SBI to conduct ‘early review’ of loans sanctioned to SMEs

To stem bad loans in the small and medium enterprises segment, State Bank of India has implemented an ‘early sanction review’ process for loans sanctioned to enterprises in the segment.

Under this process, loans (in the ₹1 crore to ₹5 crore bracket) sanctioned to SMEs by the bank’s regional and zonal credit committees will be subject to a review by a loan reviewer.

The reviewer is a retired senior SBI official with expertise in credit audit/ risk function. On an average, India’s largest bank gets about 16,000 loan proposals from the SME sector every year.

In the first six months of this fiscal, SBI’s bad loans in the SME segment rose by ₹464 crore to ₹15,883 crore as on September-end.

Further, bad loans in the SME segment accounted for 26 per cent of the bank’s total bad loans of Rs 60,712 crore as on September-end 2014.

The ESR, among other things, seeks to capture the critical risks that exist in loan proposals, appraise these risks and make observations on the sanction to the respective controllers for mitigation. The loan reviewers are attached to the zonal inspection office in each of SBI’s 13 circles. Retired chief managers, assistant general managers, and deputy general managers have been engaged for the ESR process.

A senior bank official said: “After reviewing the loan sanction, the loan reviewer can make crucial observations — that the cash flow projections made by the SME is too optimistic or that the security offered by the promoter is not adequate or that the promoter has to bring in additional equity.”

SBI’s ESR process is aimed at minimising the probability of freshly sanctioned loans going bad in the future.

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