SWOT analysis.

Internal environmental analysis helps to find out the strengths and

weaknesses of an institution. While, external environmental

analysis helps to find out the opportunities and threats prevailing in

the market. Depending on the analysis, the company can build up

its future strategies and goals.

STRENGTHS:

As the SBI is the nationalized and famous bank of the India,

running successfully all over the India, it is very much obvious that

the bank will have quite a number of strengths but some of the

main strengths of SBI can be described as under.

Brand name and goodwill:

SBI is a world class nationalized bank and it is considered as

one of the best bank through out the nation. Moreover, it is

Indias largest bank and currently ranks amongst Asia's top 20

commercial banks. So, its goodwill and the brand name attract

the customers.

World class products:

SBI provides world class products to satisfy the basic, crucial,

and all the essential needs of the customers.


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Strong customer base:

As SBI is serving the nation from a very long time, it has gained

a strong customer base over a period of time. This is the reason

why SBI is still running successfully, even after establishment of

private banks.

Nationalized bank:

SBI is the nationalized bank. It is spread through out the nation

through 9500 branches. So, it is more trustworthy and more

reliable for the customers. This is one of the most crucial

strengths of the bank.

Wide network:

SBIs network is very widespread. It serves the customers not

only nation wide but also on the global horizons. The customers

can use the ATM card of SBI in any of its subsidiary andassociate banks. In the subsidiary banks, SBI ATM can be used

without any additional charge.

Sound financing procedure:

The procedure for deciding whether SBI should finance a

particular SME or not, is very sound and flawless. This ensuresthat no loopholes are left for SMEs.


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WEAKNESSES:

More documentation:

There is a great amount of documentation involved in all the

procedures of SBI compared to other banks.

Industrialists dont have time to go through these formalities

every time he asks for the services. So, they prefer the banks

where less documentation and formalities are required so as to

save time and ensure ease of operation.

Delayed services:

There is slowness in the functioning of SBI. Delay in attending

the customers and providing services like providing monthly

statements, passbook printing keep many customers away from

coming to SBI.

Frequent transfers:

Another problem is frequent transfers of the authorities and the

subordinate staff. It results in customers having to start from the

scratch. This becomes very time consuming process.

Lack of co-operation from staff:

The co-operation from staff of SBI is missing. They are not

customer-oriented whole heartedly. Their attitude has to change

to bring more customers to the bank.


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OPPORTUNITIES:

Technological advancements:

Constant innovations in the field of information technology can

help SBI to serve its customers with a greater efficiency.

Various banking software are being developed. This can

increase the service level of SBI.

Core banking system has already benefited the customers as

well as the bank and has increased the operational ease.

Commencement of new SMEs:

As per the data given by the GIDC association, Lodhika, almost

250 industries are under construction. SBI can contact them

and convince them for a deal. Moreover, some industries are

planning to expand themselves in near future. SBI can finance

them by catering to their needs.

SBI branch in nearness to industrial area:

As mentioned earlier in the project, the nearest branch of SBI

from GIDC (Lodhika) Industrial Estate is almost 15 kms away.

There is only one nationalized bank i.e. Central Bank of India

situated at the GIDC (Lodhika) Industrial Estate. So, opening up

the branch in the nearer area can bring many customers to the

bank.


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THREATS:

Basel-2 contract:

As per the Basel-2 contract of WTO, India will be opening upthe economy for the foreign banks to enter along with several

other institutions. So, to keep pace with their performance, SBI

will have to increase its efficiency tremendously.

Threat from private banks:

Because of the sloppy services of nationalized banks and

customer friendly environment created by private banks,

customers have developed more preference towards dealing

with private banks.

Establishment of other banks near SMEs:

Dena Bank, Bank of India and several other banks are planning

to open up their branches near GIDC (Lodhika) Industrial

Estate. If SBI does not take action quickly, it will miss out on the

market share.


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SUGGESTIONS

47% of the industries visited are associated with the banks

like Bank of India, Central Bank of India, HDFC, State Bankof Saurashtra & Corporation Bank, mainly on the basis of the

good services and their co-operation, whereas SBI has only

5% of the market. So, SBI need to look into these aspects to

tap the market of SMEs in the concerned industrial areas.

Almost all the units have not been approached by SBI, so

SBI need to market itself aggressively and approach these

units.

GIDC (Lodhika) Industrial Estate authorities are compelling

the owners of the vacant land plots to either use or sell the

plot and thereby utilizing all the resources available at GIDC.

Next 6 months will be of the inception of new units and

expansion of the existing units. So, it is a good opportunity

for SBI to tap the finances of these units.

Lack of co-operation, professionalism, discipline, and

delayed approvals are major reasons for non-association

with SBI, as given by the units visited. So, SBI should train

the staff in the concerned areas.

Today is the era of CUSTOMER SATISFACTION and no

organization can afford to ignore them. Retaining the

customers is more difficult then acquiring them. So, they are


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to be attended properly and with due respect. Continuous

customer follow up system should be incorporated.

Delay of all types should be avoided.

Efforts are required to be put in to create a convenient,

cohesive, and customer-friendly environment.


