Shekhar Ibhrampurkar Summer Internship Project Report

MSME:
Lending
Mahindra Finance
Summer Internship Project
Shekhar.S.Ibhrampurkar
Shekhar.S.Ibhrampurkar: MSME Lending 1

ACKNOWLEDGEMENT
First, I thank my Mentor Mr. Sudip Mehta for his continuous support in my
Summer Internship Project in this esteemed organization, He has been a friend
and inspiration, Without his encouragement and constant guidance I could not
have finished this project, He was always there to meet and talk about my ideas,
to ask me good questions and to help me think through my problems, He also
made Mahindra Finance a wonderful workplace, Also thanks to my colleagues at
the Mahindra Finance for interesting discussions and being fun to be with.

INDEX
Serial No Topic Page No

1 MSME Overview 4-25
 Classification
 Organizations Associated with Small-Scale industry
(SSI)/ MSME
 Products Available in the market
 Banks having their presence in the MSME Finance
Business
 Key Statistics for the MSME Industry in recent years
o Products
o No of Enterprises
o Fixed Investment
o Production
o Employment
o Distribution by Ownership/ Mode of Finance
o Exports
o Growth Rates
o Contribution to GDP
o Share of NPA
o Outstanding Bank Credit
 Reasons for significant growth between 2005/06 and
2006/07
 Evolution of Government Policies
 Clusters
 Factors aiding MSME growth
 Key Constraints faced by the Indian MSMEs
 New Initiatives to Promote MSMEs
 Growth prospects for Key sectors
o Automotive Components
o Food Processing
o Pharmaceutical
o Textile
2 MSME Policy 26-41
 Preamble
 Classification
 Computation of Value of Investment in Plant and
Machinery
 Common Guidelines
o Products
o Time norms for disposal of Credit Applications
o Assessment of Working Capital Limits
o Checklist
o Disbursement
o Ticket Size
o Repayment Period
o Financial Ratios for Credit Appraisal
 Credit Guarantee Fund Scheme for Micro and Small
Enterprises

 Operational Guidelines
o Objective
o Scope of activity of MSME Department
o Operational jurisdiction of MSME Department
o Organizational Setup
o Role of Various Officers
3 MSME Credit Application Form 42-47
4 MSME Credit Application Evaluation Process 48-51
5 MSME Credit Rating Model 52-60
6 MSME Market Entry Strategy 61-80
 Mumbai Chemical Industry
 Mumbai Pharmaceutical Industry
 Mumbai Textile Industry
Mumbai Strategy
o Branch Hierarchy
o Branch Role
o Psychology of an SME Customer
o Organizational Structure Recommendations
o Product Development Recommendations
o Other Services Recommendations
o Hand-holding/ Nurturing Recommendations
o Concluding Remark

MSME Lending: Overview
INDIA
GDP: $1.367 trillion
Estimated GDP: $2.8 trillion (2020)
Share of SMEs: 8%
Estimated share of SMEs: 28% (2020)
India, the second fastest growing economy in the world in recent years, the 11 th largest
economy in the world with a GDP of $1.367 trillion is expected to grow at around 8-9% in
2009-2010.
MSME’s in India account for 8% of the countries GDP, employing about 659.35 lakh people
through 285.16 lakh enterprises producing more than 6000 products. MSME’s account for
around 95% of the industrial units, 45% of the manufactured output and 40% of India’s
exports.
45- 50% of the Indian Exports is contributed by SSI Sector. Direct exports from the SSI
Sector account for nearly 35% of total exports. Besides direct exports, it is estimated
that small-scale industrial units contribute around 15% to exports indirectly. This takes
place through merchant exporters, Trading houses and export houses. They may also
be in the form of export orders from large units or the production of parts and
components for use for finished exportable goods.
It has been estimated that a million Rs. of investment in fixed assets in the small scale
sector produces Rs.4.62 million worth of goods or services with an approximate value
addition of ten percentage points.

Classification
In India, the enterprises have been classified broadly into two categories:
1. Manufacturing
2. Those engaged in providing/rendering of Services
Both categories of enterprises have been further classified into micro, small and medium
enterprises based on their investment in plant and machinery (for manufacturing
enterprises) or on equipments (in case of enterprises providing or rendering services). The
present ceiling on investment to be classified as micro, small or medium enterprises is as
under:
Manufacturing Enterprises:
Defined in terms of investment in plant and machinery (excluding land & buildings) and
further classified into:
• Micro Enterprises - investment up to Rs.25 lakh.
• Small Enterprises - investment above Rs.25 lakh & up to Rs.5 crore.
• Medium Enterprises - investment above Rs.5 crore & up to Rs.10 crore.
Service Enterprises:
Defined in terms of their investment in equipment and further classified into:
• Micro Enterprises - investment up to Rs.10 lakh.
• Small Enterprises - investment above Rs.10 lakh & up to Rs.2 crore.
• Medium Enterprises - investment above Rs.2 crore & up to Rs.5 crore.
Organizations Associated with Small-Scale industry (SSI)/ MSME:
Small Industries Development Organization (SIDO), Small Scale Industries Board (SSIB),
National Small Industries Corporation Ltd. (NSIC), Confederation of Indian Industry (CII),
Federation of Indian Chamber of Commerce and Industry (FICCI), PHD Chamber of
Commerce and Industry (PHDCCI), Associated Chamber of Commerce and Industry of India
(ASSOCHAM), Federation of Indian Exporters Organization (FIEO), World Association for
Small and Medium Enterprises (WASME), Federation of Associations of Small Industries of
India (FASII), Consortium of Women Entrepreneurs of India (CWEI), Laghu Udyog Bharti
(LUB), Indian Council of Small Industries (ICSI), Indian Institute of Entrepreneurship (IIE),
National Institute of Small-Industry Extension Training (NISIET), National Backward Caste
Finance Development Corporation, National Institute for Entrepreneurship and Small
Business Development (NIESBUD), Small Entrepreneurs Promotion and Training Institute
(SEPTI), Small Industries Development Bank of India (SIDBI) etc

Products Available in the Market
Fund based bank facilities
1. Term loans:
Term loan is an installment credit repayable over a period of time in Monthly/ quarterly/ half
yearly/ yearly installments. Term loan is generally granted for creation of fixed assets
required for long-term use by the unit. Term loans are further classified in three categories
depending upon the period of repayment as under:
i. Short term repayable in less than 3 years.
ii. Medium term loans repayable in a period ranging from 3 years to 7 years.
iii. Long term loans repayable in a period over 7 years.
2. Cash credit facility

A major part of working capital requirement of any unit would consist of maintenance of
inventory of raw materials, semi finished goods, finished goods, stores and spares etc. In
trading concern the requirement of funds will be to maintain adequate stocks in trade.
Finance against such inventories by banks is generally granted in the shape of cash credit
facility where drawings will be permitted against stocks of goods. It is a running account
facility where deposits and withdrawals are permitted. Cash credit facility is of two types
(depending upon the type of charge on goods taken as security by bank.)
i. Cash credit - Pledge:
When the possession of the goods is with the bank and drawings in the account are
linked with actual movement of goods from/to the possession of the bank.
ii. Cash credit- Hypothecation:
When the possession of the goods remains with the borrower and a floating charge
over the stocks is created in favour of the bank.
3. Overdraft facility
Overdrawing permitted by the bank in current account is termed as an overdraft facility.
Overdraft may be permitted without any security as 'clean overdraft' for temporary periods
to enable the borrower to tide over some emergent financial difficulty. 'Secured overdraft'
facility is against fixed deposits, NSC, and other securities.
Non-fund based bank facilities

Credit facilities, which do not involve actual deployment of funds by banks but help the
obligations to obtain certain facilities from third parties, are termed as non-fund based
facilities. These facilities include issuance of letter of credit, issuance of guarantees, which
can be performance guarantee/financial guarantee.
1. Guarantee
2. Letter of credit

Banks having their presence in the MSME Finance Business
1. Allahabad Bank (www.allahabadbank.com

2. Andhra Bank (www.andhrabank-india.com )
3. Bank of India (www.bankofindia.com )
4. Bank of Baroda (www.bankofbaroda.com )
5. Bank of Maharashtra (www.maharashtrabank.com )
6. Canara Bank (www.canbankindia.com )
7. Central Bank of India (www.centralbankofindia.co.in )
8. Corporation Bank (www.corpbank.com )
9. Dena bank (www.denabank.com )
10. ICICI Bank (www.icicibank.com )
11. IDBI Bank (http://www.idbi.com )
12. Indian Bank (www.indian-bank.com )
13. Indian Overseas Bank (www.iob.com )
14. IndusInd Bank Ltd. (www.indusind.com )
15. The Jammu & Kashmir Bank Ltd. (www.jkbank.net )
16. Punjab National Bank (www.pnbindia.com )
17. Syndicate Bank (www.syndicatebank.com )
18. State Bank of Travancore (www.statebankoftravancore.com )
19. State Bank of India (www.sbi.co.in )
20. State Bank of Bikaner & Jaipur (www.sbjbank.com )
21. State Bank of Hyderabad (www.sbhyd.com )
22. State Bank of Mysore (www.mysorebank.com )
23. State Bank of Indore (www.indorebank.org )
24. Small Industry Development Bank of India (SIDBI) (www.sidbi.com )
25. Union Bank of India (www.unionbankofindia.co.in )
26. United Bank of India (www.unitedbankofindia.com )
27. UCO Bank (www.ucobank.com )
28. Vijaya Bank (www.vijayabank.com )

Key Statistics for the MSME Industry in recent years
Products
Source: Annual Report, 2009-10. Ministry of Micro, Small and Medium Enterprises,
www.msme.gov.in
Number of Enterprises

* Projected data for the year 2007-08 and 2008-09.
** Data for 2004-05 and 2005-06 pertain to small scale industries only.
www.msme.gov.in
Fixed Investment
* Projected data for the year 2007-08 and 2008-09.

www.msme.gov.in
Production

*
Projected data for the year 2007-08 and 2008-09.
www.msme.gov.in
Employment
*
Projected data for the year 2007-08 and 2008-09.
www.msme.gov.in
Distribution by Ownership/ Mode of Finance
Enterprises by type Distribution Percentage distribution

of Regd. Unregd. Total Regd. Unregd. Total
organization
Proprietary 1421548 23240914 24662462 91.57 94.67 94.49

Partnership 63283 115207 178490 4.08 0.47 0.68
Private Company 30102 106743 136845 1.94 0.43 0.52
Public Ltd. Company 7346 66074 73420 0.47 0.27 0.28
Co-operatives 4583 128945 133528 0.30 0.53 0.51
Others 25630 890422 916052 1.65 3.63 3.51
Total 1552492 24548305 26100797 100.00 100.00 100.00
Enterprises by Distribution Percentage distribution

source of finance Regd. Unregd. Total Regd. Unregd. Total
No Finance/Self 1362568 22850626 24213194 87.77 93.08 92.77
Finance
Finance through 174060 1177212 1351272 11.21 4.80 5.18
Institutional
Sources
Finance through Non- 15864 520467 536331 1.02 2.12 2.05
Institutional
Sources
Total 1552492 24548305 26100797 100.00 100.00 100.00
www.msme.gov.in
Exports
Item Year
2000- 2001- 2002- 2003- 2004- 2005-
2001 2002 2003 2004 2005 2006
Total 202510 207769 252137 291582 375339.52 456417.88
Exports (Rs.
Crore)
Exports from 69797 71244 86013 97644 124416.56 150242.03
SSI Sector
(Rs. Crore)
Share of SSI 34.47 34.29 34.03 33.49 33.15 32.92
sector in
total exports
(%)
Growth rate 28.78 2.07 20.73 13.52 27.42 20.76
in Exports
(%)
www.msme.gov.in
Growth Rates
Yea Growth Rate of M SE Sector Overall

r
(%) Industrial
(% ) Sector (% )
2002-03 8.68 5.70
2003-04 9.64 6.90

2004-05 10.88 8.40
2005-06 12.32 8.10
2006-07 12.60 11.5
2007-08* 13.00* 8.00
* Projected
www.msme.gov.in
Contribution to GDP
Contribution of M SE (% ) at 1999-
2000 prices in
Year
Total Gross Domestic
Industrial Product (GDP)
1999-00 Production
39.74 5.86
2000-01 39.71 6.04
2001-02 39.12 5.77
2002-03 38.89 5.91
2003-04 38.74 5.79
2004-05 38.62 5.84
2005-06 38.56 5.83
2006-07 38.57 5.94
www.msme.gov.in
Share of NPA (Non performing assets)
Gross NPAs of Scheduled Commercial

Banks in the SSI Sector
End-March SSI Sector* All Sectors**
1 2 3
2001 20.3 11.4
2002 20.7 10.4

2003 19.0 8.8
2004 14.9 7.2
2005 11.6 5.2
2006 8.4 3.3
*: Gross NPAs as percentage of gross advances to the SSI
sector.
**: Gross NPAs as per cent of gross advances to all sectors.
Note: Data are provisional.
Source: Off-site Returns, Reserve Bank of India.
Outstanding Bank Credit to Micro and Small Enterprises
(Rs. crore)
As on last Public Private Foreign All Percentage
reporting Sector Sector Banks Scheduled of MSME
Friday Banks Banks Commercial Credit to
of March Banks Net Bank
Credit
2005 67,800 8,592 6,907 83,498 8.8
2006 82,434 10,421 8,430 1,01,285 7.5
(21.6) (21.3) (22.1) (21.3)
2007 1,02,550 13,136 11,637 1,27,323 7.2
(24.4) (26.1) (38.0) (25.7)
2008 1,51,137 46,912 15,489 2,13,538 11.6
(47.4) (257.1) (33.1) (67.7)
2009 1,91,307 47,916 18,138 2,57,361 11.4
(Provisional) (26.6) (2.1) (17.1) (20.5)
Source: Reserve Bank of India.
Note:
1. Figure in parentheses indicates year-on-year growth.
2. The high growth witnessed during 2008 is on account of re-classification of MSMEs as per
MSMED Act, 2006. Firstly, the investment limit of small (manufacturing) was raised from
Rs.1 crore to Rs.5 crore and small (services) was added to include enterprises with
investment limit between Rs.10 lakh to Rs.2 crore. Secondly, the coverage of service
enterprises were broadened to include small road and water transport operators, small
business, professional and self-employed and all other service enterprises as per definition
provided under MSMED Act, 2006.

