The Hindu Business Line : SFCs losing SME assets to banks

Private sector banks have begun poaching the assets of State Finance Corporations in a bid to beef up their small and medium enterprises (SME) advances.

The SME advances skimmed off SFCs were mostly standard assets. None of the banks was interested in picking up sub-standard assets from the SFC portfolio, bankers said. In fact, all the SFCs and the State industries development corporations were faced with the migration of SME customers to banks.

One major reason for the migration of assets was costs. SFCs' lending rates are close to about 13 per cent. However, the private sector banks were prepared to advance at rates as low as 9.5 per cent. Even after advancing at this rate, banks were still making a spread of about 5 per cent over the cost of working funds.

Deterioration

The migration of assets has resulted in a deterioration of the SFCs' books that are already riddled with sub-standard and loss assets. KSFC's Executive Director (Finance), Dr S.S. Chandrashekar, said, "We are trying to woo customers back into our fold, but our cost of funds will still be higher than the banking sector."

average cost of funds for SFCs is currently in the region of about 8 per cent. Since most of the fund raising was supported by State Government guarantees, there was another one per cent incurred by way of guarantee commission.

More Stories on : Private Banks | SSI | Financial Institutions

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Is CAC need of the hour?

The RBI prescription for growth, stability

FRBM gives RBI more money market flexibility

Rupee up on dollar weakness

Banks getting fewer queries

IOB net up 30 pc in Q4

Dena Bank Q4 net profit at Rs 130 cr

SFCs losing SME assets to banks

Auctions under MSS to resume

Bond prices drop

Call rates close at 5.5 per cent

TU concern over banking trends