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Preface
As a part of my course curriculum of MBA in summer Internship program, we are as
signed some practical studies as well as the theoretical knowledge in the relate
d areas for completing the project. I am preparing comprehensive report on COMPA
RATIVE STUDY OF SME FINANCING SERVICES PROVIDED BY NATIONALISED AND PRIVATE SECT
OR BANK.
The basic idea of assignment of this project is to augment the knowledge of stud
ents about the SME finance and its various sources. It is concerned with finding
the appropriate source of finance that can be used as per the requirement of th
e SME belonging to a particular sector. This will not only help students, but to
a large extent it will help the company it taking the decision to as to which s
ource of finance should be used for a particular SME. This makes the students en
hance their analytical capability.
So far as decision of the industry or this sector is concerned, I have chosen th
e financial consulting firm. This project will also give me firm understanding a
bout the various aspect of SME finance and the various means of raising the fina
nce. I have gained lots of knowledge from this project. And I believe that this
will help me in the near future.
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Acknowledgement
I would like to express our immense gratitude to mentor guide Mr. BHAVESH PATEL
(CMD, Opulence Business Solution Pvt. Ltd), Mr. EDWARD MACWAN (Vice President, O
pulence Business Solution Pvt. Ltd) and Mr. SANKET JOSHI (Associate Vice Preside
nt, Opulence Business Solution Pvt. Ltd) for imparting valuable support, encoura
gement, guidance and immense knowledge throughout the project.
I am also very thankful to all the staff members of Opulence Business Solution P
vt. Ltd Ahmedabad, Mr. Pratik Pandya, Ms. Harni, and Mr. Vikash Mehta who guided
me and provided their support whenever needed.
I am thankful to my faculty members Dr. HIMANI JOSHI for guiding my way througho
ut this project and clarifying all my confusions. Apart from that he helped me i
n finding my path and how to go about the project and provided me right input wh
enever needed.
Last not the least I would like to thank my parents without whose kind, support
and love I could not have undergone the project smoothly. I am thankful to my fr
iends and our seniors without whose cooperation and guidance would not have been
completely successfully.
I think all those who knowingly and unknowingly who have helped me in the fulfil
lment of this project.
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Company Profile
A brief Introduction We and our business partner are pleased to present our cred
entials as a full service Merchant Bank, Investment Bank, Brokerage House & Fina
ncial Services Company with presence in Mumbai as well. Our Partner (RBI registe
red) and its subsidiary (SEBI registered) are together a full service Investment
Bank, Merchant Bank and Institutional Stock Broking company with membership in NS
E & BSE and Depository services, providing a wide range of Financial Services to
over 500 large and mid-cap companies and thousands of retail clients all over I
ndia since 1994. Our Board consists of eminent legal and finance professionals w
ho have gained their experience by working with leading Banks and Financial Advi
sory Institutions of India and abroad expertise in Financial Services, Capital M
arket, and Investment Banking. The range of SERVICES provided by us includes:
Corporate Finance
Merchant Banking
Initial Public Offers and Follow on shares Right Issues Buybacks Open Offers
ferential allotments ESOP certification BSE listing of companies listed on Regio
nal Stock Exchanges Delisting of Securities
Corporate Restructuring
To unlock value in the businesses
To comply with Regulatory requirements
To hive off n
oncore businesses To streamline operations of the Group in similar activities
Family
Settlement / Re-arrangement
Due Diligence
Finance & Accounting
Direct Taxes
Indirect Taxes
Legal Service
Valuation
Business/Division Valuation
Brand Valuation
Valuation of Equity Shares
Employee Share based compensation Valuation
Impairment of Assets (Technical Valuation)
Valuation of Financial Instruments
Purchas
e Price Allocation Fairness Opinion Other Intangibles License / Copyrights / tradema
rks / technology
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Contents
Preface ........................................................................
................................................................................
.. 3 Acknowledgement ...........................................................
