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INSTITUTE OF MANAGEMENT STUDIES,

BANARAS HINDU UNIVERSITY

TOPIC-MSME FINANCE

Prepared by-

Gauri Mittal

Roll No.

Enrolment No.

Institute of Management Studies,

Banaras Hindu University

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

Dr. Ashutosh Mohan & Dr.

Anindita Chakraborty
Institute of Management Studies
Banaras Hindu University

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DECLARATION

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

(Signature)

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

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

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

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EXECUTIVE SUMMARY
This internship is a bridge between the institute and organization. This
training program is designed to give the future manager a insights about
the corporate happenings and work culture of a company. These real life
situations are entirely different from the stipulated exercise enacted in an
artificial environment inside the classroom and it is precisely because of
this reason that this summer training program is designed, so that
managers of tomorrow get ideas about the real time business operations.
The summer internship program helps us to apply our theoretical
knowledge into the practical field.

MSMEs are an important sector in the Indian economy and play a key
role in economic and national development. They not only create jobs
but also work together to develop backward and rural communities.
MSME financing is necessary to increase the business capacity in terms
of resources, infrastructure, expansion, marketing and promotion etc.

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CONTENTS
Page Number
1. Industry Analysis 8-12
2. Company Analysis 13
3. Introduction 14-30
4. MSME Finance 31-46
5. Documents Required For MSME Loans 47 & 48
6. PSB Loans In 59 Minutes 49-51
7. Documents required for PSB Loan 52
8. Literature Review 53
9. Research Methodology 54
10. Data Analysis 55-64
11. Findings 65-66
12. Conclusion 67
13. Recommendations 68

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INDUSTRY ANALYSIS

India is not only the world's largest independent democracy, but also an
emerging economic dictator. Without a sound and efficient banking
system, no country can have a healthy economy. Banks play a vital role
in the country's economic development. They collect inefficient savings
and make it available for investment. They also make new deposits in
the lending process and purchase investment securities. They assist in
domestic and foreign trade by accepting and reducing exchange rates.
Banks also increase cash flow. The new technology affects not only
banking and financial services, but also the economy and its potential for
continued growth. Today, the banking sector is one of India's largest
service sectors. After transitioning from a product to a customer-focused
business model, traditional banks are trying to reach out to local people
and move into the non-banking sector. The success of the non-bank
financial institutions (NBFCs) India is not only the largest independent
democracy in the world, but also the emerging economic dictator.
Without a sound and efficient banking system, no country can have a
healthy economy. Banks play a vital role in the country's economic
development. They collect inefficient savings and make it available for
investment. They also make new deposits in the lending process and
purchase investment securities. They assist in domestic and foreign trade
by accepting and reducing exchange rates. Banks also increase cash
flow. The new technology affects not only banking and financial
services, but also the economy and its potential for continued growth.
Today, the banking sector is one of India's largest service sectors. After
transitioning from a product to a customer-focused business model,
traditional banks are trying to reach out to local people and move into
the non-banking sector Success of non-bank financial institutions
(NBFCs)
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Banking in India: An Overview

According to the Reserve Bank of India (RBI), the Indian banking sector
is well-funded and well managed. The financial and economic
conditions in the country are much higher than in any other country in
the world. A study of the risks, the market and the burning of
commodities shows that Indian banks are common and well tolerated by
the downturn
The Indian banking industry has recently seen the release of new
banking models such as payment and small financial banks. The new
RBI measures could go a long way in restoring the domestic banking
industry. India's digital payment system has changed dramatically in 25
countries where India's Immediate Payment Service (IMPS) is the only
five-level system in the Faster Payments Innovation Index

Market Size
 The Indian banking system consists of:
o 12 public sector banks
o 22 private sector banks
o 46 foreign banks, 53 regional rural banks
o 1,542 urban cooperative banks and 94,384 rural cooperative
banks as of September 2019.
 During FY07-19, deposits grew in the CAGR by 11.11 percent and
reached US $ 1.86 trillion per FY19. As of February 2020, it stood
at Rs 132.35 lakh crore (US $ 1,893.77 billion)
 Total equity funding in the microfinance sector has grown by an
average of 42 years per year to Rs 14,206 crore (US $ 2.03 billion)
in 2018-19

Investments/developments

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

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 In February 2020, the Cabinet Committee on Economic Affairs

issued its approval to continue the process of restructuring rural
regional banks (RRB) by providing minimum regulatory fees to
RRB for another year beyond 2019-20, that is, until 2020 - 21 of
those RRB can maintain a minimum Capital to Risk Weighted
Assets Ratio (CRAR) by 9 percent, in accordance with regulatory
standards set by the Reserve Bank of India
 In October 2019 the Post Department launched the mobile banking
system for all post office savings account holders of the CBS (core
banking solutions)at post office.
 Deposits under Pradhan Mantri Jan Dhan Yojana (PMJDY) stood
at Rs 1.06 lakh crore (US $ 15.17 billion)
 In October 2019the Government e-Marketplace (GeM) signed a
Memorandum of Understanding (MoU) with Union Bank of India
to create a fee-free, paperless and transparent payment system for
many services
 Transactions through Unified Payments Interface (UPI) stood at
1.32 billion in February 2020 worth Rs 2,21,995 crore (US$ 31.76
billion).
 In August 2019, the government announced the major mergers of
public sector banks which included United Bank of India and
Oriental Bank of Commerce to be merged with Punjab National
Bank, Allahabad Bank will be amalgamated with Indian Bank and
Andhra Bank and Corporation Bank will be consolidated with
Union Bank of India.
 NPAs (Unused Assets) of commercial banks have recorded a
recovery of Rs 400,000 crore (US $ 57.23 billion) over the past
four years including the acquisition of a record R156,746 (US $
22.42 billion) in FY19.
 Board The board of Allahabad Bank has agreed to merge with
India Bank to merge 10 state-owned banks to lend large sums of
money

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 As of September 2018, the Government of India has launched the

India Post Payments Bank (IPPB) and has opened branches in 650
regions to achieve the goal of investment
 The total amount of mergers and acquisitions for 2017 in the
NBFC for various financial services and banking was US $ 2,564
billion, US $ 103 million and US $ 79 million respectively
Total gross equity for small financial institutions has grown at a
rate of 42 per year to Rs 14,206 crore (US $ 2.03 billion) for 2018-
19
Government Initiatives

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

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

The following are government achievements:

 As of March 31 2019 the amount of debit and credit cards issued

was 925 million and 47 million, respectively
 According to the RBI, from February 14, 2020, India recorded an
estimated US $ 476.09 billion in foreign exchange reserves.

