a study of small and medium enterprises loans ing vsaya bank
TRANSCRIPT
A Study on
SMALL AND MEDIUM ENTERPRISES LOANS (SME)
A Project report submitted in partial fulfillment of the requirements of MBA program 2006-08 of
GURU GOBIND SINGH INDRAPRASTH UNIVERSITYKASHMIRI GATE, DELHI
SUBMITTED BY:GAURAV GUPTA
ENROLLMENT NO. - 01641253906
Under the guidance ofMs. RICHA BHATNAGAR
DELHI SCHOOL OF PROFESSIONAL STUDIES AND RESEARCHROHINI, DELHI-85
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SME Banking
ACKNOWLEDGEMENT
The entire project from the vary idea of it to the reality would not have been possible
without the guidance and support of many people. I would therefore like to take the
golden opportunity to express my sincere and wholehearted sense of gratitude to all those
people who have helped me throughout the project.
My sincere and special thanks are due to Ms. Richa Bhatnagar, internal project
supervisor who has been a wonderful guide and helped me in successfully completion of
my project.
I also express my thanks to all my classmates, friends and family members who have
been a great help at times for providing necessary support towards completing this
project.
I would also like to thanks to all those faculty members and staff members who have
share their valuable time, experience, knowledge and provide their unconditional support
and guidance in completing my studies including this project.
Gaurav Gupta
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CERTIFICATE
This is to certify that the project entitled “Small and Medium Enterprises (SME) Loans”
is a bonafied account of work carried out by Mr. Gaurav
Gupta, under my supervision for the award of the degree of MASTER IN BUSINESS
ADMINISTRATION.
The student has also made his project report to my entire satisfactions as per the requirements of the course.
This is to certify that this work has not been submitted anywhere else for the award of Degree.
Ms. RICHA BHATNAGAR(PROJECT SUPERVISOR)
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EXECUTIVE SUMMARY
Background
Banks in India are casting aside shibboleths and increasingly acquiring a global flavor.
Some are already rivaling the best in the world in terms of technology and product
offerings. Others are fine-tuning their services and products to get there.
A significant paradigm shift has occurred in the banking industry in recent times. The
banks are now realizing that servicing the Small and Medium Enterprises (SMEs) is no
longer unviable. In fact SME Banking is emerging as the new profit centre and this is in
contrast to the last decade when the banks had to finance this segment because of
government diktats regarding the Priority Sector Lending.
The demand supply ratio of very less large firms and many banks that are willing to lend
to them explains it all.
Highlights of the Report
The report has been divided into 4 phases as explained below -
PHASE 1 - Significance of SMEs to the country and SME Banking to ING
This section aims at establishing whether or not this banking are holds any
importance in the current scenario or not.
PHASE 2 - Process mapping and analysis from various stakeholder
perspectives
o Employee Perspective
o Customer Perspective
o Competition Scenario
PHASE 3 - Strategies for a more efficient and effective process
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SME Banking
This section extends recommendations, both strategic and tactical, for the
winning edge.
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TABLE OF CONTENTS
1. Project Brief ………………………………………………………….6
2. Company Profile……………………………………………………....7
3. Objectives…………………………………………………………….12
4. Research Design and Methodology……………………………..........13
5. Limitations……………………………………………………………14
6. Introduction –Phase 1………………………………………………...15
7. Process Mapping and Findings –Phase 2……………………………..25
8. Observations…………………………………………………………..37
9. Recommendations –Phase 3…………………………………………..46
10. Findings……………………………………………………………….56
11. Annexure……………………………………………………………...66
12. References…………………………………………………………….82
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PROJECT BRIEF
Title – “SME Medium Enterprise Market Analysis”
Assessing the market potential for the existing products
Assessment of competition offerings and understanding their nuances
Positioning of ING Vysya Bank product offering
The deliverables included a detailed report analyzing the SME Banking Segment, in
depth benchmarking with the competition and recommendations for ING to improve its
process and increase its share of the market pie.
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SME Banking
COMPANY PROFILE
ING Vysya Bank Ltd., is an entity formed with the coming together of erstwhile, Vysya
Bank Ltd, a premier bank in the Indian Private Sector and a global financial powerhouse,
ING of Dutch origin, during Oct 2002.
The origin of the erstwhile Vysya Bank was pretty humble. It was in the year 1930 that a
team of visionaries came together to found a bank that would extend a helping hand to
those who weren't privileged enough to enjoy banking services.
It's been a long journey since then and the Bank has grown in size and stature to
encompass every area of present-day banking activity and has carved a distinct identity of
being India's Premier Private Sector Bank.
In 1980, the Bank completed fifty years of service to the nation and post 1985; the Bank
made rapid strides to reach the coveted position of being the number one private sector
bank. In 1990, the bank completed its Diamond Jubilee year. At the Diamond Jubilee
Celebrations, the then Finance Minister Prof. Madhu Dandavate, had termed the
performance of the bank ‘Stupendous’. The 75th anniversary, the Platinum Jubilee of the
bank was celebrated during 2005.
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HISTORICAL DEVELOPMENT IN ING Vysya
1930
Set up in Bangalore
1948
Scheduled Bank
1985
Largest Private Sector Bank
1987
The Vysya Bank Leasing Ltd. Commenced
1988
Pioneered the concept of Co branding of Credit Cards
1990
Promoted Vysya Bank Housing Finance Ltd.
1992
Deposits cross Rs.1000 crores
1993
Number of Branches crossed 300
1996
Signs Strategic Alliance with BBL., Belgium. Two National Awards by Gem & Jewellery Export Promotion Council for excellent performance in Export Promotion
1998
Cash Management Services, & commissioning of VSAT. Golden Peacock Award - for the best HR Practices by Institute of Directors. Rated as Best Domestic Bank in India by Global Finance (International Financial Journal - June 1998)
2000
State -of - the -art Date Centre at ITPL, Bangalore.RBI clears setting up of ING Vysya Life Insurance Company
2001
ING-Vysya commenced life insurance business.
2002
The Bank launched a range of products & services like the Vys Vyapar Plus, the range of loan schemes for traders, ATM services, Smartserv, personal assistant service, Save & Secure, an account that provides accident hospitalization and insurance cover, Sambandh, the International Debit Card and the mi-b@nk net banking service.
2002
ING takes over the Management of the Bank from October 7th , 2002
2002
RBI clears the new name of the Bank as ING Vysya Bank Ltd, vide their letter of 17.12.02
2003
Introduced customer friendly products like Orange Savings, Orange Current and Protected Home Loans
2004
Introduced Protected Home Loans - a housing loan product
2005
Introduced Solo - My Own Account for youth and Customer Service Line – Phone Banking Service
2006
Bank has networked all the branches to facilitate ‘AAA’ transactions i.e. Anywhere, Anytime & Anyhow Banking
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SME Banking
Business Banking - Small & Medium Enterprises
ING Vysya Bank has a track record of serving SME Customers for over 75 years. We
understand how much of hard work goes into establishing a successful SME and that
establishing and running a successful business takes hard work, money and planning.
ING Vysya Bank looks not only at your immediate banking requirement, but also the
long-term needs of your business as it expands. Our approach is to make banking easy,
timely and reliable so that you could focus on your business safe in the knowledge that
we would be there to take care of all your banking requirements.
Our solutions are designed to meet your varying needs. We offer a complete range of
banking services to small & medium sized corporates such as Business Accounts,
Working capital, Cash Management Services, Trade Finance, Other Non Funded
Facilities and Term Loans for Business Expansion for your business. In addition we also
offer specific structured products to SSI's, Traders, Distributors and other SME
customers.
Business Loans - MPower Business Loans Trade
Small business entrepreneurs often encounter problems regarding finance. ING Vysya
Bank presents a unique banking loan, specially customized for Small & Medium
Business Enterprises.
These loans are available for Small Business Entrepreneurs, Retailers, Shop owners,
Contractors, Commission Agents and Transport Operators as well as practicing
professionals like Doctors, Lawyers, Consultants, Women Entrepreneurs and any others
with a credit requirement ranging from Rs. 5 lakhs upto Rs. 50 lakhs.
Features and Benefits
Competitive interest rates along with an added concession of 0.5% on the interest rate on purchase of a Life Insurance Policy
Personalized attention from exclusively assigned Relationship Managers Simplified documentation Added benefits of a current account * Life and non-life insurance coverage Doorstep banking through Cash/Cheque Pickup and Delivery-extended at important locations under a
separate agreement with the bank Free SMS alerts on Debit to an Account, Credit to the Account and Balance below specified amount Concessional Demand Drafts/Pay Orders/Payable at par (PAP) facilities International Debit Card
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Online Banking services Phone Banking (Customer Service Line)
Business Loans (Small Scale Industries) – CGTSI
ING Vysya Bank offers loans to Small Scale Industries at competitive interest rates
without any collateral security
Credit Guarantee Fund Trust for Small Industries [CGTSI]
ING Vysya Bank is one of the member lending banks for CGTSI. ING Vysya Bank Ltd
offers loans of up to Rs 25 lakhs to SSI units under CGTSI at competitive interest rates
without any collateral security and / or third party guarantee. In addition the guarantee fee
payable to CGTSI would be debited to the account.
Minimum Loan Amount: No Minimum Amount
Maximum Loan Amount: Rs 25 lakhs
Eligibility:
The SSI units engaged in activities like manufacturing, processing or SSSBEs, including
Information Technology and / or Software industry are eligible.
Business Loans (Small Scale Industries) - MPower SSI
ING Vysya Bank presents a banking solution for SSI's who need specialised support for
their business, both for their daily business needs and for the future growth of their
business.
This product is tailor made for SSI units engaged in activities like manufacturing,
processing or SSSBEs, including Information Technology and / or Software industry.
