UNIVERSITY OF MUMBAI

PROJECT ON

INDUSTRIAL FINANCE BY SIDBI

BACHELOR OF COMMERCE

(BANKING & INSURANCE)

SEMESTER V

(2016-17)

SUBMITTED BY

POOJA RAMESH PANGUL

ROLL NO. :

1027

PROJECT GUIDE

PROF. (Mrs.)

LAKSHMI CHANDRASEKARAN.

HINDI VIDYA PRACHAR SAMITIS

RAMNIRANJAN JHUNJHUNWALA COLLEGE

GHATKOPAR (WEST) MUMBAI 400 086

CERTIFICATE
 This is to certify that Miss POOJA RAMESH PANGUL of B.Com

Banking and Insurance Semester V (2016-17) has successfully completed the

project on INDUSTRIAL FINANCE BY SIDBI under the guidance of Prof.

(Mrs.) LAKSHMI CHANDRASEKARAN. .

Principal

Dr. Usha Mukundan Seal of the College

Project Guide / Internal Examiner

Prof. (Mrs.):

External Examiner

Prof.

Date:

DECLARATION
 I, POOJA RAMESH PANGUL of the student of B.Com (Banking &

Insurance) Sem. V (2016-17) hereby declare that have completed the project on

INDUSTRIAL FINANCE BY SIDBI.

The information submitted is true and original to the best of my knowledge.

Signature of Student

Name of the Student: POOJA RAMESH PANGUL

Roll No. :1027

ACKNOWLEDGEMENT
 I would like to express my sincere gratitude to the Almighty for having
showered his immense blessing on me and has enabled to complete this research
work.

I would also like express my heartfelt gratitude to our Principal Dr. Usha
Mukundan, who has given me opportunity to conduct this study.

My guide is Prof. (Mrs.) Lakshmi Chandrasekaran also deserves

sincere thanks that she has given me her guidance throughout the project and
made it a success.

My parents have been a backbone to me in completing this Project and

my friends who extended their constant support during my study also deserve
heartfelt thanks.

INDEX

SR.NO. CHAPTER CONTENTS PAGE

NO. NO.
1 1 Industrial Finance by SIDBI 1-10
Role of Industrial Finance By
2 2 11-18
SIDBI
3 3 Schemes 19-27

4 4 Features of SIDBI 28-38

5 5 Products 39-49

6 Questionnaire 50-51

7 Conclusion 52

8 Bibliography 53
 CHAPTER 1

INDUSTRIAL FINANCE BY SIDBI

Introduction :
1
 Small Industries Development Bank of india is an
independent financial institution aimed to aid the growth
and development of micro, small and medium-scale
enterprises (MS was incorporated initially as a wholly
owned subsidiary of Industrial Development Bank of India.
Currently the ownership is held by 34 Government of
India owned / controlled institutions. Beginning as a
refinancing agency to banks and state level financial
institutions for their credit to small industries, it has
expanded its activities, including direct credit to the SME
through 100 branches in all major industrial clusters in
India. Besides, it has been playing the development role in
several ways such as support to micro-finance institutions
for capacity building and onlending. Recently it has
opened seven branches christened as Micro Finance
branches, aimed especially at dispensing loans up to 5
lakh.
It is the Principal Financial Institution for the Promotion,
Financing and Development of the Micro, Small and
Medium Enterprise (MSME) sector and for Co-ordination
of the functions of the institutions engaged in similar
activities.
SIDBI has also floated several other entities for related
activities. Credit Guarantee Fund Trust for Micro and
Small Enterprises provides guarantees to banks for
collateral-free loans extended to SME. SIDBI Venture
Capital Ltd. is a venture capital company focussed at
SME. SME Rating Agency of India Ltd. (SMERA) provides
composite ratings to SME. Another entity founded by
SIDBI is ISARC - India SME Asset Reconstruction
Company in 2009, as specialized entities for NPA
resolution for SME.

Types of Industrial Finance by SIDBI :

2
 Venture capital is an area of finance that
specializes in funding new companies and their expansion
efforts. Trade finance makes international trade possible
by issuing Letters Of Credit (LOC) used to purchase goods
from overseas companies. An LOC funds the
manufacturing of products when a company uses the LOC
as collateral for a manufacturers loan. Bank loans help
finance accounts receivable, and credit cards help finance
a companys travel and entertainment expenses. All this
activity in turn serves to keep money flowing throughout
the global economy.

Function of Industrial Finance by SIDBI :

With a view to ensuring larger flow of financial and non-
financial assistance to the small-scale sector, the
Government of India set up the Small Industries
Development Bank of India (SIDBI) under a special Act of
the Parliament in October 1989 as wholly-owned
subsidiary of the IDBI. The bank commenced its
operations from April 2, 1990 with its head office in
Lucknow. The SIDBI has taken over the outstanding
portfolio of the IDBI relating to the small-scale sector.

The important functions performed by of SIDBI

include :
1. To initiate steps for technological up-gradation and
modernisation of existing units.
2. To expand the channels for marketing the products of
SSI sector in domestic and international markets.
3. To promote employment oriented industries especially
in semi-urban areas to create more employment
opportunities and thereby checking migration of people
to urban areas

3
Benefits of Industrial Finance by SIDBI :
4
 Much lower fixed costs.
Much closer business model to SIDBIs core business.
Wide geographical outreach.
Better diversification of risks.
Strengthening of SIDBIs position within these dor.
High growth without requiring much equity.
Higher ROI.
Broadned range of product and services to a new
clients target.
Reduces risks while sending a new business line.

Sources of Industrial Finance by SIDBI :

5
 1) Risk Capital and Technology Finance Corporation
Ltd. (RCTC)
2) Technology Development and Information Company
of India Ltd. (TDICI)
3) Tourism Finance Corporation of India Ltd (TFCI)
4) North Eastern Development Finance Corporation Ltd
(NEDFI).
5) Investment Institutions of India
6) Commercial Banks
7) Post Liberalization Policy Reforms in Industrial
Finance Since 1991.

1) Risk Capital and Technology Finance

Corporation Ltd. (RCTC):
Risk Capital Foundation (RCF) established by the IFCI
was operating since 1975. In January 1988, the Risk
Capital and Technolog finance was set up. It was no
different but just a reconstitution of the old RCF. It
provides risk capital, venture capital assistance and
technology finance, all under one roof. It, thus,
encouraged the innovative entrepreneurs and technocrats
for their technology oriented ventures. Projects that
envisage advancement, promotion, transfer, adaptation,
6
technological upgradation and commercialization of new
technologies etc. for the modernization of industries are
supported by the technology finance schemes.

2) Technology Development and

Information Company of India Ltd.
(TDICI):
Technology knowledge, information and know-how and
technological development through technology
upgradation was the spirit of the late 1980s. To echo the
spirit and to reinstate the development of the Indian
industry. The ICICI and the UTI set up in 1988, the
Technology Development and Information company of
India Ltd (TDICI). The company sought to promote
technology development through transfer and upgradation
of technology and by providing of technology information.
It is at its spirit a technology venture finance company
that grants project finance to new technology ventures for
development of indigenous technology, technologist
entrepreneurship and to support commercial R & D
operations in industries.