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 India is between the top seven economies with a GDP of US $ 2.73

trillion in 2018 and the economy is expected to grow by 7.3
percent in 2018
 To improve urban infrastructure, 204,000 Point of Sale (PoS)
institutions from the Financial Inclusion Fund have been approved
by the National Bank for Agriculture & Rural Development
(NABARD).
 The total number of bank accounts opened under Pradhan Mantri
Jan Dhan Yojana (PMJDY) reached 373.4 million accounts opened
(as of August 2019).
Road Ahead
 Improved spending on infrastructure, rapid project implementation
and continuous transformation are expected to provide growth
momentum. All of these factors suggest that the Indian banking
sector is also geared towards strong growth as a fast-growing
business will turn to banks for their credit needs.
 Also, advances in technology have brought mobile and internet
banking services. The banking sector focuses on providing
improved services to its customers and improving technical
infrastructure, in order to improve general consumer knowledge
and give banks a competitive advantage. According to the 2018-19
Economic Survey, the number of working people will grow by 9.7
million per year by 2021-31 and 4.2 million per year by 2031-41.
 Lend India's digital lending was US $ 75 billion in FY18 and is
estimated to reach US $ 1 trillion with FY2023 driven by a five-
fold increase in digital payments.

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COMPANY ANALYSIS

 Bank of India is an Indian public sector commercial bank

headquartered at Bandra Kurla Complex in the city of
Mumbai in Maharashtra.

 Bank of India was founded on 7th September 1969 has 5107

branches till March 2020, which includes 56 offices outside
India, including five subsidiaries, five representative offices,
and one joint venture also

 Bank of india is a founding member of SWIFT (Society for

Worldwide Inter Bank Financial Telecommunications),
which aims to provide a cost-effective financial processing as
well as communication services

 It’s products and services include mobile banking. corporate

net banking. free statement of accounts. missed call alert
facility for knowing account balance

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INTRODUCTION

What is MSME? – An Introduction

MSME stands for Micro, Small, and Medium Enterprises In terms of the
Micro, Small, and Medium Enterprises Development (MSMED) Act of
2006, businesses are divided into two categories

1. Manufacturing sector– Involved in the production or manufacture

of goods in any industry

2. Service sector– Participate in the provision or delivery of services

What type of business comes under MSME?

1. Companies in the Manufacturing Sector- Businesses involved in
manufacturing or manufacturing of goods in the industry listed in the
first schedule of the Industries (Development and Regulation) Act,
1951 are included within the purpose of MSME
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And businesses that use plant and machinery to add value to a

finished product that leads to the use of a different name or character
come to the look of small and medium-sized businesses that means
Depending on their annual profit businesses they are divided into the
following sub-categories
 
o Micro enterprises – Companieswith annual turnover does not
exceed Rs 25 lakh

o Small enterprises – Companieswith annual turnover is between Rs

25 lakh and Rs 5 crore

o Medium enterprises – Companies withannual turnover between

Rs 5 crore and Rs 10 crore.
 
o Companies in the Service Sector - The full form of MSME
also extends to businesses in the service sector. The
classification of companies in the service sector according to
their annual profits is as follows

o Micro– Companies withannual turnover within Rs 10 lakh.

o Small– Companies withannual turnover from Rs 10 lakh to

Rs 2 crore.

o Medium– Companies withannual turnover from Rs 2 crore to

Rs 5 crore.

The new MSME definition (May 2020)

On 13th May 2020 the Central Government officially revised definition

of MSME
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In October 2019, Union Minister Nitin Gadkari had stated that the
revised definition of small, medium and micro enterprises could provide
a cohesive definition of all tax, investment, and more
The amended definition should be used as an amendment that will
further refine the business environment for Indian businesses

On 13th May 2020Minister of Finance Nirmala Sitharaman added the

additional principle of turnover along with the investment.

MSME definition – why the change?

When Finance Minister Nirmala Sitharaman made the announcement he

also cited reasons for the change He said the new definition would bring
many benefits that would help MSMEs grow in size
This was done under the Atmanirbhar Bharat Abhiyaan Economic
Package to alleviate India's economic woes during the epidemic

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Combined with all previous economic recovery efforts the total value of
the aid package reaches Rs 20 pounds

Benefits of Having MSME Registration-

 The Credit Guarantee Fund for Micro and Small Enterprises (CGS)
has been introduced by the Government of India to make non-
performing loans available in the small and medium enterprise
sector. Both existing and new businesses are eligible to be covered
under the scheme. The Department of Small, Medium and Micro
Enterprises, the Government of India and the Indian Small
Business Development Bank (SIDBI), have established a Credit
Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)
to implement the Credit Guarantee Fund Scheme for Micro and
small Businesses
 Reservation of items in the SSI sector is provided for in the
Industries (Development and Regulation) Act, 1951, as one of the
key policy measures to promote the sector

The Reservation Policy has two objectives- Ensure the

increasing production of consumer goods in the small-scale sector
Expand job opportunities by establishing small industrie

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 It has made it easier for businesses with an MSME Certificate to

obtain licenses, accreditation and registration in any field of their
business from the relevant authorities as they are able to produce
an MSME Registration Certificate upon application
 Under the International Cooperation Scheme, financial assistance
is provided on the basis of repatriation of Government / Central
Government organizations, industry / business Organizations and
registered organizations / trusts and MSME affiliated organizations
through the deployment of MSME overseas business teams to
explore new MSME sites. the participation of Indian MSMEs in
international exhibitions, trade fairs, trade fairs and international
conferences and conferences in the MSME sectors
 The octroi refund scheme provided under the Package Scheme of
Incentives, 1993 will be incorporated into the new Scheme up to
31-3-2006 with the same pattern. Where account-based or other
taxes are levied in place of or in the octroi, such change will be
eligible for a refund as occurs in octroi
 In the meantime, IT units in public areas of IT Parks have been
released from the train
 Businesses with MSME Registration may enjoy Direct Tax
Exemption in the first year of business, as stipulated in the scheme
by the Government and depending on the business activity.
 Businesses with MSME Registration may receive Registration
funding as stipulated in the scheme.Enterprises that have MSME
Registration can avail Subsidy on NSIC Performance and Credit
ratings as mentioned in the scheme.

