SSI & Banking Reforms

8/7/2019 SSI & Banking Reforms

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Policies with regard to Small ScaleIndustries


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DefinitionIn 1977, units having investment of less than Rs 10 lakh weredefined as small scale industrial undertaking. Units with investmentof less than Rs 1 lakh were defined as tiny enterprises.

In 2006, separate investment limits have been prescribed for

manufacturing and service enterprises. The new definition is asfollows:

Manufacturing Enterprises:

A micro enterprise, where the investment in plant and machinerydoes not exceed Rs 25 lakh;A small enterprise, where the investment in plant and machinery ismore than Rs 25 lakh but does not exceed Rs 5 crore;A medium enterprise, where the investment in plant and machineryis more than Rs 5 crore but does not exceed Rs 10 crore.


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Definition

Service Enterprises:

A micro enterprise, where the investment in equipment doesnot exceed Rs 10 lakh;

A small enterprise, where the investment in equipment ismore than Rs 10 lakh but does not exceed Rs 2 crore; and

A medium enterprise, where the investment in equipment ismore than Rs 2 crore but does not exceed Rs 5 crore.


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P roblems of Small scale Industries

The small scale industries face a number of problems.Some of them have been listed below:

Finance and Credit.Infrastructural Constraints.Obsolete Technology.Marketing P roblems.P oor Managerial and Organizational Skills.Raw Material Availability.


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Role of Small Businesses in NationalEconomy

Small scale industries have an important role inIndia s industrial and economic development:

Employment Generation.Balanced Regional Development.Development of Entrepreneurship.Contribution to Exports.Less Industrial Disputes.


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P olicies with regard to Small ScaleIndustries

Reservation for SSIs:

This policy was initiated in 1967 with 47 items which was enlargedto 807 items in 1978 and further to 873 items in 1984.

A s on 10 October 2008, following items are reserved for exclusivemanufacture by micro and small enterprise sector:

Food andA

llied Industries.P aper P roducts.Glass & Ceramics.Chemical P roducts.Wood P roducts.


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P olicies with regard to Small ScaleIndustries

P rice P reference P olicy.

Export P romotion P rogrammes(P articipation in International Fairs/Exhibitions)

Setting up of SIDBI:

For meeting the long standing demand of small scale industries andto provide financial assistance to them, the government set up theSmall Industries Development Bank of India.

P lan Expenditure.


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Nirma (Started as a Small Scale Unit)

In 1969, Karsanbhai set upNirma (named after daughterNirupama) selling detergentpowder.

This was an after-office-business-the one-man companywould bicycle through theneighborhoods sellinghandmade detergent packetsdoor to door.


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Nirma (Started as a Small Scale Unit)Nirma was a home grown product thatrevolutionized the detergent market inIndia and successfully challenged largemultinationals in the process.

A part from strong positioning that thebrand had. Karsanbhai P atel alsobenefited from the government policies of small scale sector growth.

By operating as an SSI for sometime,Nirma enjoyed the benefits of investment,subsidy, tax concessions and norestrictions on capacity.


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Nirma (Started as a Small Scale Unit)

Nirma s basic strategy was quality at reasonable prices.Therefore, it tried to maintain an overall low cost structure-

low overheads, indigenous machinery, cost control throughpersonal supervision at every state.

The management realized that if Nirma was to besuccessful, it would be largely as result of careful monitoringof fixed and variable cost, distribution network and so on.


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Indian Banking System

Central Bank (Reserve Bank of India)Commercial banks (222)Co-operative banks

Commercial Banks can be classified as: Scheduled (Second Schedule of RBI A ct, 1934) (218) Non-Scheduled (4)

Scheduled banks can be classified as: P

ublic Sector Banks (28) P rivate Sector Banks (Old and New) (27) Foreign Banks (29) Regional Rural Banks (133)


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RBI s Major Functions

The Reserve Bank of India was established as ashareholders bank on A pril 1, 1935. RBI wasnationalized on January 1, 1949.Main Functions of RBI.

Issue of currency notes.

Banker to the government.Banker s Bank.A gricultural finance.Extending banking to unbanked areas.


