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AllBank pact with rating agency

Calcutta, Feb. 20: Allahabad Bank today signed a memorandum of understanding with SME Rating Agency of India Ltd to rate the creditworthiness of its small and medium enterprise (SME) borrowers.

“We want to increase our exposure to the SME sector in keeping with the policies announced by finance minister P. Chidambaram last August,” Allahabad Bank chairman .N. Singh said. “Moreover, the SME sector is expected to play a greater role in the country’s overall growth process in the near future. So, we had taken up SME financing as a core business proposition for the growth of our credit portfolio,” he added.

The government wants public sector banks to double their lending to small and medium enterprises by 2010.

The city-based bank’s loan outstanding to the SME sector as on March 31, 2005 was Rs 2,140.43 crore, which the bank expects to increase to Rs 3,200 crore by the end of the current fiscal, representing a growth of nearly 50 per cent.

However, the bad and doubtful debt comprises 3.5 per cent of Rs 2,553.85-crore SME lending by the bank as on December 31, 2005. “We have 100-150 bad debt accounts. However, Allahabad Bank will leverage the credit rating services of the SME Rating Agency following the tie-up to reduce the possibility of more sticky assets in the SME segment,” said a bank official.

Though it will be optional for the bank’s existing SME borrowers to get themselves rated, Allahabad Bank will insist on a credit rating for new borrowers and for the existing ones who may come for loan renewals.

“Enterprises may directly come to us to get themselves rated or they may be referred to us by the lending bank,” SME Rating Agency CEO Rajesh Dubey said.

“The fees for the credit rating may vary between Rs 15,000 and Rs 50,000 depending on the size of the company,” he added.

“Then there is a government subsidy of 75 per cent of the fees amount. So, the credit rating fees effectively comes down to Rs 4,000-10,000. However, in case of a bank referral, we give a 20 per cent discount on the fees,” Dubey added.

For highly rated SME borrowers, the bank will offer a preferential interest rate.

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