Maximum Loan Amount:
No maximum limit
MPower Business Account (MBA)
MPower truly empowers you to create the business empire of your dreams. It is a
working capital account that enriches small and medium business enterprises by making
optimum use of your banking facility, and meeting the day-to-day needs of your business,
quite like you would personally do, if you had more time. Thus, you are now free to focus
on other business needs, while your MPower Business Account works hard, along with a
host of conveniences to give you maximum value and benefits.
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GROWTH CURVES OF ING Vysya BANK
-60
-40
-20
0
20
40
60
80
100
1997
-199
8
1998
-199
9
1999
-200
0
2000
-200
1
2001
-200
2
2002
-200
3
2003
-200
4
2004
-200
5
2005
-200
6
2006
-200
7
year
Rs
. in
cro
re
Series1
0
10000
20000
30000
40000
50000
60000
year
Rs.
in c
rore
Series3
Series2
Series1
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OBJECTIVES
Introduction of SME Loans
The functioning of SME loans in ING Vysya
Comparative study of SME Loan procedure of ING Vysya Bank with other banks.
To study the growth of SMEs
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SME Banking
RESEARCH DESIGN AND METHODOLOGY
Primary data has been obtained from the direct customer feedbacks.
Secondary data has been collected from the websites given in the references.
All the pie charts and bar graphs have been obtained from the under listed sites.
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LIMITATIONS
1) As I have collected the data through the primary as Well as the secondary sources, so, there is a Possibility to have some discrepancies in the data.
2) Time Span: - 2 months is small time frame given to us.
3) The data collected were totally depending on the respondent’s views, which could
be biased in nature.
4) The sample size is small, so it does not actually represent the views of the whole
population
5) Some people were not willing to disclose the investment profile.
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“Delineation…determined by criteria like turnover, net worth, initial capital investment or number of employees”
INTRODUCTION – Phase 1
Sector Background and Emergence
The definition of SMEs has taken many forms in the recent times. The concept took birth
with the term SSI (Small Scale Industries) which engulfed all organizations with an
initial investment in machinery and capital of up to 20 lacs with the limit later being
revised to a crore and even later to 5 Cr.
The earlier definition of SSI based on investment in plant
and machinery, excludes the rapidly-growing service
sector. In the past decade, the services sector contributed
almost half the country’s GDP. This led to the origin of
the term SME which was defined to include all
organizations with delineation between them and larger enterprises being determined by
criteria like turnover, net worth, initial capital investment or number of employees.
Most banks and financial institutions follow their own definition of SMEs. The CII
defines SMEs through characteristics peculiar to them. These are –
Owner-managed
Small work force
Predominantly non-professionals and find it difficult to retain professionals
Financial information is auditor-driven and restricted to financial statements,
and the only planning they do is in relation to taxes.
Primarily are suppliers to bigger companies
Experience constant pressure from customers to reduce prices
Have an in-built weakness in accessing new markets or expanding their
market share
Do not have the drive for product development or diversification
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But looking at the scale of their spread and contribution (as shown below), many believe
that Small and medium enterprises play a catalytic role in the development of any country
and are the engines of growth in developing and transition economies.
In India they account for a significant proportion of manufacturing, exports and
employment, and are major contributors to GDP.
Figure – 4.1.1(GDP statistics for the year 2002-2003)
The above pi-charts depict that
99.7% of all organizations in India fall under the SME category
SMEs contribute up to 80% of the GDP
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SME Banking
Table – 4.1.1 (Source – 1)
Performance of Small Scale Enterprises
Year
No. of units (lakh) Production (Rs. in crore)Employment in
lakh
Exports (Rs. crore)Regd. Unregd. Total (at current
prices)(at constant
prices)*
2000-01 13.1 88 101.1
(4.1)261289 (11.5) 184401 (8.2) 239.09 (4.4) 69797
(28.8)
2001-02 13.75 91.46 105.21
(4.1) 282270 (8.0) 195613 (6.1) 249.09 (4.2) 71244 (2.1)
2002-03 14.68 94.81 109.49
(4.1)311993 (10.5) 210636 (7.7) 260.13 (4.4) 86013
(20.7)
2003-04 15.54 98.41 113.95
(4.1)357733 (14.7) 228730 (8.6) 27136 (4.3) 97.644
(13.5)
2004-05 16.57 102.02 118.59
(4.1)418263 (16.9) 251511 (10.0) 282.91 (4.3) N.A.
Note: Figures in parenthesis indicate percentage growth over previous years.* 1993-94 prices.
Between 2000 and 2005, SMEs registered continuous growth in the number of units,
production, employment and exports. During this period -
Annual growth in the number of units was around 4.1%
Annual growth in employment was 4.3% annually.
Annual growth in production, at current and constant prices, was 12.4% and
8.1% respectively.
Thus, there has been a significant increase in the contribution of this sector to the
economic development and employment generation in the country.
Banks foray into the SME space
The future of SMEs is considered to be in need of major policy initiative given their
strategic importance in reshaping the economy. The biggest problem the SMEs face is the
non-availability of adequate financing facilities.
Following reasons have made it important for the SMEs to get access to good credit
lines from the banks –
Advent of rapid globalization and WTO commitments
The opening up of national economies, the arrival of new products, and the
introduction of ever new processes of production and service provision.
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SME Banking
“When a business applies for a service, a bank focuses on the risks involved and the methods to mitigate those risks.”
Banks, like other businesses, concentrate on creating value under a controlled risk milieu.
When a business applies for a service, a bank focuses on the risks involved and the
methods to mitigate those risks. The banks were reluctant to lend to the SMEs for a
number of reasons, including the following: (Source-2)
The information asymmetry that arises from lack of
financial information and standardized financial
statements.
Limited assets that can be used as collateral, high
failure rates, low capitalization and vulnerability to
market risks.
Inability to determine whether the borrower possesses the technical,
managerial and market skills to generate adequate cash flows and service the
loan.
SME Banking – Growth Engine: Myth or Reality
Earlier, SMEs preferred personal savings and retained earnings over other forms of
financing but a major shift has been observed in this trend as the industry is maturing.
Recognizing the vast potential of the SME sector, banks have positively responded by
providing adequate credit to SMEs.
Following statistics elucidate the favorable response of the banks -
Bank credit to SMEs - Rs 16,800 Cr in March 1991
In 2004-05 –
o Public Sector Banks - Rs 58,300 Cr
o PSBs and foreign banks - Rs 10,000 crore.
Projection – An expected 20% year-on-year growth in the funding of SMEs
will take the total exposure close to Rs.1,35,000 Cr by 2009-2010
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SME Banking
Banks are now better equipped to handle the varied needs of the SME sector due to better
technology and risk management. As recommended by the Ganguly Committee, the
Government has asked banks to adopt the 4-C approach to cater to the diverse needs of
the SME sector. The 4-Cs are: customer focus, cost control, cross-selling and containing
risk.
Offering to SMEs
A variety of offerings are extended by banks and other institutions to SMEs to enable
them to meet their needs. These can broadly be divided into fund-based, non fund-based
and value added services. These include a whole gamut of services and products ranging
from term loans, overdrafts to letter of credits, cash management services etc.
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Figure – 4.4.1
A few of these are in their nascent stages namely Credit Guarantee Fund, Consulting to
SMEs and Business Credit Card. But nevertheless these services seem to be promising
and are expected to be used heavily by SMEs in times to come.
Since Credit Guarantee Fund and Leasing are new to Indian Banking, they have been
explained below.
Credit Guarantee Fund - This fund provides guarantees to commercial financial
institutions on behalf of SMEs that do not have collaterals to offer. This would encourage
many SMEs to avail financial assistance and would increase the outreach of the Banks.
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“Learning from SME banking industry in more mature markets will facilitate in future policy decision”
Leasing - Providing sound collateral is beyond the ability of many SMEs and that its
unavailability leaves entrepreneurs unfit for financial assistance. Hence, the Bank can
offer leasing products. These are asset backed, tailor made and involve lesser
documentation & processing time and hence a viable deal for both the parties.
SME Banking – International Perspective
Learning from SME banking industry in more mature markets will facilitate in future
policy decision. Here Canadian and Korean markets have been looked at briefly.
Canada (Source – 5)
The figure below depicts the various products and services used by Canadian SMEs and
also the % of SMEs using these products. This list also has some products that we don’t
have in the Indian banking industry.
Some such products along with their % usage are –
Personal Credit Cards for owners: 33%
Commercial Credit Cards: 26%
Leasing: 16%
Factoring: 3%
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SME Banking
Figure – 4.5.1
South Korea
The diagram below depicts a trend of lending to SMEs as a % of total outstanding
lending to all businesses in South Korea. The highlight is that this is a rising curve and
has started forming the bulk of the lending carried out by a bank.
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Figure – 4.5.3
Takeaways from developed markets
SME lending will overtake Non SME lending in the years to come
Instead of traditional TL and WC, SME Banking will be more driven by more
customized and sector specific products and services. This also guides us in a
way towards clustering
Loans from friends and relatives are increasingly becoming less attractive for
SMEs
SME Banking in ING Portfolio (Source-4)
GE/McKinsey Matrix
Competitive StrengthLow Medium High
Mar
ket
Att
ract
ive
nes
s
High
Medium
Low
Figure – 4.6.1*The size of the circle represents the size of the market and the pie depicts the market share of the SBU. The arrow depicts the direction of movement on the matrix.
The McKinsey matrix is a model to perform a business portfolio analysis on the Strategic
Business Unit of a corporation. It displays the importance of an SBU in the portfolio of
an organization and helps in determining if and how much investment should be pumped
into the SBU.
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SME Banking
“ING Vysya Bank holds less than 1% market share in the SME banking business”
The two axes have been labeled in the figure. Market (Industry) attractiveness is used as
the dimension of industry attractiveness. It includes a broad range of factors other than
just the market growth rate that can determine the attractiveness of an industry.
