International Journal of Mechanical Engineering and Technology (IJMET) Volume 9, Issue 11, November 2018, pp. 723–731, Article ID: IJMET_09_11_073 Available online at http://www.iaeme.com/ijmet/issues.asp?JType=IJMET&VType=9&IType=11 ISSN Print: 0976-6340 and ISSN Online: 0976-6359

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AN EMPIRICAL STUDY ON SELECTED SMALL FINANCE IN MYSURU WITH REFERENCE TO MICRO, SMALL AND MEDIUM ENTERPRISES

Abijith S and Raghavendra N Department of management and commerce, Amrita School of Arts and Sciences, Mysuru Amrita Vishwa Vidyapeetham,

ABSTRACT Bank is type of financial institution which provide services such as accepting deposit and providing credit facilities to their customers. Reserve (RBI) is the governing body that has been taking care of the banking industry in our country. Over the past few years our banking industry has gone through numerous changes on such change has been in initiation Small Finance . are those banks which perform basic services such as accepting deposit and lending loans to its customers. The main objective of Small Finance bank is to provide financial inclusion to disadvantaged section who are not served by other banks. This study tries to measure the challenges faced Small Finance Bank and to analyse the awareness among the Micro, Small and Medium enterprises about Small Finance Banks. KEYWORDS : Financial Inclusion, Small Financial Banks and Micro Small and Medium Enterprises Cite this Article Abijith S and Raghavendra N, an Empirical Study on Selected Small Finance Bank in Mysuru with Reference to Micro, Small and Medium Enterprises, International Journal of Mechanical Engineering and Technology, 9(11), 2018, pp. 723– 731. http://www.iaeme.com/IJMET/issues.asp?JType=IJMET&VType=9&IType=11 1. INTRODUCTION Bank is type of financial institution which basically provide services such as accepting deposit and providing loan facilities to their customers. A bank which has been established under by a special act in the parliament or under the company’s act 1956 is considered as a commercial bank. (RBI) is the governing body that has been taking care of the banking industry in our country. Over the past few years our banking industry has gone through numerous changes in which recent change has been emergence of concept Small Finance Banks.

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Small Finance Bank are those banks provide financial inclusion to disadvantaged section like micro, small and medium business enterprises, and other unorganised sectors who are not been taken care by other banks and financial institution. In the year 2015, RBI has initiated a financial inclusion policy by setting up a different type of bank in our country. RBI has issued a provisional license for ten companies on September 17, 2015 to operate as small finance bank in India. Capital Finance Bank is the first bank that started as a small finance bank in the country. They began operations with 47 branches on April 24, 2016. Initially 10 institutions got license to operate their dealings in the group of small finance bank they are: • Ujjivan Small Finance Bank • • Equitas Small Finance Bank • AU Small Finance Bank • Capital Small Finance Bank • Fincare Small Finance Bank • ESAF Small Finance Bank • North East Small Finance Bank • Suryoday Small Finance Bank • Utkarsh Small Finance Bank

1.1. FUNCTIONS OF SMALL FINANCE BANKS “Small Finance Banks (SFBs) shall primarily undertake basic banking activities including acceptance of deposits and lending loans to unserved and underserved sections. SFBs shall be subject to all prudential norms and regulations applicable to commercial banks, including maintenance of Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR). SFBs are required to extend 75% of their Adjusted Net Bank Credit (ANBC) to Priority Sector Lending (PSL). SFBs should ensure that at least 50% of its loan portfolio constitutes loans and advances of maximum up to Rs.25 lakhs”. [Jeeban Jyotin Mohanty] RBI GUIDELINES FOR SMALL FINANCE BANKS Any resident individual with 10-year experience in banking and finance are considered as eligible candidates to involve with Small Financial Bank eligible entities should be registered under the companies act of 2013 with a paid-up capital of minimum 100 crore rupees. The approved organisations are allowed to carryout the banking affairs with an initial approval for 18 months, later further extension will be given by RBI in due course. Organisations can involve both with different deposits and loan products there is a mandatory clause of that to start their 25% of the branches that to cover in the locality of unbanked areas for the initial three years. Loan portfolio should constitute an advance of 25 lakhs rupees specifically to micro enterprises. FDI policies are also permitted on the basis of foreign exchange principles. Micro, Small and Medium enterprises are those enterprises who has less number of investment made and volume of production is less compared to that of some larger scale industries. Ownership pattern of Micro, Small and Medium scale enterprises are sole proprietorship or small partnership. Before the introduction of MSMED (Micro, Small and Medium Enterprises Development Act) Act in the year 2006. According to the act “Small and Medium Enterprises are those who make investment in plant and machinery or any equipment in the price ranging from twenty-five lakhs to a maximum of ten crores in case of a manufacturing

