Approach to SMEs Appraisal

1
Approach to SMEs Appraisal Disbursement
procedures

• Presentation by
• Sushil Kumar Lal Sr. Manager
  Bank of Baroda

2
Agenda

• Various Schemes for SMEs
• Assessment and appraisal of SME Credit
• Capital requirement Right need of credit
• Disbursement

3
SME Sector is vital to the Economy

• 95 of all industrial units
• 40 of industrial output
• 45 of industrial employment
• 35 of exports
• Prime driver of new
• employment
• SMEs- Engines of Growth for country

• SME Sector in India
• accounts for

4
Classification of MSMEs as per MSMED Act 2006

• Based on investment (excluding land building)

Includes- SRWTO, Small Business, Retail Trade,
PSE
5
Directed Lending

• Priority Sector - 40 of ANBC
• No target for lending to MSME sector but banks
  to fix their own lending targets.
• Within MSEs
• Min 40 for
• Micro (manufacturing)) with invt in P M upto
  Rs 5 lakh and
• Micro (service) with invt in equipments upto Rs 2
  lakh
• Min 20 for
• Micro (mfr) with invt in P M gt5 lakh upto 25
  lakh
• Micro (service) with invt in equipments gt2 lakh
  upto 10 lakh
• 60 of credit to small enterprises sector to go
  to micro-enterprises
• Remaining 40 to the SEs

6
Our Banks Approach to MSMEs

• In view of huge business potentiality offered by
  MSMEs our bank has defined SMEs based on turnover
  as well over and above the regulatory definition.
• Definition of SME adopted by BOB
• Turnover upto Rs150.00crs
• New infrastructure and Real Estate -PC upto
  Rs50crs.
• SME financing a Win Win Situation for Banks

7
Challenges faced by the SMEs

• Non- availability of adequate capital for
  investment
• Lack of adequate and timely credit
• High cost of loan, Liquidity
• Lack of information and awareness
• Difficulties in accessing the Capital market.

8
SMEs expectation from Bank

• Timely Adequate credit
• Lesser Collateral Requirement
• Reasonably Priced
• Hand Holding

9
Committees on flow of Credit to SSI/SME sector

• Nayak Committee
• Kapur Committee
• Ganguly Committee

10
Traditional Product

• Fund Based
• Working Capital
• CC- (Stocks, B/D) BD, Line of Credit
• CAPEX- Project Financing
• TL/ DL/ DPG
• FCNR (B)- Pricing linked to LIBOR Credit rating
• Export Credit facilities
• Packing Credit
• FBP/FBD
• PCFC

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Traditional Products

• Non Fund Based Facilities
• Letter of credit
• Bank Guarantees
• Standby LC
• Imports- Trade Credits, ECB
• Buyers Credit- pricing linked to LIBOR
• Short Term Loans Medium Term Loans

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Schemes

• Collateral Free Loans under CGTMSE Scheme
• Limit upto Rs1crores (WC, TL, NFB)
• No collateral / third party guarantee
• One time Guarantee fee 1 to 1.5
• Annual service fee at the rate of 0.50 to 0.75
• Guarantee fee Annual Service fee is shared
  5050
• Guarantee cover upto Rs65lacs (WE/ NE units)
• MSEs upto for Rs62.50lacs
• MOU with Bhartiya Yuva Shakti Trust
• Limit upto Rs50lacs
• Application sponsored by BYST
• Covered under CGTMSE scheme
• www.bystonline.org

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Schemes

• Trade Related Entrepreneurship Assistance and
  Development - (TREAD)
• Economic empowerment of women
• Non-farm trade related activity
• Training, information, counseling
• Grant upto 30 of project cost to NGO
• 70 as loan
• NGO min. 3 yrs registeration
• Loan will be given to NGO for on lending
  (SHG/Ind)
• No upper ceiling on loan

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Scheme

• National Equity Fund (NEF) Scheme
• To provide equity type support in the form of
  Soft Loan
• New projects, Expansion, Modernization
• Cost of project upto Rs50lacs
• Limit- 25 of cost of project maximum Rs10lacs
• No Collateral
• Scheme for Financing Energy Efficiency Projects
• Financing for adopting measures for enhancement
  of energy efficiency
• Limit upto 75 of the total project cost- max.
  Rs1crores

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PMEGP

• The maximum cost of the project/unit admissible
  under manufacturing sector is Rs. 25 lakh.
• The maximum cost of the project/unit admissible
  under business/service sector is Rs. 10 lakh.

