A Project Report

on

Financing MSMEs: Catalysts for Empowerment and Expansion

At

Submitted to:
N.L. Dalmia Institute of Management Studies and Research

For the Degree of

Post Graduation Diploma in Management
in
Finance
by
Soham Vani
PF2325-D060

Under the Guidance of

Seemab Hussain
(Senior Manager - Central Bank of India)
Dr. Chitra Gounder

(Faculty Mentor- NLDIMSR)

Mentor's Feedback:
 1. About the Company

Introduction
Established in 1911, Central Bank of India was the first Indian commercial bank which was wholly owned
and managed by Indians. The establishment of the Bank was the ultimate realisation of the dream of Sir
Sorabji Pochkhanawala, founder of the Bank. In fact, such was the extent of pride felt by Sir Sorabji
Pochkhanawala that he proclaimed Central Bank of India as the 'property of the nation and the country's
asset'.

He also added that 'Central Bank of India lives on people's faith and regards itself as the people's own
bank'. During the past 109 years of history the Bank has weathered many storms and faced many
challenges. The Bank could successfully transform every threat into business opportunity and excelled over
its peers in the Banking industry. Several innovative and unique banking activities have been launched by
Central Bank of India. Further in line with the guidelines from Reserve Bank of India as also the
Government of India, Central Bank has been playing an increasingly active role in promoting the key thrust
areas of agriculture, small scale industries as also medium and large industries. The Bank also introduced
several Self Employment Schemes to promote employment among the educated youth.

Among the Public Sector Banks, Central Bank of India can be truly described as an All-India Bank, due to
distribution of its large network in all 28 States and also in 7 out of 8 Union Territories in India. Central Bank
of India holds a very prominent place among the Public Sector Banks on account of its network of 4493
Branches, 1 Extension counters, along with 10 Satellite Offices (as on March 2023) at various centres
throughout the length and breadth of the country.

Customers' confidence in Central Bank of India's wide-ranging services can very well be judged from the list
of major corporate clients almost all major corporate houses in the country.

At Central Bank of India, employees are inspired by the bank's vision and mission statement.

VISION: To be central to the banking and financial needs of all.

MISSION: To provide customer Centric products and services by leveraging human resources and
technology.
 2.About the department

Within the Credit department at Central Bank of India's Regional Office in Gandhinagar, I had the
opportunity to work closely with the Credit Processing team. This department focuses on processing and
approving loan applications for the Retail, MSME, and corporate sectors, handling loan ticket sizes
exceeding the delegated lending powers of individual branch.

The department ensures all loan processing activities comply with regulations set by the Central Bank
master credit policy. This protects both the bank and the borrower. The loan applications are meticulously
examined to ensure accuracy of information. This may involve verifying income sources, employment
details, and credit history through various channels. The credit officers working under the department
closely analyze an applicant's financial health using credit scores, debt-to-income ratios, and other metrics.
This helps determine their ability to repay the loan.
The department ensures all necessary documents are collected from applicants. Documents are verified for
authenticity and completeness. Once approved, they are securely filed for future reference. This protects
the bank in case of disputes. The department strives to maintain clear communication with applicants
throughout the loan processing journey.
 3. Industry Overview

The rapid transformation in the banking industry over the last decade has made the industry stronger,
faster, disciplined and a lot more competitive. We have 12 public sector banks, 22 private counterparts, 46
foreign players, 56 regional rural banks, 1,485 urban cooperative banks, and 96,000 rural cooperative
banks.
According to the Reserve Bank of India (RBI), our banking system is in top-notch shape. Lately, modern
banking models such as payment and small finance banks have made their way into the Indian banking
sector making it more versatile.

 The interest income of public banks reached ₹8.41 lakh crore in the year 2023.
 Meanwhile, in the private banking sector, interest income reached ₹5.74 lakh crore during the
same period.
 Private sector banks recorded over 15% credit growth for the third consecutive year.
 Whereas Public sector banks recorded over 13.3% credit growth

 From ₹94.23 lakh crore in 2016, the deposits soared to around ₹176.19 lakh crore in 2023.
 4.MSME sector & classification in MSME

MSME stands for Micro, Small and Medium Enterprises. MSMEs are a category of businesses that are small
or medium in size.
The definition of an MSME is generally based on factors such as the number of employees, annual turnover,
and investment in plant and machinery. MSMEs are the growth engine of new India, they’ve proved
essential in this age of economic development that we’re witnessing around us
MSMEs contribute a staggering 30% to the country’s GDP, and around 45% of the manufacturing output,
and approximately 48% of the country’s exports.