http://www.iaeme.com/IJMET/index.asp 724 [email protected] An Empirical Study on Selected Small Finance Bank in Mysuru with Reference to Micro, Small and Medium Enterprises industry and in of a service sector enterprise the investment range between ten lakhs to five crores”. [MSMED Act 2006]

1.3. STATEMENT OF THE PROBLEM Need and wants of different business entities directly supported by nationalised banks, schedule banks, private banks, foreign banks and corporative banks with well designed policies and guidelines of RBI. Among this multiple entry are continuously trying to apply different competitive strategies to attract more customers at the same time very few less performers are unable to sustain in its field in turn slowly becoming a sick unit due to the high amount of non- performing assets. At this juncture the RBI immediately apply different remedial measure to overcome the issue cash ratio, adequate ratio mergers and acquisitions policies are some of the strategical ideas to encounter the related demerits in the critical journey the one more banking baby has also been included as new financial inclusion scheme and to provide basic financial services to Micro Small and Medium Enterprise (MSME) with the entry like Small Finance Banks. Therefore, the researcher wants to pursue research in “An empirical study on the Small Finance Bank in Mysuru with reference to Micro, Small and Medium Enterprises (MSME)”. 2. REVIEW OF LITERATURE • Jeeban Jyotin Mohanty (2018) in the study titled “Leveraging small financial banks (SFB) in achieving Financial Inclusion in India” the main objective of study was to find out the reason for financial exclusion and the need and importance of small financial banks. The methodology used to conduct the study was through secondary source of information which includes journals, articles at RBI, IMF, CGAP, Microsave etc. In his study he has concluded that Small financial bank has huge potential in unbanked and underserved areas where local and corporative banks has underperformed. Similarly, small financial bank has a major role in development of MSME (Micro Small and Medium Enterprises) sector. • Viswan M G (2017) in his study titled “A study on the awareness and perception about small financial bank with special reference to ESAF small financial bank” the major objective of the study the perception and awareness level of rural people about small financial banks and to study the strategies and operation of small financial banks in . Methodology used to conduct the study is through both primary and secondary data. Primary data was collected through a structured questionnaire with a sample size of 50 respondents and secondary source of information was collected through various books, official websites etc. Major findings of the study that RBI and central government try to include weaker section of the community into financial inclusion programmes for the economic development and majority of the respondents are not aware about the functions of ESAF small financial bank. • Pinal Barot (2017) in his study titled “Financial Inclusion in India” the main objective of the paper is to understand the financial inclusion’s importance, its extent, opportunities and challenges in India along with the present status of financial inclusion in the Indian economy. Some of the major problems in our country is that only certain section of the population is using financial services and financial illiteracy among the poor and underprivileged makes the financial inclusion process more challenging. • Jayadev M, Himanushu Singh and Pawan Kumar (2016) in their study titled “Small Financial Bank: Challenges” the main objective of the study was to find the challenges

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which has been faced by Small financial banks in India. Findings from the study is that small financial bank are most likely to change the banking sector in India and the challenges faced by the are meeting the mandatory norms and statutory norms of cash reserve ratio and resigning cost-effective banking solutions. • Prantik Ray (2016) in his study titled “Small – Issues and Challenges” this paper deals with the need for financial inclusion, issues, challenges, RBI guidelines for small finance banks. In this paper they discuss the case study regarding the conversion of ujjivan financial service limited to small financial bank and the way forward for financial banks in India. In this study he concluded that small financial bank has great potential for financial inclusion but the performance of such institution has not been satisfactory. 3. OBJECTIVES OF THE STUDY 1. To understand the role of Small Finance Bank with the perception of MSME customers. 2. To measure the challenges faced by Small Finance Bank. 3. To analyse the awareness among the institutional customers about Small Finance Banks.