3) Tourism Finance Corporation of India

Ltd (TFCI):
The tourism industry was booming in the late 1980s. As
an industry to supplement the development of the main
stream Indian industry, it was needed to be supported and
promoted. In this light, the Tourism Finance Corporation
of India Ltd. (TFCI) commenced its business in February
1989. It caters the financial requirements of the tourism
industry for their allied activities, facilities and services. It
provides financial assistance to both conventional and
non-conventional tourism projects in terms of loans,
underwriting of and direct subscription to industrial
securities, deferred payments, suppliers credit and
equipment leasing.
7
4) North Eastern Development Finance
Corporation Ltd (NEDFI):
In the overall development of the Indian industry since
the Independence, the upper most and remote corner of
the Indian subcontinent in the North-East received little
attention. During 1990s, the government realized that
such facts would not go in the interest of balanced
development of the Indian industry in all regions. With
this realization, it set up the North Eastern Development
Finance Corporation Ltd in 1995. It was expected that it
would help accelerating industrial and infrastructural
development in the northeast region. The primary focus of
the NEDFI at its initial stage remains on identifyingand
develop entrepreneurship and to finance the
establishment of new 129industrial and infrastructure
projects in the north-east region. It also pays adequate
attention to expansive diversification and modernization
projects of existing industrial enterprises.

5) Investment Institutions of India:

Imparting finance remains the need for industrial
growth. Raising finance too remains the need to recoup
the finance for further investment in industry. Hence, a
need was felt to have an institutional network in India that
would raise finance from competent sources and divert it
to investment in industry. One such competent source of
finance is the Indian public and one such institutional
network would be the Investment Institutions of India.
These investment institutions are Life Insurance
Corporation of India (LIC), General Insurance Corporation
of India (GIC) and Unit Trust of India (UTI). They were set
up in 1956, 1973 and 1964 respectively. The LIC deals in
life insurance business and the GIC deploys their funds in
accordance with the government guidelines. The UTI

8
mobilizes savings of small investors through sale of unites
and channelises them into corporate investments.

6) Commercial Banks:
After the Independence, commercial banks have
emerged as a significant sources and managers of funds to
the Industry. The bulk of bank finance remains of short-
term nature particularly to meet working capital
requirements of industries. It may be released against
security and personal guarantee. After 1974, banks have
been extending medium and long-term loans also. Their
operations of investment are so far confined largely to the
sale and purchase of government securities rather than in
holdings of industrial securities.

7) Post Liberalization Policy Reforms in

Industrial Finance Since 1991:
The financial sector is in the process of rapid change. It
is consequent of structural adjustments initiated by the
Government in various sectors of the economy since 1991.
The government took several steps to implement reforms
in the financial sector in a phased manner. It acted on the
recommendations of the Khan Working Group and the
Narasimham Committee. The Khan Working Group was
constituted by the RBI under the chairmanship of S.H.
Khan. The purpose was to harmonize the role of
development of the financial 131 institutions and banks.
The Narasimham Committee too was expected to report on
reforms in the financial sector. The recommendations of
both the committee laid significant implications on the
operations of development financial institutions. They
recommended several reforms to harmonize to co-
ordination between the role and operations of banks and
the DFIs. These reforms addressed to reduction of
resource requirement, de-regulation of interest rates,
introduction of prudential norms like income recognition,
9
asset classification, provision for bad and doubtful debts
and capital adequacy strengthening of bank of DFIs
supervision etc., and improvement in the competitiveness
of the system particularly by allowing entry of private
sector banks etc.

CHAPTER 2

10
Role of Industrial Finance by SIDBI:
The SIDBI was established as a wholly owned
subsidiary of Industrial Development Bank of India (IDBI)
under a special Act of the Parliament 1988 and started its
operations on April 2, 1990. It took over the responsibility
of administering Small Industries Development Fund and
National Equity Fund which were earlier administered by
IDBI. It is the Principal Financial Institution for the
Promotion, Financing and Development of the Micro,
Small and Medium Enterprise (MSME) sector and for Co-
ordination of the functions of the institutions engaged in
similar activities. It is managed by a team of 10 Board of
Directors. The authorised capital of the Bank is Rs. 1000
crore and the Paid up capital is Rs. 450 crore.

SIDBI Associates :
Credit Guarantee Fund Trust for Micro and small
Enterprises.
India SME Technology services LTD.
SME rating agency of INDIA LTD. (SMERA)
India SME asset Reconstruction company LTD.
SIDBI Venture Capital Limited (STCL).
SIDBI Trustee Company Limited (STCL).

SIDBI Subsidiaries :
SIDBI provides direct, indirect and micro finance facilities.

Direct Finance:
In the form of term Loan Assistance, Working Capital
Assistance, Support against Receivables, Foreign Currency
Loan, Scheme of Energy Saving for MSME sector, equity
support etc.

Indirect Finance:
The Indirect assistance in the form of Refinance is
provided to Primary Lending Institutions (PLIs),

11
comprising banks, State Level Financial Institutions, etc.
having a wide network of branches all over the country.
The main objective of Refinance Scheme is to increase the
resource position of PLIs which would ultimately facilitate
the flow of credit to MSME sector.

Micro Finance:
SIDBI provides micro finance I.e. credit to small
entrepreneurs and business for establish their business.

Objective of Small Industries Development

Bank of India (SIDBI) :

12
 Small industrial Development Bank of India (SIDBI) was
established in 1990, as a wholly owned subsidiary of
industrial Development Bank of India. It was set up for the
promotion, financing and overall development of small
scale industries in the Indian economy. In the year 2000,
SIDBI was delinked from the IDBI. Now the objectives of
SIDBI are as follows:

A) Development of small Industries:

Small Scale Industries play an equally important role for

economic development of a developing country like ours.
SIDBI was set up for financial capital to the small
entrepreneurs and establishing small scale businesses on
easy terms and conditions.

B) Co-ordination with Various Intermediaries:

Various intermediaries are there to provide financial

and other help to promote small scale industries in the
country. SIDBI acts as an apex body in financing small
scale industrial and makes a coordination among the
industries of all such intermediaries.

C) Development Activities:

SIDBI involves itself in various developmental activities

by promoting tiny and small enterprises, rural
industrialization, upgrading technology.etc.

D) Providing Quality Services:

SIDBI strives to provide quality services to small to

medium scale industries through various tailor made
programmes.

E) Marketing the products of Small Industries:

13
 It is a very difficult task to create market for products
produced by small scale industries. SIDBI adopts various
strategies to create a steady market for such products.

Advantages and Disadvantages of

Industries :
Industries are necessary for the wellbeing of the people
of every country because industry together with
agriculture helps the country in achieving its economic
growth and development. However with everything else
there are two sides of coin. Given below are the advantages
and disadvantages of industries

Advantages of Industries:

1) Industries help in generating the employment

opportunities for the people and in majority of the
nations after agriculture it employs the highest
number of people and therefore it can be said to be
livelihood of many families.
2) It is due to presence of many industries that we get to
use array of products like television, cloths,
automobiles, furniture etc, which helps in making
our life easier and improves the general standard of
living.
3) A prospering industrial environment is good for the
country because government get income in the form
of taxes from the industries, which in turn is used by
the government for the well being of the people.
4) It makes the country independent because once
country start producing goods with the help of
industrialization it does not have to depend on other
countries for its demand and it can save its money by
reducing the imports and it can even export its
produce leading to foreign exchange income which in
turn makes the country more prosperous.
5) SIDBI Foundation For Micro Credit

14
 6) SIDBI Foundation for Micro Credit (SFMC) was
launched by the Bank in January 1999 for
channelizing funds to the poor in line with the
success of pilot phase of Micro Credit Scheme.