............................................................................. 4
Company Profile ................................................................
........................................................................... 5 1.
Introduction ..................................................................
......................................................................... 9 1.1.
1.2. 1.3. 2. Purpose & Scope ..................................................
......................................................................... 9 Meth
odology & Sources ..............................................................
................................................. 9 Limitation..................
................................................................................
.................................. 10
A Brief profile of SMEs in India ...............................................
......................................................... 11 2.1 Importance of S
MEs ............................................................................
............................................. 11 2.2 Definition of SME..........
................................................................................
................................... 12 2.3 What Constitutes the SME Sector .....
................................................................................
................ 12 2.4 SMEs in India ..........................................
................................................................................
......... 14 2.4.1 Micro, Small and Medium Enterprise Sector: Profile ..........
...................................................... 14 2.5 Challenges Faced b
y the SME Sector ...............................................................
................................ 16 2.6 Various ways of Financing SMEs..........
................................................................................
........... 17
3.
SME Services Provided by State Bank of India....................................
.............................................. 23 3.1 Steps for SME loans by Sta
te Bank of India (SBI) .........................................................
.................. 24 3.2 Credit Appraisal By banks ............................
................................................................................
.... 26 3.3 SME Financing Schemes by SBI .......................................
............................................................... 27 3.3.1 Open te
rm Loan ........................................................................
................................................. 27 3.3.2 School Plus..........
................................................................................
....................................... 28 3.3.3 Paryatan Plus .................
................................................................................
............................. 29 3.3.4 Transport Plus ..........................
................................................................................
.................. 31 3.3.5 Doctor Plus.........................................
................................................................................
........ 32 3.3.6 SBI Shoppe ...................................................
............................................................................. 34
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1. Introduction
1.1. Purpose & Scope
The Purpose of carrying out this project is to identify the best source of SME f
inancing schemes provided by Nationalized and Private Banks in different sectors
. Every Financial consultancy firm like us (Opulence) wants that its client gets
the best deal so this survey will be an important tool for financing needs of e
very SME client. More specifically I will concentrate mainly on SME financing sc
hemes provided by State Bank of India (SBI) and ICICI bank. As we know that SME
form the backbone of any economy and SME are vital for growth of developing coun
tries like India so financing of SME is considered to be very important issue fo
r any economy. Because of this reason most of the banks, may it be nationalized
banks likes SBI or Private sector banks like ICICI, all are bringing different s
chemes for SME finance, but out of these various schemes which scheme is more pr
ofitable and suitable for a SME is the main question of concern for every SME.
1.2. Methodology & Sources
Following are the series of steps which will be followed during execution of the
project.
In the early phase of the project I will try to know about the various
schemes of SME financing which are introduced by various banks. After having th
e knowledge about various schemes prevailing in the market by various banks, I w
ill focus more on schemes provided by SBI and ICICI for SMEs.
I will then collec
t details about these schemes provided by each bank one by one by visiting the c
orresponding banks and having interaction with the representative of that bank.
I will collect details like amount of loan available, Interest rate, Disbursemen
t period, Repayment period, Eligibility criteria, Security required etc. Now aft
er collecting information regarding different schemes of SME finance by various
banks, I will focus on sectors one by one. Like I will take one sector for e.g.
medical , then I will compare schemes for SME provided by various banks and conc
lude that if a SME belonging to a medical sector wants finance
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then financing scheme of which bank is better for it. Similarly I will cover dif
ferent sectors like Tourism, Transport, Medical, Agriculture etc. The comparison
will be on the basis of the following factors:
Rate of Interest Disbursement Pe
riod Repayment Period
Eligibility criteria Security/collateral etc.
Basically my
aim will be to compare SME financing schemes provided by SBI and ICICI more spe
cifically, but for some sector it happens that in a particular sector SBI provid
es financing but ICICI has introduced any scheme in such case I will try to comp
are it with some other banks SME service. For collection of data I will go to the
banks and ask them mu queries to their representative out there. I will explore
the website of the banks to collect the data.