 Enterprises that have MSME Registration are eligible for Industrial

Promotion Subsidy (IPS) as mentioned in the scheme.

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 Enterprises that have MSME Registration are eligible for Counter

Guarantee from Government of India through CGSTI.

 The Ministry of Micro, Small and Medium Enterprises gives

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

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

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

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

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

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

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

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

a scheme namely “Credit Linked CGSTI Subsidy Scheme
(CLCSS) for technology upgradation of Micro and Small
Enterprises. The scheme was launched in October-2000 and
revised from 29.9.2005. The revised scheme aims at facilitating
technology upgradation of Micro and Small Enterprises (MSEs) by
providing 15% capital subsidy (limited to maximum Rs 15 lakhs)
for purchase of Plant & Machinery. Maximum limit of eligible
loan for calculation of subsidy under the scheme is Rs 100 lakhs.
Presently, more than 1500 well established/improved technologies
under 51 sub-sectors have been approved under the Scheme.

 The Ministry of Micro, Small and Medium Enterprises gives

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

1. Issuing tender sets free of cost

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2. Exemption from payment of Earnest Money

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

at the unit is registered.

 Businesses that have MSME Registration Certificate can avail

Concession on their electricity bill by applying to the electricity
department along with MSME Registration Certificate.

 Businesses with MSME Registration may enjoy Excise Exemption

for first year of business, as stipulated in the Excise Exemption
Scheme by Government and depending on the business activity

 Businesses with MSME Registration can enjoy 15% weightage in

price Preference as stated

 Businesses with MSME Registration can benefit from 1% interest

rate off on OD as stated in the scheme
 Businesses with an MSME Registration Certificate can receive a
50% 50% subsidy on copyright registration by applying to the
relevant authorities

Registration Process-
Aadhar number is now forced to register under the MSME action. The
application must be submitted online using UdyogAadhar Registration,
and this can be verified using e-Aadhar OTP

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Temporary registration is granted for the first five years if the business
has not yet started its business During this time, it can obtain loans from
banks, and apply for various NOCs from regulatory bodies Once a
business has started operating, it can apply for a lifetime permanent
license, unless it has been canceled

Documents Required
The business must provide proof of the business address, copies of buy
and sell, and licenses from regulatory agencies

a. Business Address Proof

If the premise is self-owned– Allotment letter, possession letter, lease
deed or property tax receipt If there is a municipal license on behalf of
the business or on behalf of the property owner, partner or business
director, no other required documentation is required

If the premise are rented– rental receipt and a certificate of opposition

from the landlord is required Also any bill or document proving
ownership of the property must be submitted

b. Copies of Sale Bill and Purchase Bill

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

c. Partnership Deed/ MoA and AoA

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If the business is a partnership firm it must submit a deed of partnership.

If the partnership company is registered, they must also submit a
registration certificate.
If there is a company, a copy of the Memorandum and Articles of
Association, together with a certificate of incorporation, must be
submitted. For it, a copy of the resolution passed at the general meeting,
and a copy of the decision of the board authorizing the director to sign
the MSME application must also be submitted.    

d. Copy of Licenses and Bills of Machinery Purchased

In a few cases, the applicant must submit a copy of the industrial license
that will be obtained by submitting the application to the Govt. of India.
In addition, all payments and receipts related to the purchase and
installation of plants and equipment must be kept secure and required to
be sent on demand. 
MSME in India-

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

exports for 2017-18 reached $ 124.4 Bn according to data obtained from

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the Directorate General of Commercial Intelligence and Statistics

(DGCIS).

Total MSMEs registered in UdyogAadhar Memorandum (UAM) - 6.8

mn (updated as of June 2019)

• Micro Enterprises - 60,32,100

• Small Enterprises - 7,28,516

• Medium Enterprises - 28,611

States that have highest number of MSMEs:

• Maharashtra - 11,04,189

• Bihar - 8,29,694

• Tamil Nadu - 7,91,288

• Uttar Pradesh - 7,06,342

• Madhya Pradesh - 6,45,077

UNION BUDGET (2019-20) PROVISIONS

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The government has taken several steps to strengthen Medium, Small

and Micro Enterprises (MSMEs). The highlights of the MSME
Department's 2019-20 budget are as follows:

 Allocated $1 Bn.
 $ 50.1 Mn is provided under the ‘Interest Income Credit Rate on
MSME’ program. This will provide a 2% discount on incremental
loans up to INR 1 crore units registered by GST for MSME.

 $ 85.4 Mn is provided under the Credit Assistance Scheme, which

will ensure seamless credit guarantee for small and medium
enterprises.

 20 Large and 100 Large Technology Centers Established at a cost

of $ 858.12 Mn.

 These technical centers are being established in continuation of 12

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

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COVID-19 special relief to benefit MSME in India

 INR 3 trillion free loan (MS $ 39.84 billion) for MSME with a
profit of up to INR 1 billion (US $ 13.24 million). This will benefit
4.5 million units so that they can continue to work and maintain
jobs. This program is available until October 31, 2020.

 For stressed MSMEs, less than INR 200 billion (US $ 2.65 billion)
loans out of 200,000 MSMEs have been announced.
 Equity investment worth INR 500 billion (US $ 6.6 billion) in a
special MSMES fund that has active functions but needs to be
withheld due to COVID-19.
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 An INR 100 billion (US $ 1.3 billion) corpus fund will be set up to
help increase the capacity of these sectors, including enabling them
to be considered in the market if they so choose.
 International tenders are not approved for government purchases of
up to INR 2 billion (US $ 26.5 million).
 To compensate for canceled trade shows, the Indian government
will establish online market links.
 A 25 percent reduction in Source Taxes (TDS) and Taxes collected
from Source (TCS) from May 14, 2020 to March 31, 2021.
 The deadline for all income tax returns will be extended from July
31, 2020 to November 30, 2020.
 The Vivaad se Vishwas program, which resolves disputes over
indirect tax payments, has been extended until December 31, 2020.

What is FINANCE? – An Introduction

Finance is defined in many ways by different groups of people.
Although it is difficult to give a complete financial definition following
the selected statements will help you to get a broader definition of it.
In a general sense,
"Finance is money management and other valuables, which can be easily
converted into cash."

According to Experts,
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"Finance is the simple task of providing the financial (financial)

necessities needed by the business of companies such as companies,
firms, individuals and other conditions that are most favorable to achieve
their economic goals."
According to businessmen,
"Finance is about cash. That's right, because, all business activities
involve money directly or indirectly."

