Sidbi wants stake in a bank to serve SMEs

Small Industries Development Bank of India (Sidbi) has submitted a proposal to Finance Minster P Chidambaram for taking a strategic stake in a bank in order to provide comprehensive range of services to the small and medium enterprises (SMEs).

"We can easily invest Rs 500 crore and depending upon the options that amount can be substantially increased," a Sidbi executive told Business Standard adding that it had a net worth of Rs 4,600 crore.

"In case we do not get the go-ahead to enter into commercial banking in the near future, we would be able to offer integrated services to our customers through strategic tie-up with a bank," the executive added.

Sidbi had earlier approached the Reserve Bank of India to convert into a commercial bank but the central bank had turned down the proposal. It wanted to convert into a bank as it is allowed to extend composite loans up to Rs 50 lakh only.

Sidbi has also submitted plans to offer comprehensive services to the SMEs including credit-rating services and technical advisory services related to procurement of raw material and plant and machinery.

A new company is likely to be set up by May this year to take up the task of rating.

In addition, the proposal discusses options to directly expand Sidbi's business activities, including opening more branches and using information technology to expand reach.

Sidbi is also expected to appoint a consultant this month to study the human resource management of the organisation.

This aims at re-organising the manpower to increase emphasis on the new lines of services going forward and increasing the share of direct finance in its business.

"We are hopeful that the government would give the go ahead in the near future to significantly increase its delivery channels and scope of services keeping the requirement of the SME sector in mind," the executive said.

Sidbi is currently unable to offer working capital limits and over draft facilities to SMEs as it is not a commercial Banks. Similarly, It cannot issue cheque books to its customers.

Sidbi also wants to protect itself against any future shock from refinancing the State Finance Corporation by increasing its direct lending activities.

Last year Sidbi made disbursals of Rs 4,141 crore, out of which Rs 2,619 crore consisted of refinancing.

The proposal comes after meeting with Chidambaram last month when he directed Sidbi to come back with "new models" though which Sidbi could increase credit flow.

Banking concerns

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• Sidbi had earlier approached the RBI to convert into a commercial bank but was refused
• It wanted to convert into a bank as it is allowed to extend composite loans up to Rs 50 lakh only
• Sidbi plans to offer credit-rating services and technical advisory services to the SMEs