Oriental Bank sees prospects in loans to SMEs

This year, the Oriental Bank of Commerce plans to concentrate on its small-and-medium-enterprises loan portfolio because the yield is high, and lending risk can be spread over more customers.

Emphasis on the SME portfolio comes in the backdrop of intense competition among banks for blue chip corporates. The competition has led to corporates pushing banks to offer fine lending rates.

The bank's average yield on its advances last fiscal was 7.9 per cent. On its SMEs portfolio, the bank's yield could range between 10 per cent and 13 per cent, Allen C A Pereira, executive director of the bank said. Today, the bank's prime lending rate is 11.5 per cent.

In addition to immediate benefits in the form of higher yields and lower risks, Oriental Bank's brass hoped the emphasis on the SME portfolio would lead to building relationships with companies with the potential to burst into the big league.

This would enhance Oriental Bank's activities in urban and semi-urban areas, Pereira said and added that it would open business opportunities in units linked to SMEs.

The net advance to SMEs in 2005-06 was Rs 675 crore. This means growth of 16 per cent over the previous year. In terms of their importance to the bank, SME net advances were 14.6 per cent of net bank credit in 2005-06. In the current year, net advances to SMEs have moved up to 15 per cent of net bank credit, Pereira said.

In the current financial year, OBC has set a growth target of 20 per cent in incremental disbursements to SMEs, higher than the previous year's growth. For all lending operations in this year, the growth target is in a range of 20 per cent to 25 per cent over the previous year's net bank credit of Rs 33,577 crore.

Other than SMEs, the bank plans to push its retail loan products. Within the retail portfolio, housing loans dominate. Despite the general hardening of interest rates on home loans, OBC's home-loan portfolio has not been adversely affected, Pereira said.