ICICI Bank plans SME SPV

In order to off-set the marginal fall in demand for loans in the recent months, ICICI Bank is planning to launch a private equity (PE) fund for SMEs through a special purpose vehicle (SPV) within the next five to six months.

Traditionally, ICICI Ventures is the PE arm of the bank, but the launch of the specific fund for SME was part of the bank's strategy to increase credit off-take to small and marginal businesses, given the low risk associated with them, pointed an official from the bank.

Speaking on the sidelines of a seminar organised by the Confederation of Indian Industry (CII), Sanjiv Sherawat, head of business banking at ICICI Bank, hinted that the initial corpus of the fund might be of the tune $200 million, and might involve some joint venture partners as well.

Currently, SME funding accounts for the 8-10 per cent of the bank's portfolio, but in coming months, the segment would grow faster than other businesses, he said.

"We have seen that the borrowers themselves going slow in their capex plans. To off-set this, we are introducing newer products in the market," he said.

For the industry as a whole, the loan component has come down to 20-25 per cent of the total fund requirement from about 30-35 per cent a year ago, he said.

ICICI Bank would grow its SME business on retail finance model, rather than the traditional branch-centric corporate finance model, as in the later case the share of loans for small corporates was generally minuscule fraction of the total lending.

The bank would also continue to focus lending to specific clusters with growth potential like, pharmaceuticals, jewellery, textiles and capital goods.