The Hindu Business Line : BoI, SIDBI tie up to boost credit to SMEs

Mr M. Balachandran (right), Chairman & Managing Director, Bank of India, with Mr N. Balasubramanian, Chairman, Small Industries Development Bank of India, at a press conference in Mumbai on Saturday. — Shashi Ashiwal

Mumbai , June 11

BANK of India (BoI) and Small Industries Development Bank of India (SIDBI) have signed a memorandum of understanding (MoU) to boost credit flow to small and medium enterprises (SMEs). The two banks have set an incremental lending target of Rs 3,000 crore for this sector in 2005-06.

As per the MoU, either SIDBI or BoI would finance the term loans, while BoI would exclusively meet the working capital requirements of SMEs. Financing of term loans will carry an interest of 9.5 per cent (fixed) and working capital 10.75 per cent (floating). BoI and SIDBI will also jointly work to extend the reach of micro-credit through branches.

BoI hoped to see an increase of Rs 3,000 crore in its lending to the SME sector, said Mr M. Balachandran, Chairman and Managing Director, BoI.

Currently, the bank's credit exposure to SME units is about Rs 12,600 crore, while for the small-scale industry (SSI) , it is Rs 6,000 crore.

Mr M. Balachandran said: "We look at the SME sector as a commercially viable sector."

SIDBI has identified over 58 specialised small enterprise centres for development across India. Of this, BoI will associate with 11 centres.

"The number of registered and unregistered SSIs and SMEs is going up and the service sector is occupying a large space in the gross domestic product. Yet credit offtake to these sectors has not picked up. Therefore, it implies that the credit needs are being met by unorganised borrowing," Mr Balachandran said.

In due course of time, BoI and SIDBI plan to become a one-stop-shop to extend all financial products to the SME sector, including insurance and special bonds, said Mr N. Balasubramanian, Chairman, SIDBI.

"SIDBI is only a term lending institution, therefore we cannot meet the full needs of the customer. We want to take advantage of BoI's large number of branches and increase our reach in rural and semi-urban areas," he said.

BoI will also participate in the credit rating agency that is being set up by SIDBI, Dun and Bradstreet, Credit Information Bureau India Ltd and other private and public banks.

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BoI, SIDBI tie up to boost credit to SMEs