BETTER VALUE TO CUSTOMERS: Federal Bank Chairman M. Venugopalan (left) exchanging the memorandum of understanding on SME financing with SIDBI Executive Director V. Chandrasekaran, in Kochi on Wednesday.

KOCHI: Federal Bank and SIDBI have entered into a strategic alliance for financing small and medium enterprises. A memorandum of understanding (MoU) was signed in this connection here on Wednesday by Federal Bank Chairman M. Venugopalan and SIDBI Executive Director V. Chandrasekaran.

Federal Bank has identified a few industrial clusters including rice milling, plastic industries, wooden furniture, coir industry, seafood industry and cashew processing for joint financing with SIDBI. Federal Bank has carved out a new department, `SME and Agricultural Credit Department.'

Mr. Venugopalan said the department would roll out products specifically targeted at the SME segment. The bank was planning to increase the SME finance from the present Rs.5000 crore to Rs.10,000 crore within three years, he said.

Noting that a large number of units would come under the new statutory definition of SMEs, Mr. Venugopalan said the two banks would work jointly to identify projects and take up co-financing or separate financing. The environment provided by the Government with the enactment of Micro, Small & Medium Enterprises Development Act, 2006, would help both the banks in meeting the needs of thousands of entrepreneurs.

Mr. Chandrasekaran said the alliance would be beneficial to achieve the objective of `small enterprises financial centres' scheme, which had been announced by the RBI. The alliance would deliver better value to customers of both banks, he said. SIDBI has already entered into similar MoUs with 14 other banks. He handed over the Credit Appraisal and Rating Tool, a software developed in-house, for credit appraisal and rating.

The SME rating agency SMERA, set up by SIDBI, had been engaged in rating industrial units. The rating would be helpful for the SMEs as well as the financing banks, he said. The bank has selected rubber industry for risk profiling, he said. The SME lending by SIDBI in Kerala exceeded Rs.660 crore. The recoveries were good in the segment, he said.

Federal Bank Executive Director K.S. Harshan and SIDBI General Manager O.S. Vinod were also present.

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