UBI, Punjab & Sind eye Sidbi arm stake

Public sector lenders Punjab & Sind Bank (PSB) and United Bank of India (UBI) are likely to pick up a stake in development financial institution Small Industries Development Bank of India's (Sidbi) proposed asset reconstruction company (ARC) for loans to the small and medium enterprises (SME) sector.

R M Malla, chairman and managing director, Sidbi, said, "Some banks have agreed to partner with us. Hopefully, we will apply to the Reserve Bank of India (RBI) in the next three to four months. Once we get the RBI licence, maybe in less than a year, we will start this ARC to focus on SME non-performing assets of the system."

Many banks, including Punjab and Sind Bank and United Bank of India, had expressed their intent to partner with Sidbi for the proposed SME-focused ARC. At the end of March 2007, public sector banks' loans to SMEs stood at Rs 1,75,000 crore. The level of NPAs is around 2 per cent. 
 

SMALL IS BEAUTIFUL Deployment of non-food bank credit (Rs cr)
	Indystry (Small medium & large)	Small scale industries
Outstanding as on  Mar 18, '07	6,91,783	1,16,908
Y-o-Y variations
Mar 31, 2006 over Mar 18, 2005
Absolute	1,26,804	16,831
Per cent	30.0	22.7
Mar 30, 2007 over Mar 31, 2006
Absolute	1,41,543	25,888
Per cent	25.7	28.4

"We have very good ARCs in the country, but somehow still they are with larger loans. There are banks who have NPAs of smaller amounts, which no one is interested really in picking up," said Malla.

ARCIL and ASREC, promoted by UTI Asset Management, are the two reconstruction companies that are predominately interested in large NPA accounts.

PSB executives confirmed their interest in the proposed ARC with a capital base of Rs 100 crore. The Delhi-based bank may take a stake between 5 and 10 per cent and may also chip in expertise in recovery.

A senior executive of Kolkata-based United Bank of India said, "The talks are in initial stages and the structure and other details will be worked out in consultation with partners. We have shown interest in the proposed ARC for small units since we believe Sidbi has the expertise to get better value from impaired assets."

"With expertise in assessment and lending to SMEs, the Sidbi-promoted reconstruction entity would be able find a suitable buyer, preferably from the same industry to which the SMEs belong. This increases the chances in revival of sick units to realise value," he added.

United Bank of India's gross NPA ratio was 3.6 per cent at the end of March 2007, while its net NPA ratio stood at 1.5 per cent. Punjab & Sind Bank's net NPA level was at 0.66 per cent for 2006-07, down from 2.43 per cent a year earlier.