Disadvantages of Industries:

1) The biggest disadvantage of industries is that it leads

to increase in pollution as many units emit poisonous
gases which over the years have turned out to be the
major cause behind global warming.
2) Industries leads to shift in the preference of people
and they tend to prefer working there because of
more money and opportunities rather than in
agriculture sector and hence a gap is created because
of this which in the long term can lead to food
shortages because of the lack of interest in
agriculture and allied activities.
3) Since industries tend to attract many people it leads
to problem urbanization where many people from
rural areas shift to urban areas leading to
urbanization problems like lack of housing,
congestion, lack of green space, health related
problems and so on.
4) It sometimes creates monopolies which ultimately
lead to exploitation of consumers of the country and
the huge gap between the rich and poor is also
attributed to the industries.

Mission :

SFMC's mission is to create a national network of

strong, viable and sustainable Micro Finance Institutions
(MFIs) for providing micro finance services to the
economically disadvantaged people, especially women.

Approach :
SFMC is the apex wholesaler for micro finance in India
providing a complete range of financial and non-financial
15
services such as loan funds, grant support, equity and
institution building support to the retailing Micro Finance
Institutions (MFIs) so as to facilitate their development
into financially sustainable entities, besides developing a
network of service providers for the sector. SFMC is also
playing significant role in advocating appropriate policies
and regulations and to act as a platform for exchange of
information across the sector. The launch of SFMC by
SIDBI has been with a clear focus and strategy to make it
as the main purveyor of micro finance in the country.
Operations of SFMC in the coming years, are expected to
contribute significantly towards development of a more
formal, extensive and effective micro finance sector serving
the poor in India with focus on innovation and action
research.

Rating of MFIS :
Most micro finance programmes were initially operated
by NGOs and were not subjected to regulation and
supervision as they were registered as Societies or Trusts.
Non-regulation of these institutions worked to their
detriment and these institutions were not able to have
smooth access to funds from the financial sector which
was vary of lending to such entities. This constraint,
coupled with the fact that SFMC was launched with a view
to upscale the flow of micro credit with enabling policy
modifications relating to simplification of the procedures
in availment of assistance and substantial relaxation in
the security/ collateral requirement posed a difficult
challenge. Therefore, to meet the requirements of the
revised dispensation which called for selection of suitable
micro finance intermediaries which could be trusted with
bulk assistance without collateral constraints, Capacity
Assessment Rating [CAR] was introduced by SFMC as a
supplementary tool to assess the risk perception. On
SFMC's initiative, rating of MFIs was started by five
agencies. With the passage of time, and ripening of the
sector, most of the informal NGOs have transformed into
formal NBFCs. Rating of MFIs has gained sector-wide
16
acceptance and has become a pre requisite for getting
assistance from the banks/ financial institutions.

Financial Assistance :
Micro finance :

MFIs are provided annual need based assistance. One of

the unique features of the scheme is the comprehensive
financial support being provided to the MFIs/ NGOs to
expand their operations as well as to increase their
efficiency. SIDBIs support comprises of loans as well as
equity/ quasi equity support, as the case may be,
depending on the need of the client institutions.

Missing Middle Segment :

SIDBI has also been extending financial assistance for

the Missing Middle Segment of the micro enterprises. In
India, Missing Middle connotes the financing gap that lies
above micro-finance loans and below traditional
institutional financing i.e., loans with financial volumes
ranging from INR 50,000 to INR 10 lakh. The support
under this scheme is channelized through Participating
Financial Institutions (NBFCs, RRBs, UCBs, MFIs, etc.).

Portfolio Risk Fund (PRF) :

Portfolio Risk Fund (PRF) was created by SIDBI with

funding support from Government of India and made
operational since March 2004. Normally, the Bank
stipulates security requirement of FDRs equivalent of up
to 10% of the loan sanctioned to MFIs under SFMC
dispensation. Once the case is covered under PRF, 75% of
security requirement (i.e.7.5% of the loan amount) is
booked under PRF and balance 25% (i.e. 2.5% of the loan
amount) only is to be furnished by the individual MFI by
way of FDRs.

17
Methodology :

SIDBI's support is not for any specific methodology.

MFIs may on lend to Self Help Groups/Joint Liability
Groups/individuals. They may also adopt any other
lending channel so as to effectively reach financial
assistance to the poor clients.

Responsible Finance Initiatives :

SIDBI has been playing a pro-active role in propagating
Responsible Finance in the MFI sector. The major
initiatives taken by SIDBI in the field of Responsible
Finance Practices are
Creation of a Lenders Forum
Laying down standards for the sector through
measures like concept of risk rating, portfolio audits,
system audits, etc.

Carrying out Sectoral Studies/ Impact Studies.

Creating awareness about Clients Protection

Practices.

Facilitating Development of a common code of

conduct for the MFIs and ensuring adherence thereof
through COCA exercise by accredited third party
agencies.

CHAPTER 3

SCHEMES :
Direct Assistance Schemes :
18
SIDBI directly assists SSIs under
Project Finance Scheme
Equipment Finance Scheme
Marketing Scheme
Vendor Development Scheme
Infrastructural Development Scheme
ISO-9000
Technology Development & Modernisation Fund
Venture Capital Scheme

Assistance for leasing to NBFCs, SFCs, SIDCs and

Resource support to institutions involved in the
development and financing of small scale sector. These
Schemes are mainly targeted at addressing some of the
major problems of SSIs in areas such as high tech project,
marketing, infrastructural development, delayed
realisation of bills, obsolescence of technology, quality
improvement, export financing and venture capital
assistance.

Indirect Assistance Schemes :

Under its indirect schemes, SIDBI extends refinance of

loans to small scale sector by Primary Lending Institutions
(PLIs) viz. SFCs, SIDCs and Banks. At present, such
refinance assistance is extended to 892 PLIs and these
PLIs extend credit through a network of more than 65,000
branches all over the country.
All the Schemes of SIDBI both direct and indirect
assistance are in operation in all the States of the country
through 39 regional/branch offices of SIDBI.

Main Schemes Of SIDBI :

A brief summary of the Schemes available with SIDBI.
More details are available under the Section Policies
& Schemes.

19
 National Equity Fund Scheme which provides equity
support to small entrepreneurs setting up projects in
Tiny Sector.

Technology Development & Modernisation Fund

Scheme for providing finance to existing SSI units for
technology upgradation/modernisation.

Single Window Scheme to provide both term loan for

fixed assets and loan for working capital capital
through the same agency.

Composite Loan Scheme for equipment and/or

working capital and also for worksheds to artisans,
village and cottage industries in Tiny Sector.

Mahila Udyam Nidhi (MUN) Scheme provides equity

support to women entrepreneurs for setting up
projects in Tiny Sector.