1.3. Limitation
Some of the limitations of the project can be:
Generally the data on the website
s of the banks are not fully disclosed i.e. other than the charges mentioned on
the website there are many hidden charges which increases the cost like service
charge etc.
In case of interaction with the representative of a particular bank
it happens many a time that the representative cannot disclose all the data beca
use of certain reasons like banks privacy policy etc. thus getting clear picture
about the service provided is not possible. I will try to overcome the above me
ntioned limitations as far as possible.
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In the given scenario, it can be broadly said that the SME segment would include
the following
Traders (Wholesale & Retail)
Manufacturers
Services
Retail Merchants
Small Owners Examples Mom & Pop Stores Small Producers Cash n Carry Wholesale
Manufacturers Service Providers Traders Examples ExportImporters Wholesalers Exa
mples Light Industries Processing Companies Examples Agencies Consulting Service
s Personal Services Restaurants Travel & Tourism
Examples Convenience Stores
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SMEs by size
Medium 5% Micro 43% Small 52%
Of the 1150 micro, small and medium enterprises evaluated by SMERA 43% are locat
ed in South India and 52% are Micro in size Source: SMERA Newsletter
Performance of Micro and Small Enterprises Year Production Employmen Export (Rs
Crs.) t s (in Lakhs) (Rs. At At Crs.) Current Constant Prices Prices 17.53 101.0
6 118.59 418263 251511 282.57 124417 18.71 104.71 123.42 476201 277668 294.91 N.
A. 497840 587200 No. of Units (in Lakhs) Regd Unreg Total
2004-05 2005-06 2006-07 2007-08
Source: Development Commissioner (SSI)
Annual flow of Credit 2006-07
Indicators MSEs( former SSIs) MSME sector $5.4 Billion $9.5 Billion Public Secto
r Banks Other banks (private $2.4 Billion $3.5 Billion /foreign banks, SIDBI etc
.) $3.0 Billion* Emerging Sources (PV, VC, ECBs, etc.) $7.8 Billion $ 12 Billion
Total *Estimates based on certain broad assumptions, Exchange rate 40 INR = 1$
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This graph shows the various ways of financing for SMEs in various stages of the
ir life cycle. The valley of death spreads its shadows to other stages of the li
fe cycle also. Growing companies, especially ones that invest in capital need no
t only term loans but also more working capital.
Most common sources for Finance for MSMEs
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Thus it is clear that the most common source of finance for SMEs is Bank Financi
ng. There are a no. of banks who help in assisting the SMEs for financing. The m
ain channel used by the SMEs via Banks is Specialized loans by various Banks. Th
e Main reason for chosing bank loans by SMEs compared to other sources of financ
ing like venture capital, PE funding etc is ther is only interest to be paid no
stake is to be diluted thus the whole command oof the SME is with the owner only
. There are a number of Private as well as Public sector banks who assist SME in
Financing
Some Banks Offering Financial Assistance to SMEs
Allahabad Bank Andhra Bank Bank of India Bank of Baroda Bank of Maharashtra Cana
ra Bank Central Bank of India Corporation Bank Dena bank ICICI Bank Indian Bank
Indian Overseas Bank IndusInd Bank Ltd. The Jammu & Kashmir Bank Ltd. Punjab Nat
ional Bank Syndicate Bank State Bank of Travancore State Bank of India Group Sma
ll Industry Development Bank of India (SIDBI) Union Bank of India United Bank of
India UCO Bank Vijaya Bank
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www.allahabadbank.com www.andhrabank-india.com www.bankofindia.com www.bankofbar
oda.com www.maharashtrabank.com www.canbankindia.com www.centralbankofindia.co.i
n www.corpbank.com www.denabank.com www.icicibank.com www.indian-bank.com www.io
b.com www.indusind.com www.jkbank.net www.pnbindia.com www.syndicatebank.com www
