ROLE OF SIDBI

Executive Summary


S ME s a r e ma j o r c o n t r i b u t o r s t o GDP , a n d a n e v e n l a r g e r c o n t r i b u t
o r t o e x p o r t s a n d employment. Given this background, banks will find SME
financing an attractive business oppor t uni t y r at her t han a compul s i on,
of l endi ng t o t he pr i or i t y s ect or . SI DBI and banks jointly have to play a pivotal
and proactive role in financing the SMEs.The present slow down in lending to the SME
sector is principally due to the risk aversion ar i s i ng out of a hi gh pr opor t i on of
t he l endi ng becomi ng non per f or mi ng. Thi s cal l s f or reassessment of the
strategy of lending to this sector and this reassessment has led us to t hr ee
pr i nci pl e el ement s of our s t r at egy. ( 1) One i s di r ect ed at t hos e uni t s
whi ch have linkages with large corporate undertakings as vendors or suppliers. To these units,
provision and flow of credit could be tied up with the large undertakings which would facilitate
recovery but more important than finance our proposal is that the linkage will have to be strong
enough to ensure a win win approach for both. This could be achieved by technology transfer
of the large undertakings to the small units accompanied by a greater oversight and
the quality of t he pr oduct s del i ver ed; ( 2) t he s ec ond l eg of our s t r at egy i s
ai med at devel opi ng a s et of standard products for units belonging to the same cluster of
industries; (3) the third leg of our strategy is to develop local financial intermediaries specifically
aimed at financing units in the tiny and small sectors and more particularly to the
former. These would be in the nature of the NBFCs but without any permission to accept
deposits from the public. They would draw their resources from the banking system, by
originating the loans and selling the same to the banks as a portfolio with appropriate
arrangements for risk sharing. Thi s r epor t , t her ef or e, emphas i z es t he need f or
new vehi cl es and i ns t r ument s vi z .
bankpr omot ed ( nondepos i t t aki ng) NBFCs , mi cr o cr edi t i nt er medi ar i es ded
i cat ed t o SMEfinancing, etc. Such micro credit intermediaries (funded by
individual or a group of banks)would be able to credit -rate and risk assess and serve
as instruments for extending quick credit to SME clusters, accredited to them. This report
will also reinforces the importance of SIDBIs.





The SIDBI banks being an important nerve of modern organized society can play
an important role in the SSIs transformation. They provide the infrastructure on
which agriculture; industries and trade of nation depend. They can allocate
available resources by mobilizing deposits and advancing credit into the best
possible uses according to national priorities. By opening branches in unbanked
and under-banked areas, the banks can spread magnetization, thereby
introducing a larger market economy in place of natural economy. By providing
loans to agriculture and small-scale sector they can solve the acute problems of
unemployment and under employment. Hence banks can rightly be called the
nations agents of economic development. But in developing countries like India
the role of SIDBI is not confined to accepting deposits and advancing loans.
They also accept, the accelerating flow of credit in accordance with the needs of
SSI development. They have shifted from restricted old conservative policies to
modern banking with lots of new techniques, which brings dynamism and
innovation in their functioning. The Government of India and the State
government have been pursuing a policy of protecting and promoting small-
scale industries for a long time. Small scale industries have been accorded pride
of place in the planned industrialisation process of the Indian economy, which
is characterized by among other factors low productivity in the SSIs abundant
labour and scarcity of capital. The Government of India felt that in spite of
various incentives provided for backward areas by both the central and state
governments industrial growth in backward areas has not been satisfactory
mainly because of inadequacy of infrastructure. It therefore felt the need to
have an institutional framework for expeditious improvement of existing
infrastructural facilities and creation of new infrastructural facilities where there
are not any.






OBJECTIVES
The major objective behind doing this project is to get a clear view about how SIDBI, an
apex institution in Small Industries Financing Programmes came into existence, is
organized and managed, its objectives, lending terms and conditions, lending purposes,
challenges faced and tackled.

SCOPE
The scope of this study is to get the knowledge about how credit granted by SIDBI helps
in Small Industrial development.


METHODOLOGY OF THE STUDY

The data for this project is obtained in two ways- primary source and secondary source.


PRIMARY SOURCE DATA
The primary source data for this project has been collected by visiting the office of SIDBI
located at Bandra Kurla Complex, Mumbai.


SECONDARY SOURCE DATA
Secondary data for this project has been gathered through various books, newspapers and
internet.