Reasons for significant growth between 2005/06 and 2006/07
1. Micro, Small and Medium Enterprises Development Act, 2006

• Change in definition:
The act provides the first-ever legal framework for recognition of the concept of
“enterprise” which comprises both manufacturing and service entities. It defines medium
enterprises for the first time and seeks to integrate the three tiers of these enterprises,
namely, micro, small and medium.
• Financial assistance:
Establishment of specific Funds for the promotion, development and enhancing
competitiveness of these enterprises, notification of schemes/ programmes for this
purpose, progressive credit policies and practices, preference in Government
procurement of products and services of the micro and small enterprises, more effective
mechanism for mitigating the problems of delayed payments to micro and small
enterprises and assurance of a scheme for easing the closure of business by these
enterprises.
• FDI policy:
The restrictive 24% ceiling prescribed for equity holding by industrial undertakings,
whether domestic or foreign, in the MSE’s has been done away with and MSE’s are
defined solely on the basis of investment in plant and machinery (manufacturing
enterprises) and equipment (service enterprises). Thus, the present policy on FDI in
MSE permit FDI subject only to the sectoral equity caps entry routes and other relevant
sectoral regulations.
2. Credit Linked Capital Subsidy Scheme

The Credit Linked Capital Subsidy Scheme (CLCSS) aims at facilitating technology
upgradation by providing 15% upfront capital subsidy w.e.f. 29th September, 2005 to
manufacturing MSE’s, on institutional finance up to Rs.1 crore ($0.25 million) availed of by

them for induction of well-established and improved technologies in the specified sub-
sectors/products approved under the scheme.
3. Outreach Programme for Skill Development in Less Developed Areas, September

2006
Under this Programme, the field offices of the Ministry organize short-term skill
development programmes in the less developed areas. Such short-term courses are tailor-
made for these areas so as to enable trainees to get employment or start self-employment
ventures. These programmes are of short duration of 1-3 weeks and the activity selected for
trainees are relevant to the local requirement. The target group consist wholly or partly of
disadvantaged sections.
Evolution of Government Policies
The Prebisch-Singer thesis states that the terms-of-trade between primary products
(exported by developing countries-'periphery' to developed countries-'core') and
manufactured goods (imported from developed countries by developing countries) tend to
deteriorate over time. This happens because the income elasticity of demand for
manufactured goods is greater than that for primary products-especially food. Therefore, as
incomes rise, the demand for manufactured goods increases more rapidly than demand for
primary products, thus creating trade deficit in favor of the developing countries. The thesis
calls for rapid industrialization in the developing countries, which would lead to import
substitution and lesser dependence on developed countries for imports of manufactured
goods. The infant industry argument too emanates from the Prebisch-Singer thesis. The
infant industry argument demands protection for the domestic industry from the
government in the form of tariffs, quotas, or subsidies in order to survive the lower prices
and higher quality of the manufactured goods or services produced and exported by the
advanced capitalist countries. Proponents of the infant industry argument theorize that
protectionism will allow the infant industry to grow and develop to the point at which it can
compete on the international market without protectionist measures.
Following these arguments, India went for rapid industrialization during the 2nd and 3rd Five
Year Plans, which was capital intensive in nature and thus could not solve the problem of
unemployment. Moreover, it created regional disparity in development outcomes. The Karve
Committee Report (1955) was one of the earliest of the exercises, which recommended a
protective environment for the growth of small industries in India. Reservation of items for
exclusive manufacture in SSI sector statutorily provided for in the Industries (Development
and Regulation) Act, 1951, has been one of the important policy measures for promoting
this sector.

After the liberalization of the economy, government’s attitude towards the MSME sector
changed and many of the products exclusively manufactured by these units earlier got
dereserved. No more the MSME sector continued to be treated as ‘infant industry’.
Presently, only 21 items are reserved for exclusive manufacturing in the MSE sector. These
include bread, pickles, wooden furniture, wax candles, exercise books and registers, safety
matches, incense sticks, fireworks, and stainless steel and aluminum utensils. The phased
deletion of products from the list of items reserved for the exclusive manufacture by micro
and small enterprises is being continued. In October 2008, the government deleted 14
items from this list.
The MSME sector today faces competitive environment owing to: (a) liberalization of the
investment regime during the 1990s, favoring foreign direct investment (FDI), (b) the
formation of the World Trade Organization (WTO) in 1995, forcing its member-countries
(including India) to drastically scale down quantitative and non-quantitative restrictions on
imports and (c) domestic economic reforms. Under the current paradigm of neoliberalism,
labour market rigidity is considered as a barrier to the overall growth of the economy.
Labour market flexibility (a cost cutting strategy) is often prescribed to enhance
productivity.
There existed three historical models of corporate governance in India: a) the managing
agency model in the colonial period; b) the business house model that emerged after
Independence, and; c) the Anglo-American model which has recently been adopted. The
reforms in the Indian Company Law under the Anglo-American model now include: a
strengthening of disclosure norms, the establishment of an Investor Education and
Protection Fund, the establishment of a National Advisory Committee on Accounting
Standards, etc. Deregulation of share prices led to a huge securities scam in 1992, following
which the Securities and Exchange Board of India (SEBI) came into being through the
Securities and Exchange Board of India Act (1992).
The Foreign Exchange Regulation Act (FERA) has been repealed, being replaced now by
Foreign Exchange Mechanism Act (FEMA). Steps have been taken to bring forth the
Prevention of Money Laundering Bill, and the two together are expected to facilitate the
liberalization of the capital account.
The MSME Development Act 2006, came into being with effect from 2nd October, 2006,
subsequent to which, both the Central and State Governments took effective measures
towards implementation of the Act. In order to increase the competitive edge of the MSMEs
vis-à-vis the multinational corporations (MNCs), the Government of India announced the
National Manufacturing Competitiveness Programme (NMCP) during the budget speech
2005-06. One of the objectives of NMCP is to ensure healthy growth of the MSME sector.
Under the National Manufacturing Competitiveness Programme (NMCP), five components
have been made operational, which include quality management systems and quality
technology tools, building awareness on intellectual property rights, support for
entrepreneurial and managerial development through incubators, setting up of new mini
tool rooms and marketing assistance/ support to MSEs.
An important component of the NMCP is “Building Awareness on Intellectual Property

Rights (IPR)” for the MSMEs. The objective here is to create and enhance awareness about
Intellectual Property Rights (IPR) among the MSME units so as to enable them to take
appropriate measures for protecting their ideas and business strategies and also avoiding
infringement of the intellectual property belonging to others. This has been deemed
important since India is a signatory of the Trade related Intellectual Property Rights (TRIP)
under the World Trade Organization (WTO) pact. However, it would have been better had
the government taken steps towards open research, collaborative knowledge creation as

well as innovation and adopted the idea of ‘scientific commons’. IPR protection and
standards are required but it should not be based on: (i) frivolous patents; (ii) monopolistic
practices; (iii) beating the system by incrementally modifying patents and getting
extensions on the IPR, etc.
Clusters
Cluster formation has been considered important for MSME development. A cluster may be
defined as a local agglomeration of enterprises (mainly SMEs, but often also including some
large enterprises), which are producing and selling a range of related and complementary
products and services. Generally, SME clusters can be categorized in terms of
 Whether it is located in the rural, semi-urban or urban areas (villages/ towns/ cities/
metros)
 Whether it is induced cluster (due to the initiative of the government) or natural cluster
(which has come up due to the private entrepreneurs)
 Whether it is traditional (art and craft), traditional consumer goods or modern SSI
 Whether it is resource-based, market based or infrastructure based.
 Industry group: machinery and parts except electrical, cotton textiles, chemical and
chemical products, metal products, hosiery and garments, food products, non-metallic
mineral products, electrical machinery and parts, wool, silk and synthetic fiber textiles,
transport equipment and parts, etc.
 Phase of development--'Initial phase', 'Growth phase', 'Maturity phase' and 'Extinction
phase'
The close proximity of raw material suppliers, equipment suppliers, component producers,
sub-contractors and final goods producers, together with a combination of both intense
rivalries among firms and cooperation in producers' associations drive the whole cluster
forward. Clusters are also classified as: Marshallian cluster, hub-and-spoke cluster and
state-anchored cluster.
Clusters need to look particularly to expand export markets and network with both domestic
and overseas clusters in order to become strong and global. The National Commission for
Enterprises in the Unorganized Sector (NCEUS, www.nceus.gov.in) too had proposed
establishment of “Growth Poles” in different parts of India with a view to integrating, within
a geographical location, a number of clusters of production units engaged in manufacturing,

services and non-farm activities and facilitating the expansion of production and
employment in micro and small enterprises.
Factors aiding MSME growth
• Less Capital Intensive

• Extensive Promotion & Support by Government
• Reservation for Exclusive Manufacture by small scale sector
• Project Profiles
• Funding - Finance & Subsidies
• Machinery Procurement
• Raw Material Procurement
• Manpower Training
• Technical & Managerial skills
• Tooling & Testing support
• Reservation for Exclusive Purchase by Government
• Export Promotion
• Growth in demand in the domestic market size due to overall economic
growth
• Increasing Export Potential for Indian products
• Growth in Requirements for ancillary units due to the increase in number of Greenfield
units coming up in the large scale sector. Small industry sector has performed
exceedingly well and enabled our country to achieve a wide measure of industrial growth
and diversification.
Key Constraints faced by the Indian MSMEs
1. Accessing a d e q u a t e a n d t i m e l y fi na nc in g o n c o m p e t i t i v e t e r m s , p a r t i c u l a r l y
longer tenure loans.
2. Accessing credit on easy terms has become difficult in the backdrop of current
global financial crisis and the resultant liquidity constraints in the Indian financial sector,
which has held back the growth of SMEs and impeded overall growth and development.
3. The financing constraints faced by Indian SMEs are attributable to a combination of
factors that include policy, legal/regulatory framework (in terms of recovery, bankruptcy
and contract enforcement), institutional weaknesses (absence of good credit
appraisal and risk management/ monitoring tools), and lack of reliable credit
information on SMEs.
4. It has become difficult for lenders to be able to assess risk premiums properly,
creating differences in the perceived versus real risk profiles of SMEs.
5. Access to skilled manpower, R&D facilities and marketing channels is limited.
6. Availability of finance at cheaper rates, skills about decision-making and good
management and accounting practices, and access to modern technology.
Bribery and corruption emanates from red-tapism and high-handedness of the bureaucracy.
Many economists believe that the License-Permit Raj prevailing in India before the 1990s
affected the growth of businesses and industry. Hence, lesser intervention by the
government in the functioning of the market is being demanded. Doing Business 2010:
Reforming Through Difficult Times presents quantitative indicators on business regulations
and the protection of property rights that can be compared across 183 economies.
According to the same report
• India is ranked 133 out of 183 economies. Singapore is the top ranked economy in

the Ease of Doing Business.
• It requires 13 procedures, takes 30 days, and costs 66.06 % GNI per capita to
start a business in India.
• India is ranked 169 overall for Starting a Business.
• It requires 37 procedures, takes 195 days, and costs 2,394.86 % GNI per capita
to build a warehouse in India.
• India is ranked 175 overall for Dealing with Construction Permits.
• India is ranked 104 overall for Employing Workers.
• It requires 5 procedures, takes 44 days, and costs 7.43 % of property value to
register the property in India.
• India is ranked 93 overall for Registering Property.
• India is ranked 30 overall for Getting Credit.
• India is ranked 41 overall for Protecting Investors.
• India is ranked 169 overall for Paying Taxes.
• India is ranked 94 overall for Trading Across Borders.
• India is ranked 182 overall for Enforcing Contracts.
• India is ranked 138 overall for Closing a Business.
• In India procedures under the 2002 Securitization Act have become more
effective, easing the process and reducing the time required to close a business.

New Initiatives to Promote MSMEs
In the recent years, Indian authorities have taken several steps to address factors that
constrain SME financing and developments, and the World Bank has provided support
through an SME Financing and Development Project.
The Government of India and the Small Industries Development Bank of India (SIDBI,
www.sidbi.com, which is the apex bank for SMEs in India) requested the World Bank to
support efforts to remove constraints to SME access to finance (including term financing),
and to foster SME development. A Bank project involving funding of US$120 million for SME
financing and development was subsequently developed. The Project was approved on
November 30, 2004, and became effective on April 4, 2005 and is currently scheduled to
close on June 30, 2009. The objective of the Project was to improve SME access to finance
and business development services, thereby fostering SME growth, competitiveness and
employment. The Small and Medium Enterprises Financing and Development Project has
been designed to improve access to finance for
SMEs. The lending from the original project covered 927 SMEs spread across 10 Indian
states.
A US$ 400 million additional financing loan to the SIDBI was signed on 5 June, 2009 by
representatives from the Government of India, SIDBI and the World Bank.
The Securities and Exchange Board of India (SEBI, www.sebi.gov.in) issued norms on
separate stock exchanges for SMEs during November, 2009 so as to give them more options
to raise capital. At present, around 90% of the 2.61 crore MSMEs depend on either banks or
informal sources to finance their business. Setting up of a separate stock exchange for SMEs
is not so simple. Two requirements are to be fulfilled. One is to reduce the cost of
compliance and the second is to safeguard the investors from any undue risk. The SEBI has
laid the groundwork to allow SMEs to list on SME Exchanges. SMEs have always complained
of difficulty in accessing to both debt and equity capital. It is perceived that registration of
companies from the SME sector is essential so as to raise capital from the stock exchange.
SMERA (www.smera.in) is India’s premier credit rating agency in the micro, small, &
medium enterprise segment. It focuses primarily on the Indian SME segment. The primary
objective is to provide ratings that are comprehensive, transparent and reliable. It takes
into account the financial condition and several qualitative factors that have bearing on
credit worthiness of the SME.
The credit guaranty fund and credit linked capital subsidy scheme has been built in order to
support the SMEs. Credit rating helps in cost efficiency and innovation to be undertaken by
SMEs, and helps the bank to go for less riskier lending venture, provided the credit rating is
done in a scientific way. The Exim Bank of India in India has also provided financial
solutions to the SMEs.