Scheme for financing activities relating to marketing

of SSI products which provides assistance for
undertaking various marketing related activities such
as marketing research, R&D, product upgradation,
participation in trade fairs and exhibitions,
advertising branding, establishing distribution
networks including show room, retail outlet, wears-
housing facility, etc.

Equipment Finance Scheme for acquisition of

machinery/equipment including Diesel Generator
Sets which are not related to any specific project.

Venture Capital Scheme to encourage SSI

ventures/sub- contracting units to acquire capital
equipment, as also requisite technology for building
up of export capabilities/import substitution
including cost of total quality management and
acquisition of ISO-9000 certification and for
20
 expansion of capacity.

ISO 9000 Scheme to meet the expenses on

consultancy, documentation, audit, certification fee,
equipment and calibrating instruments required for
obtaining ISO 9000 certification.

Micro Credit Scheme to meet the requirement of well

managed Voluntary Agencies that are in existence for
at least 5 years; have a good track record and have
established network and experience in small savings-
cum-credit programmes with Self Help Groups
(SHGs) individuals.

New Schemes :

I. To enhance the export capabilities of SSI units.

II. Scheme for Marketing Assistance.

III. Infrastructure Development Scheme.

IV. Scheme for acquisition of ISO 9000 certification.

V. Factoring Services and

VI. Bills Re-discounting Scheme against inland supply

bills of SSIs.

Major Scheme :
Technology Development & Modernisation Fund :

SIDBI has set up Technology Development &

Modernisation Fund (TDMF) scheme for direct assistance
of small sale industries to encourage existing industrial
21
units in the sector, to modernise their production facilities
and adopt improved and updated technology so as to
strengthen their export capabilities. Assistance under the
scheme is available for meeting the expenditure on
purchase of capital equipment acquisition of technical
know-how, upgradation of process technology and
products with thrust on quality improvement,
improvement in packaging and cost of TQM and
acquisition of ISO-9000 series certification.

SIDBI in July 1996 had permitted SFCs and

promotional banks to grant loans for modernisation
projects costing upto Rs. 50 lakhs. The Coverage of the
TDMF scheme has been enlarged w.e.f. 1.9.1997. Non-
exporting units and units which are graduating out of SSI
sector are now eligible to avail assistance under this
scheme.

National Equity Fund :

National Equity Fund (NEF) under Small Industries
Development Bank of India (SIDBI) provides equity type
assistance to SSI units, tiny units at one per cent service
charges. The scope of this scheme was widened in 1995-
96 to cover all areas excepting Metropolitan areas, raising
22
the limit of loan from Rs. 1.5 lakhs to Rs. 2.5 lakhs and
covering both existing as well as new units:

(a) The following are eligible for assistance under the

Scheme:
New projects in tiny and small scale sectors for
manufacture, preservation or processing of goods
irrespective of the location (except for the units in
Metropolitan areas).
Existing tiny and small scale industrial units and
service enterprises as mentioned above (including
those which have availed of NEF assistance earlier),
undertaking expansion, modernisation, technology
upgradation and diversification irrespective of
location (except in Metropolitan areas).
Sick units in the tiny and small scale sectors
including service enterprises as mentioned above,
which are considered potentially viable, irrespective of
the location of the units (except for the units in
Metropolitan areas).
All industrial activities and service activities (except
Road Transport Operators).

(b) Project cost (including margin money for working

Capital) should not exceed Rs. 10 lakhs in the case of
New projects in the case of existing units and service
Enterprises, the outlay on expansion/modernization/
Technology upgradation or diversification.

(c) There is no change in the existing level of promoters'

Contribution at 10% of the project cost. However, the
Ceiling on soft loan assistance under the Scheme has
Been enhanced from the present level of 15% lakh per
Project to 25% of the project cost subject to a
Maximum of Rs. 2.5 lakh per project.

Promotional and Development Activities :

23
 SIDBI is actively involved in promoting tiny and small
scale industries by means of its promotional and
developmental activities through suitable professional
agencies for organizing Entrepreneurship Development
Programmes, Technology Upgradation & Modernization
Programmes, Micro Credit Schemes and assistance under
Mahila Vikas Nidhi to bring about economic empowerment
of women specially the rural poor by providing them
avenues for training and employment opportunities.

SIDBI's ASSISTANCE
Tiny Units
Women Entrepreneurs
Backward Areas

A. Refinance against Interest on term Interest on

term loans in loans for fixed Refinance
respect of asets and (% p.a.)
projects/activities working capital
eligible for advances
assistance under (excluding
the Scheme interest tax) (%
p.a.)
24
 (i) Upto and 12.0 9.0
inclusive of Rs.
25,000
(ii) Over Rs. 25,000 Not exceeding 10.5
and upto Rs. 2 13.5
lakh
B. Refinance against Interest on term Interest on
term loans in loans (excluding Refinance
respect of interest tax) (% (% p.a.)
projects/activities p.a.)
eligible for
assistance under
TDMF and ISO
9000 Schemes
(Applicable to all
eligible
institutions)
(except RRBs)
(i) Upto and 12.0 9.0
inclusive of Rs.
25,000
(ii) Over Rs. 25,000 Not exceeding 10.5
and up to Rs. 2 13.5
lakh
(iii) Over Rs. 2 lakh Not exceeding 12.0
14.0*

Overview of Small Industries Development Bank of

India and its activities :
Small Industries Development Bank of India (SIDBI), set
up on April 2, 1990 under an Act of Indian Parliament,
presently acts as the Principle Financial Institution for the
Promotion, Financing and Development of the Micro,
Small and Medium Enterprise (MSME) sector and also co-
ordinates the functions of the institutions engaged in
similar activities. As on March 31, 2012, the Authorised
Capital of SIDBI is ` 1000 crore and Paid up Capital is `
25
450 crore. Presently, the Bank provides refinance support
through a network of eligible member lending institutions
for onward lending to MSMEs and direct assistance is
channelised through the Banks branch offices. SIDBI also
extends financial assistance in the form of loans, grants,
equity and quasi-equity to Non-Government Organisations
/ Micro Finance Institutions (MFIs) for on-lending to micro
enterprises and economically weaker sections of the
society, enabling them to take up income generating
activities on a sustainable basis.

Refinance :
SIDBI has initiated various schemes for upliftment of
MSME sector and continues to be the prime lending
institution for MSME sector. The necessity of continuously
providing low cost credit to MSEs through concessional
resource support to SIDBI has become more pronounced
in the present scenario of recovery of the Indian economy
from the economic slowdown. As per the Union Budget
2011-12, SIDBI has been allocated ` 5000 crore to SIDBI
for refinancing Banks/SFCs at concessional rates, out of
which SIDBI received ` 4,711 crore, which has been
channelised to banks/SFCs.

Risk Capital :
In order to meet the risk capital requirements of
MSMEs, especially those involving innovations and new
technologies, the Union Budget for FY 2008-09 announced
setting up of a fund of ` 2,000 crore with SIDBI for risk
capital financing. Under the Risk Capital Fund, SIDBI
provides Risk Capital assistance to MSMEs in the form of
equity, preference capital, optionally convertible
debenture, optionally convertible debt, sub-ordinated debt,
etc. directly as well as through venture capital funds. As
on March 31, 2012, a total of ` 1,193 crore out of the Risk
26
Capital Fund has been committed by SIDBI to MSMEs and
VC funds. In order to enhance the equity support to
MSME sector, Union Budget 2012-13 has announced to
set up India Opportunity Venture Fund of ` 5,000 crore
with SIDBI.