According to Academicians,
"Finance is the acquisition (acquisition, acquisition) of funds and the
(well-planned) use of funds It also deals with benefits that adequately
cover the costs and risks that the business beaRs ”

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1. Investment Opportunities
In finance, Investment can be defined as the use of cash or a return on
investment.
Investments can be made by: -
Making tangible assets financially (such as land development,
acquisition of commercial assets, etc.),
Performing business functions (such as manufacturing, trading, etc.),
and obtaining financial security (such as shares, bonds, joint financial
units, etc.)
2. Beneficial Opportunities
In finance, profitable opportunities are considered an important goal
(goal).
Profitable opportunities suggest that a company should use its resources
more efficiently under competitive market conditions.
Beneficial opportunities will be a vision. It will not lead to short-term
benefits by paying long-term benefits.
For example, a business operating illegally, illegal means of obtaining a
business, etc., can often lead to great short-term profits but may also
prevent good chances of long-term profit and survival of the business in
the future

3. Optimal Mix of Funds

Finance is about the best mix of funds to get the results you want and are
committed to success.
Basically, funds are of two types, namely,
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Ownership funds (Incentive Contribution, Equity shares, etc.), and

Loans (Bank Loans, Bank overdrafts, Debts, etc.).
Fundraising should be such that it will not lead to the loss of profits for
entrepreneurs (Facilitators) and should recoup the cost of business units
effectively and efficiently
4. Internal Control System
Finance is the internal control of an organization.
Internal controls are regulated by the rules and regulations established at
the beginning of the organization, and are subject to change according to
the needs of its business.
However, these rules and regulations are reviewed from time to time to
achieve the same consistency that was consistently followed

5. Future Decision Making

Finance is about the future decision of the organization.
"Good Money" is an indicator of growth and good returns. This can only
happen with a good organizational decision. However, the decision will
be made by placing greater emphasis on current and future perspectives
(economic conditions) respectively

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MSME FINANCE

India's economy thrives by using business-building methods as one of

the pillars of the economy. In this way, the "Make in India and Made in
India" movement is linked to business development across the country.
Therefore, Micro, Small and Medium Enterprises (MSMEs) play an
important role in strengthening the Indian economy

MSMEs have been contributing to the spread of business culture through

innovative technologies. A distinctive feature of MSME is that it is
widely distributed across all sectors of the economy producing a wide
range of products and services to meet domestic and global markets. It
cannot be said that the MSME contribution is eight percent of GDP, 45
percent of the product produced and 40 percent of exports and in
contrast to small investments driven by high profits. Job creation is close
to agriculture, which is why the MSME sector has the potential to strike
people to join the economic activities of self-employment.

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One of the Government's priorities is an inclusive approach to business

creation. In doing so, this integration will benefit all those entrepreneurs
including the first generation, women, organized nations, organized
planners, the disabled, former soldiers, discriminatory communities, etc.,
by enabling them to create businesses.

The MSME Department has a number of programs and programs to

assist and assist entrepreneurs, especially small businesses.

The MSME loan is a loan granted to a number of financial institutions to

meet various business-related costs. Such a loan comes with a qualifying
process that the applicant needs to meet. MSME loans are defined by the
Government of India and the RBI as loans for financial aid businesses,
infrastructure and other institutions. The purpose of this program is to
provide value for business operations and to protect the credit bureau
from sponsored benefits.

The Government of India provides small, medium and micro enterprises

(MSMEs) to people who want to borrow money to invest in small
businesses without promising any collateral. The program provides
financial assistance to banks and other financial institutions so that they
too can borrow free of charge from MSMEs. The purpose of this
program is to provide loans up to Rs 100 lakhs without collateral or
guarantee of a third party guarantee.
The program provides temporary and / or operational loans extended by
many lending institutions to large or small and medium enterprises.
Loans or loans should be borrowed by only one institution. Other
eligibility requirements depend on banks or NBFCs policies. Guaranteed
cover under the term repayment plan for term loans For people who
have received working capital, the guarantee cover is 5 years or a five-
year block.
Business loans are available to businesses to finance their various needs
such as purchasing equipment, equipment or other necessities. An
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operating loan is available to cover the company's daily financial needs.

MSME schemes can provide small to medium businesses with the funds
they need to grow their businesses
Businesses must meet certain eligibility requirements defined under the
schemes in order to enjoy the benefits extended by MSME loans.
After MSME loans, be aware that MSMEs loans (Micro, Small and
Medium Enterprises) come with flexibility, making this development
more accessible. Available at affordable interest rates, loans can be
repaid in simple EMIs. The government imposes certain conditions on
the division of business such as SME or MSME. Below are the MSME
loan terms set out.

The Government of India has provided various schemes for MSME

Finance. Some of these are listed below-

CGTMSE (Credit Guarantee Funds Trust for

Micro and Small Enterprises)-

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CGTMSE (Credit Guarantee Funds Trust for Micro and Small

Enterprises) was introduced to establish a robust credit facility and
promote better credit flow in the MSME sector. Under the CGTMSE
scheme, loans are financed without external collateral or securities by an
external company.

Here, the MSME loan approved by the Member Lending Institution

(MLI) is supported by a program that provides coverage for a large
portion of the loan amount. Under the CGTMSE program, new and
medium enterprises, small and medium enterprises, including service
businesses are eligible to receive high Rs 2 crore.

CGTMSE also provides unit renewal assistance. Any MSME unit in

crisis due to factors beyond the control of management is supported by

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the CGTMSE Renewal Assistance Large Debt of Rs 1 crore is supplied

to inactive MSME units

Eligibility for the CGTMSE Scheme

The CGTMSE scheme is offered to various institutions as follows

 Scheduled Commercial Banks

 Rural Regional Banks
 National Small Industry Corporation (NSIC)
 North Eastern Developmnt Finance Corporation (NEDFC)
 Small Industry Development Bank of India (SIDBI)

The CGTMSE program assists all new medium, small and medium-
sized business lenders who meet the following criteria

 The trust guarantees up to 75% of the principal unpaid amounts in

all categories up to 85% of the principal default in the selected
category of lendeRs The amount of the guarantee fee is kept at Rs
62.50 lakh / Rs 65 lakh of credit institutions up to Rs 50 lakh.
 Related payments such as penalty interest, commitment fee, and
service charge including any other taxes / fees are not paid by this
program
 Small and medium-sized enterprises owned and / or run by women
are also eligible for 80% coverage and all loans / loans to the North
East Region (NER) credit bureaux are eligible for a Rand
guarantee. 40 lakh. Other items such as retail trade, educational
institutions, agriculture, training institutions, and self-help groups
(SHGs) are not eligible for confirmation under the program.