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Role & P erformance of CommercialBanks since Nationalization

In order to mobilize resources of the banking system for largersocial purpose, the Indian scheduled banks having depositsover Rs 50 crore were nationalized on 19 th July 1969.

The nationalization of the 14 major commercial banks was ahistoric event.

In 1980, 6 more banks were nationalized. These 20 banks inaddition to State Bank of India and its associate banks-commonly called State Bank of India Group which were takenover by Government in 1955.


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Role & P erformance of CommercialBanks since Nationalization

Branch Expansion after Nationalization of allCommercial Banks.

Year Total No. of Branches

RuralBranches

Populationper BankOffice

1969

2007

8,260

72,170

1,860

30,590

63,800.

15,000.


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Banking/Financial Sector Reforms

The Government appointed a Committee on the financialsystem under the chairmanship of M.Narasimhan in A ugust1991.

The report of the Narasimhan Committee submitted in 1991provided a basis for the financial sector reforms.


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Narasimhan Committee Report- 1991

Reduction in SLR and CRR.RBI reduced CRR from 15% in 1996 to 4% in 2003.SLR had risen to 38% in 1991. It was reduced to 25% in 1997.

Deregulation of Interest Rates.Narasimhan committee ignored social concerns and advocated thatinterest rates should be allowed to be determined by market forces.

Rehabilitation of P ublic Sector Banks through Recovery of debts.The govt. of India passed the Recovery of Debts due to Banks andFinancial Institutions A ct 1993 in order to facilitate and speed upthe recovery of debts due to banks and financial institutions.


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Narasimhan Committee Report- 1991

P hasing out of Directed Credit.Committee suggested that credit target for the priority sectorbe reduced from 40% to 10%.

Supervision of Commercial Banks.In 1993, a new department known as the Department of Supervision was established by RBI as an independent unit forsupervision of commercial banks.

Freedom of Operation.Scheduled Commercial Banks have now been given thefreedom to open new branches and upgrade extension

counters.


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E-Banking

The evolution of electronic banking (e-Banking)started with the use of automatic teller machines(ATMs) and has included telephone banking, direct

bill payment, online banking.

A ccording to some, the future direction of e-bankingis the acceptance of mobile telephone. However, ithas been forecast by many that online banking willcontinue to be the most popular method for futureelectronic financial transactions.


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E-Banking ( P roducts & Services)

Bill P ayment.

E-Ticketing.

A ccount Statement.

Cheque Book Request.

A ccount Opening Request.

Transaction Enquiry.


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A dvantages of E-banking to Customers

Convenience.

Speed.Ease.

A ccess.

Options.


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Disadvantages of Online Banking

The biggest problem is that most people lack trust.

Online banking can be difficult to learn for a beginnerand a site could take time to start up.

A bsence of P ersonal touch aspect of customerservice.

Lack of instructions on how to use online banking verywell.


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Telephone Banking

Telephone banking is a service provided by afinancial institution which allows its

customers to perform financial transactionsover the telephone.

To guarantee security, the customer must firstauthenticate their identity through a numericor verbal password or through securityquestions asked by a live representative.


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Internet BankingInternet banking enables people to carry outmost of their banking transactions using a safewebsite which is operated by their respectivebanks.The necessary things that a person needs for

using online banking are:

A n active bank account with balance in it for transactions.A debit or a credit card number.Customer user ID.Bank account number.Internet Banking P IN number.A P ersonal computer with access to the Web.


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SMS Banking

SMS banking is a service provided bybanking institutions over the customersmobile phone using SMS messaging.

SMS banking services are operatedusing both P ush and P ull Messages.

The banks customer is empowered withthe capability to select the list of activities(alerts) that he/she needs tobe informed.


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ATM

A n automated teller machine commonlycalled as cash point is a computerizedtelecommunication device that providesthe clients with access to financialtransaction in public space without theneed for a cashier or bank teller.

Using an ATM, customers can access theirbank accounts in order to make cashwithdrawals, check their account balancesetc.


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Documents

SSI & Banking Reforms