Growth prospects for Key sectors
Automotive Components
Current size: $34 bn

Estimated size: $145 bn (2016)
Growth rate: 9% (2009)
Estimated growth rate: 10-12% (2010)
Exports: 5%
FDI: 100%
Share of GDP: 5% (2006)
EMPLOYMENT: NA
Drivers of growth:
• Talent: Pool of both skilled and semi skilled workers
• Cost: Workers at relatively lower cost
• Support Industry: Established world-class auto ancillary industry
• Raw Materials: Low cost producer of steel and other raw materials
• Capacity Expansion: Hyundai, Honda and Suzuki have already committed investments
of over USD 2 billion. Tata, Mahindra and Bajaj have plans to grow into the passenger
car and commercial vehicle segments.
• Joint Ventures: Nissan and Renault have entered into agreements with domestic
participants.
SWOT Analysis:
Strengths Weakness
• High product quality • Low capital base
• Low manufacturing cost • Obsolete technology
• Availability of cheap and • Limited geographical diversity
skilled manpower of markets
• Increasing replacement • Lack of awareness of business
demand opportunities
• Improvement in road • Inadequate exposure to
infrastructure international environment
Opportunities Threats
• Invest in R&D and technology • Fluctuations in the cost of
upgradation production
• Build credibility, focusing on • Dependence on traders and
international markets agents for overseas market
• Initiation and management of • Product substitute due to
overseas collaborations fast technological changes
• Achieve economies of scale • Competition from other
through diversification and sourcing destinations
expansion

Product Segmentation
Cluster Details
Auto Component Clusters in India

State No.
Andhra Pradesh 1
Delhi 1
Gujarat 5
Haryana 3
Jharkhand 1
Karnataka 2
Maharashtra 5
Madhya Pradesh 1
Punjab 4
Tamil Nadu 1

Food Processing
Current size: $115 bn (FY 2006)

Estimated size: $310 bn (FY 2015)
Growth rate: 18% (FY 2008)
Estimated growth rate in the future: 10%
Exports: 16%
Share of GDP: 6.3%
FDI: 100%
EMPLOYMENT: 13 million directly, 35 million indirectly
Drivers of Growth:
• Middle Class Consumerism: Growing class of consumers with higher disposable
incomes
• Higher Income Levels: Rising family incomes due to an increasing number of double-
income families
• Prices: Cost of bringing processed foods to market has reduced, making it more
accessible to a larger population
• Organized Retail: With retail chains and stores spreading across metros and other
cities and towns, a larger number of people now have access to finished products.
SWOT Analysis
Strengths Weaknesses
• Abundant availability of raw material • Low availability of adequate

• Priority sector status for agro-processing infrastructural facilities
given by the central Government • Lack of adequate quality control &
• Vast network of manufacturing facilities testing methods as per international
all over the country standards
• Vast domestic market • Inefficient supply chain due to a large
number of intermediaries
• High requirement of working capital.
• Inadequately developed linkages
between R&D labs and industry.
• Seasonality of raw material

• Large crop and material base offering a • Affordability and cultural preferences of
vast potential for agro processing fresh food
activities • High inventory carrying cost
• Setting of SEZ/AEZ and food parks for • High taxation
providing added incentive to develop • High packaging cost
Greenfield projects
• Rising income levels and changing
consumption patterns
• Favorable demographic profile and
changing lifestyles
• Integration of development in
contemporary technologies such as
electronics, material science, bio-
technology etc. offer vast scope for rapid

improvement and progress
• Opening of global markets

Cluster Details: NA
Market Share of Unorganized Sector in Indian Food Processing Industry

Pharmaceutical
Current size: $18 bn (2008-09)

Growth rate: 14% (2007)
Estimated growth rate in the future: 24%
Exports: NA
Share of GDP: NA
FDI: 100%
EMPLOYMENT: 3 mn directly and indirectly
Drivers of Growth:
• Low cost, high quality: Manufacturing, Research and Development (R&D) facilities and
regulatory bodies
• International recognition: A growing number of manufacturing units with US FDA
approval
• Talent: Availability of skilled chemists for R&D
SWOT Analysis
Strengths Weakness
1. Low cost of production. 1. Fragmentation of installed capacities.
2. Large pool of installed capacities 2. Low technology level of Capital Goods
3. Efficient technologies for large number of this section.
of Generics. 3. Non-availability of major
4. Large pool of skilled technical intermediaries for bulk drugs.
manpower. 4. Lack of experience to exploit efficiently
5. Increasing liberalization of government the new patent regime.
policies. 5. Very low key R&D.
6. Low share of India in World
Pharmaceutical Production (1.2% of
world production but having 16.1% of
world's population).
7. Very low level of Biotechnology in
India and also for New Drug Discovery
Systems.
8. Lack of experience in International
Trade.
9. Low level of strategic planning for
future and also for technology
forecasting.
1. Aging of the world population. 1. Containment of rising health-care cost.
2. Growing incomes. 2. High Cost of discovering new products
3. Growing attention for health. and fewer discoveries.
4. New diagnoses and new social 3. Stricter registration procedures.
diseases. 4. High entry cost in newer markets.
5. Spreading prophylactic approaches. 5. High cost of sales and marketing.
6. Saturation point of market is far away. 6. Competition, particularly from generic
7. New therapy approaches. products.
8. New delivery systems. 7. More potential new drugs and more
9. Spreading attitude for soft medication efficient therapies.
(OTC drugs). 8. Switching over form process patent to
10. Spreading use of Generic Drugs. product patent.

11. Globalization
12. Easier international trading.
13. New markets are opening.
Cluster Details: Most of the manufacturing units are clustered in Andhra Pradesh, Gujarat
and Maharashtra.
TEXTILE
Current size: $52 bn

Growth rate: 9-10%
Estimated growth rate in the future: NA
Exports: 4%
Share of GDP: NA
FDI: 100%
EMPLOYMENT: 35 million directly, 56 million indirectly
Drivers of Growth: NA
SWOT Analysis:
Strengths Weakness
• Large and diverse raw • Obsolete technology
material base • Low labour productivity
• Advance design • Lack of modern management
capabilities practices
• Presence across the • Mow installed capabilities –
value chain ‘small scale in nature’
• Cheap and skilled
manpower
• Favorable government • Poor transportation
policies infrastructure
• Vibrant demand for home • Lack of adequate and
textile timely credit
• Preferential Trade Agreements • Competition from other
(PTA) with other countries countries like China
• Strong growth potential • Absence of structured trade
for technical textiles and information
performance fibers • Tightening of environmental
• Vibrant domestic demand pollution norms
Cluster Details: Some of the important textile clusters are based in places such as
Bhilwara, Sanganer, Panipat, Palli, Jetpur, Jodhpur, Surat, Sambhalpur, Mysore and
Bhiwandi.

MSME Lending: Policy
Sadhna House, Behind Mahindra

Tower,
P. B Marg, Worli, Mumbai -
400018
Phone: 022 - 6652 6000
Preamble
MSME (Micro, Small & Medium Enterprises) is a fast growing sector in the Indian Economy.
Commercial banks and NBFCs have given highest priority to financing MSMEs. Growth
resulting from globalization and liberalization is visible most profoundly in the MSME
segment. The relationship between the lenders and the customers has become most crucial
and competitive. The technology has entered the scene almost as a natural corollary of
liberalization. The clearance of the Micro, Small & Medium Enterprises Development
(MSMED) Act, 2006 is a turning point for the development of Indian industry, as it
addresses and streamlines entire frame work along with key governance & operational
issues being faced by the MSMEs
Classification
In India, the enterprises have been classified broadly into two categories:
1. Manufacturing
2. Those engaged in providing/rendering of Services
Both categories of enterprises have been further classified into micro, small and medium
enterprises based on their investment in plant and machinery (for manufacturing
enterprises) or on equipments (in case of enterprises providing or rendering services). The
present ceiling on investment to be classified as micro, small or medium enterprises is as
under
Manufacturing Enterprises
Defined in terms of investment in plant and machinery (excluding land & buildings) and
further classified into:
 Micro Enterprises - investment up to Rs.25 lakh
 Small Enterprises - investment above Rs.25 lakh & up to Rs.5 crore
 Medium Enterprises - investment above Rs.5 crore & up to Rs.10 crore
Service Enterprises
Defined in terms of their investment in equipment and further classified into:
 Micro Enterprises - investment up to Rs.10 lakh

 Small Enterprises - investment above Rs.10 lakh & up to Rs.2 crore
 Medium Enterprises - investment above Rs.2 crore & up to Rs.5 crore
Computation of Value of Investment in Plant and Machinery
Investment under head ‘Plant and Machinery’ should include the original price of every
productive item irrespective of whether new or second hand, acquired and proposed to be
acquired, whether on lease or hire purchase, or on ownership basis by the industrial
undertaking, irrespective of the manner in which the cost has been shown in its books
For computing the value of the investment in Plant and Machinery, cost of the following
items should be included
 Original cost of Plant and Machinery (price paid by the owner / hirer / lessor).
 Cost of control panels, starters, Electric Motors, other electrical accessories mounted on
individual machines.
 Cost of only those testing and quality control equipments, which are, used for/in process
testing
Cost of following items should be excluded
 Equipments such as Tools, Jigs, Dies, Moulds, and Spares for maintenance and cost of
Consumable Stores.
 Installation of P & M
 Research & Development Equipments and Pollution Control Equipments
 Power Generation Set and extra Transformer installed
 Bank Charges and Service Charges paid to the NSIC or to the State Small Industries
Corporation
 Fire Fighting Equipments
 Cables, Wires for safety measures
 Gas producer Plants
 Transportation Charges for indigenous Machineries
 Technical Know-how Fees
 Storage Tanks not linked to manufacturing activities but are used for storing of Raw
material and Finished Goods.
In the case of imported machinery following should be included
 Import duty
 The shipping charges
 Custom clearance charges
 Sales tax

Common Guidelines
1. Products
Term loan
1. Purchase of land
2. Construction of premises
3. Repair work
4. Purchase of plant & machinery (new/ second hand)
Working Capital
1. Covering fixed/ variable costs

Employee wages, electricity/ water charges, transportation charges, disbursement directly
to account of vendor/ employee/ boards
2. Maintenance of plant & machinery (to be bundled with term loans if applicable)
3. Purchase of raw material (indigenous/ imported)
Cross Selling
1. Insurance
Bundling insurance products with term loans wherever applicable
Other Mahindra Insurance Business Limited products to be offered to MSME customers

at discounted rates if applicable according to amount of credit
2. Personal/ Home/ Vehicle loan, Refinance
Loan products of Mahindra finance to be offered to MSME customers at discounted rates

if applicable according to amount of credit
3. Investment Options
Mahindra Finance investment advisory services to be offered to MSME customers at

discounted rates if applicable according to amount of credit
2. Application forms to grant Credit facilities
Use of a standardized application form for credit application along with an online-software
for appraisal, analysis, processing and communication of sanction of loan proposals is
recommended

3. Receipt of Applications and Acknowledgment
With a view to facilitate timely sanction of credit facilities, the following guidelines must be
adopted
 An acknowledgment with the date of receipt for credit application received to be given. A
definite date to be intimated to the applicant for discussions, clarifications etc. if
considered necessary
 The companys decision regarding credit assistance to be communicated to the applicant
within the prescribed period
4. Register of Credit Applications received
All applications received should be entered in a ‘Database of Loan Applications Received’ for
recording therein the complete particulars such as date of application/ sanction, rejection,
reasons for rejection etc.
5. Time norms for disposal of Credit Applications
In order to provide better customer service and to ensure that applications for loans for all
categories of borrowers are dealt with and disposed off expeditiously, the following norms
shall be adhered to, provided the loan applications received are complete in all respects and
duly accompanied by a check list
 In respect of loans upto Rs.25,000/- within a maximum period of one week of receipt
of loan applications complete in all the respects and duly accompanied by a check list
 In respect of other cases for loans above Rs.25,000/- and upto Rs.5 lakhs, within a
maximum period of two weeks on receipt of duly completed loan applications in all the
respects and accompanied by a checklist
 In respect of loans over Rs.5 lakhs, within a maximum period of 4 weeks on receipt of
duly completed loan applications in all respects and accompanied by a check list.
An inprinciple approval to be given if the applicant satisfies the qualification criteria within 3
days of submitting application
In case of existing Mahindra & Mahindra limited dealer
 In respect of loan upto Rs.5 lakhs, credit be sanctioned within a within a maximum
period of one week of receipt of loan applications complete in all the respects and
duly accompanied by a check list
 In respect of loans over Rs.5 lakhs, credit be sanctioned within a maximum period of
2 weeks on receipt of duly completed loan applications in all respects and duly
accompanied by a check list

6. Assessment of Working Capital Limits
A ceiling limit of Rs.20 lakhs be set for working capital requirement of the MSME sector
The following guidelines should be adopted for financing Working capital facilities of MSME
units:
Limits upto Rs. 5 Crores
The credit requirements of village industries, Micro Enterprises, Small Enterprises and
Medium Enterprises having aggregate fund based working capital limits upto Rs.5 Crores,
will be computed on the basis of a minimum of 20 % of their acceptable projected annual
turnover for new as well as existing units (as per Nayak Committee recommendations)
* Not applicable due to working capital credit limit of Rs.20 lakhs
 If the working capital cycle is shorter than 3 months, the working capital sanctioned be
less than 25% of the projected turnover
 If the liquid surplus available with the borrower is higher than 5% of the turnover, the
limits be fixed at a lower level than 20% of the turnover keeping in view that the
genuine requirements of the unit are met adequately.
 In case of seasonal industries the distinction between the peak and non-peak level of
turnover has to be considered instead of annual turnover
7. Margin
For Term Loan
 In case of factory land & building, business infrastructure (godown, showrooms, service
center) overall margin of 30%
 In case of Plant & Machineries and Equipments margin is proposed at 25%
Margin
For Working Capital

25% uniform margin is proposed on stocks and receivables. For export credit margin may
be stipulated at 10 %
8. Penal Interest
Penal Interest at 1% to 2% to be charged for the period of default in repayment, non-

submission of financial statement, non-compliance of terms and conditions etc.
9. Credit rating
Internal Credit Rating System

The internal comprehensive credit rating system to be developed with the help of any of the
credit rating agencies approved by RBI. Pricing of loan to be decided based on internal
rating
External Credit Rating System

Small Enterprises borrowers are rated by few external credit rating agencies. In case of
Medium enterprises, some of the borrowers get their accounts rated by external credit
agency like CRISIL, SMERA, etc
Enter into MOU with any of the credit rating agencies like SMERA, CRISIL, Dun & Bradstreet,
FITCH, etc to get MSME borrowers rated at concessional rate.
Pricing be continued to be linked to internal credit rating system. However, due weightage
be given for the credit rating of the external agency
10.Applicant Evaluation Process
An 8 step Evaluation process be adopted, which starts from receiving an application to

disbursement has been recommended
11. Composite Credit Scheme
As per RBI guidelines, Credit assistance to artisans, village and cottage industries and other
Small Industrial units upto Rs.100 lakhs for equipment finance or working capital or both
should be considered as Composite Term Loan.
This will enable majority of Micro and Small Enterprises to avail loans from a single window
eliminating the need for borrowing term loan from SFCs and working capital from banks.
This will also facilitate to sign one set of documents only instead of signing facility-wise
separate documents.
The ceiling limit of advances to artisans, village and cottage industries and other Small
Industrial units has been fixed at Rs.5 lakhs
12. Checklist
1. Proof of identity ( Voter’s ID Card / Passport /driving license / PAN Card / signature
identification from present bankers of proprietor, partner or Director (if a company)
2. Proof of residence ( Recent telephone bills, electricity bill, property tax receipt /
passport / voter’s ID card of proprietor, partner or Director (if a company)
3. Last three years balance sheets of the units along with income tax /sales tax
returns etc. (Applicable for all cases from Rs.2 lakhs and above) . However, for
cases below fund based limits of Rs.25 lakhs if audited balance sheets are not
available, then unaudited balance sheets are also acceptable. For cases of Rs.25
lakhs and above, the audited balance sheets are necessary
4. Memorandum and articles of association of the Company/Partnership Deed of partners
etc
5. Assets and liabilities statement of promoters and guarantors along with latest income
tax returns.
6. Rent Agreement (if business premises on rent) and clearance from pollution control
board if applicable
7. SSI registration if applicable
8. Projected balance sheets for the next two years in case of working capital limits and
for the period of the loan in case of term loan. (For all cases of Rs.2 lakhs and above)
9. In case of takeover of advances, sanction letters of facilities being availed from
existing bankers/ Financial Institutions along with detailed terms and conditions.
10. Profile of the unit (includes names of promoters, other directors in the company, the

activity being undertaken, addresses of all offices and plants, shareholding pattern
etc. (Applicable for cases with exposure above Rs.25 lakhs)
11. Last three years balance sheets of the Associate/Group Companies, If any
(Applicable for cases with exposure above Rs.25 lakhs)
12. Project report (for the proposed project if term funding is required) containing details
of the machinery to be acquired, from whom to be acquired, price, names of
suppliers, financial details like capacity of machines, capacity utilization assumed,
production, sales, projected profit and loss and balance sheets for the next 7to 8
years till the proposed loan is to be paid, the details of labour, staff to be hired, basis
of assumption of such financial details etc. (Applicable for cases with exposure above
Rs.25 lakhs)
13. Review of account containing month wise sales (quantity and value both),
production (quantity and value), imported raw material(quantity and value),
indigenous raw material (quantity and value), value of stocks in process, finished
goods (quantity and value), debtors, creditors, bank's outstanding for working
capital limits, term loan limits, bills discounted. (Applicable for cases with exposure
above Rs.25 lakhs)
14. Photocopies of lease deeds/ title deeds of all the properties being offered as primary
and collateral securities.
15. Position of accounts from the existing bankers and confirmation about the asset
being Standard with them (In case of takeover).
16. Manufacturing process if applicable, major profile of executives in the company, any
tie-ups, details about raw material used and their suppliers, details about the buyers,
details about major competitors and the company's strength and weaknesses as
compared to their competitors etc. (Applicable for cases with exposure above Rs.25
lakhs).
(The checklist is only indicative and not exhaustive and depending upon the
local requirements at different places addition could be made as per necessity)
13. Disbursement
 In case if credit is required for acquiring plant & machinery, land and business
infrastructure the disbursement will be made to the vendor (selling) authority
 In case if credit is required for managing working capital the disbursement will be made
directly to the applicant. (if working capital required more than Rs.2 lakhs it will be
disbursed by the company in different tranches)
14. Ticket size
Enterprise Working Capital (Rs) Term loan (Rs)