Mudra Bank Schemes-

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Pradhan Mantri Mudra Yojana's main product will be for lending to

small businesses and units. The 2015 budget proposed the establishment
of a Micro Units Development Refinance Agency (MUDRA) Bank, a
corpus of Rs 20,000 crores, and a credit guarantee corpus of Rs
3,000crores.
Type of Assistance - The main product of MUDRA will be loans from
small businesses / units under Pradhan Mantri MUDRA Yojana. The
first products and programs under this umbrella have already been
developed and interventions have been named 'Shishu', 'Kishor' and
'Tarun' to reflect the growth / development phase and financial needs of
the micro unit / entrepreneur as it also provides the reference point for
the next graduation / growth phase. aspiring entrepreneurs

 Shishu: which includes loans up to Rs 50,000 /-

 Kishor: which covers loans in excess of Rs 50,000 /- and upto Rs
5 lakh
 Tarun: which covers loans in excess of Rs 5 lakh and upto Rs 10
lakh
Who can apply - Businesses / entrepreneurs / integrated units including
ownership / cooperative firms operating as small production units,
retailers, fruit / vegetable retailers, beauty salons, salons, trucks,

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retailers, cooperatives or human bodies, food service units , repair shops,

machinery, small industries, craftsmen, food processors, self-help
groups, specialists and service providers etc. in rural and urban areas
with financial needs amounting to Rs 10 lakhs.

The products introduced are as follows:

• Specific sector / business schemes, such as business activity
schemes in Land Transport, Community, Social & Personal
Services, Product and Textile Product sectoRs Strategies will
likewise be applied to other areas / activities.
• Micro Credit Scheme (MCS)
• Rural Banking (RRBs) / Organized Partners' Financial Plan.
• Mahila Uddyami Scheme
• Business loans for retailers and shopkeeper
• Lost Medium Credit System
• Micro Units Service Fee MUDRA will also adopt a credit
facility and adopt development support interventions across
all beneficiary categories. Highlights of the proposed
interventions / efforts are as follows:
• Supporting financial literacy
• To promote and support of Grass Root Institutions
• Establishment of a Framework for “Small Business Finance
Entity”
• Collaboration with the National Rural Livelihoods Mission
• Collaborate with the National Skill Development Corporation
• Working with Credit Bureaus
• Working with Credit Rating Agencies

How to apply - An application for the right people and institutions

can be submitted to the Nodal Officer for the relevant districts. Details
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of the Nodal Authority can be found at http://www.mudra.org.in/ Nodal-

Officers-MUDRA.

SIDBI Schemes-

 Growth Capital and Equity Assistance

Description - Providing capital to MSMEs for the purpose of
investing in marketing, brand development, creating distribution
network, know-how and R&D etc

Type of assistance - Assistance made with of mezzanine/

convertible instruments, subordinated debt & equity.

Who can apply-Micro Small and Medium Enterprises

How to apply- Through an online enquiry

 Refinance for Small Road Transport Operators (SRTOS)

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

operating costs, for new vehicles only.

Type of assistance- Re-funding

Who can apply - Small (road transport) operatoRs

How to apply- Apply at SFC/SIDC/Banks.

 General Refinance

Description - Setting MSME or extensions/modernization,

diversity etc

Type of assistance - Financial assistance

Who can apply - All types of MSME

How to apply - Apply at SFC/SIDC/banks

 Refinance for Textile Industry under Technology Upgradation

Fund (RTUF)

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

the existing machinery, or for expansion.

Nature of assistance - Re-financing

Who can apply - Textile industries

How to apply - Apply to SFCs/SIDCs/banks

 Acquisition of ISO Series Certification by MSE Units

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Description - Based on the costs of the process and the equipment

required, the loan will be determined.

Nature of assistance - Financial support for getting ISO

certification

Who can apply - MSME with two years performance as well as not
in default

How to apply - Apply at SFCs / SIDCs / banks

 Composite Loan

Description - Assistance for equipment/ working capital and also

for work sheds.

Type of assistance - Loan not exceeding Rs 25 lakh

Who can apply - Artisans, micro-units, rural and cottage industries

How to apply - Apply at SFCs / SIDCs / banks

 Single Window

Description - Provides term loans for fixed assets as well as loan

for working capital

Type of assistance - Loans for fixed assets as well as working

capital

Who can apply - New projects in the MSE sector

How to apply - Apply at SFCs / SIDCs / banks

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 Rehabilitation of Sick Industrial Units

Description - Provides assistance to sick business units

Nature of assistance - Assistance for the rehabilitation of

potentially sick MSME

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

How to apply - Apply at SFCs / SIDCs / banks

 Development of Industrial Infrastructure for MSME Sector

Definition - Establishment of industrial areas / industrial

development, including those projects that are deemed appropriate
under the KVIC model

Type of assistance - Financial support for industrial infrastructure

Who can apply Industrial infrastructure facilitators

How to apply - Apply at SFCs / SIDCs / banks

 Integrated Infrastructural Development (IID)

Definition - Improving MSME infrastructure

Type of assistance - Ceiling on project cost is Rs 500 lakh; costs of

more than Rs 500 lakh can be met by National / UT Government

Who can apply - Public sector organizations, NGOs

How to apply - Apply at SFCs / SIDCs / banks

 Bills Re-discounting Equipment

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Description - Deferred payment for setting up new MSME units;

expansion, diversity, modernization, replacement, installation of
balancing equipment, etc.

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

Who can apply - Manufacturer - retailers / consumers - users of

traditional equipment / cash machines, one of whom should be in
the small-scale sector

How to apply - In the proforma prescribed by SIDBI.

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

Description - Bills on MSME supplies that have already been

discounted by buyer/seller re-discounted with SIDBI

Type of assistance- Unexpired use (not more than 90 days)

Who can apply – Micro Small and Medium Enterprises suppliers

How to apply - Apply to scheduled commercial banks

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NABARD Schemes-

 ProducerOrganizations DevelopmentFund (PODF)

Description - Credit facilities for the purpose of manufacturing,

aggregation, processing & marketing.

