"They are not alone. We will walk together" 

THEY have been wobbling. They were in the lurch of uncertainty, insecurity and instability. But that is history today. Today they are not alone. We are ready to walk with them. Small Industries Development Bank of India (SIDBI) is all set to provide a much stronger back-up support to the SME sector, the unsung heroes of the Indian industrial revolution story.  All that SIDBI chief wants is for them to know and understand that SIDBI is with them for all times, for all seasons.  

In an outspoken interaction with Amitabha Sen the SIDBI Chairman and Managing Director N. Balasubramanian lamented that most of the entrepreneurs in the SME sector are blissfully unaware of the wide range of SIDBI support and offerings. Knowledge gap is the biggest road block for the SME sector to grow. We are trying our best to bridge that gap as much as possible but to achieve that a more concerted efforts by all other banks and other key players are essential. "I am personally talking to each banker, the key decision makers  at the regional levels and seeking their active help and cooperation to bridge this knowledge gap", Balasubramanian said.

AS: Could you give us an overview of the SME sector in India today?

NB: Bulk of the unregistered units form the core of this segment of the SME and this sector provides substantial amount of employment, the average being around 3-4 employees per unit. Mostly they are members of the same family, their relatives or friends. In small scale sector also a large number of units are unregistered, the average of employment being 7-8 persons per unit. In the medium scale, it's a different ball game altogether. In terms of providing employment both the tiny and SSI sectors occupy a very important position. They provide very critical input. But today the level of support that they get from the formal channels of the banking system is not commensurate with their potential and contribution. The reasons could be manifold but it also has a lot to do with regard to their orientation, profile, understanding of the markets and lack of inputs in terms of the available opportunity for growth.

AS: The credit offtake by the SME sector is comparatively very low. Why?

NB: From the perspective of the Bankers, this segment is generally viewed as a high risk segment thereby building some kind of resistance to associate closely with this segment. In recent years both Reserve Bank of India and the government have taken initiatives to improve the situation. But I think the lack of a coordinated approach leading to information gap is dampening all efforts to a large extent. For example, many of the units in the tiny segment are unaware that for loans up to Rs 5 lakhs, no collaterals are required. In the other segment where the loan requirements are upto Rs 25 lakhs, bulk of the entrepreneurs do not know that there is a Credit Guarantee Scheme introduced by the Govt dispensing with the requirement of providing collaterals.  Also bankers partly know this but may be the bankers are also hesitant to take risk. 

The function of Credit is not merely to give money. It has to be adequate and available in time. If I give you Rs 1 and tell you to have both lunch and dinner, that would be ridiculously insufficient. I must give the bare minimum. You must get adequate credit and timely credit. If you ask for breakfast at 9 in the morning and if it is served at 3 in the afternoon, will that serve your purpose? You are getting housing loans, consumer goods loans etc at 7 percent, 8 percent but when you are giving loans to tiny or small sector, you are charging higher interest. This glaring disparity has to be looked into seriously and resolved soon. If somebody wants you to walk alone on a stretch of  a three-kilometer street in mid night and there is only one light at the end of the street, is it possible for the person to walk? That's what is happening to the tiny and small entrepreneurs. At SIDBI, we say,  we will give you a company. We will walk together. We are willing to walk with you. We want to support bank/branch managers.  RBI has come out with guidelines in this regard.

AS: Tell us something about your one-stop-shop concept

NB: We are trying to develop the concept of one-stop-shop. The SMEs do not only require funding but also support services. SIDBI had realized this and accordingly increased its basket of offerings. However, as per mandate, there are certain restrictions on SIDBI to offer entire set of services to the SME segment. While SIDBI has been engaging the Government and other decision makers in this, it has also simultaneously been working on suitable models so that the entire product offering could be extended to the SME under one roof. Towards this, while many of the facilities are being extended by SIDBI through its various arms, viz- Venture Capital, Credit Guarantee, Technology Services, Rating services etc, SIDBI has also endeavored to actively bring other players under a common platform to address the issues of the SME . The recent alliances with the commercial banks and other agencies are a case in point.  

We understand that generally the SMEs grow in clusters and it makes a lot of sense to structure policies /models which take care of a large number of units in the cluster and make them healthier and competitive. Towards this SIDBI has invited leading Banks to partner in this Endeavour of developing robust, self sustaining SME clusters.