Maximum Minimum Maximum Minimum
Micro 1 lakhs No minimum Limit 1 lakhs No minimum Limit
Small 5 lakhs 50,000 10 lakhs 1 lakhs
Medium 10 lakhs 1 lakhs 50 lakhs 2.5 lakhs
Extended 20 lakh 5 lakhs 100 lakhs 5 lakhs
Definition
 The minimum ticket size for Auto dealerships would be Rs.5 lakhs and the maximum
ticket size would be Rs.100 lakhs in case of term loans
 In case of working Shekhar.S.Ibhrampurkar: MSME Lending
capital requirement the minimum ticket size would be Rs.1 lakhs 34
and the maximum ticket size would be Rs.20 lakhs
15. Cross Selling
 Bundling of term loans for purchase of land/ building, business infrastructure, plant &
machinery with insurance from sister company Mahindra Insurance Brokers Limited
 Bundling Fixed deposit services with working capital credit
 Offering personal loans, home loans, vehicle loan, refinance, insurance policies (life/ non
life), investment options to MSME customers at discounted rates
16. Repayment period
 Minimum 6 months and maximum 60 months for term loan

 Minimum 6 months and maximum 24 months for working capital requirement with
annual revision
17. Financial Ratios for Credit Appraisal
Sr. Norms
Ratio
Micro & Small Medium Units covered
Enterprises under Enterprises under M SME
manufacturing under Sector as per
sector and Service Manufacturing expanded
Sector falling under sector and definition and
regulatory Service Sector outside the
guidelines falling under purview of
regulatory regulatory
guidelines definition
1 1.15 & above 1.2 & above 1.3 & above.
Current Ratio
2 Maximum 3:1 Maximum Maximum 3:1
Debt Equity 3:1
Ratio (Total
Term Liability
/Tangible Net
Worth)
3 1.75 With a condition 1.75 with a 1.75 with a

Average DSCR that in any one year condition that in condition that in
for Term Loan it should not be below any one year it any one year it
1.00. should not be should not be
below 1.25 below 1.25

Guidelines for takeover of account
Non Financial Norms
Sr. Norms
1. Profit-making (i.e. net profit before tax) concerns only as per last
audited Balance Sheet.
2. Accounts b e r a t e d a s p e r i n t e r n a l rating system subject to a
minimum ‘B’ rating and/ or satisfactory external rating.
3. There should not have been any restructuring in the account during
last two years.
4. Satisfactory report from the existing bank/ financial institution

and/or satisfactory conduct of account as per latest statement of
accounts.
Financial Norms
Sr. Ratio Norms

1 2 3
Micro & Small Medium Units outside the
Industries Enterprises purview of
under under regulatory
manufacturin manufacturin definition but
g sector and g sector and covered under
service Sector service Sector MSME sector as
as per as per per extended
regulatory regulatory definition.
guidelines guidelines
1. Current Ratio Minimum 1.15 & Minimum 1.2 & Minimum 1.3 &
above above above
2. Debt Equity Maximum 4:1 Maximum 3:1 Maximum 3:1

Ratio
(TTL / TNW)
3. Total outside Maximum Maximum 4.5:1 Maximum 4.5:1
liability/ TNW 4.5:1
4. Average Debt Minimum Minimum 1.75 Minimum 1.75
service 1.75 with a with a with a condition
coverage condition that in condition that in that in any one
ratio for any one year it any one year it year it should not
Term Loan should not be should not be be below 1.25
below below 1.25
1.25

Credit Guarantee Fund Scheme for Micro and Small Enterprises
Credit facilities eligible under the Scheme
The Trust shall cover credit facilities (Fund based and/or Non fund based) extended by
Member Lending Institution(s) to a single eligible borrower in the Micro and Small
Enterprises sector for credit facility (i) not exceeding Rs. 50 lakh (Regional Rural
Banks/Financial Institutions) and (ii) not exceeding Rs.100 lakh (Scheduled Commercial
Banks and select Financial Institutions) by way of term loan and/or working capital facilities
on or after entering into an agreement with the Trust, without any collateral security and\or
third party guarantees or such amount as may be decided by the Trust from time to time.
Provided that the lending institution applies for guarantee cover in respect of credit
proposals sanctioned in the quarter April-June, July-September, October-December and
January-March prior to expiry of the following quarter viz. July-September, October-
December, January-March and April-June respectively
Provided further that, as on the material date

 The dues to the lending institution have not become bad or doubtful of recovery; and /
or
 The business or activity of the borrower for which the credit facility was granted has not
ceased; and / or
 The credit facility has not wholly or partly been utilized for adjustment of any debts
deemed bad or doubtful of recovery, without obtaining a prior consent in this regard
from the Trust.
Credit facilities not eligible under the Scheme
The following credit facilities shall not be eligible for being guaranteed under the Scheme
 Any credit facility in respect of which risks are additionally covered under a scheme
operated / administered by Deposit Insurance and Credit Guarantee Corporation or the
Reserve Bank of India, to the extent they are so covered.
 Any credit facility in respect of which risks are additionally covered by Government or by
any general insurer or any other person or association of persons carrying on the
business of insurance, guarantee or indemnity, to the extent they are so covered.
 Any credit facility, which does not conform to, or is in any way inconsistent with, the
provisions of any law, or with any directives or instructions issued by the Central
Government or the Reserve Bank of India, which may, for the time being, be in force.
 Any credit facility granted to any borrower, who has availed himself of any other credit
facility covered under this scheme or under the schemes mentioned in clause (i), (ii) and
(iii) above, and where the lending institution has invoked the guarantee provided by the
Trust or under the schemes mentioned in clause (i), (ii) and (iii) above, but has not
repaid any portion of the amount due to the Trust or under the schemes mentioned in
clause (i), (ii) and (iii) above, as the case may be, by reason of any default on the part
of the borrower in respect of that credit facility.
 Any credit facility which has been sanctioned by the lending institution against collateral
security and / or third party guarantee.
 Any credit facility which has been sanctioned by the lending institution with interest rate
more than 3% over the Prime Lending Rate (PLR) of the lending institution.

The Trust shall provide Guarantee as under
Category Maximum extent of Guarantee where credit facility is

Upto Rs.5 lakh Above Rs.5 lakh Above Rs.50 lakh upto
upto Rs.50 lakh Rs.100 lakh
Micro Enterprises 85% of the 75% / Rs.37.50 lakh plus 50% of

amount in default Rs.37.50 lakh amount in default above
subject to a Rs.50 lakh subject to
maximum of overall ceiling of Rs.62.50
Rs.4.25 lakh lakh
Women entrepreneurs/ Rs.40 lakh plus 50% of
Units located in North amount in default above
East Region (incl. 80% of the amount in default subject Rs.50 lakh subject to
Sikkim) other than to a maximum of Rs.40 lakh overall ceiling of Rs.65
credit facility upto Rs.5 lakh
lakh to micro
enterprises
All other category of 75% / Rs.37.50 lakh plus 50% of
borrowers Rs.37.50 lakh amount in default above
Rs.50 lakh subject to
overall ceiling of Rs.62.50
lakh
Guarantee Fee and Annual Service Fee
 One-time guarantee fee at specified rate ((a)currently 1.00% in the case of credit facility
upto Rs. 5 Lakh and 1.5% in the case of credit facility above Rs. 5 Lakh (b) 0.75%, in
case of credit facilities upto Rs.50 lakh sanctioned to units in North Eastern Region
including State of Sikkim) of the credit facility sanctioned (comprising term loan and / or
working capital facility) shall be paid upfront to the Trust by the institution availing of
the guarantee within 30 days from the date of first disbursement of credit facility (not
applicable for Working capital) or 30 days from the date of Demand Advice (CGDAN) of
guarantee fee whichever is later or such date as specified by the Trust.
 The annual service fee at specified rate (currently 0.50% in the case of credit facility
upto Rs. 5 Lakh and 0.75% in the case of credit facility above Rs. 5 Lakh) on pro-rata
basis for the first and last year and in full for the intervening years on the credit facility
sanctioned (comprising term loan and / or working capital facility) shall be paid by the
lending institution within 60 days ie. on or before May 31, of every year. In the event of
non-payment of annual service fee by May 31 of that year or any other specified date,
the guarantee under the scheme shall not be available to the lending institution unless
the Trust agrees for continuance of guarantee and the lending institution pays penal
interest on the service fee due and unpaid, with effect from the subsequent June 01, at
four per cent over Bank Rate, per annum, or at such rates specified by the Trust from
time to time, for the period of delay.
o Provided further that in the event of non-payment of annual service fee within the
stipulated time or such extended time that may be agreed to by the Trust on such

terms, liability of the Trust to guarantee such credit facility would lapse in respect of
those credit facility against which the service charges are due and not paid,
o Provided further that, the Trust may consider renewal of guarantee cover for such of
the credit facility upon such terms and conditions as the Trust may decide.
o In the event of any error or discrepancy or shortfall being found in the computation
of the amounts or in the calculation of the guarantee fee / annual service fee, such
deficiency / shortfall shall be paid by the eligible lending institution to the Trust
together with interest on such amount at a rate of four per cent over and above the
Bank Rate, or as may be prescribed by the Trust from time to time. Any amount
found to have been paid in excess would be refunded by the Trust. In the event of
any representation made by the lending institution in this regard, the Trust shall take
a decision based on the available information with it and the clarifications received
from the lending institution, and its decision shall be final and binding on the lending
institution.
 The amount equivalent to the guarantee fee and / or the service fee payable by the
eligible lending institution may be recovered by it, at its discretion from the eligible
borrower.
 The guarantee fee and / or annual service fee once paid by the lending institution to the
Trust is non-refundable. Guarantee fee / Annual Service Fee, shall not be refunded,
except under certain circumstances like -
 Excess remittance,
 Remittance made more than once against the same credit application,
 Guarantee fee & / or annual service fee not due,
 Guarantee fee paid in advance but application not approved for guarantee cover under
the scheme, etc.
Source: http://www.cgtmse.in
*Not applicable to Mahindra Finance since being a NBFC it cannot be covered

under the scheme

MSME Lending: Operational Guidelines
1. Objective
To tap the vast potential of the MSME sector redefine MSME sector for internal purpose
to include
 Micro, small and medium enterprises as per the regulatory definition
 All entities with annual sales turnover of Rs.1 Crores to Rs.100 Crores
 Retail trade
 Clubs, trusts, etc.
Note: the above definition be used internally for promotion of business across the MSME
sector. The regulatory definitions, where applicable, be followed for reporting purposes. For
statutory reporting purposes the RBI guidelines be followed.
In order to achieve the above objective set up dedicated MSME loan offices at identified
locations for providing customized products and services to MSME customers through
simplified processes with the least turn around time.
2. Scope of activity of MSME Department
 Sale and marketing of MSME products and services

 Development of customized products based on specific activity/ cluster/ location of
clusters
 Cross selling of various products and services of the company
 Appraisal and sanction of MSME proposals fulfilling revised definition of MSME adopted
by the company for internal purpose falling under the discretionary lending powers of
the heads of dedicated MSME loan branches
 Appraisal and recommendation of MSME credit proposal to appropriate sanctioning
authorities where the proposal fall beyond the discretionary lending powers of the heads
of dedicated MSME loan branches
 To arrange meetings, seminars and such other events to develop healthy relations with
various segments of MSME community with the objective of increasing market share
 To conduct various surveys for assessing potential for new business and collect data and
other information for business growth among MSME community
3. Operational jurisdiction of MSME Department
 Dedicated MSME loan offices to cater to the need of branches located in the region of its
operations.
 In case where the number of branches is less or potential for new business is less or
potential for new business in that area is not substantial to make, MSME loan offices
may include nearby branches for purpose of processing and sanctioning of credit
facilities.

