Niranjan Mathure
Regional Head - WII, SME – IDBI Bank Limited
Q. What is your view on the growth trend of auto components, electronic goods and IT and ITeS-BPO companies in the Pune cluster?
A. At IDBI Bank, we realise that these are just three sectors among all the sectors operating in Pune cluster. Pune is one of the major IT hubs in the country after Bangalore. In Pune big IT companies and SMEs operating in the IT space co-exist. Moreover, development of IT in Pune looks promising due to availability of qualified IT professionals produced by the various engineering colleges in Maharastra itself. Due to the global recession, the Indian IT industry has seen a setback. However, with time the IT industry in India will recover and Pune will emerge as a one of the prime centres. There are a lot of companies operating in the auto components sector in and around Pune. Many of the new companies are also coming up in Pune, like Volkswagen and Skoda. Auto components industries are setting shop at Ranjangaon, which is 60 kilometres from Pune, and also at Chakan. The products manufactured here meet global standards. Many foreign auto companies who have put up their plant or subsidiary here have started mining products from Indian SMEs and Indian industries. Moreover, all these industries also have the benefit of being closer to Mumbai. The electronic goods industry in Pune is not as big as the auto components industry or the IT industry. However, this industry is growing steadily. In Ranjangaon and other places around Pune, there are many companies operating in the electronic goods sector. Similarly, many electronic goods industries have opened shop along the Satara road. These companies have robotic equipment and supply products to the auto sectors. Besides, there are second hubs that undertake assemblies of computers or electric equipment. Instrumentation is also becoming an important industry in Pune. Thus these sectors have good growth potential and we foresee growth of in the auto and electronics segment in the coming years.
Q. What are the main strengths and weaknesses of SMEs in auto components, electronic goods and IT & ITeS BPO sectors in Pune?
A. Pune city is developing as a big SME centre. Pune is closer to the financial hub Mumbai and is also well-connected with all other cities. Pune is also a big education centre and produces qualified professionals and engineers; thus, the demand for technical and qualified professional for all the sectors is easily met. Plants of major automobile players like Bajaj and Tata and have generated immense opportunities as suppliers to these OEMs. Similarly, most of the large IT companies have set up their hubs in Pune that offers a ready market for SMEs in IT and ITeS. The weaknesses Pune faces are in terms of impact of power cuts and infrastructure problems. Power cuts are a major hindrance in the city because power is not available on a continuous basis; as a result, the expense or the cost of production increases. The usage of generators is expensive because of the fuel cost; moreover, the interruption in power supply also reduces productivity. Infrastructure-wise, Pune is becoming crowded day-by-day and the increased vehicular traffic is adding to the infrastructure bottlenecks, which causes the failure of many delivery channels. Lastly, real estate prices are soaring, as a result setting up of a factory in Pune or starting some venture in Pune is slowly and gradually becoming expensive. Thus, we are observing realty development around Pune city and that is a good sign. But it has its own disadvantages with respect to the commuting time and availability of manpower. Banks and finance availability are good in Pune. Trained and educated labour available but at a higher cost and that becomes a problem for SMEs.
Q. What are the alternative channels of financing available to SMEs in Pune? How will you compare it with banking products?
A. There are certain non-banking finance companies that provide finance to SMEs. Such financiers generally extend short-term loans. The long-term loans granted, have some sort of a security attached to it, which may be shares, fixed properties, land properties or building. Funding availed from such sources is always costlier as compared to the bank. There are also private equity players that have become active in the last couple of years. Initially, we used to see private equity only in the bigger companies, but slowly and gradually many private equity players have started investing into SMEs and smaller firms due to the growth prospects of the smaller enterprises. Lately, venture capitalists have also started investing into these types of SMEs. Thus a variety of options are available but the bank funding is most liberal and gives lower rates. Moreover, banks do not interfere in the workings of the organisation unlike that of venture capital or private equity player, who come with some sort of control of the management shareholding. In my opinion only bankers provide the finance for working capital needs. 41
Q. How is IDBI Bank different from its peer banks in Pune?
A. All bankers provide the same type of banking facilities. However, the style of functioning differs from bank to bank. IDBI Bank was initially started as a development finance institution and is a full-fledged commercial bank today. The bank is new to SMEs and, therefore, wants to go in a very aggressive and speedy fashion. The bank has developed its own channel system to deliver products for the SMEs in a faster manner, that’s the reason but not the only reason that differentiates us. We are maintaining a turn around time (TAT) of 10 days for sanctioning loan proposals up to Rs 5 crore. Moreover, we have sector-specific simplified products, expertise in appraisal/analysis of the borrower/loan proposal and at the same time, strength of a government-owned bank that is as efficient as private sector banks. We have adopted a process of City SME Centres with SME relationship officers. Instead of clients coming to the bank, the relationship manager goes to the client, understands his work, his requirements and accordingly suggests to him the different type of products, giving him the papers, ensuring that all formalities get completed under the manager’s guidance and help.
Q What are the main hindrances faced by SMEs in Pune for getting loans from banks? And what are the initiatives taken by IDBI Bank to help customers to overcome these hindrances?
A. Generally SME units do not have a system in place for carrying out the necessary paper work required by the banks. They are somewhat unaware of the procedure involved in getting a loan. The reason why the bigger units find it easier to get more funding from the bank is because they have well-established systems and procedures in place. The bigger units generally have finance and account departments, which take care of submission of paper work in time thus enabling easy disbursement of loans. Timely submission of papers in the correct format is the major hindrance faced by SMEs in obtaining a loan. However, times are changing and there are educated, new generation entrepreneurs who understand this and take the required steps in complying with the formalities. Moreover, there is also ignorance about the facilities and products of the banks. The SME units also have a fixed mindset towards the banking industry that has been built over a period of time. These units prefer raising finance from private moneylenders instead of coming to the banks. IDBI Bank on its part is undertaking presentations and meetings with these units to educate them about the benefits of obtaining finance from the banks as compared to that from moneylenders. The bank is also educating them about the products and services offered that suit their needs and requirements.
Q. What are the sectors that have seen the maximum disbursal of loans within SMEs in Pune?
A. The engineering and auto sector in Pune has seen maximum disbursement of loans. The engineering and auto sectors are the major clusters that are operating in and around Pune region. Recently other than these two sectors, a lot of IT companies from SME space have also started applying for loans as that sector is also seeing growth in Pune.