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BOBs other product for MSMEs

• Sector Specific Scheme
• SME Gold Card
• Exporters Gold Card Scheme
• SME Loan Pack
• Overdraft Against Land and Building
• Vidyasthali Loan- for Educational Institutions
• Arogyadham Loan- for Hospitals
• Loan against Future rent Recivables
• Traders Loan
• Financing for purchase of New Vehicles

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Emerging Products

• Cash Management Products
• Derivatives
• Channel Financing
• Factoring
• Future Receivable Discounting
• Leased Rental Securitisation
• Bridge Loans

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Credit Linked Capital Subsidy Scheme (CLCSS)

• To encourage investment by Micro Small units in
  technology up-gradation
• Ceiling on the loan amount Rs.1crore.
• The rate of subsidy is upto 15 for MSEs.

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Technology upgradation Fund Subsidy scheme for
Textile sector

• 5 interest reimbursement on RTL.
• or
• 5 exchange fluctuation (interest repayment)
  on FCL.
• or
• 15 credit linked capital subsidy for MSE sector.
• or
• 20 credit linked capital subsidy for powerloom
  sector
• or
• 5 interest reimbursement plus 10 capital
  subsidy for specified processing machinery

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Balance SheetBorrowers perspective- Permanence
Your most permanent Liability is Your Biggest
assets

• Liabilities
• Capital
• Reserves
• Net worth
• Long-term Liabilities
• Unsecured Loans
• Short-term bank borrowings
• Other short-term borrowings
• Sundry Creditors
• Advance Payments Received
• Other Current Liabilities
• Outside Liabilities
• TOTAL LIABILITIES

• Assets
• Fixed Assets
• Long term Investments
• Other Non-Current Assets
• Intangible Assets
• Cash Bank Balances
• Short-term Investments
• Current Receivables
• Export Receivables
• Current Inventory
• Other Current Assets
• Total Current Assets
• TOTAL ASSETS

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Balance Sheet (As per CMA Format)Liquidity

• Liabilities
• Total Current Liabilities
• Total Term Liabilities
• Total Net worth

• Assets
• Total Current Assets
• Total Fixed Assets
• Total Other Non- Current asset

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Methods of Assessments- WC

• Banks today are free to draft their own
  methodology
• Limit upto Rs5crs
• Nayak Committee- 20 of PT
• Tondon Committee 1st method of lending
• Above Rs5crores- Asset Holding Method (2nd
  method)
• Cash Budget method-100 of cash deficit from
  operation is financed

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Operating Cycle
Cash
Raw Material
Receivables
Stock in Process
Finished Goods
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Entry Point
Fixed Assets FA
Owned Fund OF
Long term uses
Long term sources
Long-term loans LTL

Net working Capital
Current Assets CA
Short term uses
Cur. Liabilities CL Including BB
Short term sources
Entry point i.e. Appriasal point (gives
PD) CAgtCL CRgt1
NWCive
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Techno Economic Viability

• CONTENTS OF PROJECT APPRAISAL
• Promoters- Person/s behind the project
• Technical Infrastructure, Capacity, Technical
  know how, Mfg Processes, Quality, Licenses
• Management appraisal
• Financial appraisal- COP, MOF, COP, Financial
  Ratios
• Economic appraisal- Employment Potential
• Market appraisal-
• Environmental appraisal
• Chinese Risk- Dumping Risk- Substitution Risk

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Relevant ratios used in Term Loan Appraisal
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Holding Point
Fixed Assets FA
Owned Fund OF
Long term uses
Long term sources
Long-term loans LTL

Net working Capital NIL
Current Assets CA
Cur. Liabilities CL Including Bank Borrowing
Short term uses
Short term sources
Measures- Rescheduling Rephasemnet ,
Restructuring or fresh infusion CACL
CR1 NWCO
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Exit Point
Fixed Assets FA
Owned Fund OF
Long term uses
Long-term loans LTL
Cur.Liabilities CL Including Bank Borrowing
WCTL, Interest Funding
Short term uses
Current Assets CA
CAltCL
CRlt1
NWC-ive
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Balance Sheet???
?
Bank Borrowing
Should never be the position of Balance sheet No
Stake of the borrower Lose Lose situation
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Causes of Sickness

• The Causes are both internal external. The
  major causes are
• Limited financial resources,
• Lack of organisational, financial and managemnet
  skills
• Diversion of funds,
• Diversification/ expansion before stabalisation
• Non availablity of Power supply,
• Shortage of raw materials
• Marketining difficulties,
• Delayed and inadequate credit,
• Globalisation and liberasiation of the economy,
• Obsolete technology
• Inadequate infrasturture
• Family run business- Reluctance to change way of
  functioning

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Pricing Credit rating

• Limits above Rs25lacs pricing linked to Credit
  rating
• MSME unit limit upto Rs2crs rating is based on
  simple model
• External rating- MOU with DB,SMERA, NSIC-CRISIL
• Disbursement

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• Good Thing in Life Begin Small
• Thank You
• For more information please visit our website
• www.bankofbaroda.com