Type of assistance - Credit support fund, skills development and

market communication organizations

Who can apply - Marketing organizations / companies / co-

operatives

How to apply - Apply at a bank

 Dairy Venture Capital Fund

Description - Milch animals

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

Who can apply - Individuals

How to apply - Apply through banks

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 Establishing Poultry Estates and Mother Units forRural

Backyard Poultry

Description - Assistance for poultry development in every form

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

lakh

Who can apply -Individuals

How to apply - Apply through banks

 Establishment/Modernization of Rural Slaughterhouses

Description - Subsidy based creditlinkforruralslaughterhouses

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

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

How to apply - Apply to banks

 Commercial Production Units of Organic Inputs

Description – This scheme is for vegetable market waste-based

compost, production of fertilizers and pesticides.

Nature of assistance - Subsidy @ 25% of capital project costs

Who can apply – Individual Persons

How to apply -Apply to banks

 Poultry Venture Capital Fund

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Description - Promoting poultry farming in exotic states, and

providing employment opportunities in backward areas

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

10% margin, rest bank loan

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

How to apply -Visit DAHD website

 Credit Linked Capital Subsidy (CLCS)

Description - The scheme is meant for technological up-gradation

of Micro and Small Enterprises.

Nature of assistance -Technological up-gradation of MSMEs in the

specified products/sub-sectors inducting well-established and
improved technologies which are approved under this scheme for
which capital subsidy is provided by the government.

Who can apply – Small and Medium scale Enterprises.

How to apply - Need to apply through cooperative banks, Regional

Rural Banks as well as commercial banks.

 SwarozgarCredit Card
Definition - This system provides sufficient, timely and
uninterrupted credit, that is, operating expenses that include
utilization requirements and / or blocking financial requirements
from the banking system in a flexible, unobtrusive and inexpensive
manner and this scheme is implemented through rural banks
Type of assistance - Operating expenses including utility
requirements and / working capital.

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Who can apply - Small Craftsmen, Craftsmen and other self-

employed people including small ones - small business owners,
SHGs

How to apply - Apply to nearest Rural Banks

 NABARD Warehousing scheme

Description – Reserve Bank Of India (RBI) has issued guidelines
for the creation of a 'Warehouse Infrastructure Fund' (WIF) at
NABARD. With a view to implementing WIF, NABARD has
developed a program, namely, the NABARD Warehousing
Scheme (NWS), which aims to increase lending to public and
private institutions for the construction of warehouses, silos, cold
areas and other cold infrastructure. Funds under this program will
be used to meet the growing demand for agricultural storage
nationwide and following the enactment of the National Food
Security Act, 2013.

Type of assistance - Loans will be provided for projects that

include the construction of storage infrastructure, with a minimum
capacity of 5,000 MT, for agricultural and integration production
including the construction of warehouses, silos and cold storage.
Proposed projects will be prioritized in the eastern & north-eastern
and states of food grain deficit.

Who can apply - State / Central Govt-run agencies, Panchayati Raj

institutions, cooperatives (and their Federations), Farmers
Producers Organizations (FPOs), Federations of Farmers
Collectives, boards of Apex Marketing, Private Companies, Private
Entrepreneurs
How to apply - Loans will be granted only in respect of those
projects which are not only in line with the requirements set by the
Warehousing Development and Regulatory Authority (WDRA),
but also provide an obligation to obtain accreditation / registration
at WDRA upon completion of Infrastructure.
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Documents required for MSME loans

General documents required for MSME loans-

When applying for an MSME loan, the required documents usually

include KYC documents, business documents and financial
statements. Here is a list that can serve as a checklist for a standard
MSME loan document.

 Identity proof i.e. PAN card, Aadhar card, driving license,

passport and voter’s ID.

 Address proof: For example- Aadhar Card, Ration card,

electricity bill, lease agreement and trade license.

 Financial documents: Last two years Income Tax Returns,

Audited Balance Sheets and Profit and Loss statements (if any),
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Estimated and Projected Financial Statements and bank statements

previous six months.

 Business proof: Registration certificate, memorandum and articles

of association, other certificates of business’ existence.

Specific documents as per your business type

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

 Sole proprietorships: Registration certificate, ITR or another

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

 Companies: Certificate of incorporation, memorandum of

association, articles of association.

 Partnership firms: Registration certificate, partnership deed.

 Private limited companies: Registration certificate, articles and

memorandum of association.

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PSB Loans in 59 Minutes

On 2 November 2018, Prime Minister Narendra Modi announced a

small Diwali gift for MSMEs (Micro, Small and Medium Enterprises) in
India. The Indian government has launched an instant business loan
portal for people who wish to expand their existing business. Under this
program MSMEs can receive a loan amount of Rs 1 Lakh to Rs 5 Crore
in less than 59 minutes from public and private banks and non-bank
financial institutions (NBFCs).
PSB Loans in 59 minutes is an online marketplace, enabling
entrepreneurs to apply for a Business Loan with an interest rate of
8.50% onwards. The move was taken to ease the MSME Business and
promote the self-employed business model in India by reducing the
process of approving credit and long bank queues. PSB Loans in 59
minutes aims to approve the business loan in 59 minutes thus greatly

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reducing it from a long 30-day process and expected to be disbursed in

7-8 working days, if approved.

Eligibility Criteria:

For the Business which already exist the borrower should be GST,
Income Tax compliant and should have bank statement of previous six
months. The Loan Eligibility will be determined based on the following
factors:

 Income or revenue
 Repayment capacity of the borrower or applicant
 Credit facilities that exist at the time of loan application
 Other conditions set by financial lender

Features and Benefits:

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

loan for 59 minutes helps to provide a loan amount from Rs 1 Lakh
to Rs 5 Crore for all entrepreneurs so any requirement of business
whether small or big can be met easily with the mentioned loan
amount.

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

from 8.50% onwards.

 Minimum Documentation: With PSB Loans in 59 minutes, whole

process of obtaining a Small Business Loan for MSMEs is
expected to become extremely quick as well as hassle free that too
with minimal documentation.

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 Advanced Technology Supported Loans: PSB Loans in 59

minutes processes the loans without individual intervention till the
stage of sanction or the disbursement. The process of analysis is
conducted from the various sources of the loan applicant’s
financial profile.

