Sidbi will continue to motivate banks and institutions to lend more to micro and medium enterprises, CMD RM Malla tells Sangita Mehta
HAVING spent a large part of his career with developmental financial institutions like IDBI and IFCI, RM Malla has recently taken charge of Small Industries Development Bank of India (Sidbi) as CMD. Mr Malla speaks about his future plans for the institution.
Given that private banks and foreign banks are aggressive on building the micro, small and medium enterprise (MSME) portfolio, how does Sidbi plan to position itself to meet competition?
One of the major roles of Sidbi is to motivate banks and others to lend more to SMEs by providing them refinance which contributes above 50% of our total sanctions. We have also taken strategic steps to build the MSME portfolio to showcase that lending to this sector can be done profitably. For speedy delivery of credit with relatively smaller loans, we have leveraged technology and system for faster appraisal methodology by implementing credit appraisal and rating tool developed in-house for loans up to Rs 50 lakh. Cluster-focused business development strategies are being adopted by Sidbi to meet the credit requirements of specific MSME clusters. It helps in mitigating credit risk and gives lender an opportunity to cut transaction cost. Opportunity to finance industrial infrastructure projects in areas of textiles, food processing, etc are being identified. Given limited branch network arrangements like sourcing, referral, cobranding has been made with NBFCs or banks.
Many SMEs now have a wider horizon in terms of overseas markets. How is Sidbi addressing this requirement of such units considering the limitations that it has on funding overseas projects and also products they need?
We are negotiating foreign lines of credit to fund worthwhile projects from any part of the country. An MSME being set up abroad cannot be financed by Sidbi, but if an Indian MSME acquires or sets up a unit abroad and proposes to take loan against its Indian set-up which has the repayment capacity, the acquisition or setting up can be funded in India.
In the past, Sidbi had sought a banking licence. Is that proposal being renewed, especially in the background of other institutions like ICICI and IDBI converting themselves into banks?
Currently, we do not see any restriction on Sidbi as far as the financing and promotion of MSMEs are concerned. And we do believe that there is a role for such specialised institutions for the promotion and development of the MSME sector in the country. Today, we extend almost all kinds of assistance to MSMEs. We are working out various ways of providing umbrella services for MSMEs, including extending working capital facilities. Recently, we have partnered with IDBI Bank for providing working capital to MSMEs by using their technology platform.
The latest initiative which has been talked about is the SME exchange which you are promoting along with NSE and others? What is the update on it and the strategy behind this move?
SME exchange is on our agenda and we are working towards it. The idea is to encourage access to capital market by MSMEs. This will have numerous advantages not only to MSME units, but also enable new private equity and venture capital flow to this sector, as they will find it easier to exit through stock market mechanism which has transparent price discovery mechanism.
What is the status of SFCs? Given that most of them are ailing, how is Sidbi planning to turn around the SFC portfolio?
SFCs have been instrumental in assistance to the first generation entrepreneurs. However, over the years, there has been deterioration of assets. Sidbi as a key stakeholder and lender has taken proactive steps to restructure SFCs through strategic MoUs which is a unique effort on the part of Sidbi. Restructuring strategies inter alia included restructuring of loans, interest concessions, capacity building of SFCs, imparting training on critical areas like Credit Management, ALM, NPA, Risk Management, etc. While these measures are showing results, sustained efforts are required to bring the SFCs back on track.
For a long time, there has been a standoff between IDBI and Sidbi on the price at which Sidbi will acquire shares of SFC from IDBI. What is the status on it?
It is not correct to say that there was a standoff. Both institutions have had their own perceptions and points of view. As the time passed, these have got resolved and the issue has since been sorted out. It has been decided to transfer the equity of SFCs held by IDBI to Sidbi.
What are the challenges that you face at Sidbi being a term lending institution and how do you plan to cope with the same?
Though traditionally a refinancing agency, it started funding MSME projects directly on a progressive way and has increased its retail assistance portfolio.