4. Organizational setup
MSME Head office
MSME regional Head office
MSME branch (urban) MSME branch (semi urban) MSME branch (rural)
Role of MSME Head office

 Supervisory and executive authority
 Sanction of applications falling beyond the power of MSME branches and regional head
office
 Evaluate performance reports of MSME branches submitted by regional head office and
take appropriate action
 Fixation of target for MSME branches for growth in advances to MSME as also cross
selling and monitoring their performance
 Develop new products or modify current products based on recommendations of regional
Head office
Role of MSME regional Head office

 Supervisory and executive authority for designated region
 Sanction applications falling beyond the power of MSME branches
 Recommend developments, modifications in current products based on regional
customer base
 Monitor performance of MSME branches
 Collect and manage customer information provided by MSME branches
Role of MSME branches

 Pursuing the customer to avail products from company as also cross sell other products
 Maintenance of records
 Exploring new customers and strengthening relations with existing customers
 Establish contact with companys existing customers through branch network to get
reference/ lead to their vendors/ customers/ associates
Structure of MSME offices
 MSME loan offices be divided into two divisions, Credit hub and Sales hub
 The MSME loan offices be headed by an executive in the ranks of assistant general
manager or chief manager

 Head (Credit) and Head (Sales) be executives holding one rank lower than the head of
MSME loan offices
 All credit officers in the credit appraisal hub to report to Head (Credit) who in turn
reports to the Head of the MSME loan office
 Head (Sales) to report to Head of MSME loan office
 All relationship managers and relationship officers to report to Head (sales)
 The number of credit officers, relationship managers, relationship officers be posted at
MSME loan office be determined by MSME loan office Head based on business potential,
volume of business, number of proposals, number of branches attached to the MSME
loan office and other factors
Role of various officers
MSME office HEAD
Head (Sales) Head (Credit)
Sales coordinator Credit officer
Relationship manager Credit support officer
Role of Sales hub
Head (Sales)
 Fixation of target for relationship managers for growth in advances to MSME as also
cross selling and monitoring their performance
 Visits to MSME customers along with MSME office head as may be required
 Planning for lead generation activities by holding customers meet at offices, briefing of
new products at small gatherings
 Tie ups and coordination with industry associations, local industrial clusters, etc
 Monitor performance of sales team by obtaining details on performance on a daily basis
 Guidance to sales team
 Establish contact with banks existing customers through branch network to get
 Submit performance report at given periodicity
 Provide feedback for product development/ modification, keeping in view market
conditions and bank guidelines
Sales coordinator
 Lead generation and assist Head (sales) in monitoring sales team
 Guidance to relationship managers
 Follow up on incomplete files, decisions awaited from sales hub
Relationship manager

 Establish contact with companys existing customers through branch network to get
 Contact existing and prospective customers based on lead given by Sales coordinator/
Head (sales)
 Pursuing the customer to avail products from company as also cross sell other products
 Report to Sales coordinator on daily basis, furnish preliminary details to Credit hub to
evaluate possibility of lending to their prospective customers, in case of existing
customer, forward the requirement to Credit hub
 Obtain documents as per the checklist to examine eligibility for financing/ selling
products
 Keep Liaison with Credit hub for status of application forwarded to the hub
 Attain set targets
Role of Credit hub
Head (Credit)
 Interact with credit officers to provide guidance wherever required
 Coordinate with credit officers for visit to customers, sales officers in case of incomplete
information as per the checklist
 Coordinate with advocate/ valuer for their service when required
 Coordinate with Head (sales) whenever required at meetings with industry associations.
Local industrial cluster, etc
 Sanction proposals falling within his powers, recommend cases falling beyond his powers
to MSME office Head/ other authorities for sanctions as per company policy
 Coordinate with higher authorities for quick disposal of proposals and disbursement
 Submit performance report at given periodicity
Credit officer
 Examine/ pursue leads generated by marketing team for financing
 Scrutiny of applications vis-à-vis checklist
 Conduct pre-sanction visit to customers unit and submit report
 Collection of missing links, additional information from customers, operating data from
Mahindra finance branches in case of existing customers
 Coordinate with advocate/ valuer
 Verify reports from advocates for clearance, valuer on valuation on properties
 Convey sanction
Credit support officer

 Prepare credit proposal
 Follow up with customer/ relationship manager for required documents
 Prepare sanction letters
 Follow up regarding status of disbursement and requisite documents
 Maintenance of records

MSME Lending: Credit Application Form
Mahindra & Mahindra Financial

Services Limited
Sadhna House, Behind Mahindra
Tower,
P. B Marg, Worli, Mumbai - 400018
Phone: 022 - 66526000
1. Name of Enterprise:
2. Office Address
3. Factory/ Shop Address:
4. Telephone No (Office):
5. Telephone No ( Residential):
6. Fax No:
7. Mobile No:
8. E-mail Address:
9. Family background: Name Relation Age
12. Whether Belongs to SC/ ST/ OBC/

Minority:
13. PAN card No:
14. Constitution: Proprietary/

Partnership firm/ Pvt. Ltd./Ltd.
Company/ Co-op. Society
15. Date of Establishment/
Commencement of business:
16. SSI Registration No/
Entrepreneur’s Memorandum Ref
No:
1. Information of Proprietor/ Partners/ Directors/ Key functionaries:

Name Age Academic Address Contact PAN card Experience in
Qualification No No the line of
activity

2. Activity:
a. Existing:
b. Proposed*:
*If proposed activity is different than existing activity
3. Whether the existing activity be affected with implementation of proposed
activity?
4. Name of Associate concerns and nature of association:

Name of Address OF Present Nature of Extent of
Associate Associate Banker Association Interest as a
concern concern Proprietor/
Partner/
Director or
just Investor
in Associate
concern
5. Present Banker/ Banking with:
It is certified that our unit has not availed any loan from any other Bank /
Financial Institution in the past and I am not indebted to any other Bank
Financial Institution
6. Whether availed any Credit/ Y/N

Other facility:
7. If existing customer:
Customer No/ Account No:
Relationship of Proprietor/Partner/Director
with the officials of the Bank/Director of the
Bank:
8. Credit Facilities (Existing):

Type of Limit Outstanding Presently Security Rate of Repayment
Facilities Banking lodged Interest Terms
with

Overdraft
Term
Loan
Cash
Credit
Letter of
Credit
Bank
Guarantee
9. Credit Facilities Proposed:
Type of Amount Purpose Security Offered
Facilities
Primary Collateral
Security Security
Term Loan Y/N
Cash Credit Y/N
Letter of Y/N
Credit
Bank Y/N
Guarantee
10. Term Loan: Details of Land, Building, Plant/ Equipment
Land
Purpose Allotted/ Name of Total cost of Promoters Loan
Purchased authority Acquisition Contribution requirement
who (Including
allotted stamp duty
the land/ and
Vendor registration)
Building
Purpose Whether to Name of Total Cost Promoters Loan
be Vendor/ of Contribution requirement
Purchased/ Contractor/ Acquisition/
Constructed Architect Construction
Plant & Machinery

Machine Purpose Imported/ Supplier Total cost of Contribution Loan
Type Indigenous machine (in being made requir
case of imported by ed
machine, the the

breakup of basic promoters
cost, freight,
insurance and
customs duty
may be given)
11.Details of Collateral Security

offered, if any, including 3rd
party Guarantee:
If not, seeking cover under Credit Y/N
Guarantee fund for Micro & Small
Enterprises:
12. Past Performance/ Future Estimates (Actual performance for two previous years,
estimates for current year and projections for next year to be provided for working
capital facilities. However for term loan facilities projections to be provided till the
proposed year of repayment of loan):
Past Year II Past Year I Present Year Next Year

(Actual) (Actual) (Estimated) (Projected)
Gross Sales
Net Sales
Net Profit
Capital (Net
worth)
Depreciation
13. Statutory Obligations:

Statutory Obligations Whether Complied with Remarks (Any details in
(Write Yes / No), If connection with the
Not applicable then relevant obligation to be
write N.A. given)
Registration under
Shops and
Establishment Act
Registration under SSI
(Provisional / Final) of
Filing of Entrepreneur’s
Memorandum
Drug License
Latest Sales tax return
filed
Latest Income tax
returns filed
Clearance from
Pollution control
authority
Any other statutory
dues remaining

outstanding
14. Photographs:
15. Signature:
16. Date:
17. Place:
I/We certify that all information furnished by me/us is true, that I/We have no borrowing
arrangements for the unit except as indicated in the application, that there are no overdue/
statutory dues against me/ us/ promoters except as indicated in the application, that no
legal action has been/ is being taken against me/ us/ promoters, that I/We shall furnish all
other information that may be required by you in connection with my/ our application that
this may also be exchanged by you with any agency you may deemed fit and you, your
representatives, representatives of the Reserve Bank of India or any other agency as
authorized by you, may, at any time, inspect/ verify my/ our assets, books of account etc.
in our factory/business premises as given above.
Checklist
1. Proof of identity ( Voter’s ID Card / Passport /driving license / PAN Card /

signature identification from present bankers of proprietor, partner or Director (if a
company)
2. Proof of residence ( Recent telephone bills, electricity bill, property tax
receipt / passport / voter’s ID card of proprietor, partner or Director (if a company)
3. Last three years balance sheets of the units along with income tax /sales
tax returns etc. (Applicable for all cases from Rs.2 lakhs and above) . However,
for cases below fund based limits of Rs.25 lakhs if audited balance sheets
are not available, then unaudited balance sheets are also acceptable. For cases
of Rs.25 lakhs and above, the audited balance sheets are necessary
4. Memorandum and articles of association of the Company/Partnership Deed
of partners e t c
5. Assets and liabilities statement of promoters and guarantors along with
latest income tax returns.
6. Rent Agreement (if business premises on rent) and clearance from pollution
control board if applicable
8. Projected balance sheets for the next two years in case of working capital
limits and for the period of the loan in case of term loan. (For all cases of Rs.2 lakhs
and above)
9. In case of takeover of advances, sanction letters of facilities being availed
from existing bankers/ Financial Institutions along with detailed terms and
conditions.
10. Profile of the unit (includes names of promoters, other directors in the
company, the activity being undertaken, addresses of all offices and plants,
shareholding pattern etc. (Applicable for cases with exposure above Rs.25 lakhs)
11. Last three years balance sheets of the Associate/Group Companies, If any

(Applicable for cases with exposure above Rs.25 lakhs)
12. Project report (for the proposed project if term funding is required)
containing details of the machinery to be acquired, from whom to be acquired, price,
names of suppliers, financial details like capacity of machines, capacity utilization
assumed, production, sales, projected profit and loss and balance sheets for the
next 7to 8 years till the proposed loan is to be paid, the details of labour, staff to be
hired, basis of assumption of such financial details etc. (Applicable for cases with
exposure above Rs.25 lakhs)
13. Review of account containing month wise sales (quantity and value both),
production (quantity and value), imported raw material(quantity and value),
indigenous raw material (quantity and value), value of stocks in process,
finished goods (quantity and value), debtors, creditors, bank's outstanding for
working capital limits, term loan limits, bills discounted. (Applicable for cases
with exposure above Rs.25 lakhs)
14. Photocopies of lease deeds/ title deeds of all the properties being offered
as primary and collateral securities.
15. Position of accounts from the existing bankers and confirmation about the
asset being Standard with them (In case of takeover).
16. Manufacturing process if applicable, major profile of executives in the
company, any tie-ups, details about raw material used and their suppliers, details
about the buyers, details about major competitors and the company's strength and
weaknesses as compared to their competitors etc. (Applicable for cases with
exposure above Rs.25 lakhs).
(The checklist is only indicative and not exhaustive and depending upon the local
requirements at different places addition could be made as per necessity)

MSME Lending: Credit Application Evaluation Process
Abstract: MSME customers are not price sensitive and believe in long- term relationship.
He has low price sensitivity. Low service fees/ interest is the least important criterion for
him to select a bank for his requirements. Proximity of branch to his office/ residence is the
most important deciding factor in choosing a Credit institution. Superior service, comfort/
relationship with the Institution staff and its reputation are the other criteria which play
significant role in choosing the Credit institution
Inorder to form a strong relationship with the client a simple and fast procedure to convert
a credit application to disbursement within a time frame that dazzles the client has to be
adopted. The process being fast also has to be efficient and prudent
Step 1: Credit Application Receipt
 Receipt of Credit Application form and Acknowledgement
 Registration
Step 2: Qualifying Criteria for Inprinciple Approval
Credit applications to be accepted and further processed only if the following conditions are
satisfied, An inprinciple approval to be given if the applicant satisfies the qualification
criteria within 3 days of submitting application
Financial Ratios in certain sector specific range
 Current Ratio (Atleast 1.15)
 Debt Equity Ratio ( Maximum 3:1)
 Debt service coverage Ratio (Atleast 1.75)
 Profit Margin (Atleast 20%)
In case of taking over an account
Non-Financial Norms

To ensure minimum quality of an account certain non-financial norms need to be
satisfied
Sr. Norms
1. Profitability
2. Adequate Credit Rating

3. There should not have been any reschedulement / restructuring in the account
during last two years.
4. Satisfactory report/ conduct of account from the existing bank/financial
institution
Financial norms
Financial Ratios in certain sector specific range
 Current Ratio (Atleast 1.15)
 Debt Equity Ratio ( Maximum 4:1)
 Debt service coverage Ratio (Atleast 1.75)
 Profit Margin (Atleast 20%)
Step 3: Compute Value of the Enterprise
Compute the value of the enterprise and categorize the applicant into the following
categories
1. Micro enterprise
2. Small enterprise
3. Medium enterprise
4. Extended definition
And sanction credit according to the minimum and maximum limits
Enterprise Working Capital (Rs) Term loan (Rs)

Maximum Minimum Maximum Minimum
Micro 1 lakhs No Minimum 1 lakhs No Minimum limit
limit
Small 5 lakhs 50,000 10 lakhs 1 lakhs
Medium 10 lakhs 1 lakhs 50 lakhs 2.5 lakhs
Extended Definition 20 lakh 5 lakhs 100 lakhs 5 lakhs
Step 4: Checklist/ Documentation
1. Proof of identity ( Voter’s ID Card / Passport /driving license / PAN Card / signature
identification from present bankers of proprietor, partner or Director (if a company)
2. Proof of residence ( Recent telephone bills, electricity bill, property tax receipt /
passport / voter’s ID card of proprietor, partner or Director (if a company)
3. Last three years balance sheets of the units along with income tax /sales tax
returns etc. (Applicable for all cases from Rs.2 lakhs and above) . However, for
cases below fund based limits of Rs.25 lakhs if audited balance sheets are not

available, then unaudited balance sheets are also acceptable. For cases of Rs.25
lakhs and above, the audited balance sheets are necessary
4. Memorandum and articles of association of the Company/Partnership Deed of partners
etc
5. Assets and liabilities statement of promoters and guarantors along with latest income
tax returns.
6. Rent Agreement (if business premises on rent) and clearance from pollution control
board if applicable
8. Projected balance sheets for the next two years in case of working capital limits and
for the period of the loan in case of term loan. (For all cases of Rs.2 lakhs and above)
9. In case of takeover of advances, sanction letters of facilities being availed from
existing bankers/ Financial Institutions along with detailed terms and conditions.
10. Profile of the unit (includes names of promoters, other directors in the company, the
activity being undertaken, addresses of all offices and plants, shareholding pattern
etc. (Applicable for cases with exposure above Rs.25 lakhs)
11. Last three years balance sheets of the Associate/Group Companies, If any (Applicable
for cases with exposure above Rs.25 lakhs)
12. Project report (for the proposed project if term funding is required) containing details
of the machinery to be acquired, from whom to be acquired, price, names of
suppliers, financial details like capacity of machines, capacity utilization assumed,
production, sales, projected profit and loss and balance sheets for the next 7to 8
years till the proposed loan is to be paid, the details of labour, staff to be hired, basis
of assumption of such financial details etc. (Applicable for cases with exposure above
Rs.25 lakhs)
13. Review of account containing month wise sales (quantity and value both), production
(quantity and value), imported raw material(quantity and value), indigenous raw
material (quantity and value), value of stocks in process, finished goods
(quantity and value), debtors, creditors, bank's outstanding for working capital
limits, term loan limits, bills discounted. (Applicable for cases with exposure above
Rs.25 lakhs)
14. Photocopies of lease deeds/ title deeds of all the properties being offered as primary
and collateral securities.
15. Position of accounts from the existing bankers and confirmation about the asset being
Standard with them (In case of takeover).
16. Manufacturing process if applicable, major profile of executives in the company, any
tie-ups, details about raw material used and their suppliers, details about the buyers,
details about major competitors and the company's strength and weaknesses as
compared to their competitors etc. (Applicable for cases with exposure above Rs.25
lakhs).
(The checklist is only indicative and not exhaustive and depending upon the local
requirements at different places addition could be made as per necessity)
Step 5: Field investigation
Conduct inspection of the applicant to gain information that would be required to calculate
credit score, valuation of the security/ collateral being offered, etc

Data to be collected my investigation officer (data required as inputs for internal Credit
Rating Model)
 Input related risk

 Infrastructure facilities
 Distribution network
 Bargaining power with suppliers
 Management profile/ style
 Market reputation
 Management successions
 Ability to raise debt from Banks/ Financial institutions
 Ability to raise resources from own sources
Step 6: Internal assessment
 CIBIL report ( Applicant/ Enterprise/ Guarantor)

 Score based on internal credit rating model
 Applicant review in case of existing Mahindra Finance client, existing bank/financial
institution in case of taking over an account
Credit Application to be approved only if it satisfies a certain defined minimum internal
rating
Step 7: External assessment
In case if internal assessment is found in sufficient Mahindra Finance can
 Consider rating given by any of the credit rating agencies approved by the RBI
 Evaluate applicant by any of the credit rating agencies approved by the RBI if required
Step 8: Disbursement
 In case if credit is required for acquiring plant & machinery, land and business
infrastructure the disbursement will be made to the vendor (selling) authority
 In case if credit is required for managing working capital the disbursement will be made
directly to the applicant. (if working capital required more than Rs.2 lakhs it will be
disbursed by the company in different tranches)

MSME Lending: Credit Rating Model
About 94.49 of the MSME enterprises in India are Proprietary by establishment, which
means less professionalism and less transparency in financials. A conventional credit
appraisal system, heavily dependent on financial statements would miss the softer strengths
inherent in the business. Secondly, it is not necessary that past financials of the Enterprise
(which can be manipulated) reflect future performance. A rigid credit appraisal approach if
adopted will keep several units outside the purview of lending.

