The share of micro, small and medium enterprises (MSMEs) in gross domestic product of the country is expected to touch double-digit growth from the current 8 percent, said the Finance Secretary, Ashok Chawla in New Delhi.
Speaking at a conference 'Towards Excellence in MSMEs: Innovation Practice for Global Competitive', Chawla said, "The SME sector's contribution to GDP of the country is around 8 percent and is expected to contribute double-digit to our gross domestic product."
"This is the sector which has a great contribution to the growth story. The growth story has to move and will move to a higher level up to 10 percent, which is what the country needs, people need...," he added.
Chawla underscored that India needs to remove poverty in the country and that is what the government wants as well. "...and, the MSME sector's contribution will add to the higher level of growth story in India."
MSMEs need to adopt the best practices and also use innovative practices, upgrade their technology, improve marketing links and promotional activities and access to potential finance, the finance secretary added.
According to the last available data, the micro and small enterprise (MSE) sector shares 7.20 percent in the GDP in the year 2006-07. The latest report of Prime Minister's Task Force on MSMEs said that the sector contributes 8 percent of the country's GDP, 45 percent of the manufactured output and 40 percent of its exports providing employment to about 60 million persons through 26 million enterprises.
Sunday, April 17, 2011
SBI's centralized SME loan process to ensure better loan processing
The Small and Medium Enterprises (SMEs) segment is witnessing a paradigm shift with two clear models emerging and SMEs functioning on a stand-alone basis would find the going tough, according to a senior executive of State Bank of India.
The bank, which launched the concept of SME City Credit Centres (SME CCCs) to quicken the process of loan processing from the SME sector, is planning to replicate the model in rural and semi-urban areas, he said.
Speaking to presspersons in Coimbatore on Friday, after inaugurating the renovated premises of SME CCC in Coimbatore main branch of the bank, J. Chandrasekaran, Chief General Manager, SBI (Chennai Circle), said the entire SME segment was undergoing a structural shift and it was not like earlier when they could be established on a stand-alone basis and survive.
SMEs could be successful and survive in two formats. They flourish when they are in clusters - several auto component and textile clusters were coming up - providing them economy of operation. The other model was SMEs functioning as dedicated ancillaries to big manufacturing units, as has been done by vendors of Hyundai Motors.
He said SMEs functioning on a stand-alone basis, supplying to diverse companies, would find the going tough. SMEs were getting into some sort of a value chain, entering into joint ventures with larger players.
Even foreign buyers were finding outsourcing from SMEs a cost-effective quality proposition. Chandrasekaran said, "SMEs can thrive, but they have to look at global markets now," become net savvy, look at multiple sources of raw material, etc. SMEs making generalised products in hopes of finding a market will die out, he added.
Chandrasekaran, who had earlier worked as CGM (SME) for the whole bank, said there were a lot of processes involved in giving home loans and SME loans. The bank wanted to centralise these processes and establish a back office where skilled personnel could be deployed to process the applications.
The bank managers would have to just collect the loan applications and do minimum documentation and then forward the applications to the SME city centres for further processing.
The multi-product sales teams also have been vested with the responsibility of scouting for prospective loan applicants whose applications would be processed at these centres.
He said this has enabled the bank to bring in "much better standard of appraisal, risk management is much better." Since the branches are under core banking system, the customers would continue to do their business with the branches closer to them.
He said the SME CCCs would handle customers for up to a Rs 1-crore limit and branches would handle customers with limits higher than that, as needs of medium enterprises would be different.
Meanwhile he said the division of work has helped in hastening the turnaround time (TAT-processing of applications) - from four-six weeks earlier to less than ten days now. The customers are intimated of the bank's decision faster and there has been 'tremendous improvement' in the quality of appraisal after SME CCCs were launched.
This year, the Coimbatore SME CCC, to which 28 branches in and around Coimbatore were linked, has sanctioned Rs 120 crore so far. The sanctions have grown from Rs 58.5 crore in 2005-06 to Rs 106.57 crore in 2006-07 and Rs 180.88 crore in 2007-08.
