, senior general manager, small and medium enterprises, ICICI Bank, feels that this was due to the bank having entered new geographies with relevant products and services suited to the SME sector. He spoke to Anita Bhoir on how SMEs are learning to deal with increasing interest costs. Excerpts:
How are SMEs coping with the increase in interest costs over the past one year?
Over the past one year, most of the SMEs didn't have an option but to absorb this increase in interest cost by optimising their operations.
Some SMEs have availed the External Commercial Borrowings (ECB), where the interest cost are relatively low. However, availability of ECBs is restricted to a smaller universe of SMEs due to the regulatory norms.
What kind of growth has ICICI Bank seen in lending to the SME segment in the first half of 2007-2008?
The SME advances have increased by 56 per cent to Rs 52.05 billion at September 30, 2007, over September 30, 2006.
ICICI Bank has added a large number of SME customers. The total number now is about 1 million. How did the bank increase their SME customer base and has this addition been from newer regions/sectors or because of greater penetration in existing markets?
The Bank has been scaling-up the team size and resource allocation to this business over the last 3 to 4 years. Also, the Bank has regularly introduced a number of new products and services relevant to the needs of the SME segment.
Both these facts in conjunction have helped the bank acquire new SME customers. We have added new customers by entering new geographies, as also through better penetration in existing markets.
Its important to note that greater penetration has come from markets where ICICI Bank has a branch presence. Infrastructure construction, engineering and Pharma are among the high growth sectors.
Are there any new trends in the financing of SMEs?
With the markets evolving, we have seen the emergence of collateral-free lending. A host of products in this category have hit the market and one has seen a good consumption by the SME segment. We have also seen many more SMEs opt for ECBs in order to manage the interest costs.
More recently, we have seen a rise in the usage of Factoring service by SMEs engaged in the exports, as well as domestic trading. Lastly, and also importantly, we have seen many SME customers open to allowing private equity participation in their enterprises. These SMEs look at PE funds as a source of capital to grow to the next level.
How are SME with foreign currency exposures managing their rupee's continuing rise? Has the bank seen more number of SMEs opting for forward cover?
Yes, the number of SMEs opting for forward cover has been rising steadily. Taking forward cover is one of the ways of managing the Forex exposures in light of the rupee's continuing rise.
Apart from this, we have seen SMEs also look inward at their operations to create efficiency in order to factor in this cost. They are also re-negotiating contracts with their counter parties.
Some SMEs are also looking at imports of material to optimise cost, while some have had to scale down operations and lower overheads.
There is a serious challenge facing the SMEs and this is just the beginning of the appreciating rupee era. SMEs must learn to optimise efficiencies and become competitive in such a market.