CHAPTER 4

Features of SIDBI:
Since 1992-93 SIDBI liberalized its term of assistance and
amplified procedure with a view to widen its scope for
large coverage of schemes. Some of salient features of
SIDBI can be listed as follows.
SIDBI has been operating Single Window Scheme
(SWS) which is enlarged to cover units in identified
area. The extent of refinance against cash credit

27
 sanctioned by banks under SWS was raised from 50
to 70 percent.
SIDBI provide refinance facilities under Automatic
Refinance Scheme (ARS). The limit of term loans
under ARS was initially fixed at RS. 10 lakhs but was
raised later to Rs. 50 lakh and the extent of refinance
has been raised from 75 to 90 percent.
SIDBI has introduced equipment financing for
assistance to existing well-run small-scale units for
technology up gradation modernization.
SIDBI has introduced refinance scheme for
resettlement of voluntary retired worker of National
Textile Corporation (NTC) and help them to buy up to
four looms.
SIDBI has set up a venture capital fund to assist
entrepreneurs within a short span of time; SIDBI has
emerged as a major player in the field of finance for
the small scale sector.

Problems and Issues of SIDBI:

Because of their unique characteristics, SIDBI face a
variety of problems. In this section, the problems are
examined in connection with two stages of environmental
performance improvement.
Environmental performance improvement can be
divided into two major stages, namely, awareness raising
and implementation. The awareness raising is significant
as it relates to the establishment of a solid foundation for
SIDBI to move towards environmental improvement.

Stage I: Awareness Raising :

28
 Lack of information on the cost-benefits of improving
environmental performance basically, a fundamental
obstacle to improving environmental performance of the
SME sector is a lack of knowledge and information
concerning environmental issues. SIDBI generally have a
perception that the only driving force to improve
environmental performance is legislative compliance.
Moreover, SIDBI tend to believe that their processes have
little or no impact on the environment due to their small-
scale production. This perception is derived from the fact
that they have limited information on the Operational
losses in their production processes. Hence, this mental
model prevents a great number of SMEs from realizing the
hidden costs of inefficiencies in production. Accordingly,
the SIDBI keep running their businesses as usual and
resist change.
In order to motivate the SMEs to improve their
environmental performance critical information on cost-
benefits can illustrate the benefits of environmental
improvement and help to develop a positive attitude
regarding environmental improvement. However, it seems
that such information is not widely disseminated in the
SME sector.
Weak External Pressures/Incentives Environmental
policy development in various countries began with
command-and-control (CAC) measures. Accordingly,
regulatory instruments were applied to force polluters to
comply with regulations and standards. However, due to
the large number and distribution of SMEs, the command
and control approach became less efficient due to resource
limitations in terms of the monitoring and inspecting of
personnel and budget allocation.
While public pressure regarding environmental
conservation and requirements by global markets on
environmental standards increases, most companies are
carefully watching the International Standard
Organization (ISO) certification and the introduction of
Environmental Management System (EMS) within their
29
corporate and manufacturing facilities. Most industries,
particularly those producing goods for export, are focusing
on developing environmentally- friendly products.
However, most SMEs, unlike large-scale industries, are
not fully aware of the trend in the international market
since they are often isolated from it.
In addition, voluntary approaches, such as ISO 14000,
green labeling, and clean technology have become other
means of management of natural resources and the
environment as the market created was stimulated by
Consumer demand. However, compared to the SME sector,
large firms are more active in taking voluntary initiatives.

Stage II: Implementation :

Lack of Internal Capacity Even though a number of
SMEs are moving towards better environmental
performance, they are limited from taking action. The
major obstacles are their weak capacity and limited
resources in terms of:

Financial resources :
One of the major obstacles is the limited financial
resources of SIDBI since the majority of the SME sector is
pursuing a survival business strategy. They suffer from
financial problems, such as late payment of bills and lack
of access to loan financing, they find it difficult to adapt to
the changing markets and they lack the capability to
attract new financial resources. As a consequence, the
adoption of full-scaled EMS, such as the ISO 14001
model, or the installation of pollution abatement
technologies, seems to be too costly for SIDBI. Moreover,
investment capital for major process improvement is
another issue of concern since accessibility to financial
30
resources is a major problem for a number of SMEs as
they tend to lack self-capacity to attract funding from
local, regional and national financial institutions and also
from international institutions and organizations. The
problem has a supply and demand component. From the
supply side, SIDBI face difficulties in obtaining loans due
to the banks' perceptions of high associated risks. On the
demand side, SIDBI often have inadequate financial
statements and lack accounting records, business plans
and the necessary knowledge to present their business
case in a realistic and favorable light to financial sources.
In order to address this problem, there is, therefore, a
need for better information flows among the financial
providers, the SMEs and the concerned government
agencies.
Human resources :
Lack of trained and qualified human resources is
another barrier that requires improvement. Generally,
human resource allocation in the SME sector is limited to
essential business functions, such as technical,
accountancy, sales and marketing. In most cases, there
are no environmental personnel in the SIDBI to undertake
related tasks effectively.
Technologies :
Utilization of outdated technology, as a result of limited
capital investment, makes the SIDBI less competitive. The
majority of SMEs is relying on outdated technologies that
cause pollution and are inefficient in production. In
addition, inappropriate pollution abatement technologies
result in inefficiencies in pollution treatment.

R&D activities :
R&D activities are limited in the SIDBI. This inhibits
innovative improvement within the sector. One of the
major reasons for the poor performance is technological
obsolescence coupled with information deficiency and poor
31
management practices. Thus, SIDBI lack technical
capacity in these enterprises to identify access, adapt and
adopt better technologies and operating practices to
improve their environmental performance.

Business-as-usual operation and management :

Normally, SIDBI functions in a business-as-usual mode.
They are not fully aware of the emergence of a new
business environment. For example, non-tariff barriers,
new trade and technology. The nature of the SIDBI
establishment is a major problem affecting environmental
improvement of SIDBI in terms of infrastructure as the
physical distribution of SIDBI tends to be haphazard.
Many of SMEs are located in concentrated commercial
and residential areas, thus, they are unable to expand
their sites and install pollution treatment facilities.
Moreover, the scattered distribution prohibits the
development of shared treatment facilities, while the
stand-alone treatment system of SIDBI is not in an
economy of scale to operate efficiently.

Weak Supporting Framework :

Despite obstructive structures in the awareness-raising
and implementation stages, the framework support of
SIDBI is weak. Also, the various programmes supporting
the performance of SIDBI have not helped SIDBI
effectively.
Weak institutional arrangement of supporting SIDBI
Linkages among agencies involved with the SIDBI
development have not been strengthened. The network of
institutions that is supposed to deliver supporting
programmes to SIDBI development is fragmented and
cannot offer the corresponding services effectively.

