'We are planning a fund for poor'

BANKER SPEAKS/ R M Malla, CMD, Sidbi

has taken charge of Small Industries Development Bank of India (Sidbi) at a time when its traditional role as a refinancing agency is in a flux.

While the development financial institution waits for the government to spell out its future course, the man responsible for turning around the fortunes of the Industrial Finance Corporation of India (IFCI) speaks to Abhijit Lele and Shriya Bubna about the greater role SIDBI can play in driving the growth of Small and Medium Enterprises (SMEs).

Has Sidbi's traditional focus of providing refinance at a relatively low cost to banks reversed with your cost of funds being higher than the banks?

Over the years, two things have happened. We used to get certain concessional funds from various agencies so our cost of funds was lower and those of banks was either equal or slightly more.

But over the years this was taken away. There is a huge amount (of funds) that is still available with us, but over the next 2-3 years it will be given away.

Also banks' portion of current and savings account deposits (CASA) is at 30-40 per cent of their deposit base. Even they have become very aggressive in lending to the Micro Small Medium Enterprise (MSME) sector. Refinance is shrinking and direct loans is increasing.

However, Sidbi is still a lifeline to the State Development Finance Corporations (SFCs). Out of the 18 SFCs, seven are in trouble and 11 are doing reasonably well due to close coordination with them.

Is converting into a bank one of the options before Sidbi?

Personally, I see three options. One is for Sidbi to continue as it is. The second is to become a commercial bank and the third a mix of something. International experience suggests that for a policy-based finance you need a specialised institution.

While commercial banks cover a large portion of financing, there are still some gaps such as credit guarantees, rating companies where initially someone has to put in profits. We cannot expect commercial banks to contribute Rs 500 crore of profits without battling an eyelid. This means that the ownership has to remain in public sector.

A report has been submitted (on Sidbi's future structure and focus), which is now being examined by the government. There are some options that are good for the organisation. Transition in any organisation should not be too sudden because it becomes a shocking thing. I have a feeling that over one year-one and half year period things will shape up.

What are your plans going ahead?

We, in association with the National Stock Exchange (NSE), have approached the Securities and Exchange Board of India (Sebi) for setting up an SME exchange. This will enable the private equity firms to freely give money to SMEs so that they have an exit option. Else, they will get stuck.

As far as we are concerned we will continue to grow both our businesses including refinance to viable organisations and direct finance to MSME units. We plan to double our direct lending portfolio by the year-end. Whenever I meet the chairman of any bank, I give them an open offer: If you want to give any money to any SME and if you feel my need just let me know and we will finance the balance.

We also want to have our presence in more areas where industry is there. From 65 offices now, we would like to open another 10 offices in 5-6 months.

One of the activities we would like to focus on is equity. Apart from having an independent venture capital outfit, we have created an equity fund of Rs 100 crore. And we would like this role to enlarge.

I have a feeling that in the next 5-7 years, this country will need MSME projects worth Rs 4 lakh crore, of which Rs 2.4 lakh crore would be through debt and Rs 1.6 lakh crore through equity. Though raising the debt portion in 5-7 years is absolutely easy, the equity portion may become an issue because it cannot come from the capital markets.

We would like to address this Rs 1.6 lakh crore, partly through our intention of setting up an MSME exchange, by creating certain equity funds within the organisation and partly by attracting foreign private equity into this nation. For that, we are working with and through certain international organisations.

Going ahead how would you manage your cost of funds?

If we want to borrow in rupees today, our cost of funds will probably be very high though we are a AAA-rated organisation at 8.5-9 per cent. Banks' overall cost of funds ranges between 4 and 6 per cent. By no stretch of imagination can we reach that figure in rupee borrowing.

For sometime now, SIDBI has gone international. We plan to raise almost Rs 3000 crore at a highly concessional rate from international organisations like Asian Development Bank, KfW, Japanese Bank for International Co-operation (JBIC) and the World Bank.

Is Sidbi looking at a larger role in micro-finance?

Today Sidbi has a relationship with more than 100 MFIs with a total outstanding of Rs 700 crore and we are keen to make it at least Rs 1000 crore in 4-5 months. Sidbi can take the lead in setting up a mutual fund essentially catering to the poorest of the poor.

From providing Rs 5 lakh to Rs 100 crore, we are open to encouraging MFIs in the south to go and collaborate with people, NGOs, trusts, in underserved areas in north and eastern India, depending on the organisation and capability.

Maybe one day we can think of a mechanism where in association with MFIs, . Through MFIs we will reach villages where even Rs 100 gets into equity through mutual funds.