4. HYPHOTHOSIS

H1- Small Finance Bank have positively supported in the banking industry 5. METHODOLOGY OF THE STUDY The present study has been conducted with both primary as well as secondary data. Primary data collection has been done using of a structured questionnaire consisting of different questions on various aspects. Secondary data collection has been done through different types of research conducted within the topic, well-known articles and journals. The secondary data obtained has been fundamental source for gaining knowledge related to the topic that enabled us to approach the research problem. A planned questionnaire has been framed for the study. Likert scale has been used for enclosing the questionnaire. SAMPLE SIZE: Data has been collected among 60 MSME (Micro Small and Medium Enterprises) Customers of various small Finance Banks TOOLS USED: Tools used for the study are Percentage analysis, Weighted average and Chi- square. 6. BACKGROUND OF THE STUDY

6.1. UJJIVAN SMALL FINANCE BANKS Ujjivan small finance bank was established in 1 st February 2017 by Mr. Samit Ghosh. Headquarters of Ujjivan small finance bank is located in Bangalore and is licenced under section 22(1) of Banking regulatory act 1949. Ujjivan Small Finance bank is a subsidiary company of Ujjivan financial service private limited company. Ujjivan Small finance bank is operating in 15 different state in India. Main aim of Ujjivan small finance bank is to provide loans and other financial services to poor section of the population

6.2. EQUITAS SMALL FINANCE BANK Equitas small finance bank was found in the year 2007 with the head quarter located in Chennai. RBI issued licence in 2016. They started operating as small finance bank on 5 th September 2016 as a subsidiary of holding company Equitas holding ltd. Equitas is operating in around 15 states

http://www.iaeme.com/IJMET/index.asp 726 [email protected] An Empirical Study on Selected Small Finance Bank in Mysuru with Reference to Micro, Small and Medium Enterprises of India and their aim is to provide basic banking services to all section of the population. Equitas bank has also focused in providing employment opportunities to increase the standard of living of the people of rural and semi urban areas

6.3. JANA SMALL FINANCE BANK Jana Small Finance Bank was found in the year 1999 as the first urban for institution with Sangamitra Urban Program (SUP). They got the banking licence in the year 2017 and commenced their operation in 2018 with their headquarters located in Bangalore. Janalakshmi financial service limited started operating as anon banking financial company from the year 2008. Jana banks are operating in 17 states in India along with 2 union territories aim of this bank is to provide financial services to its customers.

6.4. FINCARE SMALL FINANCE BANK Fincare Small finance bank was incorporated in June 2017 which was formed from the conversion of Disha Microfin Limited they were one of the first small finance banks to start operation in India. Their headquarters is located in Bangalore. The bank focus on providing gold loan, housing loan and other basic financial services to their customers. The main aim of this bank is to increase the standard of living and to provide services to rural semi urban and urban women. 7. ANALYSIS AND INTERPRETATION

TABLE 1: DEMOGRAPHIC FACTORS Nature of the organisation No. of respondents Percentage Partnership 28 46.7 Sole proprietorship 32 53.3 Total 60 100 Annual turnover No. of respondents Percentage Below 25 lakhs 8 13.3 25 lakhs to 50 lakhs 42 70 50 lakhs to 1 crores 8 13.3 Above 1 crores 2 3.4 Total 60 100 Annual earnings No. of respondents Percentage Below 2.5 lakhs 14 23.3 2.5 lakhs to 5 lakhs 34 56.7 5 lakhs to 10 lakhs 8 13.3 Above 10 lakhs 4 6.7 Total 60 100 (source: Questionnaire) Through the study conducted it was observed that majority of the MSME institutions were sole proprietor and their total turnover falls under the category of 25 lakhs to 50 lakhs amongst which most of the respondents had annual earnings within the range of 2.5 lakhs to 5 lakhs.

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TABLE 2 : CHALLENGES OF SFB Challenges of SFB No. of respondents Percentage Inadequate fund 16 26.7 Less support from RBI 4 6.7 Inadequate administrative 6 10 guidelines Limited management capacity of 20 3.3 SFB Less awareness among customers 20 33.3 Less promotional activities 8 13.3 Less coordination among staff 4 6.7 Total 60 100 (source: Questionnaire) It was seen that a larger part of the respondents felt that lack of awareness among the customers is a major issue followed by inadequate funding for Small Finance Banks and respondents do not consider coordination among staff and support from RBI as a challenge which has been faced by Small Finance Bank.