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

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

 Safe as well as Secure: The platform understands the security of

the information provided by loan applicants. All applicant
information is secure and safe with the high level of security

 Integration with government facilities: PSB Loans in 59 minutes

is integrated with the latest government facilities like Income Tax
Return, GST and bank statement and therefore assists in loan
application decisions.

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Documents required for PSB Loan

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

Details of the Loan

GST Details Details of Income Tax
Required

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

 GST Details: GST Identification Number (GSTIN) as well as GST

User Name

 Details of Income Tax: Income Tax Returns of latest 3 years in

XML format

 Bank Statement of previous 6 months in PDF Format: The Loan

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

 Details about the Loan Required

 Details about owners or partners or director

 E-KYC Documents of the applicant

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LITERATURE REVIEW
A study by Dr. Ram Jass Yadav on the topic Msme Finance: Viability
Study From Persons's Perspective concluded that Most of the global
economy is in deep crisis due to extreme social and economic conditions
such as high unemployment and especially the new generation. The United
Nations, prior to 2011, issued a stern warning that at least 22 million new
jobs should be created immediately, preventing the world from entering
many parts of the coming years. The key to this problem lies in MSMEs.

A study by Charan Singh and Kishinchand Poornima Wasdani published in

the ADBI Working Paper Series found that the financial resources used by
MSME depend on what is present in the business life cycle. The study
identified four stages: onset, survival, growth, nutrition. Start-ups use funds
from personal, friends, and family preservation, especially for financial
purposes.

Other research conducted on the topic of MSME's Role in Indian

Development by Aishwarya Shukla, Manisa Meena, Neha Asthana,
Vartika, Mr. Abhishek Pareek concluded that bank branches do not even
have the paperwork or forms required to provide any assistance to MSME.
The study also found that the bank's employees were unaware of their
various policies and procedures related to MSME funding and that MSME
forms a large part of the Indian economic and economic development sector
and especially financial institutions and staff should be aware of the sector
to provide adequate and timely funding. of MSME.

RESEARCH METHODOLOGY
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Problem Statement: The creditworthiness of the MSME sector in India

is reducing continuously due lack of adequate capital and lack of proper
infrastructure and therefore creating future bad loans for the MSMEs.
Research Objectives:
 The main objective of this project is to understand the credit
evaluation and appraisal system that is followed by Bank of India
for the purpose of disbursing loans to MSME sector.
 To analyze the responses sought from entrepreneurs as well as
bank officials regarding the problems being encountered by them
and related issues in MSME finance and ascertain the viability of
various measures suggested by them to overcome from the
constraints.
 To identify major issues in MSME financing from borrowers as
well as banks point of view.
 To examine the status of credit flow to the MSMEs against the set
benchmark under the Micro, Small and Medium Enterprise Policy
guidelines.
 To analyse primary data for observations and to offer
recommendations to enhance accessibility of bank finance to Small
and Medium Enterprises.
Research Method:
 Type of Research Design- Descriptive Research
 Data used- Primary and Secondary Data
 Population- Local Entrepreneurs and Small & Medium Enterprises
from Varanasi.

DATA COLLECTION AND ANALYSIS

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 AGE LIMIT OF THE CLIENTS

It was found that 76% of the clients surveyed were between 30-50
years of age. It would be risky to provide loans above 60 aged
clients for MSME banking in India. Figure :
40
35
30
25
20
15
10
5
0
Category 1 Category 2 Category 3

 EDUCATIONAL QUALIFICATION OF THE CLIENTS

In the study, it was found that the majority of owners were H.S.C
passed only. It is a common perception about the MSME
customers in India that they are not much educationally advanced.
The result of the survey also reflects the same perception.

Educational Qualification
Below SSC SSC High School Graduation
4%
8%
14%
34%

40%

 DIFFERENT CATEGORIES OF BUSINESS

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In the study, it was found that trade concerns were a major

proportion of MSME owneRs 80% of the owners run a trading
business while the production percentage is 16% and service only
4%. In terms of business categories, textiles & fabrics is leading
business with 38%. Plastic and retail products 18%, paper and
book 4%, engineering works 4%, furniture and wood products 8%,
agro business 14%, iron and steel 8% and electronics 6% are
among others

Business Type
4%

16%
Manufacturing
Trading
Serivces

80%

Business Sector

18%

Plastic and Retail

40% 4% Paper and Books
Textiles ad Fabrics
Others

38%

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 BUSINESS EXPERIENCE OF THE PROPRIETORS

The majority of the sample was found to be 5–10 (22) years old,
with the second highest being 10-15 (10) yeaRs That means most
providers have in-depth knowledge of their business line.
25

20

15

10

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

 MAJOR USE OF THE SME LOAN

It is evident that loans are widely used to buy raw materials. 58%
of respondents agreed that the most common use of this loan is
purchase of raw materials. Salary and daily expense (28%) being
second most used purpose of the loan. Paying the creditors is
another way to make use of loan 14% respondents agreed to the
fact.

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Use of Loan
8%
14%

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

50%

 WAITING PERIOD BETWEEN LOAN APPLICATION AND

SANCTION

Customers are asked how long they have to wait for the loan to be
sanctioned. The majority of respondents (48%) said it took less
than one (1) month between applying for a loan and its sanction.
24% of respondents said it took about a month to get a loan. 18%
of respondents said it takes 1 to 2 months and 10% responded that
it takes more than 2 months to get a loan.

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Waiting Period
1%

15%

Less than 1 Month

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

36%

 SATISFACTION LEVEL ON THE SERVICE OF BANK OF

INDIA

Respondents were given 5 satisfaction levels ranging from High

Satisfaction to High Dissatisfaction. In response, eight respondents
indicated that they were very satisfied, 24 satisfied, three neutral, 9
dissatisfied and 6 completely dissatisfied with MSME services
30

25

20

15

10

0
Highly Satisfied Satisfied Neutral Dissatisfied Highly Dissatisfied

DETERMINATION OF PROBLEMS FACED BY BANK-

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SME bankers identified some problems or risks that bank faces in

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

1. Limited opportunity to offer flexible repayment options for

private loan lenders prior to default: Presently BANK OF
INDIA has this type of problems for the MSME loan (term loan)
facilities. The borrowers become if they fail to pay 3 installments
in a row and when they face certain problems the BANK OF
INDIA officials find it difficult to offer flexible payment options to
them than they become a defaulter.