Market size
Market growth rate
Market profitability
Pricing trends as in
fee and rate of
interest
Competitive
intensity/ rivalry
Overall risk of
returns in the
industry
Opportunity to
differentiate
products and
services
Distribution
structure as in
branch locations
Competitive strength likewise includes a broader range of
factors over and above just the market share. These factors are
–
Strength of assets
and competencies
Relative brand
strength
(marketing)
Market share and
its growth
Customer loyalty
Relative cost
position (cost
structure
compared with
competitors)
Relative profit
margins
(compared to
competitors)
Record of
technological or
other innovation
Quality of service
Management strength
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Finding
ING Vysya Bank holds less than 1% market share in the SME
banking business which is very low considering the potential
the market has to offer. Although our product portfolio does not
have a wide gamut of products matching every specific need of
SMEs but we have a generic product that to a large extent
covers the needs of the clients. We are a small player in this
industry but are growing by the day thanks to the brand name.
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SME Banking
PROCESS MAPPING AND FINDINGS –
Phase 2
Three major stakeholders for the internal process followed at
ING were identified. These players either influence or are
influenced by the process in one way or the other. They are
Employee
Customer
Competitor
The perspectives of all these three have been captured in the
findings below to understand the improvement areas in various
dimensions.
Process Map for T L and WC Facilities @ ING
Any processing to provide a facility like term loan or overdraft,
passes through 4 phases (life cycle of the process) which are as
mentioned below.
1. Pre-sanction
2. Sanction or Approval
3. Disbursement
4. Account Servicing or Monitoring
The C Map depicts players, tasks performed and deliverables.
The arrows depict flow of information.
Map Legend
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Player
Major Process Flow
Player in the process (human role) Activity or characteristic of a document
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SME Banking
Information Transfer Documentation at that step
Pre-sanction Phase
The RM sources a customer from either of –
o Client References
o Freelancer CAs
o Cross Selling to existing customers
o Cold Calls (this involves calling up people
whose details are picked up from a database
maintained by the bank)
A request in the Negative Databases is sent to
determine if at all the prospective client is black
listed anywhere. The search is predominantly
carried out with the following databases/ service
providers.
o CIBIL (an external organization maintaining
black listed clients of all banks)
o DEDUP (this checks for any record of default
within the bank)
o SATYAM (this checks if the prospective client
belongs to one of those caution categories such
as – IPS, Politicians, IAS etc)
Based on the results of this search, further actions
are determined. Either the case is discarded or else
further processing is carried out.
In most cases, which are valid (as per the PDD
norms) the process of document collection is
initiated. Following is the list of documents that is
required.
o 3 year financials
o 6 months bank statements
o IT Returns
o Audit Report
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SME Banking
o Personal Returns of Directors, Proprietors,
Partners if any
It is established that the client can offer an
acceptable collateral and the documents for the
same are collected from the client and a valuation of
the same is ordered. RM requests a Valuation
Organization (in contract with the bank) to value the
collateral and revert with a report.
The Credit Analysts generated the following
documents in turn –
o One pager (to check the eligibility and
compliance with PDD norms)
o MFA (Moody’s Financial Analyst Report)
o ESC (Electronic Score Card)
o Corporate Grade (BORG)
The Credit Analyst also calculates the LGD from
the Valuation Report to see if the PDD norm in this
respect is abided by or not. All the mathematics
(calculation of limit for each category, pricing,
exposure etc) is carried out here.
These are sent back to the RM who generates the
following documents
o LA Part-1&2
o Breach Form
o Compliance Report
o Call Report
A limit is determined taking into consideration both
what the client needs and the bank can put on offer.
The RM prepares a proposal and sends it the to
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SME Banking
Credit Team for evaluation. This also marks the end
of the pre-sanction phase.
Minimum pre sanction time is 20 days
Approval/Sanction Phase
Once the proposal is received by the Credit Team
they verify all the documents for compliance with
PDD norms.
They may recommend some modifications, may
approve or even reject the proposal.
In case of approval, they prepare an Approval Letter
and Conditions for Approval (certain conditions
subject to which a facility will be honored)
The RM then forwards the case documents to the
CAPU to obtain the LoBA (Letter of Bank
Approval).
Post sanction time is 1 week.
31
SME Banking
32
SME Banking
Disbursal Phase
On receiving the response from the Credit team, the
RM organizes for legal documents and other
compliance documents with the help of the client
(signature, stamp, seal etc)
These are then sent to the Centralized Asset
Processing Unit (CAPU) and Credit Team for
further processing.
The CAPU checks for errors in the documents and
any other compliance issues and reverts with the
same to the RM
The RM rectifies the errors if any and the
documents are sent back to the CAPU for the final
approval.
With all requirements in place, the CAPU loads the
limits for the respective client into the MIS
(System).
It further orders the generation of a DD for the
client to the respective branch.
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SME Banking
Account Monitoring Phase
For any discrepancies and for general queries the
Service Manager assists the Client.
All the Client Requests are handled here, and many
services are also backed by one of RM, CA or
Credit.
The Service Manager also bears the responsibility of
migrating the client to better services.
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SME Banking
RM Chakra
The drawn concept map can also be looked at from another
perspective which is as shown below in the RM Chakra. On
observing the process closely and interacting with the
employees, it was found that the process is entirely RM
Centric. The RM owns the case (not just the relationship) and
takes it through its life from sourcing to disbursement. He
becomes the hub in the process and coordinates all the other
processes as listed in the spokes.
Figure – 5.2.1
The process needs a revamping where in the RM’s
responsibility can be reallocated. This will help not only in
35
Source case
Collect DOX & pass to Cr A
Prepare LA, Call Report etc.
Get approval from credit
Forward to CAPU
Post approval documentation
Get approval from CAPU
RM backed servicing
RM
SME Banking
increasing the productivity of the RM but will also help him
focus in raking in more business for the bank.
Turn-Around-Time Analysis
An analysis spanning all the RMs of the department was
carried out so as to gain an understanding about the average
time taken by the bank from login to disbursement. The
rationale was to be able to identify the bottle necks in the
process. Please refer to Annexure-D for the TAT Sheet as prepared
under this exercise. It contains the average number of days taken by
various RMs for their respective cases divided on activity basis.
Figure – 5.3.1
The two most time consuming activities in the process are
documents collection in the pre and the post sanction phases
which take an average of 10 and 8 days respectively. The
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SME Banking
Activity0.0
2.0
4.0
6.0
8.0
10.0
12.0
Document Collection
MFA, ESC, One Pager
Valuation of Collateral
Negative DatabaseSearchCreate Proposal
Credit Approval
CLPU Approval andLoBADox Collection andcheckingLimit Upload
Days
overall average time for a case disbursal at ING Vysya is 38
working days. Various other surveyed banks have TATs as low
as 25-30 days. So, it is clearly evident that we have a large
scope of improvement there.
A brief idea about how this function is carried out in other
organizations with lower TATs could be obtained by studying
the ICICI model in this respect.
Core Competence Model
The Core Competence model of Hamel and Prahalad is a
corporate strategy model that starts the strategy process by
thinking about the core strengths of an organization.
It is very insightful for a business to understand as to what
really attracts customers to it either fresh from the market or
from the competition. That something forms the core strategy
of an organization. After having taken into consideration the
dynamics of the SME Banking market, our proposition and
competitor’s offerings it can be concluded that account
servicing and the convenience provided through the same form
the core competence of SME Banking at ING.
After sales service id a cliché’ in the world of management but
is very relevant for the customers of this fast growing market.
Customers are looking for convenience when it comes to their
day to day requirements. This was also gathered from the
respondents in the customer feedback survey as presented in an
earlier section.
Let’s carry out a check of ING’s core competence on the basis
of the Hamel – Prahalad model.
Potential Access to a wide variety of markets
37
SME Banking
On this criterion the servicing of an account fits in a
generic fashion. Not that there are some specific
markets that it provides access to, but it helps in
garnering newer customers and satisfying the
existing ones.
Contribution to the benefits of the product as
perceived by the customer
The customer perception about an offering from a
bank is largely influenced by the kind of service that
can be expected from the bank. Talking about the
product, most banks are offering similar products
and competitive rates. So if a customer perceives a
convenient after-purchase use of a bank’s offering,
he is half hooked.
Difficult for competitors to imitate
This criterion may or may not hold. Many
experienced employees perceive that the customers
ING has been getting are mostly attracted by our
competitive pricing and excellent services.
Although this aspect is not too difficult to copy but
capturing the market through this trait in our
offering can give us the first mover and claimer
advantage.
Customer Feedback
A questionnaire was administered to the existing customers of
the bank so as to determine their levels of satisfaction and gain
an understanding about the psyche of a customer in the SME
arena. A sample is presented in Annexure-B. The data
obtained from the survey has been coded and presented in
Annexure-C.
38
SME Banking
Inferences
The most preferred source of finance for a small or medium
sized business remains family. Most of the businesses
derive their seed income through this route and also trust
this source the most. It is followed by state-owned and
private banks. The criteria for evaluation were - availability
ease, convenience of use and pay back conditions
The following figure depicts the importance of various
characteristics of the bank that an SME considers while
choosing its banker. Pricing came out to be the most
important factor that affects a client’s choice of a bank.
This also is an important factor that makes people switch
their banks. This is followed by relationship with the bank
as a criterion. Factor not fully visible in the figure are –
timeliness of response, facilitating understanding of
procedures, assistance in preparation of documents.
39
SME Banking
0
20
40
60
80
100
Relationship - bank
Relationship - RM
Prices
Convenience
Timeliness of respo...
Facilitating underst...
Approachability
Assistance in prepar...
Flexibility of policies
Figure – 5.5.1
Family37%
Close Friends11%
State owned banks14%
Private Banks14%
Government initiatives6%
Venture Capital6%
FDI6%
NRI Investment6%
To be able to gauge the customer satisfaction level with
ING, the respondents were asked to rate various
characteristics of ING vis-à-vis their previous bank. This
sheds light on which areas need concentration as far as the
customer satisfaction is concerned.
The most important factors that contribute towards ING’s
growing market share are the prices that we have at offer
and the convenience in terms of account servicing and other
value added services that we provide. Respondents seemed
not to happy about the approachability of the RMs and the
flexibility of policies.