Chandrasekaran said after SME CCCs were established across the country, "our growth has more than doubled." The growth was possible because of the performance of the branches, the special sales teams and the SME CCCs, which had increased the processing capability.
The bank has such SME centres in all major cities and has planned to replicate this model in a slightly different format in rural and semi-urban areas. In the current year, 15 rural centralised processing centres would come up in Tamil Nadu.
The bank, which launched the concept of SME City Credit Centres (SME CCCs) to quicken the process of loan processing from the SME sector, is planning to replicate the model in rural and semi-urban areas, he said.
Speaking to presspersons in Coimbatore on Friday, after inaugurating the renovated premises of SME CCC in Coimbatore main branch of the bank, J. Chandrasekaran, Chief General Manager, SBI (Chennai Circle), said the entire SME segment was undergoing a structural shift and it was not like earlier when they could be established on a stand-alone basis and survive.
SMEs could be successful and survive in two formats. They flourish when they are in clusters - several auto component and textile clusters were coming up - providing them economy of operation. The other model was SMEs functioning as dedicated ancillaries to big manufacturing units, as has been done by vendors of Hyundai Motors.
He said SMEs functioning on a stand-alone basis, supplying to diverse companies, would find the going tough. SMEs were getting into some sort of a value chain, entering into joint ventures with larger players.
Even foreign buyers were finding outsourcing from SMEs a cost-effective quality proposition. Chandrasekaran said, "SMEs can thrive, but they have to look at global markets now," become net savvy, look at multiple sources of raw material, etc. SMEs making generalised products in hopes of finding a market will die out, he added.
Chandrasekaran, who had earlier worked as CGM (SME) for the whole bank, said there were a lot of processes involved in giving home loans and SME loans. The bank wanted to centralise these processes and establish a back office where skilled personnel could be deployed to process the applications.
The bank managers would have to just collect the loan applications and do minimum documentation and then forward the applications to the SME city centres for further processing.
The multi-product sales teams also have been vested with the responsibility of scouting for prospective loan applicants whose applications would be processed at these centres.
He said this has enabled the bank to bring in "much better standard of appraisal, risk management is much better." Since the branches are under core banking system, the customers would continue to do their business with the branches closer to them.
He said the SME CCCs would handle customers for up to a Rs 1-crore limit and branches would handle customers with limits higher than that, as needs of medium enterprises would be different.
Meanwhile he said the division of work has helped in hastening the turnaround time (TAT-processing of applications) - from four-six weeks earlier to less than ten days now. The customers are intimated of the bank's decision faster and there has been 'tremendous improvement' in the quality of appraisal after SME CCCs were launched.
This year, the Coimbatore SME CCC, to which 28 branches in and around Coimbatore were linked, has sanctioned Rs 120 crore so far. The sanctions have grown from Rs 58.5 crore in 2005-06 to Rs 106.57 crore in 2006-07 and Rs 180.88 crore in 2007-08.
Chandrasekaran said after SME CCCs were established across the country, "our growth has more than doubled." The growth was possible because of the performance of the branches, the special sales teams and the SME CCCs, which had increased the processing capability.
The bank has such SME centres in all major cities and has planned to replicate this model in a slightly different format in rural and semi-urban areas. In the current year, 15 rural centralised processing centres would come up in Tamil Nadu.
Credit rating can help SMEs in more ways than one
While Small and Medium Enterprises (SMEs) are always irked by the fact that banks and financial institutions are not forthcoming in giving loans to them, I feel SMEs too should make some effort so that they are able to get loans easily without sweat. If figures are accurate, I'm told that of more than 14 lakh SMEs operating in the country, only a meager 8.5% of bank loans go to them. The basic reason for this low rate is that most SMEs being from the unorganised sector, their credibility is apparently questionable.
The best way to resolve the issue, I would say, is to get a credit rating. While the government insists that credit rating is not a necessary requirement for any Micro and Small Enterprises (MSEs) to get a loan, rating no doubt serves as a trusted third party opinion on the creditworthiness of SMEs.