Classification of MSMEs

The new criterion is based on the Investment Amount and Turnover of the enterprise.

 This change increased flexibility and inclusivity, allowing more businesses to qualify as MSMEs.
 The turnover limit for micro-enterprises has expanded nearly fivefold, while for small enterprises, it
has grown tenfold.
 The new classification aims to encourage MSMEs to grow and expand their business without losing
the benefits and incentives provided by the government.
Contribution of MSMEs in Indian Economy

MSMEs have been contributing significantly to the expansion of entrepreneurial base through business
innovations and are widening their domain across sectors of the economy, producing diverse range of
products and services to meet demands of domestic as well as global markets.

 MSMEs are responsible for roughly

one-third of India's manufacturing
output. They cater to a wide range of
sectors, producing essential goods and
contributing to industrial
development.
 With more than 60% of its
membership base belonging to this
sector, CII believes that progress of
MSMEs would translate into inclusive
growth of the economy
 MSMEs have been acting as a player in
generating employment and
contributing to the country’s GDP and
industrial output.
 The Indian government plans to
increase the number of jobs in the
MSME sector by 5 crore by 2025 from the present level of 11.10 crore.
 The share of export of MSME specified products in all India exports are 45.56%

~~By empowering MSMEs, India aims to further strengthen its economic

base, create more jobs, and become a global manufacturing hub.
Priority Sector lending norms

Priority sector lending include only those sectors, as part of the priority sector that impact large sections of
the population, the weaker sections and the sectors which are employment-intensive such as agriculture,
and Micro and Small enterprises.
Banks are advised to achieve a 20 per cent year‐on‐year growth in credit to micro and small enterprises
and a 10 per cent annual growth in the number of micro enterprise accounts.

To ensure that sufficient credit is available to micro enterprises within the MSE sector, banks should ensure
that:

a) 40 per cent of the total advances to MSE sector should go to micro

(manufacturing) enterprises having investment in plant and machinery up to Rs. 5 lakh and micro (service)
enterprises having investment in equipment up to Rs. 2 lakhs.

b) 20 per cent of the total advances to MSE sector should go to micro

(manufacturing) enterprises with investment in plant and machinery above Rs. 5 lakh and up to Rs. 25 lakh,
and micro (service) enterprises with investment in
equipment above Rs. 2 lakh and up to Rs. 10 lakhs. Thus, 60 per cent of MSE
advances should go to the micro enterprises.
Further classification and specification

This image is a table showing various target percentages for different categories under the priority sector
lending norms. The categories and their respective targets are outlined as follows:
Categories and Targets

1. Total Priority Sector

 Target: 75 percent of Adjusted Net Bank Credit (ANBC).
2. Agriculture
 Target: 18 percent of ANBC.
 Note: Within the 18 percent target for agriculture, 8 percent of ANBC is specifically prescribed for
Small and Marginal Farmers.
3. Micro Enterprises
 Target: 7.5 percent of ANBC.
4. Advances to Weaker Sections
 Target: 15 percent of ANBC (Updated).
This table likely pertains to banking regulations, emphasizing the allocation of a certain percentage of a
bank's credit to various priority sectors to ensure adequate financing and support for these critical areas.
Performance of Banks through CAGR and average TPSL

The Figures above depict the performance of banks through average and CAGR, in which the average TPSL
of public sector banks is around Rs 2,626,621.74 crore with a CAGR of around 8.64%, which is reflected in
the growth in lending activities in various priority sectors over the specified period indicating steady but
moderate growth.

Types of borrowing in MSME sector

Borrowing can be a lifeline for MSMEs, providing the capital they need to start, grow, and operate their
businesses. There are a variety of different types of borrowing available to MSMEs.

Working Capital Loans and Types

A working capital loan is a type of short-term loan offered by a bank or alternative lender to finance a
company’s everyday operations. The goal of working capital loans is to provide working capital for short-
term capital expenditures.

 Cash Credit
Cash Credit (CC) is a source of short
term finance for businesses and companies to
meet their working capital requirements. It is
a part of the Line of Credit that is allowed for
individuals and institutions by banks to draw
money from the fund facility whenever
required.
Central Bank Guidelines

 The cash credit availing under Regional Processing Department (RPD) comes when sanction limit
cross beyond 200Lakh of branch sanction and RPD has been given sanctioning limit up to 400Lakhhs
(Individual) & 600Lakhs (Partnership).
 No collateral is needed for sanctioning of loans below 2cr.
 Assessment of working capital is done by Nayak committee method if the sanctioning request is of
below 5cr.
 It becomes important to check whether the collateral is being covered under CGTMSE guarantee or
not.