40
SME Banking
0
40
80
120
Relationship with the ...
Relationship with the RM
Prices
Convenience
Timeliness of response ..
Facilitating understand...
Approachability
Assistance in preparati..
Flexibility of policies
Figure – 5.5.2
ING Previous bank
All the respondents seemed satisfied with the services that they
have been availing from ING. One cause of concern that all the
respondents showed was that ING required a lot of documents
for case evaluation.
Competition Benchmarking
Four other banks namely ICICI Bank, HDFC Bank,
CITIBANK and SBI were visited to understand their process so
as to benchmark our process with them. Refer to Annexure-F
for questionnaire for bankers.
These banks were selected on the following grounds -
SBI is the market leader in SME Lending and the
largest public bank
CITIBANK is not too large in the SME Banking
sector, but provides for a good comparison as its in
direct competition with us being a foreign bank
HDFC and ICICI are home grown giants and have
also seen good growth graphs in the near past
41
SME Banking
Figure – 5.5.3
OBSERVATIONSMajor analysis from competitor benchmarking are presented below.
For detailed comparison refer to Annexure-A.
1. SME Definition Criteria
Table – 5.6.1
ING ICICI HDFC CITIBANK SBISME Definition Criterion
Only Turnover if net worth is nil then the proposal is rejected
Net Worth Turnover Turnover Turnover
Requisite Company Size
Minimum Turnover=25laks
Net Worth is the eligibility criteria.Defined Ranges 50-75Cr ME
<50Cr SE
Turnover should be between 40 lacs to 100 Cr.
Turnover is the eligibility criteria. They even entertain companies upto a 1000 Cr. Don’t have a separate Middle Market Group. Commercial Banking Group encompasses both SMEs and MMIs.
Turnover between 0-5 Cr go under the SE Dept and those between 5-100 Cr go under ME Dept
All banks apart from ICICI use turnover as the SME definition
criteria. The difference this creates fundamentally lies in the
fact that, it helps them cater to a far wider range of clients. A
client with a small net worth may have a very high turnover.
This factor distorts the market share analysis.
42
SME Banking
2. Organizational Structure
ING Vysya(ING)
Figure – 5.6.1
SME department serves clients with turnover of up to 110 Cr.
The basic structure of the organization is as shown in the figure
above. The SME Banking arm is divided into four regions that
are East, West, North and South.
Every region has a Regional Sales Manager and a Regional
Credit Manager. An RM reports into the ASM who in turn
reports into the RSM. The ACM can only recommend cases
and the RCM can approve cases of worth up to 5 Cr locally
beyond which the case is escalated to the National Credit Head.
43
SME Banking
Figure – 5.6.2
ICICI Bank
Figure – 5.6.3
Clients of net-worth less than 50 Cr are handled by the Small
Enterprises Department and those between 50-75 Cr by the
Middle Enterprises Group. These are further divided into
regions that are East, West, North and South.
ICICI has segmentation within its SME Banking arm based on
the clusters each segment caters to. The hierarchy at the first
two levels is as shown in the figure below with an AGM and a
44
SME Banking
Group Cluster Head at the national level. Each region thereon
has an RSM, RCM and a Risk Manager. Every region also has
an associated Operations Team to assist the RMs in issues
relating to documentation. The RCM looks at macro credit
related issues of the case say sector risk, geographical risk etc.
and the Risk Manager concentrates more on micro issues
relating to the financials of the case.
Figure – 5.6.4
HDFC Bank
Figure – 5.6.5
The SME Banking arm at HDFC has four vertical viz. - MMI,
Business Banking, Commodities and Transactional Banking.
Each of these is further divided into East, West, North and
South. The Business Banking Division directly corresponds to
45
SME Banking
the SME Department at ING. The organization of Business
Banking is as shown in the figure below.
At HDFC, along with the hierarchies of the Relationship and
Credit managers, there is a third vertical running in parallel
which is the Operations Team. The Operations Team here
unlike ICICI, does not prepare the documents; rather it
examines the documents for any discrepancies. Their job is
more of the kind that is carried out by the CAPU at ING.
Figure – 5.6.6
State Bank of India (SBI)
Figure – 5.6.7
The division between SE and ME is based on the turnover of
the client as shown in the figure. There are 14 regions in which
the country is divided and each region has modules within it.
Every module has its own centralized SME Credit Cell. All
46
SME Banking
branches in this module are connected to the SME CC through
a Hub and Spoke Model. The clients that come to the branch
are broadly screened by a credit manager there. The relevant
documents are collected and are sent to the SME CC from
where the approval/rejection is received within 10 working
days.
Figure – 5.6.8
Highlights
The arrangement of ICICI into clusters.
ICICI has a separate team that carries out the
documentation related to cases lifting this burden
off the RM’s shoulders.
The RM does the jobs of both the RM and the CA
as compared to ING at ICICI
The Operations Team at HDFC carries out the
verification of documents for discrepancies i.e. in a
way localizing the functionality of CAPU at ING.
3. Job Designations and Teams
Table – 5.6.2
47
SME Banking
ING ICICI HDFCProfile 4 Profiles (RM, CA,
Credit, Service Manager)
Centralized Asset Processing Unit (Outsourced - SCOPE)
4 Regions
Profiles - SM, ASM, RSM, RCM, Risk Manager, Service Manager
Cluster Manager with RMs working under him
CA attached to RMs for financial support
RCM who approves the limits with recommendations made by CMs working under him
City Ops Mgr who ensures that all dox related to a case are ok
Acquisition Structure
RM sources clients, is supported by CA for preparation of proposal. About 90% of cases are takeover cases.
SM sources clients, is supported by the operations team for proposal preparation.
99% of cases taken up by HDFC are takeover cases from other banks. Most of these are obtained through branch leads. Other traditional methods like Freelancer CA, client references, tele-calling etc are also used but constitute a very small % of the total business.
4. Special Services to SME Clusters
Table – 5.6.3
ING ICICI HDFCSpecial Services to SME Clusters
None Yes. Many clusters defined namely - LogisticsConstructionPharmacyGems & JewelersITThose clients that do not fall under any group are handled by Emerging Clusters Group
None
ICICI has the aforementioned clusters and has offerings
specific to them. Specific offerings mostly contain sector
specific collaterals and consideration of certain financial ratios
that are in a particular range as an industry wide trend. Also,
this helps the bank in the way that their employees working in a
particular cluster gain expertise in that sector and are thus
enabled to handle client needs better. This also helps the banks
to manage their portfolio in a more systematic fashion
5. Offering Characteristic
48
SME Banking
Table – 5.6.4
ING ICICI HDFC CITIBANKParameterized offering or Discretionary Credit
Parameterized Offering (follow Product Development Document Norms)
Both offerings available (EC and FC). Some limits are straight away calculated using pre-determined percentages.
Parameterized but many deviations are permissible. HDFC itself claims to have a low risk appetite.
More or less discretionary credit. Although there are defined limits, ranges, ratios etc but all these do not deter the organization to lend a facility.
With the huge gamut of available offerings, ICICI can bend and
mould their product as per the client needs. They have both
discretionary (Enterprise and Flexi Credit) and parameterized
products on offer. As far as CITIBANK is concerned, although
they have well defined parameters for client evaluation but
nevertheless a large number and extent of deviations are
allowed.
6. Sourcing Methods
Table – 5.6.5
ING ICICI HDFC SBISourcing Methods
Freelancer CA, Client References, Own Clients, Cold Calls
Freelancer CA, Client References, Own Clients, Cold Calls
Transaction Details - the bank tracks people who have taken loans for CV/CE etc. Their banking behavior is analyzed and they are contacted. This is well organized through an internal
Branch LeadsClient ReferencesTele-callingCross Selling
Branch Leads
49
SME Banking
database.
Most of the banks use similar sourcing methods, but a striking
difference between ING and other banks is that we have not
been able to use our existing resources of customers well. Most
of the other banks have access to their own bank’s data of
current account holders. This enables them to cross sell their
products in a smooth fashion.
7. Vintage Requirement Deviations
Table – 5.6.6
ING ICICI HDFC CITIBANK
SBI
Vintage Requirement Deviations Allowed
Those not meeting limits can be considered provided the lending is fully securitized by cash/ marketable securities/ SBLC/ BG or if the borrower belongs to a larger group which has a vintage of greater than 3yrs in the same business.
Companies with vintage of 1n1/2 yrs are also allowed only if the bank receives a corporate guarantee from the owning group.
Deviations in this are allowed depending upon the bank's comfort with the client.
All deviations allowed as there is no fixed criteria
No limit on vintage so no scope of deviation
8. Financial Analysis
Table – 5.6.7
ING ICICI HDFCFinancial analysis - ratios considered
Gearing Ratio = External Debt/Net Worth
Leverage Ratio = Total Liabilities/Net Worth
Current Ratio = Cur. Assets/Cur. Liab. ICOR = (Interest + PBT)/Interest
All ratios are considered. Profitability, Leverage, Turnover, Liquidity. All ratios hold some weight-age.
50
SME Banking
Net Profit Margin = Net Profit/Sales
Asset Turnover = Sales/Assets
Debt Service Ratio = Interest Expense/Sales
Current ratio=1.33:1
Debt equity ratio
Leverage Ratio = Total Liabilities/Net Worth
Net Profit Margin = Net Profit/Sales
Debt Service Ratio = Interest Expense/Sales
This ratio is important for term loans
HDFC uses software specially created for them by CRISIL called RAM (Risk Assessment Model). This software especially designed for SMEs incorporates financial, management and all other subjective information about a prospective client. All information is quantified and scores are generated which help create a risk profile of the client. Gearing: 2Leverage: <3ICR: >2DSCR: >1.5Current Ratio: >1.33
Although all the banks consider more or less all the financial
ratios but some ratios hold more importance as compared to
others for each bank. Current Ratio holding the most
importance at ICICI needs notice here.
