The Hindu Business Line : SIDBI to tie up with more NBFCs

In a bid to increasing loans given directly to small and medium enterprises, the Small Industries Development Bank of India (SIDBI) intends pacts with non-banking finance companies (NBFCs) for loan origination.

In February, SIDBI tied up with Sundaram Finance Ltd under which the Chennai-based NBFC would originate loans for a fee. SIDBI's Chairman and Managing Director, Mr N. Balasubramanian, told a press conference here on Sunday that more such tie-ups were planned.

SIDBI began to give loans to SMEs directly only three years ago. (Earlier, it was only refinancing banks.) Now its direct-lending portfolio stands at Rs 4,660 crore, more than a third of its total loan portfolio of Rs 13,890 crore. Today, one out of every two rupees lent by SIDBI is loaned directly to borrowers.

The bank intends to raise its direct lending portfolio to 70 per cent in three years. To do this, it needs geographical reach. SIDBI today has 56 branches — 12 of which were added last year — and it has committed to the government that it would put in place 100 branches by 2007-08. According to Mr Balasubramanian, even 100 branches are not enough to disburse loans directly to borrowers. Hence the proposed tie-up with NBFCs.

Prefers direct lending

One of the reasons for SIDBI's penchant for direct lending is the loans' amenability to better control. To illustrate this, Mr Balasubramanian told Business Line that in 2005-06, only six accounts together involving an amount of Rs 1.97 crore, turned non-performing in its direct-lending portfolio.

Second, with rating mechanism in place for small and medium enterprises, SIDBI feels more comfortable lending directly to borrowers.

Asked about the tie-up, Mr T.T. Srinivasa Raghavan, Managing Director, Sundaram Finance Ltd, noted that the NBFC used to finance plant and machinery once upon a time — today, it is only into vehicle financing. Its erstwhile corporate customers frequently ask Sundaram Finance if the NBFC would consider starting to lend to them. "We are happy to pass on such opportunities to SIDBI," he said, adding that Sundaram Finance did not see this tie-up as a revenue-earning proposition.

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