The benefits of getting a credit rating are manifold because it makes banks comfortable while dealing with them and thus helps in reducing the interest rates. It is an accepted fact that a good rating helps SMEs in obtaining faster and concessional credit from banks. As such credit rating helps for the capital provisioning requirement for SMEs. So undertaking credit and performance rating from a reputed and accredited independent rating agency, I believe, is energy rightly spent.
Today the rating agencies approved for the purpose are ICRA, Crisil, Care and Fitch. In the first scheme there are four rating agencies that have been empanelled by RBI. Apart from these four, two others are SMERA and ONICRA.
In most cases SMEs shy away from getting themselves rated due to the fear that they may not get a good rating or probably because the financial statements that they have prepared to get rated do not reflect a true and fair picture of their performance. However, credit rating agencies are mainly interested in the qualitative parameters because financial statements in SMEs do not give much idea about their performance. So they mostly look at their management and how sound the promoter is, or how resilient the SME has been.
I think it's time that SMEs look from the point of view of the bank. For banks, lending to a rated SME would reduce their capital charge as against lending to an unrated SME. In addition, banks need to have a benchmark to compare their own credit assessment. So credit rating seems to be the only rational route.
Above that, whenever a client sees the credit rating of the company it wants to do business with, it gives him/ her a confidence because of the credibility one earns from getting itself rated. Do we agree on this? We would definitely want to know if any of our readers have ever got their company rated. Did getting a credit rating help you in getting loans easily? For readers who have not got their companies rated, tell us why you went against it.
The best way to resolve the issue, I would say, is to get a credit rating. While the government insists that credit rating is not a necessary requirement for any Micro and Small Enterprises (MSEs) to get a loan, rating no doubt serves as a trusted third party opinion on the creditworthiness of SMEs.
The benefits of getting a credit rating are manifold because it makes banks comfortable while dealing with them and thus helps in reducing the interest rates. It is an accepted fact that a good rating helps SMEs in obtaining faster and concessional credit from banks. As such credit rating helps for the capital provisioning requirement for SMEs. So undertaking credit and performance rating from a reputed and accredited independent rating agency, I believe, is energy rightly spent.
Today the rating agencies approved for the purpose are ICRA, Crisil, Care and Fitch. In the first scheme there are four rating agencies that have been empanelled by RBI. Apart from these four, two others are SMERA and ONICRA.
In most cases SMEs shy away from getting themselves rated due to the fear that they may not get a good rating or probably because the financial statements that they have prepared to get rated do not reflect a true and fair picture of their performance. However, credit rating agencies are mainly interested in the qualitative parameters because financial statements in SMEs do not give much idea about their performance. So they mostly look at their management and how sound the promoter is, or how resilient the SME has been.
I think it's time that SMEs look from the point of view of the bank. For banks, lending to a rated SME would reduce their capital charge as against lending to an unrated SME. In addition, banks need to have a benchmark to compare their own credit assessment. So credit rating seems to be the only rational route.
Above that, whenever a client sees the credit rating of the company it wants to do business with, it gives him/ her a confidence because of the credibility one earns from getting itself rated. Do we agree on this? We would definitely want to know if any of our readers have ever got their company rated. Did getting a credit rating help you in getting loans easily? For readers who have not got their companies rated, tell us why you went against it.
Gujarat venture fund raises Rs.600 mn for small firms
Gujarat Venture Fund Limited (GVFL) has raised Rs.600 million for its SME (small and medium enterprises) Technology Venture Fund.
"The fund would be used for investing in various projects of both small and medium technology companies. GVFL plans to invest this entire fund in six to eight projects in a time period of one year with an approximate investment amount per project anywhere between Rs.5 and 15 crore (Rs.50 million to 150 million)," said Vishnu Varshney, CEO of GVFL, in a statement here Friday.
GVFL plans to raise the entire corpus of its SME Technology Venture Fund to Rs.250 crore (Rs.2.5 billion) by 2009-10 from existing Rs.60 crore (Rs.600 million)," the statement said.