9. Acceptable Collaterals
Table – 5.6.8ING ICICI HDFC CITIBAN
KAcceptable types and level of collater
PropertyResidentialCommercialQuasi
PropertyResidentialCommercialWarehouses
Agricultural Land, Plots, Farm Houses, Property under Construction is not acceptable.
PropertyFarmhouses and industrial plots are not
51
SME Banking
al - type of properties & resp LTV%
Commercial (Warehouses/Godowns)Industrial Property
Plot - only if its residential and the surroundings are coveredEquipment (construction), Assets (Road Rollers), Vehicles
CRRs are recommended in the product but they are also flexible e.g. from case to case basis the LTV could vary from 200% to 50%. There can even be cases where the bank decides not to take any collateral.
acceptable. Defined margins on collaterals. Limits not disclosed.
10. Limit Calculation
Table – 5.6.9
ING ICICI HDFC CITIBANKCalculation of Limit - MPBF, cash cycle, turn over% etc and how much deviation allowed
Limit is calculated using the MPBF method in non LGD cases
Cash Cycle is used in LGD cases20% of turnover
Limit is calculated using both % of Turnover and MPBF
% of turnover and MPBF are the two most important methods. But the RM also uses the cash-cycle method to support his cases through credit approval (not used technically).
All these calculations are carried out but the limit is also finally decided by the banker. The calculations are only done so that the banker knows the numbers to make the assessment.
Both ICICI and HDFC also calculate limits on the basis of % of
turnover method. This reduces a lot of internal processing for
financially sound cases.
52
SME Banking
RECOMMENDATIONS – Phase 3
Strategy Map
Strategy Maps are diagrams that describe how an organization
can create value, by connecting strategic objectives in explicit
cause and effect relationship with each other via the four
perspectives that are financial, customer, internal and learning
& growth.
Figure – 6.1.1
53
SME Banking
The above drawn map provides an overview of the strategy of
ING. The following sections delineate the process
improvement suggestions and strategies that look at all these
perspectives.
54
SME Banking
Clustering Approach
The bank must plan to switch to a clustering approach in
servicing its customers. We can not adopt this today or in the
near future because of the lower number of customers in our
portfolio. But it is inevitable that we have to plan a shift. By the
time we have the size, if we don’t have a plan, it will be too
late. There are various reasons why clustering should be
planned for at this stage.
a. The competition has been proactive
Some of the biggies in the market have already
adopted or have planned to adopt this structure.
ICICI is already working with 5 cluster banking
groups (for names refer to Annexure-A) and those
clients that do not fit into any of these are serviced
by the Emerging Clusters Group.
Citigroup, which has an exposure of about 4500 Cr
to SMEs has picked up a 5% stake in SMERA.
Although not confirmed from internal sources but
the market feel reflects that they plan to switch to
clustered services sometime in the future.
b. SMERA ratings to be cluster based
Most of the banks today function on their internal
risk assessment of SMEs, but this trend is slowly
changing with SMERA ratings spanning more and
more of these enterprises. Some banks namely Bank
of India, Andhra Bank and Union Bank of India
have already started evaluating their clients based
on these ratings and are also offering them discounts
55
SME Banking
of up to 2.5% on the rate of interest. The purpose of
these ratings is to make available cheap credit for
genuine SMEs and help them grow.
In this arrangement, the bank approaches SMERA
for the credit rating of it customer. A good rating
will entail a better rate of interest and vice versa or
else case rejection. A lot of subjectivity that prevails
in the market in the rating aspect is removed.
c. Clustering attracts more clients and helps bank
service them better
For any SME that requires a bank service, the bank
that offers services especially meant for businesses
from that particular segment is obviously more
attractive. The SME has the assurance that the bank
will understand well the nature of the business, will
have specific business friendly policies and offer
good rates & services. Specific policies include
collaterals that otherwise the bank would not
consider e.g. a road-roller as collateral for an SME
in the construction business.
Also from the banks point of view, clustering helps
it work more efficiently because the employees
become specialists and the turn around time comes
down largely.
ING must plan to make separate verticals of these clusters in its
organizational structure. The officially defined clusters can be
used as segmenting criteria for the target market.
56
SME Banking
Refer to Annexure-E for a list of clusters in Delhi divided
region wise.
Issues
Infrastructural issues
Will require a change in the organization at the macro
level, thus it is recommended to plan at this stage so as
to be prepared when it needs to be executed.
Change Management
The working style of the employees will more or less
remain the same, so no real threat there.
57
SME Banking
Hunter-Farmer Model and Operations Group
According to our role definition, we are following a model
where the RM sources cases and takes them to the stage of
disbursement, post which they are passed on to the Service
Manager. The RM remains busy throughout the process and
this affects his efficiency in sourcing more cases with the fact
holding that he is the only profile responsible for getting in
business.
Following are the reasons that lead to inefficiency and lack of
motivation in the current system –
All the RMs are supposed to carry out the entire
process right from the sourcing to disbursement and
the process being long hauled and complicated
affects their efficiency.
The process also involves a lot of documentation
work which can be carried out by specialists in a
lesser and more efficient way.
The industry is easier to tap for those RMs who
have an experience of at least 2-3 years.
Figure – 6.3.1
58
SME Banking
The model drawn above depicts the Hunter-Farmer model as it
can be followed in SME at ING.
The “hunter” here will be SRMs whose major concentration
will be on to rake in business for the bank. He will be
supported by the CAs and the Sales Executives to take the case
up to the approval stage. During this period he may be
supported by the Operations Team for the pre-sanction
document collection.
Once the cases are approved, they will be handed over to the
RMs shown towards the right of the model. These RMs will
take over the relationship and take the case to the disbursement
stage. The SRM will ensure that all the relevant knowledge
transfer takes place.
The Portfolio Manager will manage the disbursed cases and
ensure proper renewal and enhancement procedures as and
when needed. These up gradations will be carried out by the
RMs in association with CAs.
The operations team will be a separate vertical just like sales
and credit. These managers will specialize in documentation
and will support the SRMs and the RMs both in the pre and the
post disbursement stages.
The functions of the Credit Analyst and the Credit Team
remain the same as in the current model.
In the above model the RMs who are working in co-ordination
with the PM will report to specific SRMs. This will ensure
59
SME Banking
proper ownership of the cases sourced by SRMs. Also here, the
target of the SRM will be complete disbursals but the target of
the RMs wil be limited to disbursements and renewals.
This model is also futuristic in nature. Once ING starts
following the clustering approach, the SRMs can be allotted
specific clusters; they and their respective teams can then work
accordingly.
Process Automation using Information Technology
IT usage in the entire process followed at ING Vysya is limited
to MFA, ESC and e-mails. We are basically low on IT and are
facing a lot of blockages in the process. We have a system of
paper based case proposals that are stored manually as physical
files.
Areas of concern arising due to low automation in the process –
No access to the database of current accounts of
bank customers to Relationship Managers, for a
particular region, preventing access to a large
number of existent customers to whom SME
offerings can be cross sold.
Absence of a formal IT enabled mechanism to pass
on branch leads to RMs. This leads to a loss of a
huge client base that can be tapped if and only if a
formal linkage to pass on case-leads is established
with all branches in the region.
Non-existence of formal interdepartmental data
access. SME Banking could benefit a lot if they
have access to the Mid and the Large Corporate
client’s databases. Through this data the SME Arm
60
SME Banking
can tap the suppliers and distributors of these clients
who more often than not would be SMEs. Also an
unacceptable deviation on company size for Mid
Corporate Segment could throw a client to SME
Banking, in presence of a system that enables this
with ease.
Thick and unmanageable files need to be maintained
for each case that presents a lot of difficulty in
accessing any required detail. A lot of time simply
gets wasted in trying to locate a particular document
that has already been filed. This happens because of
absence of proper indexing and orderly
maintenance.
All physical documents need to be scanned and sent
as e-mail attachments to the CAPU. This adds to the
wasted man hours.
Retrieval of an old file for a case renewal or
enhancement entails a manual search of files in a
closet room which may or may not result in success.
This further requires a re-preparation of all those
documents that could have been reused from the
previous file. This not only is inconvenient for the
banker but also so for the client.
61
SME Banking
Figure – 6.4.1
The figure drawn above present a bird’s eye view of the model
that can be used for automating the process followed at ING.
Some details for the process are as follows –
The RM on sourcing a case will log it into the
system feeding in some basic details that he has
been able to gather (contact information etc.) He can
also carry out a check at this time to verify that the
case does not already exist.
The Operations Team on direction from the RM will
collect the documents required in the pre-sanction
phase and put them into the system. This would be
in the scanned format.
The CA will access the documents and prepare the
financials. These will be uploaded in the system and
will be accessible from there in. The do-ability of
the case will have been determined by then. A
62
SME Banking
positive result moves the case forward and a
negative one will stop the process here. The
negative data can still be maintained for future
references.
The RM will prepare the requisite documents whose
soft copies will be accessible through the system
(LA, Call Report, Breach Form etc.)
A message will then be fired to credit informing that
they should look into a particular case as requested.
An approval will entail a mail. At all times, the
status of case will be available in the system as in
pre-sanction document collection, credit scrutiny,
disbursal etc.
All the documents would by now already be in soft
copies and would be easily sent to the CAPU.
An approval will entail the post-sanction
documentation that will be carried out in a similar
way as the pre-sanction documentation.
The system will have defined rights restricting access for each
entity e.g. RMs and CAs will be able to access details related
only to their own cases, a credit manager will have access to
details of all cases etc.
The system will also help keep a check on the performance of
each RM and help foresight the disbursals for the month. The
system could also be enabled to generate some analytical
reports using the data it maintains e.g. month on month
disbursals growth etc.
63
SME Banking
All communications that face blockages now will flow
smoothly and a seamless integration of the organization will be
achieved.