.statebankoftravancore.com www.sbi.co.in www.sidbi.com www.unionbankofindia.co.i
n www.unitedbankofindia.com www.ucobank.com www.vijayabank.com
08BS0001577
Investment in SMEs
Sr. No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Year 1990-91 1991-92 1992-93 1993
-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003
-04 2004-05 2005-06 Total SME Units (Lakhs) 67.87 70.63 73.51 76.49 79.60 82.84
86.21 89.71 93.36 97.15 101.1 105.21 109.49 113.95 118.59 123.42 Fixed Investmen
t (Rs. Crores) 93555 100351 109623 115795 123790 125750 130560 133242 135482 139
982 146845 154349 162317 170219 178699 188113
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Credit to MSE sector from Public Sector Banks The table below gives the status o
f credit flow to the micro and small enterprises (MSE) sector from the public se
ctor banks since 2000: Year 2000 2001 2002 2003 2004 2005 2006 2007 Net Bank Cre
dit (NBC) 316427 341291 396954 477899 558849 718722 1017614 1317705 Credit to SM
Es 46045 48400 49743 52988 58278 67634 82492 104703 % of NBC 14.6 14.2 12.5 11.1
10.4 9.4 8.1 8.0
Source: RBI Provisional
Amount Invested in SMEs by ministry of Small scale industry via Credit Linked Ca
pital Subsidy Scheme (CLCSS) Year No. of Units Assisted 9 47 150 526 699 1189 26
20 Amount sanctioned (Rs. Lakhs) 21.36 93.97 368.79 1351.89 1801.17 3795.47 7432
.65
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 Total
Source: Development Commissioner, Ministry of SMEs
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Amount Invested in SMEs by ministry of Small scale industry via ISO 9000 Incenti
ve Scheme
Year No. of Amount sanctioned Units (Rs. Crores) Assisted 3 0.016 1993-94 10 0.0
43 1994-95 48 0.25 1995-96 54 0.39 1996-97 85 0.49 1997-98 174 0.96 1998-99 361
2.25 1999-00 649 4.05 2000-01 992 6 2001-02 1182 6.99 2002-03 917 4.77 2003-04 3
314 17.33 2004-05 4101 19.44 2005-06 1543 7.37 2006-07 Total 13433 70.88 Average
assistance/unit= Rs. 52,765
Source: Development Commissioner, Ministry of SMEs
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The above figure shows the steps for availing finance through State Bank of Indi
a (SBI) using loans. Here is the brief description of the above shown procedure:
First of all the SME who wants to avail loan has to visit the local branch offi
ce of their area, where by the loan application is been filled by the SME. After
that the executives of that branch check whether all the necessary documents ar
e provided by the SME or not, then if all necessary documents are submitted the
next step comes whereby the officials of that local branch go to the premises of
that SME and just have a brief survey of promoter as well as the premises. Afte
r they are satisfied they send the file of necessary documents to the SMECC bran
ch, which is a special branch for SME loans. Where by the credit appraisal takes
place, which consist of credit appraisal of promoter, financial appraisal, dete
rmining cost of project, understanding various means of finance used, profitabil
ity estimate, cash flow projections , marketing appraisal etc. , which is explai
ned in next section. This step brings out the clear picture whether the loan sho
uld be given to the SME or not? If the SMECC branch is satisfied with the detail
s then it forward the request of granting loan to the sanctioning authority. And
finally after the verification by sanctioning authority, the disbursement of lo
an amount takes place in the account of that SME This whole procedure right from
application to disbursement of loan amount takes approximately 20-25 days as th
e procedure involves analysis of documents by various branches and thus the move
ment of documents amongst them, if all this procedure would have taken place at
single place then it would take only 10-12 days for disbursement.
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Eligibility:
Individual, Partnership firm, Ltd. Company, Trust.