2. Confusion with borrowing terms and conditions: According

to the bank officials, another problem with the customers is
confusion over the borrowing terms and conditions. Most of the
SME owners do not have enough experience in transacting with
banks and for these reasons they are not easy to handle. Due to this
reason managing such customers becomes a bit problematic for the
bankeRs

3. Inaccurate information regarding the borrower: The CIB

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

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4. Collateral Risk: Risks with collateral means that whether the

collateral is under owner’s possession and whether the collateral is
the correct property shown by the borrower etc. This type of
problem is very common and maximum loans become irregular or
default due to this reason.

5. Risks with Documentation: Applying for MSME loans from

the banks with fake documents is a common thing for the
customeRs In order to ensure safety of lending, banks must ensure
the originality of the documents related to the mortgaged
securities.

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

7. Unsecured Loans: Unsecured loans consist a large portion of

the total SME portfolio. In this type of loan, personal guarantee of
the owner and his/her relative or some other persons is considered
the primary security. However, when a borrower fails to repay the
loan, the bank experiences difficulties in recovering it because
personal proof is not sufficient to sue and other legal action.

LOANS AND ADVANCE POSITION OF BANK OF INDIA

BANK OF INDIA currently stands among the top banks in Uttar
Pradesh. Their relentless pursuit of success leads them to improve
their loan portfolio year after year. From the statistics it can be

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seen that, overall progress has increased from 2015 to 2019

6000

5000

4000

3000

2000

1000

0
2015 2016 2017 2018 2019

PERFORMANCE OF BANK OF INDIA IN SME SECTOR

As a third generation bank, BANK OF INDIA is continuously
striving to grow its loan portfolio in various sectoRs At MSME,
they are also trying to expand

Advance in Recent Years

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

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PERCENTAGE OF SME LOAN TO TOTAL LOAN OF

BANK OF INDIA
BANK OF INDIA was one of the top private banks in the financial
sector. Over the past few years managers have tried hard to
increase the exposure of SMEs. The SME loan component over the
past few years is proving true. From this figure, it can be seen that
SME loans have increased from last year in 2015 and 2019.
7000

6000

5000

4000
Total Loan
3000 SME Loan

2000

1000

0
2009 2010 2011 2012

 SWOT ANALYSIS OF SME FINANCE DIVISION OF BANK

OF INDIA
The SWOT Analysis on BANK OF INDIA's SME FINANCE
division is presented below: Strengths
1. Powerful Human Resource
2. National distribution network as well as coverage
3. Continuous improvement in & development of new
products
4. Quick loan approval and monitoring process
5. Competent risk management system

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Weakness
1. SME Loan portfolio of the Bank lacks sectoral
diversification.
2. Perception of the customers about the Bank and it's
service is not satisfactory.
Opportunities
1. More geographic territories for MSME operation
2. Workshops and trainings for the SME FINANCE
officers
3. Management of BANK OF INDIA is giving
priorities to increase the MSME loan exposure for
less
4. More provisioning than the traditional loans offering
lower interest rate than other banks can give an edge
to BANK OF INDIA MSME
5. Improving the customer service can help BANK OF
INDIA attract more MSME customeRs

Threats
1. Current market of MSME is too competitive and
BANK OF INDIA might lose a big portion of its
prospective clients to other banks and NBFC
2. Current political situation is vulnerable and the
owners are currently reluctant in availing MSME
loans.
3. Improper monitoring for MSME loans might
become a threat for Bank Of India’s overall
performance in the long run
4. Recession in Global Market
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FINDINGS
From the data collection the following things are found:

1. BANK OF INDIA MSME FINANCE officer must carefully select the

owners while issuing the MSME loan. Because old age business owners
cannot pay the MSME loans. The maximum age limit for taking any
MSME loan program is 60 years according to BANK OF INDIA MSME
policy.

2. Inexperienced MSME owners are not encouraged to take MSME

loans. From the data analyzed, it was found that most of the proprietors
have 5-10 years of experience who are receiving MSME loan at present.

3. Most of business owners interviewed use MSME loan for purchasing

raw materials or equipment. The other major use of the MSME loan is
for meeting salary and daily expenses.

4. The majority of owners (48%) said it took less than one (1) month to
apply for a loan and be punished. 24% of owners said it took about a
month to get a loan. That means BANK OF INDIA MSME is working
well for clients in terms of providing MSME loans.

5. According to the proprietors those who apply for the loan, BANK OF
INDIA MSME service should be more attractive in time length between
loan applications and repayment. Inexperienced marketing force is also
the negative thing to discourage the proprietors to the loans this means
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that the BANK OF INDIA’s management should make some proper

steps to organize the whole MSME marketing and disbursement process
for better results.

6. After taking a loan from BANK OF INDIA, some owners say they are
very satisfied or satisfied with the MSME loan of BANK OF INDIA. It
means that more than 60% of owners think that the BANK OF INDIA
service level is very good and very satisfying with customeRs

7. The problems or risks regarding MSME loans for the bankers are like
flexible repayment methods for borrowers, confusion on loan terms and
conditions, incorrect information, risks with guarantee, document risk,
moral hazards with unsecured loans, monitoring activities etc.

8. Compared to other banks (public and private) BANK OF INDIA has

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

9. MSME market is highly competitive and BANK OF INDIA may lose

a significant portion of its future client portion to the other banks, but
BANK OF INDIA has a strong human resource and experienced MSME
team which can help the bank achieve the future targets successfully.

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CONCLUSION
As a third generation public sector commercial bank, BANK OF INDIA
has a good possibility to become a leading bank in the Indian economy.
And in order to achieve this, it need to find out the areas where they can
expand. In recent years, the bank’s performance in MSME sector
compared to other banks is not so much satisfactory, but BANK OF
INDIA showed a regular growth from 2015 to 2019. This means that it
has the possibility to become one of the best banks in MSME sector.
MSME is a priority sector for India’s economy which will be important
for all the banks in the near future. All the banks have always been
trying to maximize their MSME portfolio. That is why, to keep up with
other banks in the country, BANK OF INDIA needs to recognise the
problems of the future MSME clients and try to find the best possible
method to make good connection with their new clients and achieve
their goals.

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

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

successful

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

expand the MSME portfolio

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

reduce guarantee risk and loan default

4. BANK OF INDIA authority should provide adequate training to their

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

5. The banking industry is extremely competitive and continuously

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

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

borrowers

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

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

3. https://www.wikipedia.org

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

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

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

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

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

9. UNION BUDGET (2019-20)

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

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