Overdraft credit:
Overdraft credit allows businesses to withdraw funds exceeding their account balance up to a
predetermined limit, providing flexibility to manage cash flow and meet short-term financial needs.
 Overdraft limit provided to a customer is backed by collateral. The limit of the secured
overdraft facility depends upon the value of the asset pledged.
 Facility is given on 90% of Tangible securities and 100% of Fixed deposits.

Term Loan
A term loan is a type of commercial credit, which comes with predefined repayment terms, including a set
loan tenure and interest rate. Borrowers need to repay the loan amount in fixed equated monthly
instalments or EMIs until the maturity date.
 It is mainly given for the creation of fixed assets and for movable assets Collateral requirement and
value verification of collateral is done thoroughly. The Purpose of term loan is checked by:
 Verifying with the dealer of the assets and match the quotation with.
 To review from market and websites about the value of the assets.
Non- Fund sanctioning of credit

 Bank Guarantee:
A bank guarantee is when a bank offers surety and guarantees for different business obligation on
behalf of their customers within certain regulations. The lending institutions provide a bank
guarantee which acts as a promise to cover the loss of the customer if he/she defaults on a
loan. The guarantees are not issued just in trades; it also given to government authorities for
bidding of land, some projects say hydropower or mines etc.
Facility is given on 100% of fixed deposits and tangible assets.
 5.MSME Subsidy Schemes

1. Prime Minister’s Employment Generation Programme (PMEGP)

The scheme aims to generate employment opportunities in rural as well as urban areas of the
country through setting up of new self-employment ventures/projects/micro enterprises. Only new
projects are considered for sanction under PMEGP.
The Maximum project cost admissible for setting up of new project has been enhanced from Rs. 25
Lakhs to Rs. 50 Lakhs in Manufacturing Sector and from Rs. 10 Lakhs to Rs. 20 Lakhs in Service
Sector.

2. CREDIT GUARANTEE TRUST FUND FOR MSEs (CGTMSE) - Provision of Collateral Free Credit for MSMEs

The Scheme covers collateral free credit facility (term loan and/ or working capital) extended by
eligible lending institutions to new and existing micro and small enterprises up to Rs. 200 lakh per
borrowing unit. The guarantee cover provided under this scheme varies from 75 % to 85 %
depending upon the quantum of loan and type of beneficiary. A nominal amount towards an Annual
Guarantee Fee for the credit facility sanctioned is charged on the outstanding loan amount.

As on 31st December 2022, cumulatively 67.03 lakh proposals have been approved for guarantee
cover of Rs. 3.86 lakh crores.
3. Pradhan Mantri Mudra Yojana
PM Modi launched Pradhan Mantri Mudra Yojana, wherein Micro Units Development and Refinance
Agency Bank or MUDRA Banks provide loans at low rates to micro-finance institutions and non-
banking financial institutions, who in turn provide low-interest loans to startups and MSMEs. Loans
up to Rs 10 lakh can be availed under the MUDRA scheme. There are three categories of
businesses, which can avail loans under MUDRA loan for startups:

4.Credit Linked Capital Subsidy for Technology Upgradation

The reason for the creation of the Credit linked Capital Subsidy for technology upgradation (CLCSS)
Government scheme was created to provide financial help to MSMEs to upgrade their technology
and implement state of an art technological platforms for their business.

Under CLCSS, Govt provides a 15% subsidy for investment up to Rs 1 crore for upgrading technology
for startups and MSMEs in India. More than 7500 products/services are covered under this
Government scheme.
 6. MSMEs schemes under Central Bank of India

1. CENT BUSINESS

Purpose

Any lawful trading/ servicing/manufacturing/ processing activity, Business etc., excluding speculative
activity and Real Estate, are covered.

Eligibility

All types of Traders, Manufacturers/ processors, Proprietors, Self Employed, Professionals, who are
registered under GST. (Unless exempt) are eligible. Borrower should furnish URC. TNW of the firm should
be positive. Udyam Registration Certificate is mandatory.