Other Recommendations
All current account data of all branches should be
made accessible to the SME Banking arm. A Data
Mining procedure can then be run on this database
that evaluates certain parameters which helps in
determining the eligibility of customers for the SME
Banking Arm.
This will be a very good sourcing method for SME
as they will be trying to tap the existing customers
of the bank. This cross selling is happening across
all other competitors and is a major source of
business for most banks’ SME arms.
Leads given by bank employees to the same
department or some other department must be
64
SME Banking
incentives in either cash or kind. This gives the
employee a reason to pass on business that the bank
could tap. This could turn out to be one of the major
sources of leads because most business in the SME
segment works through references. It has been seen
as a trend through experience that very little cold
calls get converted into business for the bank.
A very major cause of concern at this moment is the
usage of the Middle Markets Electronic Scorecard
by the SME Arm. Here the financial ratio weights
and their definition for the scoring of a client differ
and could take a very different meaning for SMEs.
This results in faulty calculation of limits and rates
of interest which are generated using the Corporate
Grade.
Most other banks that are using scorecards have
specially designed SME scorecards e.g. HDFC uses
software for SME client risk appraisal that has been
specially designed by CRISIL for them.
There are some products that are not a part of the
SME ING portfolio as of now but will see huge
usage in the times to come in the Indian SME
Market. Payment in businesses using credit cards is
fast gaining ground today. In mature industries more
or less all business transactions occur with payment
happening through credit cards.
As an example from a mature SME industry – 55%
of all SMEs using services from banks used
65
SME Banking
Business Credit Cards (as compared to 53% using
O/D limits).
Public Sector Banks are offering Business Credit
Cards to their clients already e.g. SBI which offers
BCC (Business Credit Cards) and KCC (Kisaan
Credit Cards.) Planning for rolling out futuristic
products at this time could be a good idea.
Currently our system requires us to forward all
credit underwritten cases to the Centralized Asset
Processing Unit. This requires a lot of wasted
manpower because all requisite documents need to
be scanned and sent across as e-mail attachments.
A better model can be where we have regional
LPUs. The city in each region that makes the
maximum business could be the location for the
LPU for that region. This will help reduce the
turnaround time and also reduce a lot of wasted
effort.
A plan dividing the market either on the basis of
geography or sector must be devised for allocation
of targets to SRMs and RMs. This will allow them
to focus their energy in set directions and will also
allow them to understand particular industries and
their needs well. This could be pre-cursor to a full
fledged clustering approach.
66
SME Banking
FINDINGS
MPower-BLT was launched in the Bank during November 2003 there were lot of modifications in the product. Hence, a comprehensive circular incorporating all the modifications till January 2006 in hereby issued.
I. PREAMABLE:
Over the years, the Bank has developed necessary core strength in lending to SME segment where the yields are attractive and the risk is widespread. The Bank intends to leverage the network of branches particularly in urban & semi-urban areas to give the desired thrust for growth of the SME segment.
This product aims at retaining the small value credits presently with SME and for acquisition of this potential segment across the branch network. Launching of this product is to provide necessary Working Capital and Term loans / Composite loans to the small and Medium Enterprise engaged in Trading, Small Business and Service activities with simplified procedures / process / appraisal and concessional pricing. The product does not cover manufacturing activities including SSI units. The maximum exposure is proposed to be capped at Rs. 25 lakhs per borrower.
The key factors considered for the credit decision will be
o Track record of their business – promoter should have background experience of at least 3 years to consider the exposure should have background accounts among family members or starting of new units in same line of business to avail loans under the scheme is not permissible.
o Acceptable level of trade activity & its consistency,
o Market reputation of the borrower,o Past banking transactions,o Adequate security for the proposed exposure.
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SME Banking
Initially, the Bank has launched the product at 100 profile branch and over time extended it to other profile & Non- profile Branches. Presently, the product is being implemented in 201 Branches
Any new potential branch identified for implementation can be approved by RECO & RCO.
A simple, realistic, practical and programmatic approach will enable the branch officers to take the decision on loan exposures upto Rs. 25 lakhs, taking advantage of the knowledge of the market/s gained over a period of time.
The bank plans to build a qualitative asset of approximately Rs. 400 Crores at 10.5% to 11% pa, in the ensuing financial year.
II. CLIENT / ACTIVITY TARGETS:
a. Eligible borrowers – Necessarily, shall consider ING Vysya Band as their Sole Bankers
Individuals –Self-Employed persons, Women Entrepreneurs, Agra-businessmen, etc.
Proprietorship concerns / Partnership concerns, HUF, Limited Companies.
b. Eligible Activities
Retail Traders and Small Business Professionals including Practicing Doctors / Advocates /
Consultancy Units / Travel Agencies / Advertising and Publicity agencies etc.
Wholesale Distributors & Dealers / Stockiest, Commissions Agents.
Jewellery Shops, Nursing homes. Contractors Transport operators [only for working capital] Other thriving commercial activities characterized by
major share of cash transactions.
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Activities kept under “Negative List” as per credit policy should not be financed under this scheme.
Separate Score-Cards have been designed for existing & new customers, with a prescribed minimum score of `20` and ‘14’ respectively.
Manufacturing & SSI units are not covered under this product and in case of such credit requirements, the relevant loan proposal shall be consider under the existing product [CGTSI] after detailed appraisal and on merits.
c. Purpose of the Loan Make sure that the purpose of the loan is strictly for business purpose for working capital or acquiring assets to be used for business activity. Under no circumstances personal loans of any kind should be considered under this scheme.
III. PRODUCT APPLICABILITY:
EXPOSURE
(a) All existing SME relationship without any irregularity upto & inclusive of Rs.25 lakhs [please note that no minimum limit has been prescribed for existing clients].
(b) New relationships, minimum of Rs5 lakhs, upto & inclusive of Rs.25 lakhs [please note that for new relationship, minimum amount of limit is Rs.5 lakhs].
Note: Splitting of transaction and of more than 1 loan to avoid reference to higher authority, is strictly prohibited.
NATURE OF FACILITIES
(a) Funds Based Limits -I. Secured Overdrafts limits (SOD)
II. Term Loans
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SME Banking
III. Composite Loans covering both working capital as well as Term Loan Existing Overdraft Accounts may also be consider for conversion as Term Loans ore convenience & mutual understanding.
Sanction of Truck Loans is not covered under this product as the same is being dealt by our Retail SBU. However, working Capital facility can be considered provided all other eligibility criterion is met.
(b) Non Fund Based Limits –
I. Bank Guarantees favoring Govt./ Quasi Govt. bodies, Public Sector Undertakings – Performance as well as Financial Guarantees. G’tees to be issued in approved as well as Financial Guarantees can also be issued in favour of reputed Public Ltd. Companies who supply goods to our borrowers.
II. Lcs are not to be covered under this product unless it is backed by 1005 margin by way of deposits.
(c) Solvency Certificate Solvency Certificates to the Contractors to the extent of 100% net worth as per the latest financial statements can be issued by following the extant guidelines . The same need not be considered for the exposure under this product.
BRANCH COVERAGE
Initially for the first phase of the product implementation,
(a) At all Implementing branches, the SME Representatives or Branch Heads as applicable, will entertain & consider the new business relationships and also existing relationships by way of review / renewal with or without enhancements.
(b) All the other metro / Urban / Semi – Urban Branches will entertain and consider only the existing relationship by
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SME Banking
way of review / renewal with or without enhancements .
Until the implementation of this product in all the Branches, the prevailing norms and lending procedures as applicable for existing as well as the new SME loan clients at all other branches will continue as per the extant arrangements.
APPROVING AUTHORITIES
(a) At all 201 branches , the SME Representatives and Branch heads, as applicable will consider new relationship as well as the review / renewal / enhancement of the existing relationships,
Lending upto & inclusive of Rs.25 lakhs with single signature of the Branch Manager of Lion Branch as per the delegated ‘L’ level powers.
Lending upto & Inclusive of Rs.10 lakhs with single signature of the Relationship Manager or the Branch Head, as per the delegated ‘L’ Level powers.
Lending above Rs.10 lakhs upto & inclusive of Rs.25 lakhs with joint approval of the
(i) Branch head with appropriate L powers and,
(j) Concerned CRMD Officials with appropriate ‘C’ lavel powers.
Necessary delegation of discretionary powers for all the implementing branches, as and where required to facilitate the above credit decisions appropriately, will be ensured by the respective Regional Offices, in line with procedures in force.
Reporting Procedure
In order to ensure close monitoring of the product implementation and observing the requisite credit discipline at the field level, the following reporting procedures shall be observed. In respect of all the approvals accorded by single signature,
I.e., the relationship Manager or the branch head, a coy of the loan application cum process note with the score card as prescribed, shall be submitted for review in respect of all the loans approved, to the next immediate reporting official
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in the respective SME division at the Regional Office. The submission by the approving should be within 5 days of the close of respective reporting month.
In respect of joint approvals, the existing procedure of reporting the delegated powers exercised shall be followed.
IV. QUANTUM OF LOAN & MARGIN
For secured overdrafts, the exposure should be lower of the following:
(a) 20% of Gross Projected Sales* (or)(b) 3 times of the promoters’ Net Owned Funds in the business.
For computation of Net Owned Funds, eligible Quasi Capital component developed in the business on a long-term basis can be included.
*In case of Commission Agents, 15 times of the projected commission earnings may be taken in to consideration.For Terms Loans with a margin of 25% based on the total project costs. Term Loans should be disbursed directly to the supplier of asset duly collecting the margins and not to be disbursed to the borrower.
For Composite Loans : This consist of both the Working Capital + Term Loans. Hence, the above-mentioned criteria shall be adopted for deciding the working capital component and the Term Loan Component to arrive at the total composite loan.
For Bank Guarantee Limits, a minimum margin of 20% by way Deposits under lien to the bank.
The credit decision will be based on the following key factors :
Past track record of the entrepreneur in the business Overall financial standing of the business enterprise Market reputation and integrity of the borrower Acceptable level of trade activity Credit needs for stock in trade and credit sales Risk coverage by way of the adequate securities offered
for the proposed credit exposure.