Lack of SIDBI focused programmes :

32
 Many developing countries previously pursued a
strategy of accelerated industrialization based on large-
scaled enterprises. Accordingly, development programmes
and investment schemes were established in light of large
industry promotion while there are limited focused
programmes that are devoted to SIDBI development.
Gaps between international support and local
implementation. Even though the environmental
improvement of SIDBI has drawn the attention of
international organizations, the international support for
SIDBI development cannot reach local SMEs effectively.
The major barriers include language and the adjustment
of the programmes to the local context. SIDBI have been
struggling with these problems for many years and their
challenge becomes more severe when they wish to
improve.

SIDBI Plan to Develop Alternate Market for Small Scale

Industries:
At a time when focus of attention is on ICE Stock
information, communication and entertainment the Small
Industries Development Bank of India is making effort to
develop alternative market for small scale Industries (SSIs)
in the new millennium.
The whole idea of SIDBI's present exercise in bring
about greater corporation of SSI sector and encourage
growth limited companies, which are in better position to
access funds in the form of equity debt: "SSIs are
characterized by a very low equity base and, therefore, any
improvement in equity capital will bost their capacity to
withstand competition in the market source added. The
report deal with the changes required in the setting up of
existing capital market to make them accessible and
33
suitable to SSIs and development of a alternative markets
for equity and debt tailored for the Small -Scale Sector.
These recommendations will also be useful for the Union.
Finance Ministry for framing suitable policies and bringing
about modification in the existing policies relevant to SSIs
sector. According to available statistics, a large majority
SSI units (nearly 80% are proprietorship, while 17 are
partnership only 2% comprising about 60,000 units) are
limited companies. Further, tentative estimates, indicate
that even if these units raised 50j percent of their capital
requirement from the market, the size would be of order of
Rs. 5000 crores.
Loan Facilitation & Syndication Services for
Entrepreneurs What is Loan Facilitation & Syndication
Service? Under this initiative, SIDBI facilitates Bank loans
for new as well as existing manufacturing and service
sector units. SIDBIs initiative in partnership with Banks,
Rating Agencies (RAs) and Accredited Consultants (ACs).
Its a transparent, structured mechanism for timely
consideration of loan applications.

Why Is It Needed?
To generate complete structured applications along
with necessary documents as are needed by Banks
for sanctioning of loans.
Independent Validation by ACs of the information
furnished by MSMEs in the loan applications
provides a second check thereby enhancing the
reliability of furnished information and acts as an
additional comfort to the banks in handling the loan
applications.
Rating (not mandatory) of proposals by Rating
Agencies, as and when required, provides an
independent opinion and helps the bankers for
considering applications expeditiously.
The initiative would reduce delays and is expected to
enhance flow of assistance to MSME sector.
34
Benefits to MSME Entrepreneurs :

Bank Loan Process Made Easier

Improved Acceptance of the loan proposals by banks.

How does it Work?

SIDBI has empanelled Accredited Consultants (ACs)
who will prepare the Basic Information Memorandum
(BIM) for the MSME entrepreneurs based on the
information and requirements indicated by the MSMEs. It
is not only a loan proposal but more than that. BIM will
capture all information required by the Banks and the
Rating Agencies, if needed, BIMs prepared by ACs would
be submitted to SIDBI by ACs with the approval of MSME
entrepreneur. If required, SIDBI may get the proposal
rated by RBI approved Rating Agencies.
SIDBI provides Equity / Quasi- Equity for Growth
Oriented existing units, Finance for Service Sector Units,
and provides credit to MSMEs for Energy Efficient and
Cleaner Production Processes. In all other cases, the
application would be forwarded to Public Sector Banks
with whom SIDBI has entered into a MoU for the purpose
of Loans. SIDBI, in essence, will handhold the
Entrepreneur through all stages of loan processing.

Services provided by Accredited Consultants :

Guide new / existing entrepreneurs regarding

availability of schemes of SIDBI / commercial banks.
Inform MSMEs of Government subsidies / benefits
Provide borrowers with debt counselling
Prepare Basic Information Memorandum (BIM)
Facilitate response to queries raised by banks etc.

Applications for loans and their processing :

35
a) SIDBI has a comprehensive loan application form for
the borrowers. At the time of making available application
form, SIDBI will provide information about the interest
rates applicable along with the annualized rates of
interest, and the fees/charges, if any, payable for
processing, pre-payment options and charges, if any, and
any other matter such as availability of CGTMSE
guarantee which affects borrowers interest, so that a
meaningful comparison with those of other banks can be
made and informed decision can be taken by the borrower.

b) SIDBI provides acknowledgements for receipt of all loan

applications. The Bank has put in place risk assessment
tools for credit rating which have enabled to great extent
to directly reach out to smaller customers in the MSME
segment by cutting down the appraisal and processing
time. Expected time frame for disposal of loan
applications, from the date of satisfactory receipt of
complete information/ data/ clarifications/ reports, etc.,
would also be indicated to applicants.
c) SIDBI would verify the loan applications within a
reasonable period of time. If additional details/ documents
are required, borrowers would be intimated at the earliest.

d) In case of all applications which are denied financial

assistance, on account of not being found support worthy
as per the policy framework and/or risk perception of the
Bank, either with or without detailed appraisal, SIDBI
would convey in writing, the main reason/ reasons which
in the opinion of the Bank after due consideration, have
led to rejection of the loan applications. Such
communication to the applicant would be dispatched as
soon as possible. Credit Guarantee Fund Trust for Small
Industries (CGTSI) Coverage in North Eastern Region

The Ministry of Small Scale Industry, Government of

India, and SIDBI have set up the Credit Guarantee Fund
Trust for Small Industries (CGTSI), to help small
scale/tiny units in accessing institutional credit, both
36
term loan and working capital, for their viable projects
without arranging for collateral security and/or third party
guarantee. As on August 30, 2006 banks/institutions
have availed of CGTSI guarantee in North Eastern Region
in respect of 1147 units covering aggregate assistance of
Rs 2718 lacks in North Eastern Region.

SME Rating Agency of India Ltd (SMERA) Coverage :

As a part of SIDBI's thrust towards emerging as one
step shop to serve the SME sector, the SME Rating Agency
of India Ltd. (SMERA) was launched as country's first and
only rating agency dedicated to the SME segment. A joint
initiative of SIDBI, Dun & Bradstreet Information Services
India Pvt. Ltd., Credit Information Bureau (India) Ltd and
banks, SMERA's primary objective is to provide ratings
that are comprehensive, transparent and reliable and
which would enable the rated units to borrow at
competitive rates of interest. SIDBI calls upon the existing
SMEs in the country to get them rated by SMERA in order
to have competitive edge in availing credit at lower rates.

Business Domain of SIDBI :

The business domain of SIDBI consists of small-scale
industrial units, which contribute significantly to the
national economy in terms of production, employment and
exports. Small-scale industries are the industrial units in
which the investment in plant and machinery does not
exceed Rs.10 million. About 3.1 million such units,
employing 17.2 million persons account for a share of 36
per cent of India's exports and 40 per cent of industrial
manufacture. In addition, SIDBI's assistance flows to the
transport, health care and tourism sectors and also to the
professional and self-employed persons setting up small-
sized professional ventures.

