Q. What percentage of IDBI Bank’s overall credit portfolio caters to SME financing? A. As on March 31, 2009, the banks total exposure to the SME sector was around Rs 12,000 crore (which works out to about 12% of total exposure) out of which around Rs 6,600 crore was extended to micro and small enterprises. IDBI Bank has started focusing on SMEs recently. The bank is in the process of strengthening its branch network and training manpower. Q. What is the approach followed by the bank to select a cluster for investment?

A. The bank finances all the clusters identified by the Reserve Bank of India and the Government of India. IDBI Bank is presently focusing on clusters where SME clients are concentrated, showing good growth or new clusters, in the growing industry. The bank has not reached the rural level of the SME segment as the bank has just started these activities. However, the bank is catering to the semi-urban and urban areas where SMEs are more prominent.

Q. How much freedom is given to a branch for approving a loan?

A. IDBI Bank is one of the aggressive players in the SME segment. In IDBI Bank, even a lower level officer can sanction a loan of up to Rs 5 lakh for government-sponsored schemes or small loans. Going ahead in the hierarchy, the Assistant General Managers of the bank are authorised to sanction up to Rs 1 crore, Deputy General Managers up to Rs 2 crore, General Managers up to Rs 5 crore and above Rs 5 crore are approved by the head/committee. We have observed that the maximum requirement of the SME segment is up to Rs 10 crore and to get this amount sanctioned, SME customers get a sanction at the branch level or city centre level itself.

Q. What is a City SME Centres?

A. The City SME Centres will be the major focal points whereat all the loan processing viz. sanctions, post sanction documentation, disbursement and credit administration will be carried out. City SME Centres are the business hubs that meet the loan processing requirements of a large number of branches under their jurisdiction. A customer has a dedicated relationship manager (RM) at the Branch who deals with him at the branch level and likewise the RM is dedicated to procure business and strengthen relationships with customers. The RM sources business and is always in touch with the client. A relationship manager gives full support to the customer. The application for credit goes to the branch where day-to-day operations are carried out. The bank is planning to set up 40 City SME Centres across the nation.

Q. Does the IDBI Bank provides any type of consultancy to the SMEs?

A. The bank guides the SMEs and may provide them with financial advice. The Bank helps the SMEs in preparing the project report, undertaking marketing activities, helps them comply with regulatory issues under the Company’s Act as well as the Income Tax Act.

Q. What are the latest initiatives started by the Bank for SME financing?

A. The Bank is liberalising the process of SME financing. At IDBI Bank, all proposals up to Rs 5 crore get sanctioned within a period of ten days. This is the biggest strength of IDBI Bank as according to the banking industry norm, loans up to Rs 25 lakh get sanctioned in two weeks. The Bank has simplified its processes and has introduced products where minimum information is required and also where not much rigorous exercise of rating is required. Loans are being dispensed on the basis of scoring model up to Rs 5 crore. The Bank is also sanctioning loans without collaterals.

Q. What are the challenges faced by IDBI Bank for financing SMEs?

A. SMEs are a big challenge for the banking industry. India has about 13 million SME units and out of these hardly 17-18% has banking relationship. SMEs depend on informal or other sources of funds like friends, family members or relatives. It is difficult to convince SME clients about the benefits of obtaining finance from banks. IDBI Bank is trying to reach the grassroots level and conducting presentations for the SMEs to create awareness. The SME segment provides banks a big opportunity for cross-selling. We provide lucrative liability products for the SME segment. Since all banks are focusing IDBI Bank sanctions loan upto Rs 5 crore within 10 day T R Bajalia Executive Director – IDBI Bank Limited T R Bajalia Executive Director 39 on the SME segment on account of potential of deposits from this segment; the competition is becoming stringent in this segment, and tapping the SMEs a real challenge.

Q. What is the USP of IDBI Bank?

A. IDBI Bank has entered the field of SME banking very recently. It is still in the initial stages as compared with other banks that have a very good branch network. IDBI Bank has 570 branches as on date. Branch network is one of the key factors in banking. IDBI Bank has long experience of project appraisals and considers this to be its differentiating factor. The Bank has the feel of the industry as it has played a part in financing all large industries in the country either directly or indirectly. Considering these factors, the Bank is in a better position. Moreover, IDBI Bank has started on a strong technology platform; while most banks are now opting for core banking technology, IDBI Bank has mastered core-banking solutions and is in a position to offer world-class products and services. The USP of the Bank is to convey sanction decision for loans up to Rs 5 crore within 10 days of receipt of application.

Q. Is the Bank concentrating on any specific sector in the SME clusters?

A. The Bank is not concentrating on any particular industry. IDBI Bank generally tracks all the industries be it auto ancillary, textiles, readymade garments or leather provided it is growing fast and there is scope to help that segment. Q. Does IDBI Bank have tie ups with associations? A. The Bank is in touch with associations such as CII/FICCI, SME Chamber, etc. on a regular basis and works closely with them. These associations provide leads to some of the clients in need of funds. The associations also arrange joint meetings with the clients at different places for IDBI Bank.

Q. Does the Bank provide incentives to clients that come through associations?

A. The clients that come through associations are examined on a priority basis and then terms discussed with these associations are considered.

Q. Does the Bank plan to participate and develop the new clusters that are soon to be announced by the RBI and the Central government?

A. Yes, we will participate wherever new clusters will come up. For instance, one new cluster for home-furnishings is coming up near Jaipur with almost 50 units. IDBI Bank has estimated the total fund requirement of the units in that cluster, thus complimenting the government’s efforts.

Q. What is the main purpose of SMEs that come for loans to IDBI Bank?

A. Generally any unit that comes to procure finance from banks wants funds for working capital needs for carrying out day-to-day activities. Many units also seek loans to set up a project at the base level or to go in for expansion of its unit or may want to go in for diversification in some related projects. SMEs that export may come in for Letter of Credit requirements as well. If they are getting many bills that are accepted by other banks or from their sellers and buyers, those bills also can be discounted and credit can be provided immediately. Thus IDBI Bank fulfils a complete chain of requirements, whether it is directly or indirectly either for working capital, term loan, including technical upgradation or any R&D effort. If the SMEs during any period need any particular equipment that is a bottleneck for running the plant, the bank directly finances it. Bank may also finance SMEs who want to purchase particular equipment. IDBI Bank extends finance for a complete chain and a complete project. IDBI Bank has also introduced a scheme for equity participation in SME units.