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SIDBI to float rating agency for SMEs

Staff Correspondent

Dun &Bradstreet and CIBIL to be partners

— Photo: Shashi Ashiwal

ALLIES IN FUNDING: The Chairman and Managing Director of Bank of India, M. Balachandran, with the Chairman of Small Industries Development Bank of India, N. Balasubramanian, at a press conference in Mumbai on Saturday.

MUMBAI: Small Industries Development Bank of India (SIDBI) will be launching an exclusive credit rating agency for the small-and medium sectors, in which it will be a major partner with equal participation from the public and the private sector.

Speaking at a media conference at the signing of an alliance between SIDBI and Bank of India (BoI) to fund the small and medium enterprise (SME) sector, SIDBI Chairman, N. Balasubramanian, said, "We signed a memorandum of understanding on June 7 with Dun & Bradstreet and Credit Information Bureau (India) Ltd. (CIBIL) as partners as they have big databases. The agency will be launched in July with an authorised capital of Rs. 10 crore and a paid-up capital of Rs. 5 crore."

SIDBI is in discussion with two private sector banks and among the public sector banks, State Bank of India, Punjab National Bank, Bank of Baroda, Bank of India, Central Bank, Union Bank and Indian Bank have agreed to partner SIDBI. "The advantage for the SMEs is that once they are rated, they can avail themselves of concessional interest rates.''

Stake in SFCs

Regarding the Act concerning SIDBI taking over IDBI's stake in the 18 state finance corporations (SFC), the SIDBI chief said "there are certain issues with IDBI which have to be clarified as yet."

Of the 18 SFCs, five-six are nearly revived and three-four are either limping, or revivable or nearly closed. "SIDBI has MoUs with ten SFCs and it is important that the state government is also a partner and steps in. Historically, the state governments have a 70-80 per cent stake with the balance being with IDBI. As per the latest amendment, SIDBI should have taken over IDBI's stake in the SFCs. It is an act and will certainly be followed,'' said Mr. Balasubramanian.

"SIDBI can only be a term lending institution and cannot meet full customer needs. So in consultation with the Reserve Bank of India and the government, and to ensure that SSIs and SMEs get term loans and working capital under one roof, we have entered into this MoU. SIDBI-BoI will work as a one-stop shop for all the financial products, including insurance at a later date,'' said the SIDBI chief. "If 2004-05 was the year for agricultural credit, the current year will be the one for SME credit without however, diluting agricultural credit,'' said M. Balachandran, Chairman and Managing Director, Bank of India. "As per our business plan, we envisage a credit growth of 25 per cent in the current year and plan to increase SME credit to Rs. 16,000 crore which is 25 per cent of our credit exposure. We have identified SME as a strategic business unit and that will have one exclusive general manager.''

SIDBI has identified 58 centres, which will cover 150 clusters and Bank of India's MoU with SIDBI covers 11 centres and 31 clusters. On the rationale for the MoU with SIDBI, Mr. Balachandran said, "Commercial banks provide a lot of financing for small industries and business enterprises but the flow to the SMEs has not been adequate. Although BoI has 32 specialised branches for SSIs, we have not been able to harness the potential for lending. We expect an incremental growth in credit of Rs. 3,000 crore this year to the SME sector and Rs. 5,000-7,000 crore next year."

Identifying receivables as the greatest issue facing the SSI sector, Mr. Balachandran said the Indian Banks Association (IBA) will work to enable debt restructuring similar to the corporate debt restructuring (CDR) and will present plans for a similar CDR to the RBI next week.

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