EXECUTIVE SUMMARY

Small and Medium Enterprises (SMEs) play a catalytic role in the development of any
country. They are the engines of growth in developing and transition economies. India has a
vibrant Small and Medium enterprises sector that plays an important role in sustaining the
economic growth.
In India, SMEs account for a significant proportion in manufacturing, exports, and
employment and are also major contributors to GDP. Therefore, financing SMEs is of critical
importance to help them set up and expand their operations, develop new products and invest
in new staff or production facilities.
The objective of this project is to study the working of Bank of India for providing loans and
advances to Small and Medium Enterprises.
The study helps to understand the rationale for SME finance in Bank of India i.e. a step by
step loan processing procedure conducted by the bank for the SME sector which includes the
chain of events involved, right from receiving the application from the borrower, doing the
credit rating of the SME, analyzing the financial statements, preparation of proposals,
sanctioning to disbursement of advances and the post sanction reviews.
After undertaking an in depth study of the above mentioned factors, it was found that several
industries are growing under banking finance and SMEs are one of the fast growing
industries from all the sectors.
The Banking sector has placed before the SMEs a fully dressed up cake on a silver platter.
The SME sector should avail these opportunities provided by the banks and scale new
heights. This will not only boost the economy but also help the society at large.

CHAPTER 2-INTRODUCTION
In India the SME sector plays a pivotal role in the economic development. It is estimated that
in terms of value, the sector accounts for 45% of manufacturing output, 95% of the number of
industrial unit, 40% of the export and provides employment to almost 60 million people
making it largest source of employment after the agriculture sector.
Further in recent years the SME sector has consistently registered higher growth rate
compared to the overall industrial sector. The major advantage of the sector is its employment
potential at a low capital cost.
Therefore financing SMEs is of critical importance. This project conducted at the Bank of
India (Nariman Point Branch) highlights the rationale of SME finance. The main body of the
report can be divided into three important parts.
The second part helps us to understand the different ways through which the SME sectors
have raised finance (in terms of loans) from the banks viz. Fund based and non fund-based
facilities.
Banks have to ascertain various parameters before granting credit facilities to its borrowers.
The third part deals with the entire loan processing procedure followed by Bank of India. It
begins with the pre-sanction formalities like the application process, documentation, and
inspection. This is followed by proposal preparation and analysis of different financial
indicators required for it. Next is the after proposal process which includes disbursement of
loans advances.
A Case Study in the concluding part helps to understand the parameters considered by the
bank for preparation of a proposal.
Finally the project elucidates the findings and recommendations observed during the entire
procedure of SME financing.

CHAPTER 3- RESEARCH OBJECTIVES AND RESEARCH

METHODOLOGY
3.1 Introduction of the Research: SMEs play a very important role in the socio-economic
development of the country. Therefore, financing SMEs is of critical importance.

3.2 Problem Statement: To study the working of Bank of India for providing loans and
advances to Small and Medium Enterprises.
3.3 Objective of the study
To learn the importance and details of financing the SME sector.
To understand the commercial, financial & technical viability of the proposed project
& its funding pattern.
To study the chain of events of processing a loan proposal from receiving the
application from the borrower, doing the credit rating of the SME, analyzing the
financial statements, sanctioning to disbursement and the post sanction reviews.
To learn preparation and drafting of a proposal
To understand the procedure of Credit Rating.
3.4 Research Design:
This Report is prepared on the basis of Primary as well as Secondary Data Collection.
Primary Data was collected at the branch & the head office and Secondary Data was collected
from different sources.

PRIMARY DATA:

Method Used: Discussion with the project guide and other members of the credit department.

SECONDARY DATA:

Secondary data was collected from different sources as follows:

1.
2.
3.
4.

Manuals & Policies of Bank of India

Websites
Books and Financial Magazines
Newspapers etc.

3.5 Need and Significance of the study

The project deals with first getting the loan proposals from the clients and making the
appraisal note. It gives a practical insight of the procedures followed by the bank in
ascertaining the credit worthiness of the borrower. All the various parameters such as
analyzing the proposal which includes the financial details of the borrower (SME) are
studied. It also includes the study of advances i.e. fund- based (working capital) and non-fund
based (Bank guarantee and letter of credit) facilities. The credit rating system and finally the
post proposal formalities are also studied in depth.
3.6 Limitations of the study
Study is limited only to the SME sector.
Due to time constraints a detail analysis could not be done.
Also the geographical scope of the project was limited to Bank of India (Nariman
Point branch)
As the Credit Department is one of the crucial areas for any bank, some of the
technicalities are not revealed which could have led to destruction of the information
and our exploration of the problem. As some of the information is not revealed,
whatever suggestions generated, are based on certain assumptions
The Credit appraisal decisions are based more on experience and since the time period
was limited. Best efforts were made to grasp the process as much as possible.

CHAPTER 4- OVERVIEW OF THE BANKING SECTOR

4.1 Introduction
The Banking Industry was once a simple and reliable business that took deposits from
investors at a lower interest rate and lent to borrowers at a higher interest rate. However
regulation and technology led to a revolution in the Banking industry that saw it transformed.
Banks have now become global powerhouses that have created ever more complex products.
A Banking Sector performs three essential functions in an economy: the operation of the
payment system, mobilization of savings and the allocation of savings to the investment
projects. By allocating capital to the highest value use while limiting the risks and costs
involved, the banking sector can exert a positive influence on the overall economy and thus is
of broad macroeconomic consequence.
The Banking industry comprises of segments that provide financial assistance and advisory
services to its customers by means of varied functions such as commercial banking,
wholesale banking, personal banking, internet banking, mobile banking, credit unions,
investment banking and the like.