Promotional and Developmental (P&D) Initiatives:

37
 As an apex institution for the small-scale sector, SIDBI
also plays a major role in meeting the varied
developmental needs of the Indian SSI sector. The P&D
initiatives of the Bank aim at improving the inherent
strength of the small scale sector so as to enable it to face
the emerging challenges of globalization as also economic
development of poor through enterprise promotion
resulting in self employment and creation of additional
employment.

SIDBI has sanctioned grants to various organizations

like TCOs, Industry Associations, reputed NGOs and other
agencies to conduct topical seminars and EDPs, and also
sponsored the participation of SSI units in exhibitions at
subsidized rates to enable them to market their products.

CHAPTER 5

Products :
Direct finance :
SIDBI had been providing refinance to State Level
Finance Corporations / State Industrial Development
Corporations / Banks etc., against their loans granted to
small-scale units Since the formation of SIDBI in April,
1990 a need was felt/ representations were made that
SIDBI being the principal financial institution for the small
sector, should take up the financing of SSI projects
directly on a selective basis.

So it was decided to introduce direct assistance schemes

to supplement the other available channels of credit flow
to the small industries sector. Since then, SIDBI has
evolved itself into a supplier of a range of products and
services to the Small & Medium Enterprises [SME] sector.
38
Direct Credit Schemes :
Purpose: - Assistance for purposes, such as
Setting up of a new SSI unit/ service sector unit.
Expansion / Diversification/ modernization/
technology up gradation/ quality certification.
Any other activity considered relevant to the project.
For undertaking various marketing related activities.
Acquisition of additional machinery / equipment.
Meeting working capital requirements including gap
in MPBF or margin on selective basis.
Any other activity as per guidelines (having linkages
and benefits accruing to SSI sector from the proposed
assistance). All activities covered under erstwhile
marketing assistance scheme for SSIs.
Minimum loan amount.
Generally Rs.50 lacks for setting up new unit and
Rs.25 lacks for other purposes. In respect of well-run
existing SSI units, the minimum loan could be Rs. 10
lacks.

Bills finance scheme :

Bills Finance Scheme involves provision of medium and

short-term finance for the benefit of the small-scale sector.
Bills Finance seeks to provide finance, to manufacturers of
indigenous machinery, capital equipment, components
sub-assemblies etc, based on compliance to the various
eligibility criteria, norms etc as applicable to the respective
schemes.

To be eligible under the various bills schemes, one of

the parties to the transactions to the scheme has to be an
industrial unit in the small-scale sector within the
meaning of Section 2(h) of the SIDBI Act, 1989.

39
Channels Of Assistance :
SIDBIs financial assistance to small-scale sector has three
major dimensions:
1) Direct assistance:

The objective behind SIDBI's direct assistance schemes

has been to supplement the efforts of PLIs by identifying
the gaps in the existing credit delivery mechanism for
SSIs. Assistance is provided directly through 43 branches
of SIDBI. The assistance is extended directly for setting up
of new SSI units, small hotels, hospitals/nursing homes,
technology up gradation and modernization, expansion
and diversification, marketing of SSI products, setting up
of multiplexes, development of infrastructure for the SSI
sector, discounting of bills etc.
2) Indirect assistance:

40
 SIDBI's schemes of indirect assistance envisage credit to
SSIs through a large network of 913 PLIs SIDBI has
bagged the prestigious "ADFIAP Development Award 2003"
for its Rural Industries Programme designed to give
impetus to rural development by creating sustainable
industrial and service enterprises in rural areas spread
across the country with a branch network of over 65,000.
The assistance is provided by way of refinance, bills
rediscounting and resource support in the form of short-
term loans/line of credit in lieu of refinance etc.

3) Development and Support Services:

SIDBI extends development and support services in the

form of loans and grants to different agencies working for
the promotion and development of SSIs and tiny
industries.

SCHEMES :
SIDBI, primarily a refinancing institution has offered
various direct as well as indirect (through refinance to
the financial institution) start up term loan facilities to
the small entrepreneurs.

This includes the following:-

General Scheme :
Purpose-
For setting up new small-scale units & for all
activities eligible for assistance under the scheme
including professionals practice/ consultancy ventures
& services sector units such as tourism related
activities/hospitals/nursing homes/hotels/marketing &
industrial infrastructure projects.

41
 Eligibility-
All forms of organizations in the small scale sector
(i.e. Proprietary, Partnership Company, Cooperative
Society etc.) for infrastructure development all forms of
organization such as public, private ltd.

Schemes for cottage, village & tiny industries:

Purpose-
Assistance for equipments or working capital as
also for shed.
Eligibility-
Artisans, Village & Cottage Industries & Small
Industries in tiny sector. Limit- Not to exceed than 0.5
million Rupees.

Schemes for SC/ST & Handicapped:

Purpose-
Assistance for equipments or working capital.

Eligibility-
SC/ST & Physically Handicapped persons.
Limit- Not to exceed than 0.5 million Rupees.

Schemes for Small Road Transport Operated (SRTOs):

Purpose-
To meet expenditure towards cost of chassis,
building initial taxes/ insurance and working capital.

Eligibility-
Small road transport operators.
Limit- Need based.

42
National equity fund scheme:

Purpose-
To meet gap in prescribed minimum promoters
contribution and in equity.

Eligibility-
Small entrepreneur for setting up new projects and
existing in small scale sector and rehabilitation of
potentially viable sick SSI units irrespective of the
location, satisfying the investments ceiling prescribed
for tiny entrepreneur undertaking expansion,
modernization, technology up gradation and
diversification.
Limit- Cost of projects not to exceed Rs. 1 million,
soft loan limit 25% of cost of projects subjects to max
Rs.2, 50,000 per projects service charges 1% p.a. on
soft loan.

Mahila Udyam Nidhi:

Purpose-
To meet gap in prescribed minimum promoters
contribution or in equity.

Eligibility-
Small entrepreneurs for setting up new projects in
small-scale sector and rehabilitation of potentially viable
sick SSI units irrespective of the location. Enterprises
would include all Industrial units and Service Industries
satisfying the investment ceiling prescribed for tiny
entrepreneurs.

Self Employment for Ex-Servicemen:

Purpose-

43
 For setting up small industrial projects including
service industries and specified transport activities
which are eligible for finance as per SSI norms.

Eligibility-
Ex-servicemen sponsored by Director General,
Ministry of Defense, Government of India.
Limit- Scheme operated through SFCs twin function of
project not to exceed than 1.5 million, Soft loan limited
to meet gap in equity subject to a maximum of Rs. 2,
25,000 per project. Service charges-1% p.a. during
moratorium period thereafter, interest at 6% p.a. on soft
loan.

Subsidiaries :
1) SIDBI Venture Capital Ltd. [SVCL] a wholly owned
subsidiary of SIDBI acts as the Asset Management
Company of the National Venture Fund for Software and
Information Technology. The fund has a committed
corpus of Rs.100 crores as on March 31, 2003.

2) SIDBI Trustee Co.Ltd. [STCL] has been set up to carry

out trusteeship functions for Venture Capital Funds.
Presently STCL is acting as Trustee of National Venture
Fund for Software and Information Technology.