A large number of Enterprises can be brought under the purview of lending provided the
credit assessment methods are made simple. It is hence essential to adopt a balanced score
card model for credit risk assessment under which risk weights may be assigned to
 managerial, technical and commercial competence of the entrepreneur

 quality of trade references from suppliers/ buyers
 potential of the industry, enterprise and person
 financials of the unit
 credit history/ dealing experience
 rating awarded by the rating agency
 level of product, supplier and buyer diversification
 opinion of industrial consultants/ counselors
 Information availed from credit information companies
Based upon the score of the enterprise, appropriate and need based limits may be
sanctioned. For timely disposal of credit proposals, Mahindra Finance should develop
appraisal, financial and technical skills of its officials through training, exposures to trade/
industry fairs, participation in seminars, workshops and holding discussions both with
successful and unsuccessful entrepreneurs. The appraisal should be teamwork and the level
of competence of the team must be kept high. The appraisal system is to be made more
realistic and transparent. The applicant and if required, his consultant, should be briefed on
the objective procedures which are applied to arrive at decisions so as to educate them to
understand the requirements and to prepare credit proposals in a scientific manner.
Mahindra Finance which is already into the lending business has a few advantages when it
comes to MSME lending, it already has a competent staff that would be required to dispose
of credit proposals quickly and the experience it has gained from defaulting clients to
identify potentially defaulting clients.
Company name
Owner
Industry risk Assignable Marks

marks assigned
1. Demand-Supply gap
Demand in excess of Supply by 2.5
Demand equals Supply 1.5

Supply exceeds Demand 0
2. Government policies
Not affected 2.5
Least affected 2
Moderately affected 1.5
Highly affected 1
3. Industry trends
>20% 2.5
<20% 2
<10% 1.5
<5% 1
negative growth rate 0
4. Input related risk

4.1 Indigenous
Local 1.5
Neighboring area 1
Outside 0.75
4.2 Imported
Friendly supplier 1
Neutral supplier 0.5
Volatile supplier 0
5. Competition
Monopoly 2.5
Near monopoly 2
Moderate 1.5
Normal 1
Competitive 0.5
Very competitive 0
6. Impact of Global Economic Scenario

Insulated 2.5
Moderate Impact 2
Average Impact 1.5
Strong Impact 1
Business risk Assignable Marks

marks assigned
1. Diversity of Markets-Product mix

Multiple products in multiple markets 2.5
Multiple products in single markets 2
Single products in multiple markets 1.5
Single products in single market 1
2. Infrastructure facilities
2.1 Road/Railway

Nearest/Approachable 1
Within 100kms 0.75
Beyond 100kms 0.5
2.2 Water/Power/Labour
Abundance 1.5
Normal 1
Scarce 0.75
3. Distribution network
Very strong 2.5
Strong 2
Above average 1.5
Average 1
Low 0.5
None 0
4. Operational efficiency
4.1 Expense/Revenue
Decreasing trend 1.25
Stable 0.75
Increasing trend 0
4.2 PBDIT/Fixed Assets
Increasing trend 1.25
Stable 0.75
Decreasing trend 0
5. Bargaining power with suppliers

Very high 2.5
High 2
Moderate 1.5
Normal 1
Low 0.5
None 0
6. Advantages due to size

Investment in plant and machinery
Above 10 crores 2.5
Above 5 crores and below 10 c crores 2
Above 1 crores and below 5 crores 1.5
Above 50 lakhs and below 1crs 1
Above 10 lakhs and below 50 lakhs 0.5
Below 10 lakhs 0
Management risk Assignable Marks

marks assigned
1. Management profile
Well established 2
New entrant 1

2. Management style
Professional 2
Traditional 1
3. Experience/ Qualification
Qualified & Experienced 2
Qualified & Inexperienced 1.5
Unqualified & Experienced 1
Inexperienced & Unqualified 0.5
4. Security
To the full extent of the limit 2.5
76 to 99 % of the limit 2
51 to 75 % of the limit 1.5
25 to 50 % of the limit 1
Below 25 % 0.5
With out collateral 0
5. Industry experience
More than 10 years 2.5
8 to 10 years 2
6 to 8 years 1.5
3 to 6 years 1
Less than 3 years 0.5
Not experienced 0
6. Ability to meet sales projections

Surpassed projections 2.5
Achieved (10% tolerance) 2
Achieved 76% t0 90% 1.5
Achieved 61% to 75% 1
Achieved 51% to 60% 0.5
At or below 50% level 0
7. Ability to meet profit projections

Surpassed projections 2.5
Achieved (10% tolerance) 2
Achieved 76% t0 90% 1.5
Achieved 61% to 75% 1
Achieved 51% to 60% 0.5
At or below 50% level 0
8. Market reputation
Brand image 2.5
Market acceptance without brand image 2
Reputation in the market for 10 years and above 1.5
Reputation in the market between 5 to 10 years 1
Reputation in the market for below 5 years 0.5
None of the above 0

9. Collateral Security
At / Above 100% of the limit 2.5
Between 76 to 99% 2
51 to 75% 1.5
26 to 50% 1
1 to 25% 0.5
Non-availability of third party guarantee 0
10. Quality of information submitted

Complete 2
Incomplete but adequate 1
Strictly adequate 0.5
Inadequate 0
11. Management Succession

Qualified & Experienced 2
Qualified & Inexperienced 1.5
Unqualified & Experienced 1
Inexperienced & Unqualified 0.5
Financial risk Assignable Marks

marks assigned
1. Tangible net worth 0

Increased by
Additional Capital 2.5
76%-100% plough back 2
50% - 75% plough back 1.5
26% - 50% plough back 1
Below 25% plough back 0.5
No plough back of profit 0
2. Income/ Sales
Growth > 50% 2.5
Growth 26% to 50% 2
Growth 10% to 25% 1.5
At the previous year level 1
Decline within 10% range 0.5
Decline beyond 10 0
3. Net profit
Growth > 50% 2.5
Growth 26% to 50% 2
Growth 10% to 25% 1.5
At the previous year level 1
Decline within 10% range 0.5
Decline beyond 10 0
4. Debt/ Equity ratio

At or below 1 2.5

Between 1.01 & 1.5 2
Between 1.56 & 2 1.5
Between 2.01 & 3 1
Between 3.01 & 5.00 0.5
At or above 5.01 0
5. Current ratio
At or above 1.33 2.5
Between 1.25 & 1.32 2
Between 1.15 & 1.24 1.5
Between 1.11 & 1.14 1
Between 1 & 1.10 0.5
Below 1.00 0
6. Ability to raise debt from Banks/ Financial

institutions
Very high 2.5
High 2
Moderate 1.5
Average 1
Low 0.5
None 0
7. Ability to raise resources from own sources

Very high 2.5
High 2
Moderate 1.5
Average 1
Low 0.5
None 0
8. Debt Service Coverage Ratio

At or above 2.00 2.5
Between 1.5 & 1.99 2
Between 1.25 & 1.49 1.5
Between 1 & 1.24 1
Between 0.75 & 0.99 0.5
Below 0.74 0
Marks Assignable
assigned marks
Industry Risk 0 15
Business Risk 0 15
Management Risk 0 25
Financial Risk 0 20
Total 0 75
Total out of 100 0 100
Industry Risk Score

1. Demand-Supply gap 0

2. Government policies 0
3. Industry trends 0
4. Input related risk 0
5. Competition 0
6. Impact of Global Economic scenario 0
Total 0
Business Risk
1. Diversity of Markets-Product mix 0
2. Infrastructure facilities 0
3. Distribution network 0
4. Operational efficiency 0
5. Bargaining power with suppliers 0
6. Advantages due to size 0
Total 0
Management Risk
1. Management profile 0
2. Management style 0
3. Experience/Qualification 0
4. Collateral security 0
5. Industry experience 0
6. Ability to meet sales projections 0
7. Ability to meet profit projections 0
8. Market reputation 0
9. Third party guarantee 0
10. Quality of information submitted 0
11. Management succession 0
Total 0
Financial Risk
1. Tangible net worth 0
2. Income/Sales 0
3. Net profit 0
4. Debt/Equity ratio 0
5. Current ratio 0
6. Ability to raise debt from banks/financial 0
institutions
7. Ability to raise resources from own sources 0
8. Debt Service Coverage Ratio 0
Total 0
Overall score 0
Total out of 100 0
Action
Comments
Industry Risk reference chart

Marks Rating Risk Category
12.51-15 5 Minimal
10.01-12.5 4 Low
7.51-10 3 Moderate
5.01-7.5 2 Average
2.51-5 1 Caution

0-2.5 0 Maximum
Business Risk reference chart
12.51-15 5 Minimal
10.01-12.5 4 Low
7.51-10 3 Moderate
5.01-7.5 2 Average
2.51-5 1 Caution
0-2.5 0 Maximum
Management risk Reference chart
22.51-25 5 Minimal
20.01-22.5 4 Low
17.51-20 3 Moderate
12.51-17.5 2 Average
7.51-12.5 1 Caution
0-7.5 0 Maximum
Financial Risk reference chart
15.51-17.5 5 Minimal
12.51-15.5 4 Low
10.01-12.5 3 Moderate
7.51-10.01 2 Average
5.01-7.5 1 Caution
0-5 0 Maximum
Overall Risk reference chart

Score Risk rating
95-100 AAA
85-94 AA
76-84 A
66-75 BBB
56-65 BB
46-55 B
36-45 C
below 36 D

MSME Lending: Market Entry Strategy
Target locations Target Sector No of Branches

Mumbai  Chemical 2 (+2 in Thane,
 Pharmaceutical +1 in Kalyan, +1
 Textile in Vasai)
Mumbai: Chemical Industry
Key Statistics
Ownership Pattern

Source: SME Cluster Series 2009, Dun & Bradstreet
Segment wise classification
Revenue wise Classification

Source of Finance
Deployment of Funds

Credit Obstacles
*1 stands for ‘low’ and 5 stands for ‘very high’

Expected Business

* FY10 and FY11
Industry growth prospects
*Next 4-5 years

Future Plans

Summary
Among the companies that cited organic chemicals as one of their segments, approximately
25% companies had their own brands, and 14% of the inorganic chemicals that indicated
inorganic chemicals as one of their segments had their own brand.
Chemicals are used as raw materials and as processing agents of various intermediary
products by many industries. The chemical companies in Mumbai cater to various industries
like pharmaceutical, agrochemicals, paints, plastic, food processing, textiles and others.
Among these industries, the pharmaceutical industry emerged as the most prominent
industry catered by the respondent companies in the cluster.
33% of the companies catered only to the domestic market while 30% of the companies
generated 50% or more of their revenue from exports
Anti-dumping activities, a steep tax structure, high raw material/ fuel prices, and stringent
environmental norms are the major factors that hinder the growth of SMEs operating in the
chemical industry in the Mumbai cluster
The chemical industry in Mumbai is expected to grow at around 10% and enterprises
expect to grow at 10-20%, more than 50% of the enterprises going into capacity
expansion and modernization the requirement for term loans is set to increase, Interest
rates and collateral requirement are the biggest issues facing the chemical industry
Chemical MSMEs in Mumbai
Many chemical companies are located across the Mumbai cluster but there are certain areas
such as Badlapur that are specifically reserved for these companies
9% of the companies have their manufacturing facility situated in the heart of Mumbai
city while 25% have their plants in the vicinity of Mumbai such as Dombivli, Kalyan,
Ambernath and Badlapur area
2% have their plants in the Navi Mumbai while 15% have their plants in Tarapur and
Boisar
Mumbai: Pharmaceutical Industry

Key Statistics
Ownership Pattern

Source of Finance
Deployment of Funds

Credit Obstacles
*1 stands for ‘low’ and 5 stands for ‘very high’

Expected Business
Industry growth prospects

*Next 4-5 years
Future Plans
Summary
Most pharmaceutical companies in the Mumbai cluster manufacture their own products,
27% of the companies carry out contract manufacturing activities. Among the private
limited companies, approximately 95% companies are engaged in standalone
manufacturing.
38% companies own a brand, none of the proprietary-owned companies in the Mumbai
cluster own a brand, they are all engaged in contract manufacturing activities. Among the
respondent companies that own brands approximately 45% cater exclusively to the
ayurveda segment.
47% companies were manufacturing medicines in tablet or capsules, 37% were into
manufacturing of ointments/creams and other dry suspensions
Exports form a substantial component of the revenues of the pharmaceutical companies
that operate in the Mumbai cluster, exports constitute more than 50% of the revenues of
23% respondent companies that operate in the cluster, 40% companies derive less than
25% revenue from exports followed by 37% companies which derive 25%-50% revenue
from exports, 30% of the respondents were not exporting at all. These non exporting
companies are into manufacturing of allopathy and ayurvedic products, with some
companies manufacturing bulk drugs