Towards this SIDBI has also developed suitable credit appraisal and rating models which could be made use of by partner Banks for quick and efficient appraisal and rating of smaller units which would facilitate realistic assessment and help in taking a positive view of the sector. Along with the development of concept of clusters, we must provide infrastructural support. What's happening today? In a cluster there may be number of units manufacturing a particular product. But they are doing individually, independently.

AS: What is the scope of public-private partnership in this respect?

NB: At SIDBI we are trying to address this issue through public – private partnership and develop sustainable models for various industry laterals. There would also be a need to work on models which could provide greater level of confidence and support to the lending to participate in funding of such infrastructure. Towards this, the SMEs have also started to open out to the idea of partnership and collaboration so as to reap the benefits of the initiatives being taken by SIDBI in this regard. SIDBI would replicate some of the successful models across the country. At the higher end of the SME segment, 8 to 10 industry segments are looking up. Those include textile, knitwear, readymade garments, light engineering, pharmaceuticals, biotechnology, auto components, IT and ITeS. All these are very potential industries. For all of them SIDBI would like to create a knowledge hub in different parts of the country. In this also SIDBI does not want to go alone. We would like to have respective commercial banks with us. This will give information about procurement of raw materials up to selling, marketing and collecting cash also. SIDBI would like to play a positive role and support the SME sector. 

AS: What role SMERA is expected to play?

NB: As such there is no major problem with the top end entrepreneurs. It is the middle and lower end entrepreneurs who need some recognition and with this objective a credit rating agency has been launched in collaboration with an internal rating agency, Dun and Bradsheet and a number of large commercial banks. SIDBI is one of the shareholders of the credit rating agency SMERA. Commercial banks will refer the cases to the credit rating agency and based on international model, the agency will rate them and issue certificates. "This is like blood test. This will give you a clear picture about the state of health of concerned units." Once all the information is furnished, agency report would be ready within 15 days. 

AS: Do you have any special scheme for the IT sector?

NB: So far as IT sector is concerned, we have set up a separate Rs 100 crore IT Venture Fund. This has been more or less successfully deployed. Based on the success of this fund and our experience, we have floated a Growth Fund of Rs 500 crore. IT units in the SME sector can use this fund. In fact, all industries in SME sector have access to this fund.

AS: You are trying to float the concept of a National SME Bank. Could enlighten us about this issue?

NB: The government, the Reserve Bank, Hon’ble Finance minister all has been giving growing emphasis on the growth and expansion of the SME sector. This is a national objective. We all who are in the banking sector, must give unstinted  support to those talented young people who are trying to stand on their feet. I am sure with our concerted efforts this objective could be achieved.

I strongly feel the need for a National SME Bank. This bank will deal exclusively the SME issues. This special banking system for SME is required because this is a very important sector that is providing millions of jobs, adding value to GDP, contributing substantial to country's foreign exchange kitty. The sector deserves such special treatment. SIDBI's hands are also tied. Its chairman may be a committed person but his bank cannot offer more than what are prescribed hence there is need for a national bank that would handle exclusively the SME sector. 

AS: Under the given scenario and the initiatives being taken by SIDBI, government and the Reserve Bank of India in association with commercial banks, where the SME sector you would like to see ten years hence?

NB: Problems will be there, even after 50 years hence. In a recent international seminar in Kualalampur other countries also talked about the similar problems. But so far as India is concerned, I have strong faith in the young generation. They are the best brains today. I love their confidence. But this confidence needs to be nurtured properly and the lending institutions have a great role to play. Globalization has placed all of them in international perspective. Now they can compare themselves and take corrective measure to become at par with others in any part of the globe. I am very much optimistic about small and medium entrepreneurs. The sector is taking a gigantic shape. It's a sleeping giant, waking up slowly and gradually. SIDBI would stand by them.


N. Balasubramanian is the Chairman & Managing Director of SIDBI since December 30, 2004. Before his taking over as Chairman, Balasubramanian was Deputy Managing Director of the Bank since January 2003. Balasubramanian is a core Banker with over three decades of experience in all aspects of Banking especially Credit and overseas business. He is a Post-Graduate in Science and has excelled in a PG programme in Management from IIM, Ahmedabad.

Uploaded on October 6, 2005