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V. SECURITY
(a) Primary: hypothecation of the stocks / book debts / assets financed.
(b) Collateral :
i. Equitable mortgage of the immovable landed properties , (other than agricultural properties), situated in metro / urban/ semi urban, in such a way that 125% of the limits sanctioned is covered . However , in deserving cases , officials at mega region can approve relaxation upta 100% cover. Market value of the properties as determined by the banks approved valuer . Clear title by the property owner/ mortgager should be established by legal opinion as prescribed. Simple mortgage is not necessary under this product, if valid equitable mortgage can be created .
ii. In view of the difficulties expressed in obtaining the approved plan for very old building( of over 20 yrs age ) , the same can be waived on a case to case basis by mega regional head- SBU & RCO.
iii. Easily realizable securities like creation of the lien on deposits of our bank, NSC’s which have come out of the lockin period (paid up value plus accrued interest only should be considered), assigning the life insurance policies (surrender value) and govt. securities. These should cover 100% of the credit exposure.
iv. A combination of the above (i) or / and (ii) by parts , ensuring the overall security coverage proportionately.
v. The deposits kept as the margin money for bank guarantees can be considered towards the part of collateral securities.
Third party properties/ securities can be accepted in the exceptional cases. However, the orbit of the third parties should be restricted to spouse, children, parents (/ in- law), brother (/ in-law), sister (/in-law).
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In such a case, the provider of the property should also be taken as guarantor.
VI. VALIDITY OF THE SANCTION:
Facility Validity Renewal / Review1) Secured Overdrafts 2 years To be reviewed once in a
year by the respective sanctioning authority.
2) Term Loans Not exceeding 4 years 3) Composite Loans
Limits sanctioned stand cancelled in case of non- availment within 3 months from the date of the sanction.
No request should be considered for re-scheduling or re- phasing of the repayment. No ad-hoc enhancement or excess drawings or operations under lapsed sanctions are permitted under the overdraft limits. However, the temporary excess drawing may be allowed as per the existing guidelines of the credit policy.
VII. RATES OF INTEREST:
1. SOD LIMITS MINIMUM1.5% pa
2. Term Loans 1.25% pa3. Composite Loans 1.25% pa
No further concessions are to be allowed. Further, discretion vested with various Executives to reduce the rates on products will not be made applicable to this product. However, 0.5% reduction for purchase of Life Insurance Policy will be conducted as per guidelines.
Guidelines issued by RBI from time to time in respect of the loan accounts of limits less than Rs 2 lakhs (existing) shall be allowed.
VIII. OTHER CHARGES / PENALTY: In the default / delay in payment of interest (or)
principle, penalty of 2% applicable rates on the default / overdue amounts to be levied.
Pre-closure Charges of 2% on the outstanding balance in the case of TLs, to be levied
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Processing charges @ 0.5% of the loan amount, with a minimum of Rs 2000/-per facility. 50%of the Processing Fee to be collected with the communication of the sanction, which is non-refundable in case of non-availment.
RCEO may permit to collect 0.25% during the first year and 0.25%at the time of review of the accounting deserving cases.
Commission @ 2% and 3% on the amount of BGs, respectively for the Performance and Financial Guarantees issued.
IX. GUARANTEES: Personal Guarantee of all the promoters viz. Partners / Directors / Members, etc. Personal Guarantee of all the Property Owners taken as
security as per norms of the Bank.
X. OTHERS: Inspection of the Units has to be conducted on half
yearly basis and the findings should be recorded with specific reference to the turnover and scale of operation of the unit.
Application Cum Process Note and Score Card as per the prescribed formats designed exclusively for this product.
Branches / Approving Authorities to report all the sanction to the next immediate reporting official, forwarding the copy of the
Application cum Process Note by 5th of succeeding month.
Score card system to be allowed to rate the clients, ensuring the minimum scoring while accepting the relationship for initial lending as well as for the periodical review / renewal and enhancement.
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XI. The maximum exposure under the product is enhanced from Rs. 25 lakhs to Rs. 50 lakhs at Selected Branches with the following terms and conditions:
RCEO along with the Regional credit officer will jointly finalise the list of Branches where the enhanced limit will be implemented and inform the same to SME, C.O.
The accounts to be approved shall not have any deviation and shall be strictly in accordance with the norms of the product.
The application cum appraisal presently under use for BLT upto INR 25 lakhs will apply for the exposures beyond 25 lakhs also i.e., 50 lakhs under BLT.
The approval authority for the loans in excess of 25 lakhs shall be the appropriate ‘L’ and ‘C’ level authorities and such loans should not be approved under the single signature authority.
XII. Purchase of Life Insurance Policy:
An interest rate concession of 0.50% can be extended to the borrowers who buy a life cover from any Life Insurance Company and assign the policy in favour of the Bank. They may advice the borrowers of Rs. 5lakhs loan/ overdraft component to buy Life Insurance Policy where the minimum
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premium will be rs.5000 p.a. for loan amount of Rs.5 lakhs ad in case of loans / overdrafts above Rs.5 lakhs, the premium would be Rs.5000 + in multiples of Rs.1000 for every additional amount of Rs.1lakh over and above Rs.5lakhs, by giving interest concession of 0.5% over the rate of interest
The concession of 0.5% may be given by the Branch Head / Relationship Manager only after the policy is issued and assigned in favour of the Bank. The concession may be given with effect from the date of payment of the premium.
In case of partnership firms / Ltd. Companies, the Insurance Policy may be taken in the names of partners / or firm and Directors / company in case of companies as per convenience of the borrower.
XIII. Documentation:
Documentation as per the extent guidelines Regarding obtention of enforceability certificate the
following procedures to be adopts. In case of Metro Branches, where CAPU is
functioning the enforceability certificate need not be obtained from Legal Advisor and CAPU can certify the documents since the amount of loan involved under this product is limited to a maximum of Rs.25 lakhs.
In all other Branches, enforceability certificate is to be obtained from the Legal Advisor as per they extent procedure.
XIV. MIS & Monitoring:
All the accounts to be opened under the scheme have to be captured under the new field created specially for the purpose i.e., “Account Sub-Type”.
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XV. Annual Review of OD Accounts:
Though the validity period of Working Capital Loan is for 2 years, the account has to be reviewed once in a year. A simplified format designed for the purpose of review has been enclosed.
For quick and easy disposal of yearly review, the review notes can be disposed at the SBU level wherever the unit is functioning normally without any irregularities and the account is classified as ‘A’ –Standard account.
CRMD at Sub- Region level shall make random verification of 5% of such proposals reviewed by SBU.
In respect of accounts [other than standard] where any irregularities are noticed, the SBU shall review and place the same to CRMD, Sub-Region for their clearance.
The renewal of proposals i.e., after completion of 2years, shall be as per the existing guidelines.
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ANNEXURE
(1) Parameters for Term Loan Assessment: Loan Eligibility of the business enterprise may be
Towards the assets being acquired, wherein each component of the investments for the business being financed i.e., Land, Machinery, Furniture, etc., has to be verified diligently, to assess the asset value supported by the invoices / quotations / estimates and market enquiries locally.Towards the Working Capital Component under the Composite Term Loan, the eligibility shall be in terms of the overall Sales Turnover projectedAssess the incremental income derived out of proposed investment to substantiate on the prudence for such borrowings and ability to meet the repayment commitments as being scheduled
Direct enquiries should also be made with the suppliers of the equipments / machineries / materials regarding the costs of various inputs, to ensure their correctness.
The average cost of civil construction, if any, is not expected to be more than Rs. 300 per soft.
Release of loan for the machinery purchased should be made directly to the supplier through DD.
(2) Other Issues: Borrower should deal exclusively with our
Bank, as their SOLE BANKERS, and route their transaction through us.
Existing borrower with a score of 20 and above , and New borrowers with a score of 14 and above should only be entertained
Borrower should have necessary licenses on hand to run the business.
Stocks and Book Debts to be hypothecated to the bank.
Insurance of the properties offered as security.
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Stocks to be insured where exposure is over Rs. 10 lakhs.
In case of take over accounts branch should ensure that the account has no overdue and the operations in the account are satisfactory. Branch should obtain P&C opinion from the existing banker before releasing the limits.
Interests on the limits to be collected on monthly basis and in case of Term Loans recovery through EMIs
Post dated cheques should be obtained for the Emirs in case of Term Loans
Compulsory registration of partnership firm is waived for the loans sanctioned upto Rs. 25 lakhs backed by collateral securities of not less than 125%, subject to other sanction conditions being compiled with.
Branches have to follow other general guidelines / instruction of the Bank issued from time to time
(3) Verification of the documents by the legal advisor shall be on one time basis. As long as all the documents listed in the Legal Opinion of the Advocate are deposited by the Property Owner/ Borrower and EM is created in accordance with the prescribed procedure, there is no need for the post-documentation certification by the Legal Advisor. CAPU can certify the enforceability of the documents.
(4) Other papers required from the customers: Copy of the latest Partnership Deed / Memorandum of
Asso. and Articles of association. Smaller units to submit their financial statements /
projections duly signed by the promoters Certified copies Accounts and Projected financials in
respect of business units with t/o Rs. 40 lakhs and above.
Assets and liabilities statements of the Promoters and Guarantors.
Properties offered as security Others Banks sanction copies in case of take over
accounts. Latest availability Income Tax / Sales Tax Returns of
the unit and promoters wherever applicable.