"Venture capitalists invested over $777 million in 57 deals in India during the first three quarters of 2007, as per the India Venture Capital Report as against $158 million in 2006.
"The booming market is providing many innovative investment opportunities. We are currently evaluating several exciting proposals, which we would soon be finalising for investment," said Varshney.
The venture capital fund has by now exited 53 of the 63 companies it had invested in. Seven divestments took place in the past year.
GVFL now plans to close two more funds that have been going on from 1995 and 1997 by March 2009, at a substantial internal rate of return.
GVFL was started by Gujarat Industrial and Investment Corporation at the initiative of the World Bank in July 1990. Over the past 18 years, it has managed over Rs.1.39 billion in five venture funds, including one for IT and one for biotechnology ventures.
"The fund would be used for investing in various projects of both small and medium technology companies. GVFL plans to invest this entire fund in six to eight projects in a time period of one year with an approximate investment amount per project anywhere between Rs.5 and 15 crore (Rs.50 million to 150 million)," said Vishnu Varshney, CEO of GVFL, in a statement here Friday.
GVFL plans to raise the entire corpus of its SME Technology Venture Fund to Rs.250 crore (Rs.2.5 billion) by 2009-10 from existing Rs.60 crore (Rs.600 million)," the statement said.
"Venture capitalists invested over $777 million in 57 deals in India during the first three quarters of 2007, as per the India Venture Capital Report as against $158 million in 2006.
"The booming market is providing many innovative investment opportunities. We are currently evaluating several exciting proposals, which we would soon be finalising for investment," said Varshney.
The venture capital fund has by now exited 53 of the 63 companies it had invested in. Seven divestments took place in the past year.
GVFL now plans to close two more funds that have been going on from 1995 and 1997 by March 2009, at a substantial internal rate of return.
GVFL was started by Gujarat Industrial and Investment Corporation at the initiative of the World Bank in July 1990. Over the past 18 years, it has managed over Rs.1.39 billion in five venture funds, including one for IT and one for biotechnology ventures.
Govt to ask SEBI to relax norms for SME Exchange
The government would ask market regulator SEBI to frame separate norms while setting up the exchange for SMEs so that small and medium enterprises do not have to spend high on advertising for their public issues, a recent media report said.
"While setting up exchange for SMEs, SEBI should come out with separate rules so that they do not have to incur high expenses on advertising for their public issues and reports to the investors," a senior official in the Ministry of Micro, Small and Medium Enterprises was quoted as saying.
He said the ministry would try to impress upon the Securities and Exchange Board of India (SEBI) to ensure that these units do not have spend too much while raising funds from the market. The ministry will also submit the views of the industry to the regulator, he added.
SEBI Chairman C V Bhave recently said initially only big investors may be allowed to invest in the SMEs.
He indicated that although there would be no compromise on accounting and reporting standards for them, there could be relaxations in rules related to rigorous compliance requirements that bigger companies have to.
In a discussion paper, SEBI has proposed to set up a separate SME exchange and has sought public comments.
Small Industries Development Bank of India (SIDBI), along with the National Stock Exchange and Infrastructure Leasing and Financial Services Limited (IL&FS), is expected to be the joint promoters of the SME exchange.
At present, the MSMEs constitute about 20 percent of total GDP, while employing over three crore persons, the media report published in a reputed national business daily newspaper added.
"While setting up exchange for SMEs, SEBI should come out with separate rules so that they do not have to incur high expenses on advertising for their public issues and reports to the investors," a senior official in the Ministry of Micro, Small and Medium Enterprises was quoted as saying.
He said the ministry would try to impress upon the Securities and Exchange Board of India (SEBI) to ensure that these units do not have spend too much while raising funds from the market. The ministry will also submit the views of the industry to the regulator, he added.
SEBI Chairman C V Bhave recently said initially only big investors may be allowed to invest in the SMEs.
He indicated that although there would be no compromise on accounting and reporting standards for them, there could be relaxations in rules related to rigorous compliance requirements that bigger companies have to.
