SBI creates banking arm for small-scale units

The State Bank of India (SBI) is all set to open its Small and Medium Enterprises (SME) banking division as it expects a 20 per cent growth in credit to SMEs during the current financial year.

SBI chairman A K Purwar said that the board has already approved the proposal. "The banking unit for small and medium businesses, which will be part of our corporate headquarters, will start functioning soon," Purwar said at the annual small-scale industries convention.

The new unit will enhance credit flow to the sector, by eventually expanding the number of branches under the aegis of its corporate office. Based on a report submitted by McKinsey, the bank has decided to open a separate banking unit, specifically for small and medium enterprises.

SBI has 56 branches for the small-scale sector, 99 for industrial estates and over 765 exclusively for development banking. This is in addition to 44 regional rural banks with over 3,000 branches. SBI is the largest commercial bank with its network of over 13,000 branches across the country.

The percentage of advances to the SME sector has been 13 per cent over the last three years. Credit lent to the SSI sector as on March 2004 was Rs 13,033 crore compared to Rs 12,392 crore in March 2003.

Making a case for cautious credit lending to the sector, Purwar said that the percentage of Non Performing Assets (NPAs) with respect to small-scale industries which stood at 14 per cent on March 2004, was higher than other components like large industrial houses which made up less than 8 per cent of the total NPAs or housing loans which accounted for less than 2.5 per cent.

He conceded that percentage of NPAs on account of SSIs has been reducing over the past three years.

It fell from 22 per cent in March 2002 to 18.19 per cent in March 2003, to about 14 per cent in March 2004.

Purwar also emphasised that the cluster development model should be further broadened for describing Special Economic Zones.

He said, 70 such clusters have been identified.

SBI has also recommended for the enlarging the definition of Small Scale industries so as to accommodate medium scale industries.

SBI offers three types of schemes for the sector. The SME credit plus scheme, the SME credit card and the smart score scheme, where collateral is decided over the number of points earned by the SME unit.