37% companies found procurement of funds to be very easy. This can be attributed to the
fact that approximately 70% respondents in the sector have utilized their internal accruals
along with other sources for finance in the past. Only 6% companies find it very difficult to
obtain finance
Similar to the chemical industry almost 50% enterprises in the pharmaceutical industry
plan to modernize and expand capacity, majority of the enterprises intend to grow by about
15-30% while the industry is expected to grow at about 10%.
Interest rates, requirement and legal procedures are the biggest issues facing the
enterprises
Pharmaceutical MSMEs in Mumbai
12% of the pharmaceutical companies have their plants in Ambernath, Badalapur, Bhiwandi
and Dombivli area
20% of the companies’ plants are located in Tarapur and Boisar area while 17% have their
manufacturing facility in the Navi Mumbai area
Mumbai: Textile Industry
Key Statistics

Ownership Pattern

Source of Finance
Deployment of Funds

Credit Obstacles
*1 stands for ‘low’ 5 stands for ‘very high”

Expected business
*FY10
Industry Prospects

*Next 4-5 years
Future Plans
Summary
Apart from being highly-fragmented, the industry is characterized to be vertically-integrated

across the whole value chain and interconnected with various operations. The industry has
both the organized and unorganized segments. The organized textile segment consists of
spinning mills and composite mills and the unorganized segment consists of handlooms,
powerlooms and handicrafts among others. Cotton, blended, silk, wool and man-made
textile are the major sub-segments of the textile industry. The textile players majorly deal
in readymade garments, suiting and shirting, shirts and trousers, fabrics, bed linen and
embroidery work.
57% textile companies in the Mumbai cluster are registered under the DIC/ SIDO and other
state schemes
63% of the companies surveyed were standalone manufacturers of textiles whereas 10%
of the companies were contract manufacturers. The remaining 27% of the companies
manufactured textiles on both standalone and contract basis

73% of the respondent companies in the Mumbai cluster were involved in some kind of
export activity. Among them around 60% of the respondents marketed their products
under a brand name
26% of the total companies surveyed derived over 50% of their revenues from exports.
Among these companies around 62% companies were solely export oriented units and
derived their 100% revenues from exports
42% respondents procured raw materials from within Maharashtra itself. Out of the
remaining companies, 16% sourced materials from the overseas market
43% of the respondent companies in the Mumbai cluster found procurement of funds
relatively easy. Around 40% of the remaining companies faced moderate difficulties in the
getting funds
Textile MSMEs in Mumbai
39% of the companies that have their plants located at Bhiwandi, Ambernath and
Dombivli area normally operate in single or at most double shifts. 11% of the companies
are situated in Tarapur area. 44% of the companies have their plants in the Mumbai area
MSME Mumbai Strategy

Branch Hierarchy
Branch Rank
Worli MSME Head office
Thane MSME regional Head office
Goregaon MSME branch
Boisar MSME branch
Kalyan MSME branch
Vasai MSME branch
HO - Worli
RO Thane
Boisar Vasai
Kalyan Goregaon
Branch Roles
Branch Role Target Market

HO - Worli  Supervisory and executive authority
 Sanction of applications falling beyond
the power of MSME branches and
regional head office
 Evaluate performance reports of MSME
branches submitted by regional head
office and take appropriate action
 Fixation of target for MSME branches for
growth in advances to MSME as also
cross selling and monitoring their
performance
 Develop new products or modify current
products based on recommendations of
regional Head office
RO - Thane  Supervisory and executive authority for
designated region
 Sanction applications falling beyond the
power of MSME branches
 Recommend developments,
modifications in current products based
on regional customer base
 Monitor performance of MSME branches
 Collect and manage customer
information provided by MSME branches
Goregaon  Pursuing customer to avail products  Mumbai (Chemical,
from company as also cross sell other Pharmaceutical, Textile)

Boisar products  Boisar (Chemical,
Pharmaceutical)
 Maintenance of records  Tarapur (Chemical,
 Exploring new customers and Pharmaceutical, Textile)
Kalyan strengthening relations with existing  Kalyan (Chemical)
customers  Ambernath (Chemical,
 Establish contact with companys Pharmaceutical, Textile)
existing customers through branch  Badlapur (Chemical,
network to get reference/ lead to their Pharmaceutical)
vendors/ customers/ associates  Dombivli (Chemical,
Pharmaceutical, Textile)
 Bhiwandi (Pharmaceutical,
Textile)
Vasai  Mumbai (Chemical,
Pharmaceutical, Textile)
Psychology of an SME Customer
A study conducted by McKinsey revealed following psychological attributes of an SME

customer
 He has low price sensitivity. Low service fees/interest is the least important criterion for
him to select a bank for his requirements. Proximity of branch to his office/residence is
the most important deciding factor in choosing a bank. Superior service, comfort/
relationship with bank staff and bank’s reputation are the other criteria which play
significant role in choosing the bank
 SME customer believes in long-term relationship and generally remains loyal to the
bank. More than 60% customers continue with the same bank for more than five years
 SME customer provides significant cross sale opportunities to the banks. He likes to
maintain CA/OD/CC accounts, purchase bank drafts, utilize other remittance facilities,
use cash management services, place fixed deposit, avail forex services, open LC/BG,
avail term loan, avail factoring services, etc. from the same branch, provided the
services are satisfactory. From MMFSL, point Insurance can be major source of revenue.
 Lack of alternative channels of delivery was found to be the major reason of switching
over to other bank. Poor treatment by the staff, bad/ poor services and cumbersome
loan renewal processes were other reasons, which resulted in switching over to other
banks
Organizational Structure Recommendations
 A two tier (horizontal) structure with functional segregation consisting of grass root level
branches at kalyan, boisar, vasai, goregaon, RO at thane and HO at Worli to process the
application and convey sanction within stipulated time period will lead to quick,
objective, knowledge based, unbiased and transparent decision making
 For proposals that involve larger credit limits, an approach of Credit Sanction Committee
must be adopted, which may be constituted at the Regional Head office, Thane. A pool
of technical, financial and industry experts may be created at Thane which may act as
processing centers
 Adequate sanctioning powers should be delegated based on the expertise of the officials
in the relevant field and not on hierarchy in the organization.
 As 94.49% of MSME Enterprises are proprietorship type, which means less
professionalism and less transparency in financials, it is essential to closely focus on
non-financial parameters during appraisal (i.e. ability of person behind the show) Setting

up Focused MSME credit departments at Boisar, Kalyan, Vasai, Goregaon branches
would help in optimal utilization of expert staff
 Loan processing still continues to be an intensive paper work. Developing standardized
application forms and online-software for appraisal, analysis, processing and
communication of sanction of loan proposals is recommended.
An organizational structure like this would substantially reduce the response time and
ultimately eliminate one of the major hurdles in increasing MSME financing. It would also
lead to lower incidence of sickness or loan impairment
Product Development Recommendations
 At present, there is a vast gap between requirements of the MSME customer and
availability of suitable/matching products and services in the banking sector. The
conventional plain vanilla offerings such as term loan/cash credit with low customization
may be replaced with a whole range of customized credit limits, insurance, cash
management services, consultancy, etc
 To create a one stop financial super market, Involvement of industry associations,
industry experts, targeted customers and application of cluster-based approach may
help Mahindra Finance in innovating products suiting the various requirements of the
MSME customer
 The issue of high cost of acquiring, serving and monitoring MSME customers can be
resolved by offering products which reduce frequent visit of MSME customers to the
branch, provide flexibility to the borrowers and fulfill other financial needs of the
customer
 New credit products may be developed to take care of the diverse, unexpected and
short-term requirements of the MSME customers in a hassle free manner and in a short
time. Providing a range of products such as, dealer finance (bill discounting or overdraft
facilities), vendor finance, equipment finance, receivable finance, non project specific
short term loans, leasing and hire-purchase services, deferred payment guarantee in
addition to conventional cash credit and term loan facilities would prove as a strong
strategy
 To expand the MSME segment, cross selling is an innovative way. Cross selling provides
an opportunity to reduce customer acquisition, marketing and servicing costs and
substantially increases spread of the brand and enhances customer loyalty
 In addition to normal credit limits, Mahindra Finance may provide small amounts as non-
project specific loan. These loans may be provided without insisting on proof of end use
as the intention is to take care of petty and emergency needs of the borrower. Some
banks have already launched similar products with credit limits fixed higher by 10 to
20% of the original credit limit. It obviates need of frequent overdrawal in the account
and reduces operating cost
Other Services Recommendations
More than availability of credit, convenience in access to credit and ease in dealing with the
banks and other agencies is of prime concern for the MSME borrower. Mahindra Finance
may consider extending the following services to reduce his concern
 Most of the MSME borrowers lack knowledge of legal procedures, (search reports,
purchase of stamp papers of requisite value, getting necessary approvals), procedure to
avail subsidy, etc. for which they depend on chartered accountants or consultants and
pay hefty charges. As a financial institution Mahindra Finance has knowledge of these
processes, and may provide all the services at the customers doorstep for a nominal fee.
This would save the prospective MSME borrower from the hassles of completion of

formalities. Mahindra Finance may consider appointing Support Service Agents to carry
out these tasks and for liaison with government departments
 The National Small Industries Corporation (NSIC) has a credit rating scheme for
encouraging SSI units to get themselves Credit rated by reputed rating agencies. Rating
services for MSME borrowers have paved the way for improvement in quality of credit
appraisal and Mahindra Finance may take advantage of these models, adopt risk based
pricing and reduce transaction costs. It may assist the MSME customer in approaching to
rating agencies, educate them in completion of formalities and provide tips to obtain
higher rating
 Mahindra Finance may develop flexible systems and procedures for dealing with MSME
customers and modify their role to be a facilitator. It may provide software to these
customers to prepare stock and financial statements or help and guide them in
preparation of renewal proposal / statements.
Hand-holding/ Nurturing Recommendations
A potential and new entrepreneur has technical knowledge but lacks financial, legal and
managerial Skills, he needs nurturing and hand holding through means other than credit. He
needs proper guidance and support not only from the government but also from financial
institutions. Over the period, the Government has introduced a large number of schemes to
help and assist small entrepreneurs in setting up new ventures but due to lack of
awareness, the new entrepreneurs either remain ignorant or feel confused. Mahindra
Finance can play a proactive supportive role and do the hand holding through various
innovative methods for the new entrepreneurs to establish. Some of these hand holding/
support practices, which would prove mutually beneficial to Mahindra Finance and
entrepreneurs in long run and develop an environment of mutual trust and relationship are
 Conduct workshops for entrepreneurs to upgrade their financial, technical and
managerial skills as also to inform them of various schemes of the Government, SIDBI,
RBI and also provide knowledge on legal and tax related matters
 Provide help and guidance to new entrepreneurs to obtain subsidy or seed money from
the government departments
 Help MSMEs in completion of formalities to obtain license, permit, pollution control
clearance, electricity connection, etc
 The Boston Consulting Group has suggested that financial institutions should provide
professional services like legal, accounting, tax, etc. Mahindra Finance may maintain a
panel of consultants, industrial counselors and advocates who may extend assistance to
MSME entrepreneurs at reasonable charges. It may consider providing advisory services
to MSME customers on fee basis. They may help entrepreneurs in preparation of project
reports, financial statements, accounting, loan proposals, obtaining search report,
creation of mortgage, etc. If required, Mahindra Finance may appoint Service Support
Agents to assist entrepreneurs in services mentioned above
 Mahindra Finance may publish periodicals/ magazines to disseminate information
pertaining to its various schemes and of various ministries, RBI, SIDBI, etc. and other
tax related policy matters. It may also provide the same information through its website
and e-mails
 Mahindra Finance may create data bank and information bank on industrial activities,
markets and movement of prices. Free access may be provided to MSME entrepreneurs
to utilize this information

Concluding Remark
There is a felt need that financial institutions should change their perception towards MSME
lending. They have to understand that MSME lending is not riskier than any other lending
activity. In the long run it is a profit-making proposition. The socio-economic benefits of
MSME lending outweigh the high cost of serving this sector. Employment generation is not
only an economic proposition but also a social commitment. Institutions like Mahindra
Finance, who are known for their social commitment, can definitely become harbingers of
change for sustainable employment generation and placing India in the category of
developed nations. Lending to this sector provides vast cross sale opportunities. Through
cluster based credit approach, use of technology in servicing the MSME customers and use
of multi channel medium of credit/ products delivery, the cost of lending to SME sector can
be brought down substantially. MSME customers are not price sensitive and believe in long-
term relationship. Mahindra Finance can capitalize on this unique characteristic of the MSME
customer. It is expected that by adopting innovative model of MSME financing the
perception of financial institutions towards MSME sector would change and they would not
feel shy of lending to this sector.
Financing MSMEs provides a great opportunity for growth with a largely untapped market,
by entering the MSME finance business Mahindra Finance will be able to diversify its risks
as a whole and also use its strong network of branches and skilled workforce to optimum
levels and establish itself as a Major Financial institution in India

Chemical MSMEs in Mumbai
Rs.40 Mn to Rs.100 Mn
Sr No Company Name Turnover (Rs Mn)
1 Chem-Verse Consultants (India) Private Limited 40
2 Newreka Green Synth Technologies Private Limited 40
3 Orgamine Chemicals (India) Private Limited 40
4 Organo Fine Chemicals 40
5 Zirconium Chemicals Private Limited 42
6 Prakash Avikem (India) Private Limited 46
7 Alok Enterprise 50
8 Gangwal Chemicals Private Limited 50
9 Industrial Minerals & Chemical Company Private 50
10 Limited
Mithila Rasayan Private Limited 50
11 Prem Dye Chem Industries Private Limited 50
12 Roma Organics Private Limited 50
13 Sima Products 50
14 A. I. C. Chemicals Private Limited 55
15 Ace Business Forms Private Limited 60
16 Bhavika Chemicals Corporation 60
17 Chemtreat India Limited 60
18 Heni Chemical Industries 60
19 Sonal Plasrub Industries Private Limited 60
20 Span Chemicals 60
21 VCM Polyurethanes Private Limited 64
22 Mehk Chemicals Private Limited 65
23 Orion Chem Private Limited 65
24 Pacific Organics Private Limited 70
25 Spanol Chemicals Private Limited 70
26 Morsun Coating Systems 71
27 AVA Chemicals Private Limited 80
28 Bifriends Engineering Works 80
29 Bombay Ammonia & Chemical Company 80
30 Innovative Organics 80
31 R. L. Chemical Industries Private Limited 85
32 Belchem Industries (India) Private Limited 100
33 Industrial General Products Private Limited 100
34 Retort Chemicals Private Limited
100

35 Turbhe Chemicals Private Limited 100
36 Akrur Chemicals Private Limited NA
37 Biotron Laboratories Private Limited NA
38 Bombay Chlorides Private Limited NA
39 Dadia Chemicals Industries NA
40 Hebbar Chemicals Private Limited NA
41 Kubo Chemicals Private Limited NA
42 Kun-Chem Pretreaments Private Limited NA
43 Malade Chemicals Private Limited NA