In a discussion paper, SEBI has proposed to set up a separate SME exchange and has sought public comments.
Small Industries Development Bank of India (SIDBI), along with the National Stock Exchange and Infrastructure Leasing and Financial Services Limited (IL&FS), is expected to be the joint promoters of the SME exchange.
At present, the MSMEs constitute about 20 percent of total GDP, while employing over three crore persons, the media report published in a reputed national business daily newspaper added.
SME sector needs more recognition: Kamath
The SME sector needs more recognition and there is a need for revaluation of the sector. This was stated by Mr. K. V. Kamath, the newly elected president of CII & Managing Director & CEO, ICICI Bank Ltd. during a press conference in New Delhi.
"...I think there is a need for revaluation of this sector. The SMEs play a major role in the development of the Indian economy. More than a decade back, there were just 35,000 SMEs which gradually grew to 75,000. Last year it was 125,000 and this year our estimate is 200,000 SMEs. However there is a wide disparity in the official figures...it was only the three-fourth of the estimated figure. So this sector need more recognition," said the CII president.
He said, there is need to encourage the development of SMEs.
According to CII's annual report, the MSMEs are a vital part of the Indian economy contributing over 45% of the country's industrial production and around 40% of the total exports.
Thirteen million MSMEs in India employ over 31 million people. The government has identified three thrust areas for increasing competitiveness in this area: technology (including quality), skills development and finance, the report added.
Indian SMEs ready to play big in chemical industry
The Indian chemical industry, one of the fastest growing Industries worldwide, comprises both small and large scale units with nearly 6000 units many of them SMEs. The SME sector is commonly addressed as the engine of a train of economic growth and as the harbinger of innovation and entrepreneurship in the industrial space.
The chemical industry is poised to become the fastest growing industry in the world. The growth performance continues to impress and surge forward. The Indian chemical industry has been growing at the rate of 10-12 percent over the last couple of years.
The basic inorganic and organic chemicals produced provide building block for several down stream industries such as drugs, dyestuffs, paper, synthetic rubber, plastics, polyester, paints, pesticides and detergents.
"Today, India has emerged as a global supplier of dyestuffs and dye intermediates, particularly for reactive, acid, vat and direct dyes. India accounts for approximately 6 percent of the world production," Kamal Nath, the Union Minister for Commerce and Industry, had said this while addressing the members of the CHEMEXCIL at its 33rd and 34th annual export awards function held in Mumbai recently.
About the current year's performance, Mr Nath said, "...for the year 2007-08, we have set the target of Rs 13,100 crore for dyes and dye intermediates, Rs 10,900 crore for basic inorganic, organic and agrochemicals, Rs 2,850 crore for cosmetics, toiletries and agarbattis and Rs 1,250 crore for castor oil, which would register a growth rate of 20 percent over Rs 23,408 crore for 2006-07."
Speaking at a seminar on Chemical Industry for Global Inclusive Growth, organized by CII in November 2007, Arun Ramanathan, Secretary, Department of Chemicals & Petrochemicals, Government of India had observed, "Though we have a long way to go, India has registered a commendable progress in the field of chemicals despite various constraints. We have skilled manpower and good R&D setups to go ahead."
He suggested active involvement of small players in the new applications of chemicals and specifically nanotechnology.
"The chemical industry in India has to reposition accordingly over the next few years," said Alok Gupta, former chairman, CII on the same occasion.
India's chemical industry, valued at close to $ 30 billion, is an important constituent in the overall development of the country acting as the backbone of the manufacturing and agriculture growth.
The industry is one of the most diversified industrial sector covering more than 70,000 commercial products and is one of the significant contributors to this manufacturing growth that the country has been experiencing for the past few years.
The Indian chemical industry however faces several hurdles in the area of capital cost, feedstock prices, and cost of electricity, local taxes and tariffs as compared to the producers in other parts of Asia. Subsidies and other government benefits will encourage the entrepreneurs to join this growing sector specially from the SME sector.
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