4.2 Indian Banking Industry

The banking industry in India has a huge canvas of history, which covers the traditional
banking practices from the time of the British Raj to the reforms period, nationalization to
privatization of banks and now increasing numbers of foreign banks in India. Therefore,
Banking in India has been through a long journey. Banking industry in India has also
achieved a new height with the changing times; the use of technology has brought a
revolution in the working style of the banks. The Indian banking industry is passing through
a phase of customers market where the customers have more choices in choosing their banks.
With stiff competition and advancement of technology, the services provided by banks have
become more easy and convenient.
Nevertheless, the fundamental aspects of banking i.e. trust and the confidence of the people
on the institution remain the same. The majority of the banks are still successful in keeping
with the confidence of the shareholders as well as other stakeholders.
However, with the changing dynamics of banking business brings new kind of risk exposure.

4.3 History
Banking in India has its origin as early as the Vedic period. It is believed that the transition
from money lending to banking must have occurred even before Manu, the great Hindu
Jurist, who has devoted a section of his work to deposits and advances and laid down rules
relating to rates of interest. During the Mogul period, the indigenous bankers played a very
important role in lending money and financing foreign trade and commerce. During the days
of the East India Company, it was the turn of the agency houses to carry on the banking
business.
The first bank in India, though conservative, was established in 1786. From 1786 till today,
the journey of Indian Banking System can be segregated into three distinct phases. They are
as mentioned below:

Early phase from 1786 to 1969 of Indian Banks

Nationalisation of Indian Banks and up to 1991 prior to Indian banking sector

Reforms.

New phase of Indian Banking System with the advent of Indian Financial & Banking
Sector Reforms after 1991.

The three phases are explained as follows:

Phase-I
The General Bank of India was set up in the year 1786. Next came the Bank of Hindustan
and Bengal Bank. The East India Company established Bank of Bengal (1809), Bank of
Bombay (1840) and Bank of Madras (1843) as independent units and called it the Presidency
Banks. These three banks were amalgamated in 1920 and Imperial Bank of India was
established which started as private shareholders banks, mostly European shareholders.
In 1865 Allahabad Bank was established and first time exclusively by Indians, Punjab
National Bank Ltd. was set up in 1894 with headquarters at Lahore. Between 1906 and 1913,
Bank of India, Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank, and Bank
of Mysore were set up. Reserve Bank of India came in 1935.

During the first phase the growth was very slow and banks also experienced periodic failures
between 1913 and 1948. There were approximately 1100 banks, mostly small. To streamline
the functioning and activities of commercial banks, the Government of India came up with
The Banking Companies Act, 1949 which was later changed to Banking Regulation Act 1949
as per amending Act of 1965 (Act No. 23 of 1965). Reserve Bank of India was vested with
extensive powers for the supervision of banking in India as the Central Banking Authority.
During those days public had lesser confidence in the banks. As an aftermath deposit
mobilisation was slow. A breast of it the savings bank facility provided by the Postal
department was comparatively safer. Moreover, funds were largely given to traders.
Phase-II
Government took major steps in this Indian Banking Sector Reform after independence. In
1955, it nationalised Imperial Bank of India with extensive banking facilities on a large scale
especially in rural and semi-urban areas. It formed State Bank of India to act as the principal
agent of RBI and to handle banking transactions of the Union and State Governments all over
the-country.
Seven banks forming subsidiary of State Bank of India was nationalised in 1960 on 19th July,
1969, major process of nationalisation was carried out. It was the effort of the then Prime
Minister of India, Mrs. Indira Gandhi. 14 major commercial banks in the country were
nationalised.
Second phase of nationalisation Indian Banking Sector Reform was carried out in 1980 with
seven more banks. This step brought 80% of the banking segment in India under Government
ownership.
The following are the steps taken by the Government of India to Regulate Banking
Institutions in the Country:

1949: Enactment of Banking Regulation Act.

1955: Nationalisation of State Bank of India.

1959: Nationalisation of SBI subsidiaries.

1961: Insurance cover extended to deposits.

1969: Nationalisation of 14 major banks.

1971: Creation of credit guarantee corporation.

1975: Creation of regional rural banks.

1980: Nationalisation of seven banks with deposits over 200 crore.

After the nationalisation of banks, the branches of the public sector bank India rose to
approximately 800% in deposits and advances took a huge jump by 11,000%.
Banking in the sunshine of Government ownership gave the public implicit faith and
immense confidence about the sustainability of these institutions.
Phase-III
This phase has introduced many more products and facilities in the banking sector in its
reforms measure. In 1991, under the chairmanship of M Narasimham, a committee was set up
by his name which has worked for the liberalisation of banking practices.
Today the country is flooded with foreign banks and their ATM stations. Efforts are being put
to give a satisfactory service to customers. Phone banking and net banking is introduced. The
entire system has become more convenient and swift. Time is given more importance than
money.
The financial system of India has shown a great deal of resilience. It is sheltered from any
crisis triggered by any external macroeconomics shock as other East Asian Countries
suffered. This is all due to a flexible exchange rate regime, the foreign reserves are high, the
capital account is not yet fully convertible, and banks and their customers have limited
foreign exchange exposure.

4.4 Structure of the Indian Banking Industry

RBI
SCHEDULED BANKS IN INDIA

Scheduled
Commercia

Scheduled
Co-

Financial
Institution

Nationalized
Banks

Urban Cooperative Banks

All India
Financial
Institutions

Private Banks

Rural Cooperative Banks

State Level
Institutions

Foreign Banks

Regional
Rural Banks

4.5 Structure and Market Share of Commercial Banks in India

Specialised
Financial
Institutions

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