44 N S Chemicals NA
45 Nirvip Dyes & Chemicals Private Limited NA
46 Osnar Chemical Private Limited NA
47 Premier Intermediates Private Limited NA
48 Thomas Baker (Chemicals) Private Limited NA
49 Toyo Metallurgicals Limited NA
50 Trichem Laboratories Private Limited NA
51 Unisource India NA
52 Vasudha Chemicals Private Limited NA
Rs 100.01 Mn to Rs 250 Mn
1 Rolex Lanolin Products Limited 110
2 Metcon Coatings & Chemicals (India) Private Limited 120
3 Rajesh Enterprises 120
4 Asian Chemical Works (Bombay) Private Limited 150
5 Daikaffil Chemicals India Limited 150
6 Ducol Organics and Colours Private Limited 150
7 Goodwill Chemical Industries 150
8 Hind Elastomers Private Limited 150
9 Thakkar Chemicals Private Limited 150
10 Shreechakra Organics Private Limited 170
11 Chemicone Chemical Industries Private Limited 180
12 Acharya Chemicals Private Limited 200
13 Runthala Chemicals Private Limited 200
14 Vasu Chemicals 200
15 Neogen Chemicals Limited 223
16 Spectrochem Private Limited 250
17 Anuvi Chemicals Private limited NA

18 Apte Organic Chemicals Private Limited NA
19 Auxichem NA
20 Guybro Chemicals NA
21 Marbal Thermoseth Private Limited NA
22 Matrix Specialists Inx India NA
23 Quality Industries NA
24 Ramdev Chemicals Private Limited NA
25 Spak Orgochem (India) Private Limited NA
26 Tellabs Chemicals Private Limited NA
27 United Pestichem & Nonionics Private Limited NA
1 Chem Organics 250
2 Centaur Chemicals Private Limited 280
3 Mazda Colours Limited 300
4 Star Chemicals (Bombay) Private Limited 300
5 Astec LifeSciences Limited 360
6 Omkar Speciality Chemicals Private Limited 400
7 Paramount Minerals and Chemicals Limited 475
8 Aquatech Industries (India) Private Limited 500
9 Choksey Chemicals Private Limited NA
10 Keva Fragrances Private Limited NA
11 Ronuk Industries Private limited NA
12 Satyajit Chemicals Private Limited NA
13 Satyam Pharma-Chem Private Limited NA
14 Sauradip Chemical Industries Private Limited NA
15 Vidhi Dyestuffs Manufacturing Limited NA
Rs 500.01 Mn to Rs 1,000 Mn
1 Chemspec Chemicals Private Limited 600
2 F S Chemicals Private Limited 700
3 Aries Agro Limited 741
4 Anuh Pharma Limited 820
5 Artek Surfin Chemicals Limited NA
6 D S V Chemicals Private Limited NA

Pharmaceutical MSMEs in Mumbai
Rs 40 Mn to Rs 100 Mn
Sr No Company Name Turnover (Rs
1 Anicare Pharmaceutical Private Limited Mn)
40
2 Glumex Pharmaceuticals Manufacturing Private 40
3 Limited
Padarsh Pharmaceuticals Private Limited 40
4 Raxson Exports 40
5 Suren Chemicals 40
6 Bushal Health-Care Private Limited 43
7 Shreenath Chemicals 49
8 Amit Cellulose Products 50
9 C S C Pharmaceuticals 50
10 Ashish Life Science Private Limited 60
11 Gepach International 60
12 Holistic Remedies Private Limited 60
13 Ally Pharma Options Private Limited 66
14 Bee Pharmo Labs Private Limited 100
15 RHR Medicare Private Limited 100
16 Amsar Private Limited NA
17 Arco Pharma Private Limited NA
18 Bhavna Laboratories Private Limited NA
19 Entod Pharmaceuticals Limited NA
20 Hanaka Organics Private Limited NA
21 Health Secure (India) Private Limited NA
22 Healthcare Pharmaceuticals Private Limited NA
23 Hemkish Chemicals Private Limited NA
24 Kremoint Pharma Private Limited NA
25 Merlin Pharma (Private) Limited NA
26 Millennium Herbal Care Limited NA
27 Nikava Pharmaceutical Industries NA
28 Nutraplus Products India Limited NA
29 Parag Pharmaceuticals (India) Private Limited NA
30 Pharmax India Private Limited NA
31 Polydrug Laboratories Private Limited NA
32 Samanta Organics Private Limited NA
33 Savill Pharma Labs Private Limited NA
34 Shree Ganesh Pharmaceuticals NA

35 Srikem Laboratories Private Limited NA
36 Usan Laboratories Private Limited NA
37 Vibha Natural Products Limited NA
1 Ayushakti Ayurved Private Limited 111
2 Adonis Laboratories Private Limited 126
3 Ruby Organics Private Limited 140
4 Alcons Biosciences Private Limited 160
5 N G L Fine-Chem Limited 195
6 Enpee Healthcare Limited 200
7 Lasons India Private Limited 200
8 Prachi Pharmaceuticals Private Limited 200
9 Precise Chemi Pharma Private Limited 200
10 Vardhman Exports 200
11 Emil Pharmaceutical Industries Private Limited 220
12 Centaur Pharmaceuticals Private Limited 240
13 BDH Industries Limited 250
14 Chandra Bhagat Pharma Private Limited 250
15 Herbert Brown Pharmaceuticals & Research 250
16 Laboratories
Alarsin Pharmaceuticals NA
17 Benzochem Lifesciences Private Limited NA
18 Bravo Healthcare Private Limited NA
19 D K Pharma Chem Private Limited NA
20 Deepcare Healthcare Private Limited NA
21 Erica Pharma Private Limited NA
22 Galentic Pharma (India) Private Limited NA
23 Hemmo Pharma Private Limited NA
24 Lekar Healthcare Limited NA
25 Macleods Pharmaceuticals Limited NA
26 Medibios Laboratories Private Limited NA
27 Meghdoot Pharma NA
28 Mody Chemical Industries NA
29 S. Zhaveri Pharmakem Private Limited NA
30 Samrudh Pharmaceuticals Private Limited NA
31 Shree Dhootapapeshwar Limited NA
32 Simrone Pharma Industries Limited NA

33 Ultratech India Limited NA
34 Uttam Biotech Private Limited NA
1 Kilitch Drugs (India) Limited 320
2 Sandu Brothers Private Limited 400
3 Auro Laboratories Limited 450
4 Gelnova Laboratories (India) Private Limited 480
5 Bajaj Healthcare Limited 500
6 Accutest Research Laboratories India Private NA
7 Limited
Aurochem Pharmaceuticals (India) Private Limited NA
8 Bimal Pharma Private Limited NA
9 Cheryl Laboratories Private Limited NA
10 Ciron Drugs & Pharmaceuticals Private Limited NA
11 Gene Biotech Private Limited NA
12 Glow Export Trading Private Limited NA
13 Heiko Labs NA
14 Milan Laboratories (India) Private Limited NA
15 Oboi Laboratories Private Limited NA
16 Shreechem Pharmaceuticals Private Limited NA
17 Twilight Mercantiles Private Limited NA
18 Vifor Pharma Private Limited NA
Rs 500.01 Mn to Rs 1,000 Mn
1 Advanced Enzyme Technologies Limited 550
2 Gufic Biosciences Limited 571
3 Rusan Pharma Limited 600
4 Softesule Private Limited 700
5 M. J. Bio Pharm Private Limited 771
6 Mehta Pharmaceutical Industries 800
7 Bliss GVS Pharma Limited NA
8 Famy Care Limited NA
9 Neon Laboratories Limited NA
10 Sharon Bio-Medicine Limited NA
11 Themis Laboratories Private Limited NA

Textile MSMEs in Mumbai
Rs .40 Mn to Rs.100 Mn
1 Sam Inc 40
2 Vidhi Garments 40
3 S. Q. Collections 45
4 Ace Creations 50
5 Basic Exports Company 50
6 Eco Friends Syndicate 50
7 Omarsons Apparels Private Limited 50
8 Tavoy Workwear Private Limited 51
9 Kachins Clothing Limited 53
10 Elements Exports 60
11 Shubh Tex Products Private Limited 75
12 Kitma Apparels Private Limited 80
13 Valia Textiles 80
14 Narain Synthetics Private Limited 86
15 Ashok Textile Industries 90
16 Walkman Synthetics Private Limited 90
17 Ceenik Exports (India) Limited 100
18 Napoleon Mills 100
19 Synthetic Sizers 100
20 Vishnulene PolyFab Limited 100
21 Aamir Beading & Embroideries Private NA
22 Limited
Chanda International NA
23 Chanda Silk Industries Private Limited NA
24 Choudhary Poly Silk Private Limited NA
25 Dartal Clothing Company Private Limited NA
26 Duratex Exports NA
27 Duratex Silk Mills Limited NA
28 Innova Speciality Fabrics Private Limited NA
29 Kalpataru Synthetics Private Limited NA
30 Khazir Mohammed Bros NA
31 Little Lacy India Private Limited NA
32 M Shersinghdas NA
33 Maan Continental NA
34 Madanlal Mehra NA

35 Malmo Exports NA
36 Manpad Exports NA
37 Mykraft Apparel Company NA
38 Optimum Silk Mills Private Limited NA
39 Sakti Silk Mills NA
40 Sanby Sale Private Limited NA
41 Sharda Textile Mills (Bom) Private Limited NA
42 Shraddha Synthetics Private Limited NA
43 Silk Appeal NA
44 Suruchi Fashion Private Limited NA
45 Suzarila NA
46 Unifly Rubber Yarn Limited NA
Rs.100.01 Mn to Rs.250 Mn
1 Syndicate Overseas Private Limited 101
2 Bhairav Corporation 120
3 Eden Furnishings Private Limited 128
4 Alrkayan Apparel & Exports Private Limited 150
5 Velcord Textiles Private Limited 150
6 Amber Textile 170
7 R. K. Overseas 180
8 Kanodia Fabrics (International) 200
9 Beekalene Fabrics Private Limited 250
10 Aanchal Overseas NA
11 Arke Synthetics Private Limited NA
12 Asian Adores NA
13 Black Panther Sportswear NA
14 Chendur Dress Manufacturers Private Limited NA
15 Cotton Classics NA
16 East and West Handicraft Enterprises NA
17 Golden Seam Textiles Private Limited NA
18 Karnani Exports Private Limited NA
19 Khushboo International NA
20 Savla Polycott Private Limited NA
21 Shivam Narrow Fabrics NA
22 Unique Tags Private Limited NA

Rs.250.01 Mn to Rs.500 Mn
1 Crystaline Exports Limited 260
2 Orbit Exports Limited 280
3 Beepee Enterprises 300
4 Eric Apparel Private Limited 330
5 Satkaran Textiles Private Limited 350
6 B. D. Textile Mills Limited 360
7 Grentex & Company Private Limited 396
8 ANS 400
9 Opera Clothing 400
10 V S H Silk Mills Limited 400
11 Karina Synthetics Private Limited 450
12 Pioneer Dyeing Private Limited 500
13 Aryan Mills NA
14 Chirag Corporation NA
15 H M A Interlinings Private Limited NA
16 IDT Clothing Private Limited NA
17 Just Textiles Limited NA
18 Kagzi Brothers Private Limited NA
19 Lanvin Synthetics Private Limited NA
20 Navjeevan Synthetics Private Limited NA
21 Navratna Processors Mills Private Limited NA
22 Nirvan Silk Mills Private Limited NA
23 Permeshwar Images NA
Rs.500.01 Mn to Rs.1000 Mn
1 Divya Global Private Limited 520
2 Ankita Knitwear Limited 600
3 Mantra Exports Private Limited 700
4 Shrijee India Exports Private Limited 740
5 D S Corporation NA
6 Hartex Exports Private Limited NA
7 Nahata Synthetics Private Limited NA
8 Rapier Machinery Company India Private NA
9 Limited
Worldtex Manufacturing Private Limited NA


Shekhar Ibhrampurkar Summer Internship Project Report

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Shekhar Ibhrampurkar Summer Internship Project Report

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MSME:

Shekhar.S.Ibhrampurkar: MSME Lending 1

Shekhar.S.Ibhrampurkar: MSME Lending 2

Serial No Topic Page No

Shekhar.S.Ibhrampurkar: MSME Lending 3

Shekhar.S.Ibhrampurkar: MSME Lending 4

Shekhar.S.Ibhrampurkar: MSME Lending 5

• Micro Enterprises - investment up to Rs.25 lakh.

• Small Enterprises - investment above Rs.25 lakh & up to Rs.5 crore.

• Medium Enterprises - investment above Rs.5 crore & up to Rs.10 crore.

• Micro Enterprises - investment up to Rs.10 lakh.

• Small Enterprises - investment above Rs.10 lakh & up to Rs.2 crore.

• Medium Enterprises - investment above Rs.2 crore & up to Rs.5 crore.

Organizations Associated with Small-Scale industry (SSI)/ MSME:

Shekhar.S.Ibhrampurkar: MSME Lending 6

Fund based bank facilities

2. Cash credit facility

Non-fund based bank facilities

Shekhar.S.Ibhrampurkar: MSME Lending 7

1. Allahabad Bank (www.allahabadbank.com

Shekhar.S.Ibhrampurkar: MSME Lending 8

Shekhar.S.Ibhrampurkar: MSME Lending 9

* Projected data for the year 2007-08 and 2008-09.

Shekhar.S.Ibhrampurkar: MSME Lending 10

Distribution by Ownership/ Mode of Finance

Enterprises by type Distribution Percentage distribution

Shekhar.S.Ibhrampurkar: MSME Lending 11

Enterprises by Distribution Percentage distribution

Yea Growth Rate of M SE Sector Overall

Shekhar.S.Ibhrampurkar: MSME Lending 12

Share of NPA (Non performing assets)

Gross NPAs of Scheduled Commercial

Shekhar.S.Ibhrampurkar: MSME Lending 13

Outstanding Bank Credit to Micro and Small Enterprises

Shekhar.S.Ibhrampurkar: MSME Lending 14

1. Micro, Small and Medium Enterprises Development Act, 2006

2. Credit Linked Capital Subsidy Scheme

Shekhar.S.Ibhrampurkar: MSME Lending 15

3. Outreach Programme for Skill Development in Less Developed Areas, September

Evolution of Government Policies

Shekhar.S.Ibhrampurkar: MSME Lending 16

An important component of the NMCP is “Building Awareness on Intellectual Property

Shekhar.S.Ibhrampurkar: MSME Lending 17

Shekhar.S.Ibhrampurkar: MSME Lending 18

Factors aiding MSME growth

• Less Capital Intensive

Key Constraints faced by the Indian MSMEs

Shekhar.S.Ibhrampurkar: MSME Lending 19

Shekhar.S.Ibhrampurkar: MSME Lending 20

Shekhar.S.Ibhrampurkar: MSME Lending 21

Current size: $34 bn

Shekhar.S.Ibhrampurkar: MSME Lending 22

Auto Component Clusters in India

Shekhar.S.Ibhrampurkar: MSME Lending 23

Current size: $115 bn (FY 2006)

• Abundant availability of raw material • Low availability of adequate

• Seasonality of raw material

Shekhar.S.Ibhrampurkar: MSME Lending 24

• Opening of global markets

Market Share of Unorganized Sector in Indian Food Processing Industry

Shekhar.S.Ibhrampurkar: MSME Lending 25

Current size: $18 bn (2008-09)