India’s largest bank, State Bank of India (SBI), has assigned 600 bank branches to target micro, small and medium enterprise (SME) clusters across the country.
?We are in the process of mapping these branches to SME clusters across the country. The credit delivery to SMEs becomes faster by targeting these clusters,? said Manas Kumar Nag, chief general manager, SME Business Unit, SBI.
Nag added that there has been good response from SME clusters that have already been mapped by SBI branches. This is part of SBI’s efforts to expand relationship banking to the SME sector and expand its overall SME loan book. Nag said that of the branches that target SME clusters, some branches will exclusively cater to SMEs. SBI currently has a total of over 14,000 branches across the country.
Bankers say the credit penetration to SMEs is low as the credit information on SMEs is insufficient. Credit quality is also a cause of worry as far as SME lending is concerned. As the access of SMEs to capital markets is limited, they largely depend on borrowed funds from banks and financial institutions. In 2011-12, banks lent around R5.9 lakh crore to SMEs.
There are several SME clusters in the country of different sizes across sectors like auto components, food processing, textiles, handlooms, etc. SBI is identifying banks close to these clusters, like, for instance, near the the auto belt around Tamil Nadu, to target SMEs there. SMEs account for about 45% of India’s manufacturing output and 40% of exports.
In 2011-12, SBI had an SME loan book of R1.4 lakh crore. The bank is facing asset quality pressure in its SME portfolio with an non-performing asset (NPA) level of 6.4%. However, Nag said that cluster financing makes it less likely that borrowers will default as compared to loans to a single unit.
Nag added that clusters can mimic a large industry by utilising common facilities. For instance, a cluster of fabrication units based in Chennai, which supplies fabrication to public sector giant BHEL, recently set up a Sec 25 company. While SBI has given a loan to this company, the government has taken an equity stake, he said.