TABLE 3: ROLE OF SFB Chi-Square Tests Value Df Asymptotic Significance (2-sided) Pearson Chi-Square 98.778 a 33 .000 Likelihood Ratio 50.666 33 .025 Linear-by-Linear Association 1.410 1 .235 N of Valid Cases 60 a. 46 cells (95.8%) have expected count less than 5. The minimum expected count is .07. (source: Questionnaire) The study was conducted on the basis of chi-square using on the role of Small Finance Banks and annual income of the customers of Small Finance Bank. Here independent variable is turnover of the Micro, Small and Medium Enterprises and dependent variable is role of Small Finance bank. Since the p-value is lesser than our chosen significance level (a=0.05), we do not reject our null hypothesis. Rather we conclude Small Finance Bank has positively supported banking industry.

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TABLE 4 : AWARENESS LEVEL CUSTOMERS Level of Awareness

Very High Medium Low Very Weighted Options Total Average high (5) (4) (3) (2) low (1) average Term financial 8 15 20 11 6 60 188 3.133 inclusion About Small finance 10 34 16 0 0 60 234 3.9 banks Awareness about small finance bank 10 20 30 0 0 60 220 3.666 loan schemes Awareness about procedure to obtain 22 12 24 2 0 60 234 3.9 loan under Small finance Banks Awareness about the functions of Small 14 30 14 2 0 60 236 3.933 finance banks Awareness about online banking 12 30 16 2 0 60 232 3.866 services provided by Small Finance Banks Awareness about procedure of Conversion of micro 10 20 16 10 4 60 202 3.367 finance institution to small finance banks (source: Questionnaire) In the following Likert’s scale, awareness level of the customers has been measured. For understanding the awareness weighted average method has been adopted. A value of 5 is assigned for very high awareness. Similarly, for High Awareness level, value assigned is 4 for Moderate awareness level, value is 3 for Low awareness level value assigned is 2 and for the unawareness or very low, value assigned was 1. Overall awareness of the MSME institutions is moderate in case of Small Finance Bank. Weighted average of the respondents is around 3 but majority of the institutions are not aware about the term financial inclusion and MSME institution are highly aware about the functions of Small Finance Bank. 8. FINDINGS OF THE STUDY • Annual turnover: from the statement it analyses that out of 60 MSME ,42 respondent having the annual turnover around 25 lakhs to 50 lakhs. There were 8 respondents who were having an annual turnover below 25 lakhs and 50 lakhs to 1 crore respectively

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• Annual earnings: the study reveals that, among 60 MSME institutions,14 respondents has an annual earnings below 2.5 lakhs similarly, 34 respondents falls under the category between 2.5 lakhs-5 lakhs and remaining 8 and 4 respondents are in the category between 5 lakhs-10 lakhs and above 10 lakhs respectively. • Challenges of Small Finance Bank: lack of awareness along with inadequate funding is considered to be a major challenge faced by Small Finance Bank. • RBI had played prominent role in setting up of Small Finance Bank. • From the study it was understood that Small Financial Bank does not Concentrate more on more on advertisements. • Small Financial Bank’s plays a significant role in generation of sustainable challenges in rural and semi-urban areas. • From the study it was found that majority of the respondents were not aware about the term financial inclusion. Even though, it was understood MSME institutions were highly aware about the function s of the Small Finance Bank. 9. CONCLUSION The primary objective of Reserve bank of India is well emphasized by Small Finance Bank that is, to achieve financial inclusion by fortifying development of institutions that offers innovative and ingeniously high technology at a lower cost financial service. Bank’s aims to provide basic banking and financial services to Micro, Small and Medium Enterprises (MSME), women and other disadvantaged section of the population. Small financial bank plays an integral role in economic development. They should concentrate on establishing more small financial banks in rural areas as it would enhance the performance of MSME sector. People in rural areas can avail basic banking facilities such as loans, online banking, deposits etc without complexity. Small Finance Bank Plays a crucial role to provide assistance for under and unserved faction in order to enhance their socio-economic environment of a MSME sector. Moreover, in a dynamic economy banks either emerge or collapse in the upcoming year Small Finance Bank will be having a vital role in economic development and will provide a huge support to the Indian banking sectors. REFERENCE

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