Interest Rate: Loan < Rs. 50,000 8.5%
Loan amount between Rs. 50,000 & 2 Lacs.9.5% Loan amount between Rs. 2 Lacs & 5 Lacs.- 10.25%
Loan amount between Rs. 5
Lacs & 25 Lacs.- 11.00% Loan above Rs. 25 Lacs 11.00 to 12.75%
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Equipments, setting up of clinic. X-ray lab, nursing homes, and Pathological cli
nics. Computers/ ambulance. Expansion or renovation of existing premises. Any ot
her activities related to medical profession.
Loan amount:
Maximum- Rs. 5 Crores of which upper limit for working capital is:
(a) 10% of amount upto Rs. 1 Crore. (b) 5% of amount above Rs. 1 Crore and minim
um Rs. 10 Lacs. Amount of loan available:
Upto Rs. 5 Lacs - 90% of loan amount.
Above Rs. 5 Lacs- 85% of loan amount Repay
ment: Maximum -7 years Maximum moratorium period 1 year. Collateral:
Allopathic/
other doctors upto Rs. 15 Lacs/10 Lacs No security Loans over Rs. 15 Lacs/ 10 La
cs. For Allopathic/other doctors 25% of loan amount plus personal guarantee.
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Eligibility:
Assessment based on simplified scoring model. Min. score-60%
Interest Rate: Loan < Rs. 50,000 8.5%
Loan amount between Rs. 50,000 & 2 Lacs.9.0% Loan amount between Rs. 2 Lacs & 5 Lacs.- 9.25%
Loan amount between Rs. 5 L
acs & 25 Lacs.- 10.25%
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75% for new shop & 60% for old shop. Repayment:
Minimum-3 years , Maximum -7 yea
rs Maximum moratorium period 6 months Collateral:
Hypothecation/Pledge / Mortgag
e of property. Eligibility: Individual, Partnership firm, Ltd. Company, Trust/Fr
anchisees.
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Eligibility:
Individual, Partnership firm, Ltd. Company, Trust/Franchisees.
Promoters should
have minimum BDS and should be registered practitioners. Interest Rate:
Loan < R
s. 50,000 8.5% Loan amount between Rs. 50,000 & 2 Lacs.- 9.0%
Loan amount betwee
n Rs. 2 Lacs & 5 Lacs.- 9.25% Loan amount between Rs. 5 Lacs & 25 Lacs.- 10.25%
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Loan 9.5%
Eligibility:
Profit making existing units and new units of good credit rating. Interest Rate:
Loan < Rs. 50,000 8.5%
Loan amount between Rs. 50,000 & 2 Lacs.- 9.5% Loan amou
nt between Rs. 2 Lacs & 5 Lacs.- 10.25%
Loan amount between Rs. 5 Lacs & 25 Lacs
.- 11% Loan amount above 25 Lacs.- 11 to 12.75%
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The above figure shows the steps for availing finance through ICICI banks using
loans. Here is the brief description of the above shown procedure: First of all
the SME who wants to avail loan has to visit the local branch office of their ar
ea, where by the loan application is been filled by the SME. The local area bran
ch sends the file of necessary documents to the SME branch, which is a special b
ranch for SME loans. Where by the credit appraisal takes place by SME cell which
is in SME branch, which consist of credit appraisal of promoter, financial appr
aisal, determining cost of project, understanding various means of finance used,
profitability estimate, cash flow projections , marketing appraisal etc. This s
tep brings out the clear picture whether the loan should be given to the SME or
not? If the SME cell is satisfied with the details then it forward the request o
f granting loan to the sanctioning authority within the SME branch. And finally
after the verification by sanctioning authority, the disbursement of loan amount
takes place in the account of that SME This whole procedure right from applicat
ion to disbursement of loan amount takes approximately 15-20 days as the procedu
re involves analysis of documents by only 2 branches i.e. the local area branch
and the SME branch and thus the disbursement period is less as compared to SBI a
s there is to and fro movement of documents between several branches in SBI..
