Just two months into his new assignment, S Muhnot, chairman and managing director, Small Industries and Development Bank of India (Sidbi), has firmed up his vision for 2015. In an interview with Parnika Sokhi and Abhijit Lele, Muhnot says he plans to increase direct lending and double the bank’s branch network. Edited excerpts:
You came at a time when interest rates are on their way up. What are the implications of this for the small and medium enterprises (SME) sector?
Recently, the Reserve Bank of India raised the policy rates and there may be one or two more increases in the future. We do not exactly know when there would be a pause. Usually, when banks keep increasing interest rates, the micro small and medium enterprises (MSME) sector does get affected. High interest rates would definitely impact credit growth in some cases, but this would be contained because overall growth is still expected to be buoyant. So, on the whole, there won’t be much of an impact. Certain sectors or companies which are margin players and survive on price competition would be affected.
How has the asset growth been in the last financial year?
The portfolio rose 22 per cent and the total assets are above Rs 50,000 crore. The loan portfolio is above Rs 46,000 crore.
Gross non-performing assets (NPAs) rose three-four times. What is the reason for this?
Earlier, the thrust was on refinance. Since the last two-three years, the focus has shifted to direct finance. That’s the major change and going forward, we want to pursue direct financing further. Naturally, you would see NPAs in the direct finance segment. Our gross NPAs are just 0.60 per cent. There are no NPAs in bank refinance, but these are high in the case of state finance corporations (SFCs).
There was talk of converting the bank into a commercial one. What has been the progress on this?
If government policies permit, we would think about it in the future. But now, we want to consolidate on our role in the MSME sector.
Since you aim to scale up direct financing, what are the plans to expand the branch network?
We want to reach out to MSMEs in a big way and we can do this with direct financing. Another route is through banks and micro finance institutions (MFIs). We plan to scale up through all channels because creating direct channels is not always viable. The bank could double the branch base from the current count of over 100 in four years. Currently, there are around 80,000 bank and MFI branches across India. If we leverage these branches, it would help the MSME sector in a big way. We are focusing on direct lending.
We are not competing with banks, we are complementing them. We prepare a scheme for the sector and test it on a pilot basis. Once successful, banks can take it up from there. Recently, we had set up an energy efficiency line of credit with JICA for Rs 1,670 crore. We have also set up similar lines from France and Germany as well. This will help improve sustainability.
More From This Section
You have a venture capital subsidiary which runs two schemes. The investments and commitments are almost over. When would it start the next scheme?
We are now launching the third one, with a corpus of Rs 500-1,000 crore this financial year. We’ll get some money from domestic banks and also tie up with international banks for a part of it. We have also requested the government for a special dispensation for the MSME venture funding.
What do you think about the functioning of SFCs? Are there any issues with them?
The overall environment is not that conducive for the growth of SFCs. Today, there exists a very competitive environment, in which banks give both term loans and working capital loans. So, it becomes very difficult if you are only term loan provider.