FACILITY: Term loan / Overdraft / Non-Fund Based facilities

Max Finance: 25 CRORES

Margin: 25%

RATE OF INTEREST: Attractive rate of interest based on RBLR

Loan Term: 84 months

2.CENT GST Loan

Purpose

Any lawful trading/service provider/manufacturer/processing activity, Business/etc, to meet their working

capital needs. Udyam Registration Certificate is mandatory.
Eligibility
All types of borrowers i.e. Individuals, Proprietor, Partners, companies, public private, LLPS etc who are
registered under GST and has URC for WC needs. (Except HUF and Trust).
FACILITY: CC
Min Rs10 lacs and

MAX FINANCE: 5 Crores For service sector including retailer trade and wholesale trade Rs 2cr (If covered
under CGTMSE guarantee)

SECURITY: To be covered under CGTMSE coverage OR covered by 100% Collateral

MODE OF ASSESSMENT: 25% of previous year’s annual turnover as per GST returns or Annualized Turnover
based on Quarterly GST returns.

RATE OF INTEREST: Attractive and Competitive interest.

LOAN TERM: 12 months (on demand/Renewal every year).

3.CENT MORTGAGE (BUSINESS) (LOAN AGAINST PROPERTY FOR BUSINESS PURPOSE)

Purpose

Any lawful trading/service providers/Manufactures/processers etc., excluding speculative activity, is

covered. The unit should qualify as MSME, as defined under MSMED Act 2006 and any amendments
thereto. Udyam Registration Certificate is mandatory.

Eligibility

All types of Traders, Manufacturers/ processors/Servicing units/business units, who are registered under
GST and carrying out any business activity. Proprietorship firms, LLPs, Companies engaged in
trading/Service/ manufacturing activity and partnership firms (excluding a firm where HUF is partner) are
eligible. In case of GST exempted categories, GST registration is not mandatory.

FACILITY: Term Loan / Overdraft

Loan Term: 120 months

Max Finance: 10 CRORES

Margin: NIL- (Mortgage based loan)

Rate of Interest: Attractive rate of interest based RBLR

7.Conclusion

The two-month internship with the Central Bank of India as a Credit Intern has been a highly enriching and
educational experience. Throughout this period, I have delved into the complexities of credit risk appraisal
and the processes involved in loan sanctioning, gaining invaluable insights and practical knowledge that will
significantly benefit my career in finance.
One of the primary focuses of my internship was understanding the credit risk appraisal process based on
the credit scoring model of the Central Bank of India. This involved analysing various credit parameters and
effectively assessing the creditworthiness of clients. Through this, I developed a comprehensive
understanding of the factors influencing credit decisions and the management of risk within the banking
sector.
I also gained an in-depth understanding of different modes of assessment based on clients' proposals
before loan sanctioning. This experience taught me about the meticulous processes and evaluations
necessary to ensure the viability of each loan and its alignment with the bank's risk appetite. This enhanced
my analytical skills and provided a clearer perspective on the importance of thorough due diligence in
banking operations.
Furthermore, I explored various government and Central Bank MSME schemes and understood their crucial
role in facilitating the growth of credit sanctioning to MSMEs over the years. These schemes have been
instrumental in supporting small and medium-sized enterprises, driving economic growth, and fostering
entrepreneurship. Learning about these initiatives broadened my understanding of the banking sector's
role in economic development and the impact of regulatory frameworks on credit expansion.
Throughout my internship journey, I developed a deeper appreciation for the responsibilities and
challenges within the banking sector. The supportive environment at the Central Bank of India, along with
the guidance of my mentors, made this experience highly enjoyable and fulfilling. The internship has
reinforced my commitment to pursuing a career in finance, equipped with the practical knowledge and
skills acquired during this period.
In conclusion, my internship at the Central Bank of India has been an invaluable learning experience. It
provided a solid foundation in credit risk appraisal, loan assessment processes, and the significance of
MSME schemes. This journey has been both challenging and rewarding, and I am grateful for the
opportunity to contribute to and learn from such a prestigious institution. This experience has reinforced
my passion for finance and prepared me for future challenges and opportunities in this field.
 8.References

1. https://www.voiceofca.in/siteadmin/document/
25_12_10_2_ArticleonBankGuarantee.pdf

2. https://rbidocs.rbi.org.in/rdocs/Bulletin/PDFs/02SPBUL120312.pdf

3. https://msme.gov.in/sites/default/files/PCRSchemeGuidelines.pdf

4. https://www.smefinanceforum.org/sites/default/files/publication/MSME%20Digital
%20Trans%20RT%20Report%202021-07-14%20Final.pdf

5. www.onendf.com(photo)

6. www.theeconomicsjournal.com(photo)