IDBI Bank was created as a Developmental Finance Institution but has recently entered the SME space after conversion into a full service Universal Bank. Since its reorganization, IDBI has been actively engaged in providing a major thrust to financing of S
IDBI Bank was created as a Developmental Finance Institution but has recently entered the SME space after conversion into a full service Universal Bank. Since its reorganization, IDBI has been actively engaged in providing a major thrust to financing of SMEs. Mr. T R Bajalia, Executive Dir & Head, SME, IDBI Bank tells us about their financing mechanism and the various products offered for SMEs.
Bhuvnesh Talwar (BT): How will you define Small and Medium Entrepreneurs (SMEs)?
T R Bajalia (TRB): According to the micro, small and medium enterprises
development (MSMED) act, 2006, an enterprise, in the manufacturing sector, is categorised as micro enterprise, if the investment in plant and machinery is up to Rs 25 lakh and for service sector, if the investment in equipment for rendering the service is up to Rs 10 lakh. In manufacturing industry, if the investment in plant and machinery is above Rs 25 lakh but less than Rs 5 crore the enterprise is a small enterprise and in the service sector, if the investment in equipment for rendering the service is above Rs 10 Lakh but less than Rs 2 crore. Medium units, in the manufacturing industry, have the investment in plant and machinery above Rs 5 crore but less than Rs 10 Crore and in the service sector, the investment in equipment for rendering the service is above Rs 2 crore but less than Rs 5 crore
Further, units having a turnover up to Rs100 crore are also serviced by the SME vertical.
BT: What are the eligibility criteria for SMEs to obtain loans?
TRB: All micro, small and medium enterprises are eligible to avail of financial assistance provided by the bank provided the proposals are technically feasible and commercially viable. Further, the existing borrowing entity should have a satisfactory track record and good banking history.
BT: What is the procedure for obtaining a loan?
TRB: IDBI Bank has developed a special business model to serve the SMEs in India. The bank has set up 30 City SME Centres (CSCs) across India. The CSCs are the bank's hubs while dedicated SME desks have been set up at several branches across India. The CSCs are envisaged as the major focal points where all the loan processing viz. sanctions, post-sanction documentation, disbursement and credit administration are carried out with respect to the proposals sourced by the branches under their jurisdiction. A customer has a dedicated relationship manager (RM) at the branch, who deals with him for all his financial need. A relationship manager gives all the support to the customer and acts as the single point of contact. A prospective customer, who wishes to obtain a loan, is required to visit the RM at the branches or call the RM at his work place and submit the financial proposal with viable project report, financial documents along with other relevant information. Subsequently, RM and CSC will process the application. Viable and worthy proposals are sanctioned at CSC and the customers are intimated by the RM at the respective branch.
BT: Tell us in detail about the loan/credit schemes offered to SMEs.
TRB: SME Finance takes care of the credit needs of micro, small and medium enterprises. Considering the specific requirements of these units, IDBI Bank has introduced a range of attractive products. The bank has the products that cater to all the stakeholders in a value-chain viz., the vendors, the manufacturers as well as the dealers and traders. In addition, there are tailor-made products for special category of borrowers such as medical practitioners, transport operators, professionals and self-employed, IT service providers, etc. The bank also has a product for start-up ventures, wherein finance is provided in the form of seed capital. To make business easy for the SMEs, the bank has introduced collateral free loans. The bank not only offers finance to its SME customers but also takes care of their all banking needs under one roof with specific current accounts and full range of other banking products and services.
BT: What is the interest rate charged on different credit limits?
TRB: The bank factors in the risk profile and credit worthiness of the borrower before extending any financial assistance. Generally, RoI charged to SMEs is based on internal rating of the clients and range between bank's BPLR (benchmark prime lending rate) – 2.5 per cent and BPLR + 3.5 per cent.
BT: What has been the default rate?
The bank’s non-performing assets in SMEs are fairly low, less than 1 per cent.
BT: What challenge does the bank face, dealing with the SME sector?
TRB: SMEs are a big challenge for the banking industry. India has about 13 million SME units and out of these, barely 17-18 per cent have banking relationship. SMEs depend on money-lenders or other informal sources, for funds, like friends, family members or relatives. The SME segment provides banks a big opportunity for cross-selling. We provide lucrative liability products for the SME segment. Since all banks are focusing on the SME segment on account of potential of deposits from this segment; the competition is becoming stringent in this segment, and tapping the SMEs, a real challenge.
BT: What is your revenue generation and market share with respect to the SMEs sector?
TRB: Presently, the MSME advances constitute a little over 10 per cent of the bank’s total advances. However, SME Banking is considered to be the growth driver for the bank’s operations and efforts are to increase it significantly in the next few years.
BT: Is there a new strategy or scheme, for SMEs, in the pipeline?
TRB: The bank endeavours to introduce new products with a view to offer wide array of solutions to the SME units. In FY 2008 – 09, the Bank had introduced two new SME Products:
In the current FY 2009 –10, the bank intends to introduce some new products both in the asset and liability space.
BT: What is the bank’s strategy to help women entrepreneurs?
TRB: The bank lays great emphasis on increasing the flow of credit to women entrepreneurs. Accordingly, many of the products and schemes have provision to offer concessions in rates of interest and stipulation of lower margins in the case of units that are promoted by women entrepreneurs.
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