The Hindu Business Line : Dena Bank to route SME loans via NBFCs

Mumbai, Aug. 5Dena Bank is looking to increase its lending to the unorganised small and medium enterprises sector, for which it will work closely with non-banking financial companies.

The bank is currently working on a model for this segment and will kick off operations in Gujarat, where it has over 525 branches.

The NBFCs will provide training, advisory and other ancillary services and even lending in areas where the bank does not have a presence, said Mr D. L. Rawal, Chairman and Managing Director, Dena Bank.

Unorganised sector

Around 80-90 per cent of SMEs in the country is from the unorganised sector.

“The unorganised SME sector is one area for which the banking sector does not have the necessary infrastructure to provide services. This sector is of a different nature. The business cycles are totally different. They have weak information system or no information system at all. We need to develop a different business model taking into consideration all these factors,” said Mr Rawal.

The bank will be looking to lend directly to this segment across sectors. It has chosen Gujarat to begin with, as the bank has a presence in almost all districts.

Dena Bank’s SME portfolio at Rs 4,800 crore constitutes 16-17 per cent of its total portfolio.

In areas where it has widespread presence, the bank will lend directly to the SMEs, and not through NBFCs, as there will be a cost advantage for the end user. However, the bank is looking to tie up with NBFCs in some pockets to train their workforce.

“In some pockets, we can use NBFCs for training our workforce, for sharing information. We can look into the models adopted by NBFCs and modify them to suit our requirements,” Mr Rawal said.

In Chennai, Mumbai, Delhi and Kolkata, the bank is lending through NBFCs to the unorganised sector.

In 2006-07, Dena Bank had lent Rs 1,154 crore to NBFCs. This increased to Rs 1,471 crore in 2007-08 and more than doubled to Rs 3,157 crore, in 2008-09.

The bank’s lending to NBFCs is more than 10 per cent of its total lending.

The bank takes care of asset quality by financing NBFCs which have the infrastructure, requisite information and the manpower to monitor their lending closely, Mr Rawal said.

“We are financing good NBFCs. They have a strong dedicated force. They meet the customers almost on a daily basis and have full understanding of their business requirements,” he said.

NBFCs have strong channels, efficient recovery, good risk management systems, dedicated infrastructure and fast collection systems. They also work in clusters. For instance, in a particular area, if there are 100 SMEs, the NBFCs target the clusters.

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