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4.2 SME Financing schemes by ICICI bank for various sectors 4.2.1. Automotive Se
ctor
Purpose:
To set up an automobile manufacturing unit, expansion, Upgradation of t
echnology. Loan amount:
Minimum- Rs. 10 Lacs.
No upper limit Amount of loan avai
lable:
75-90% Repayment:
On demand but maximum 5 years but in some cases can be extende
d to 7years. Collateral: Immovable property, Assets financed or Tangible securit
y of about 30-40% of loan amount. Eligibility:
Networth should be minimum Rs. 40 Lacs Interest Rate:
Loan : 16%
Service Charges:
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0.50-2.50%
0.50-2.50%
0.50-2.50%
0.50-2.50%
0.50-2.50%
0.50-2.50%
Interest Rate:
Service Charges:
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Loan : 16%
0.50-2.50%
75-90% Repayment:
On demand but maximum 5 years but in some cases can be extende
d to 7years. Collateral: Immovable property, Assets financed or Tangible securit
y of about 30-40% of loan amount. Eligibility:
Networth should be minimum Rs. 40 Lacs
Promoter must be a Qualified Doctor. Inte
rest Rate: Loan : 16%
Service Charges:
0.50-2.50%
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0.50-2.50%
Rs. 5 L
10%
75-90%
Maximum 7 years
On demand
Maximum 5 years but in cases upto 7 years
Allopathic/other doctors upt
o Rs. Immovable property 15 Lacs/10 Lacs No security Assets Financed
Tangible se
curity of 30 Loans over Rs. 15 Lacs/ 10 Lacs. 40% of loan amount
Eligibility
For Allopathic/other doctors 25% of loan amount plus personal guarantee.
n simplified scoring Networth should be minimum Rs. 40 Lacs model.
Qualified Doctor.
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Based o
Education Sector
Bank Interest rate SBI ICICI bank
Loan : 16%
No upper limit
75-90%
85%
Minimum-3 years
Maximum 7 years
On demand
Maximum 5 years but in cases upto 7 years
< Rs. 2 Lacs Personal
Immova
ble property Guarantee of promoters/others. Assets Financed
Tangible security of
30 > 2lacs Personal Guarantee + 40% of loan amount
Eligibility
Equitable mortgage of
Networth should be
y approval from the
ernment. professional
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Transport Sector
Bank Interest rate SBI ICICI bank
Loan : 16%
s. 10 Lacs No upper limit
75-90%
Minimum R
Tangible securi
Immovable property
Assets Financed
Tangible security of 3040% of loan amount
nsport operators owning
Networth should be minimum Rs. 40 Lacs more than 10 vehi
cles including SMEs having the proposed ones. National/state permits.
Chief promoter should be IT assessee and having National/State permits
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Tra
No upper limit
No upper limit
Immovable property
Assets Financed
Tangible security of 3040% of loan amount
ividual, Partnership firm, Ltd.
Networth should be minimum Rs. 40 Lacs. Company,
Trust.
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Ind
Apparel Sector
Bank Interest rate SBI (Open Term Loan )
n amount
Service charge
16%
16%
Other Sectors
Bank Interest rate SBI (Open Term Loan )
n amount
Service charge
16%
Conclusion
From the above comparison between SME plans provided by SBI and ICICI bank it ca
n be judged that for a SME belonging to a particular sector which bank is provid
ing a better SME plan. It can be tabulated as follows: Sector Medical Education
Transport Travel & Tourism Apparel Gems & Jewelry Other Sectors Public Sector Ba
nk (SBI) Private Sector Bank (ICICI Bank)
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References
BUSINESS WORLD, 2009. The SME Whitebook 2009-2010. New Delhi: ABP Pvt. Ltd. http
://www.statebankofindia.com/ http://www.icicibank.com/ http://www. smallindustry
india.com/ http://www.laghu-udyog.com/ http://www. rbi.org.in/ http://www. smeii
ft.com/ http://www.lubindia.org/
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