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LIMITATIONS OF THE STUDY

Some obvious barriers in conducting the study were as follows:

In many cases, the authority of the SME was reluctant to

provide the information required for the study.

The responses of the people of both the industrial areas

visited were different.

In some of the cases, people have disclosed the figures of

turnover as per their books of account and not the actual

ones.

Out of total industries existent, all have not been covered

because of the time constraint, so the actual data may varyslightly from the results arrived at.


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CONCLUSION

As it is known, SBI is the largest bank in Asia. But to retain its

position, SBI needs to customize its services as per the needs ofthe society.

As far as the future of cotton industry is concerned, it is bright. So,

bank finance to cotton industry will help not only the banks but also

the industry to a great extent. This will ultimately help in the export

promotion, employment generation and growth of nation.

Working with State Bank of India was a memorable and value

adding experience. The practical learning from this project will

surely help in the future.


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BIBLIOGRAPHY

Books:

The following study materials have been referred during the study.

The directory of GIDC (Lodhika) Industrial Association(GLIA)

The Critical Infrastructure Project (CIP) of GIDC (Lodhika)

Web sites:

The web sites referred and links visited during the study are asfollows:

www.statebankofindia.com

http://en.wikipedia.org/wiki/Small_and_medium_enterprise

http://www.fisme.org.in/introduction.aspx

http://www.ficci.com/media-room/speeches

presentations/2004/sep/banking/Session%205/V%20K

%20Chopra.pdf

http://www.financialexpress.com/fe_full_story.php?

content_id=87939
http://www.statebankofindia.com/http://en.wikipedia.org/wiki/Small_and_medium_enterprisehttp://www.fisme.org.in/introduction.aspxhttp://www.ficci.com/media-room/speeches-presentations/2004/sep/banking/Session%205/V%20K%20Chopra.pdfhttp://www.ficci.com/media-room/speeches-presentations/2004/sep/banking/Session%205/V%20K%20Chopra.pdfhttp://www.ficci.com/media-room/speeches-presentations/2004/sep/banking/Session%205/V%20K%20Chopra.pdfhttp://www.financialexpress.com/fe_full_story.php?content_id=87939http://www.financialexpress.com/fe_full_story.php?content_id=87939http://www.statebankofindia.com/http://en.wikipedia.org/wiki/Small_and_medium_enterprisehttp://www.fisme.org.in/introduction.aspxhttp://www.ficci.com/media-room/speeches-presentations/2004/sep/banking/Session%205/V%20K%20Chopra.pdfhttp://www.ficci.com/media-room/speeches-presentations/2004/sep/banking/Session%205/V%20K%20Chopra.pdfhttp://www.ficci.com/media-room/speeches-presentations/2004/sep/banking/Session%205/V%20K%20Chopra.pdfhttp://www.financialexpress.com/fe_full_story.php?content_id=87939http://www.financialexpress.com/fe_full_story.php?content_id=87939


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GLOSSARY

CCC: Credit Circle Committee

FISME: Federation of Indian Small & Medium Enterprise

GIDC: Gujarat Industrial Development Corporation

PLR: Prime Lending Rate

SBAR: State Bank Advance Rate

SME: Small and Medium Enterprise

TBSE: Technology Bureau for Small Enterprises


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ANNEXURE

The questionnaire used for conducting the study is as under:

STATE BANK OF INDIA

Commercial Branch, RAJKOT

1. Location: ________________________________________________

2. Name of the unit: __________________________________________

3. Address:___________________________________________________

______________________________________________________

4. Contact no.: ________________

5. E-mail: ___________________________________

6. Name of the promoters: _________________

_________________

7. Contact no.: (M)_______________ (R)________________

8. Type of industry: __________________________________

9. Form of organization: _______________________________

10. Line of activity: ____________________________________

11.Do you export? Yes No

12. Approximate Turnover (p.a.) ___________________________

13. Present Bankers:_____________________________________

14. Facilities enjoyed with the present banks: ______________________

__________________________________________________________

15. Reasons for selection of the present banks: _____________________

___________________________________________________________

16. Why not SBI? ____________________________________________

17. Present requirement / Future plans: _____________________________

18. Mode of salary payment:__________________________________

19. If through bank, which bank? ______________________________

20. Remarks: ________________________________________________

___________________________________________________________


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The break up of the category Others in case of the banks

selected by the SMEs visited is as follows:

Andhra Bank

Bharat Co-operative Bank

Canara Bank

Citizen Co-operative Bank

Dharti Co-operative Bank

Federal Bank

Gujarat Industrial Co-operative Bank

IDBI

Indian Bank

Indian Overseas Bank

Indus Bank

ING Vysya Bank

Jeevan Commercial Bank

Karnataka Bank

Karur Vysya Bank

Kotak Mahindra Bank

Nagrik Bank

Oriental Bank of Commerce

Peoples Bank

Punjab National Bank

RCC

RDC

Rajkot Nagrik Sahkari Bank

Saurashtra Grameen Bank


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SIDBI

State Bank of Hydrabad

Syndicate Bank

Union Bank of India

UTI Bank

Vijaya Bank

Veraval Mercantile Co-operative Bank

Vearaval Peoples Co-operative Bank

Vijay Commercial Co-operative Bank

Documents

FINANACIAL SME