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BRANCHES ARE LOCATED AT FOLLOWING PLACES
Region: ANANTAPUR
No. Branch1. Adoni2. Anantapur3. Chittoor4. Cuddapah5. Dharmavaran6. Hindupur7. Nandyal8. Kurnol9. Kavali10. Madanapalle11. Nellore12. Proddatur
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13. Tirupati
REGION: BANGALORE
1. Avenue Road2. Bangarpet3. Bomannahalli4. Chickballapur5. Chickpet6. Chintamani7. Fasertown8. Gowribedanur9. Hassan10. Hosur11. Hunsur12. IB street13. Indranagar14. J.L. Puram
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15. Jaya nagar16. K.G. Road17. Kolar18. Kollegal19. Maleswaram20. Mandya21. Mysore Main22. N.T. Pet23. N.K.C.24. R.T. Nagar25. RVCE26. Shrinivasan Nagar27. St. Marks Road28. Tiptur29. Tumkur30. Ulsoor31. VV Puram32. Yeshwanthpur
REGION: CHENNAI
1. Adyar (Chennai)2. Anna Nagar3. Coimbatore4. Erode5. G N Street6. Kumbakonam7. Kancheepuram8. Madipakkam9. Madurai10. Mount Road11. Mylapore12. Namakkal13. Pondicherry14. S Mambalam15. Salem
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16. Tiruvannamalai17. Tiruchi18. Tirupur19. Tiruvottiyur20. Vellore21. Villivakkam
REGION: DELHI
1. Chandni Chowk2. Chandigarh3. Faridabad4. Ghaziabad5. Jaipur6. Kanpur7. Karol Bagh8. Kirti Nagar9. Lukhnow10. Ludhiana11. Merrut12. Noida13. West Patel Nagar14. Yamuna Vihar
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REGION: HUBLI
1. Bagalkot2. Bellary3. Belgaun4. Bijapur5. Challakere6. Chikmagalur7. Chitradurga8. Davangere9. Dharwad10. Gadag11. Gangawathi12. Hospet13. Hubli14. Kadur15. Kampli16. Raichur17. Sastry Nagar18. Shimoga19. Siruguppa
REGION: ERNAKULAM
1. Calicut2. Ernakulam3. Kannur4. Kollam5. Kottayam6. Mattancherry7. Palakkad8. Panapally Nagar9. Pathnamitta10. Thiruvalla11. Thrissur12. Tirur13. Trivandrum14. Vadakara
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SME Banking
REGION: MUMBAI
1. Ahmedabad2. Andheri3. Aurangabad4. Bandra5. Bhavnagar6. Bhopal7. Channi8. Chembur9. Dadar10. Indore11. Khar12. Mandvi13. Margoa14. Mira Road15. Nagpur16. Nanded17. Panaji18. Parle Point19. Pune20. Rajkot21. Solapur22. Surat23. Vasai24. Vashi
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SME Banking
Region: HYDERABAD
1. Abid Road2. Ameerpet3. Banjara Hills4. Bidar5. Chikkadapally6. Gulbarga7. Hanumakonda8. Himayatnagar9. Kamareddy10. Karimnagar11. Kukatpalle12. Malkajagiri13. Mehaboobnagar14. Miryalaguda15. Nizamabad16. SP Road17. Secunderabad18. Siddiamber Bazar19. Siddipet20. SVN Road21. Uppal22. Vanasthalipuram23. Warangal24. Mancherial
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SME Banking
REGION: KOLKATA
1. Cuttack2. HB Sarani3. KKT street4. Lilua5. Middleton6. Rashbehariavenue7. Bhubanshwar8. Brabourne rd
REGION: VIJAYAWADA
1. Arundelpet2. Bhimavaram3. Chirala4. Elurur5. Gayatri Nagar6. Goverorpet7. Guntur8. Khammam9. Labbipet10. Narasaropet11 Ongole12. Palakol13. Tadepalligudem14. Tanuku15. Vijayawada-1
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SME Banking
Application cum Process Note for lending upto Rs.25 lakhs(For Sole Proprietors / Partnership Firms / Companies etc.)
Limit Requeted: OD/CC/CP: Term Loan: BG/LC:
1. Name of the client:
Address:
Distance from the branch:....kms Rented / Owned Premise:
2. Constitution : Individual / Family Partnership/ Partnership with others / others (please specify)
3(a). Established on: (b). Manages with : Family Members / Employes
4. Nature of the Activity:
5. Details of the Partners:
6. Date and details of last change in the Deed / MOA: (enclose the copy of deed / MOA)
7. Details of the Group Concerns: (enclose copy of latest audited accounts)
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8. Limits outstanding with Other / Our Bank and Limits requested with our Bank
9. Details of Deposit A/cs with IVBL
10. Details of Securities: (Rs. in lakhs)
We certify that are not availing any working capital limits with any other bank. We declare that the statements made / information furnished above, are true and correct to the best of our knowledge and belief and if the same is found to be false / incorrect, then the Bank will be entitled to revoke and / or recall the credit facilities sanctioned to us.
We hereby request you to sanction the limits/ loans requested above as per the bank rules and regulations.
Signature of the Applicantns Signature of the Guarantors
1) 1)2) 2)3) 3)
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For Use by Processing Officers
(1) Financial Performance (Rs. In lakhs )Particulars Previous Year
ActualImmediate Past Year
Current Year Actual
Next Year Projections
1) Sales2) PBIT3) Interest4) Taxes5) PAIT6) Capital7) Unsecured loans8) Loans from Other/our banks a) Term Loansb) OD/CC9) Current liab10) Non Current liab.11)Fixed Assets12) Current Assetsa) Stocksb) debtorsc) Cash & Bank bal in C/A13) Non CA14) Current ratio
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15) D/E Ratio16) TOL/TNW17) Inventory T/O18) debtors turnover19) Creditors turnover20) NP margin
(2) Brief Comments on the Performance and
Projections :
SCORE CARD 1 – For existing SME loans up to Rs.25 lakhs
Sl. No. Risk Factor Score Marks obtained 01 TRACK RECORD
Good Track record for more than 10 years 4Successful track record for more than 5 years 3
Acceptable track record for 3 years or since commencement of relationship with us
2
02 SALES PERFORMANCE Consistent annual growth of 10% & above for 3 years 4
Consistent annual growth of 5% to 10 % for 3 years 3
Consistent annual growth of less than 5% to 1% for 3 years
2
Less than 1% or negative growth during the past 3 years 0 03 NET PROFIT – Growth over previous year
More than 10% 4
More than 5% 3
Less than 5 % 2
04 TOL / TNW
Not more than 4 4
Not more than 5 3
Not more than 6 2
05 RELATIONSHIP EXPERIENCE
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Turnover in the account
- Above 75% sales 4
- Above 50% sales 3
- Below 50% sales 2
06 Servicing of debt
- Prompt 4
- generally prompt, occasional delay not beyond 15 days 3- Irregular/ Delays beyond 15 days & not beyond 30 days 2
- Irregular / Inordinate delay / Default 0
07 Overall conduct of Account*
- Excellent 4
- Good 3
- Satisfactory 2
08 SECURITY COVER
- 150% and above- immovable or 100% liquid 4
- 125% and above - immovable 2
09 NET WORTH OF PROPRIETORS/GUARANTORS
- More than 150% of the loan 4
- More than 100% of the loan 3
- Less than 100% but more than 50% of the loan 2
10 PREMISES FOR BUSINESS OPERATIONS
- Operated from owned premises 4
- Operated from rented premises 0
TOTAL SCORE 40
NotesConduct of the account relates to inferences drawn from factors like,
Perfection in documentation Issues like cheques getting bounced Frequent incidences getting bounced Other business support from the relationship like fee
based income, deposits, etc.,
MINIMUM MANDATORY SCORE SHOULD BE ‘20’ ON A SCALE OF ‘40’
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SCORE CARD 2 – For New SME loans upto Rs 25 lakhs
SI.No. Risk Factor Score Marks obtained
01 TRACK RECORD in the same business lineGood track record for more than 10 yrs 4Successful track record for more than 5 yrs 3Acceptable track record for 3 yrs 2
02 SALES PERFORMANCEConsistent annual growth of 10% & above for 3 yrs
4
Consistently annual growth of 5% to 10% for 3 yrs
3
Consistently annual growth of less than 5% to 1% for 3 yrs
2
Less than 1 % or negative growth during the past 3 yrs
0
03 NET PROFIT- Growth over previous year More than 10% growth 4More than 5% growth 3Less than 5 % growth 2Loss making 0
04 TOL/TNWNot more than 4 4Not more than 5 3Not more than 6 2
05 SECURITY COVER-150%and above- immovable or 100% liquid 4
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-125%and above –immovable 206 NET WORTH OF
PROPRIETORS/GUARANTORS-More Than 150% Of The Loan 4-More than 100% of the loan 3-Less than 100% but more than 50% of the loan
2
-Less than 50% of the loan 007 PREMISES FOR BUSINESS OPERATIONS
-Operated from owned premises 4-Operated from rented premises 0Total Score 28
MINIMUM MANDATORY SCORE SHOULD BE 14 ON A SCALE OF 28
CONCLUSION
The performance of the Bank showed a significant all round
improvement during the financial year 2006-07. The key
factors that contributed to the performance of the Bank during
the year were continued focus on core income streams, sound
treasury management and emphasis on improving efficiencies.
The Bank recorded a net profit after tax of Rs. 89 crore,
increasing by 882% from Rs. 9 crore in the previous year, the
current fiscal being the highest profit in the last year ten years
of operation.
Total assets increased 15% to Rs. 19,286 crore from Rs. 16,767
crore at March 2006 with advances increasing 17% to Rs.
11,976 crore and investments increasing 4% to Rs. 4,528 crore.
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The priority sector advances stood at Rs. 4,672 crore and
constituted 41% of the Net Bank Credit as at 31 March 2007
(last reporting Friday) as against the norm of 40%stipulated by
the RBI.
REFERENCES
http://www.ukqck.com/
http://www.12manage.com/
http://www.strategis.gs.ca/fdi
http://ingvysyabank.com/scripts/retailbanking.aspx
http://ingvysyabank.com/scripts/smenterprises.aspx
Special mention for those employees of ICICI, HDFC, SBI and
CITIBANK who were kind enough to spare time from their busy
schedules to guide me and provide information for this report
for benchmarking.
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