3) Credit Guarantee Fund Trust Scheme for Small

Industries [CGTSI] promoted jointly by Government of
India and SIDBI, was launched by the Hon'ble Prime
Minister on August 30, 2000. The credit guarantee
44
 scheme of CGTSI aims at helping the new and existing
industrial units in SSI sector, in getting collateral free
credit by way of both term loan and working capital
from eligible member lending institutions. Member
Lending Institutions include scheduled commercial
banks; select Regional Rural Banks and Government of
India may approve such of the institutions as.

4) Technology Bureau for Small Enterprises [TBSE] was

set up by SIDBI in 1995 in collaboration with United
Nations Asian & Pacific Center for Transfer of
Technology. The Bureau aims at helping SSI units to
attain international competitiveness through transfer of
latest available technologies from both within and
outside the country.

SIDBIs financial highlight :

The bank has achieved consistent growth in financial

parameters since inception. The total assets of the bank
have grown from a level of Rs. 5309 crores in March 1991
to Rs 36, 561 crores in March 2009. The income has
increased from Rs. 425 crores in 1990-1991 to Rs. 1598
45
crores in 1999-2000 and in 2001-2004 the income has
increased to Rs. 1600 crores and to Rs. 5000 crores in
2006-2009. While the net profit has grown from Rs. 36
crores to Rs.459 crores during the same period. The
capital to risk asset ratio as at end March 2000 was at
27.8 percent and 96.2 percent of the assets were standard
assets. The bank has been paying dividends on equity
holding to IDBI since inception.

SIDBIs findings :
Over the past decades, SIDBI has evolved into a strong
and small-scale sector credit giving Facility apex
developmental institution with a complete grass roots level
understanding of the Complexities of the small-scale
sector. SIDBI is a major shareholder in the Small-scale
Industry in India. The bank is fully equipped
organizationally, financially, and domain knowledge wise
to Emerge as a strong player in the Small-scale Industry
Credit system. Promoting various groups Reflects SIDBIs
capabilities in capacity-building and nurturing the small-
scale Industry.
A small-scale industrial unit is considered sick if it has
at the end of an accounting year incurred losses equal to
or exceeding 50% of its peak net worth in the preceding 5
accounting years. The sickness in SSI units have been
causing concerned to policy-makers because of the
46
productive assets lying unutilized or underutilized in this
units, the huge assistance from financial institutions and
banks locked up in them and the adverse impact on
employment in case the unit closes.

Case Study on SIDBI A Successful

Financial Institution in SME Financing
Worldwide, the wind has been changing in the finance
sector in general and banking-investment sector in
particular. Such a panorama teaches us that now, is the
time of cooperation rather than a competition, now its a
time of convergence rather than cutting each others neck
over customers and markets, now its a time of
consolidation rather than antagonism.
Curing the fatal disease requires the doses of small
pills; impressive thoughts come out from the small brain,
similarly, India requires prominence of small and medium
enterprises for curing its problem of low economic growth
vis--vis developed nations.
To cure the overall disease of lack of appropriate growth
of Indian SMEs Small and Medium Enterprises, India
needs several small pills such as adequate credit delivery
to SMEs, better risk management, technological up

47
gradation of Banks esp. Public Sector Banks, attitudinal
change in Bankers and so on. Among them, the major
problem of inadequate financing to SMEs needs an urgent
attention.
Having said this, it is pertinent to mention that Small
Industrial Development Bank of India has achieved
landmark results in the domain of small and medium
enterprise financing and fulfilling their credit requirements
time to time in various forms such as long term project
finance, working capital finance, bill discounting etc.
However considering the level of appetite for credit
facilities of Indian small and medium enterprises, private
and public sector banks in India need to work out an
unique and innovative model of financing to this vital
sector (SME) of Indian Economy.
In todays changing world, retail trading, SME
financing, rural credit and overseas operations are the
major growth drivers for Indian banking industry. The
scene has changed since the adoption of financial sector
restructuring programme in 1991. The reform in the
financial sector in India along with the overall second
generation economic reforms in Indian economy has
transformed the landscape of banking industry and
financial institutions. GDP growth in the 10 years after
reforms averaged around 6 %.
With the introduction of the reforms especially in
financial sector and successful implementation of them
resulted into the marked improvement in the financial
health of the commercial banks measured in terms of
capital adequacy, profitability, asset quality and
provisioning for the doubtful losses.

48
QUESTIONNAIRE :
Q1) What is SIDBI?
1) Small Industries Development Bank of India
2) Industrial Development Bank of India
3) Industrial Credit and Investment Corporation of
India
Q2) When was SIDBI established?
1) 1979
2) 1989
3) 1956
Q3) What is the interest rate charged?
1) 11.95% p.a.
2) 12.00% p.a.
3) 09.00% p.a.
Q4) Do you think SIDBI faces competition?
1) IDBI
2) NBARD
3) IFCI
49
Q5) What role SIDBI plays in Small Scale Industries Sector?
1) Infrastructure development agencies for developing
industrial areas.
2) Import equipment by existing export oriented SSIs
and new units having definite plans for entering
export markets.
3) Loans sanctioned by SIDBI to small road transport
operators, qualified professionals for self
employment, small hospitals and nursing homes,
and to promote hotel and tourism related activities.

Q6) What are the sources of Industrial Finance by SIDBI ?

1) Technology Development and Information
Company of India Ltd. (TDICI)
2) Tourism Finance Corporation of India Ltd (TFCI)
3) North Eastern Development Finance Corporation
Ltd (NEDFI).

Q7) Have you ever applied for a loan before?

1) Yes, Loan Availed
2) Yes, But did not succeed
3) Did not have any loan requirement, hence not
applied.

Q8) Have you been able to service loans timely?

1) Yes
2) No

Q9) What are the different schemes of SIDBI?

1) Direct Assistance Scheme
2) Indirect Assistance Scheme
3) Direct Credit Scheme

50
Q10) What are the SIDBI Subsidiaries ?
1) Direct Finance
2) Indirect Finance
3) Micro Finance

Conclusion :
The main objective of SIDBI is to provide financial
assistance to all SSI s throughout India through SFC s
and SSIDC s. SIDBI s motive is promoting industrial
development in India, it emphasizes on the development of
the small-scale industries not to earn much profits. The
maximum shares of profits of SIDBI are transferred to
reserves. It can have more debt capital, hence the large
portion of profits are utilized for the payment of interest to
long-term securities.
The activities of SIDBI, as they have evolved over the
period of time, now meet almost all the requirements of
small scale industries which fall into a wide spectrum
constituting modern and technologically superior units at
one end and traditional units at the other.

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Bibliography :
http://www.sidbi.com/
http://www.sidbi.com/NOTICES/MicroFinance/TOR
%20Impact.pdf
http://www.sidbi.com/NOTICES/corporate.pdf
http://www.sidbi.com/FAQ.asp
http://www.sidbi.com/directobjectives.asp
http://www.sidbi.com/directcredit.asp
http://www.sidbi.com/directtechnology.asp
http://www.sidbi.com/UnderConstruction.asp
http://www.sidbi.com/directssi.asp
http://www.sidbi.com/directrisk.asp
http://www.sidbi.com/billsobjectives.asp
http://www.sidbi.com/billsreceivable.asp

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