Mumbai, June 11: Bank of India (BoI) and Small Industries Development Bank of India (Sidbi) today signed a strategic alliance to boost credit flow to the SME sector.

Through Sidbi’s 11 centres, BoI will be able to extend its reach to this sector. The bank will leverage the term loan assessment skills of Sidbi in meeting the requirements of the SME sector.

Under the alliance, financing will cover small and medium enterprises, along with the services and infrastructure sector. BoI and Sidbi will jointlyidentify projects and those found viable would be taken up for financing.

The financing will also be in foreign currency for export units. Sidbi and BoI will take up co-financing or exclusive financing of term loans. Working capital requirements will be met exclusively by BoI.

The financing of term loans will carry an attractive interest rate of 9.5 per cent.

BoI has deployed more than Rs 8000 crore towards the SME sector and it has an exposure of over Rs 4,600 crore for small scale industries.

For the current financial year, BoI has budgeted an incremental credit growth of Rs 720 crore for SSIs. During 2004-05, the incremental lending to the sector was Rs 600 crore.

According to M. Balachandran, chairman & managing director of BoI, the alliance with Sidbi is significant as finance minister P. Chidambaram has asked public sector banks to step up credit flow to the SME sector.

He added that with the emerging conducive environment, the sector was expected to play a dominant role as a vendor base for large companies and MNCs.

Balachandran said BoI has set up a separate SME strategic business unit at its corporate office. Further, as a prelude to the strategic alliance with Sidbi, BoI has trained Sidbi officials at its management development institute to provide an insight into the banker's perspective on working capital finance.

Sidbi chairman N. Balasubramanian said the alliance with BoI was the first of its kind and would be initially implemented at 11 centres. These include Pune, Aurangabad, Ahmedabad, Surat, Indore, Faridabad, Ludhiana, Tirupur, Coimbatore, Bangalore and Visakhapatnam covering 58 identified clusters.

He added that with the alliance, Sidbi would register a quantum growth in lending to the SME sector by utilising BoI's network of branches. Further, through the alliance, the SME sector would be provided a total solution for their financial needs.