Bank
of India (BOI) and Small Industries Development Bank of India (SIDBI) have,
entered into a strategic alliance and signed a MOU, which formalises a comprehensive
arrangement to boost credit flow to the small and medium (SME) sector. BOI
expects to leverage the 'term loan' assessment skills of SIDBI in meeting
the requirements of the SME sector. Under
the mutually agreed arrangement Bank of India and SIDBI would jointly identify
projects for financing and those found viable and acceptable as per norms
of SIDBI /BOI would be taken up for comprehensive financing. The finance would
also be in foreign currency for export units. SIDBI / BOI would either take-up
co-financing or exclusive financing of term loans (at 9.5 per cent fixed rate
interest), while working capital requirements (at10.75 per cent floating rate
of interest) would be met exclusively by BOI. Along with SIDBI, BOI will also
widen the extension of micro credit through the vast network of rural and
semi-urban branches. N
Balasubramanian, chairman, SIDBI, said that its BOI alliance was the first
of its kind and would be initially be implemented at 11 centers (Pune, Aurangabad,
Ahmedabad, Surat, Indore, Faridabad, Ludhiana, Tirupur, Coimbatore, Bangalore
and Visakhapatnam.) covering 58 identified clusters. Financing under this
alliance would encompass the SSI sector, medium sector, services and infrastructure
sector. According
to M. Balachandran, chairman and managing director, Bank of India this alliance
assumes particular significance in the context of the finance minister's recent
exhortation to chairmen of public sector banks to step up credit flow to the
SME sector, which is a growth engine contributing significantly to the country's
economy in terms of production, exports as well as employment generation.
"With
the emerging conducive environment, the SME sector is expected to play a dominant
role as a loyal vendor base for large corporates and MNC's who have evinced
keen interest to look at India as an important manufacturing hub for their
global operations," Balachandran added. He
also said that this alliance would pave the way for the bank to enlarge its
reach to SMEs through SIDBI at 11 centres. BOI's financing of the SME sector
currently exceeds Rs8,000 crore of which Rs4,600 crore has funded the SSI
sector. For the fiscal 2005-06 BOI has budgeted an incremental growth of Rs720
crores to this sector, up from Rs600 crore in 2004- BOI,
pioneer in financing small scale industries, has a SME strategic business
unit at its Mumbai corporate office and 32 specialised branches exclusively
for SSIs all over the country. The bank was conferred first ever-'national
award for excellence in SSI financing' for the year 2001-02.
.
As a prelude to the alliance, the bank has already trained SIDBI officials
at its BOI Management Development Institute, to familiarise them on the banks
perspective on working capital finance. Moreover, it has entered into an agency
arrangement with ECGC. SIDBI
has a dedicated SME Development Centre, in Mumbai at Bandra Kurla complex.
Balasubramanian
indicated that with this alliance, SIDBI expected to realise its vision of
'bank within a bank' and register a quantum growth in lending to the SME sector
by utilising BOI's branch network. Earlier BOI had joined SIDBI's venture
capital fund along with other banks. SIDBI
proposes to set up a credit rating agency for rating of constituents in the
SME sector for which BOI has already given its
"in-principle" consent. These initiatives are expected to provide
comfort for lenders to fund units in the SME sector.
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