Union Bank to study seven clusters

Close on the heels of announcing 100 specialised business banking branches to focus exclusively on the micro, small and medium enterprises (MSMEs), Union Bank of India has taken up a study of clusters across the country. Seven clusters have been identified for the study.

MSMEs, which account for about 40 per cent of the industrial products and contribute about 8 per cent of the Gross Domestic Product (GDP) of the country, happen to be the second largest employment generating sector after agriculture. However, due to the global meltdown, these units are reeling under pressure.

The order books of MSME units are sinking and their payments are also getting delayed. Market uncertainty, low margin and pilling inventories have added to the woes of these units. The bank has started a study to assess their problem with a view to improve upon the rehabilitation package meant for them.

“Lending to the MSME sector is one of our thrust areas and we intend to take care of the difficulties faced by these units. We have commissioned a study to evolve better remedial measures for them”, S Raman, executive director, Union Bank of India said.

These clusters are located at Varanasi and Badohi (carpet), Ludhiana (hosiery, knitted garments and apparels), Tirupur and Surat (textile), Baddi, Himachal Pradesh (pharmaceuticals), Jamsedpur and Pune (auto ancillaries),Mumbai (gems and jewellery), Raipur and Ludhiana (iron and steel).

Since the bank has good exposure in those locations, the findings of the study is expected to help the bank in taking better rehabilitation measures.

The bank has instructed its field functionaries to estimate the credit requirement of the MSME customers account-wise. This includes rescheduling the loan, need based additional credit facilities, conversion of working capital facilities to working capital term loans and possible rephasing of term loan instalments.

Meanwhile, the bank has introduced ‘Union High Pride’, meant for financing the mid cap industrial units for purchase of machinery and equipments and meeting the working capital needs. Now, loans between Rs 5 crore and Rs 20 crore are provided with the collateral being confined to only 20 per cent of the loan amount.

The bank’s advance to the MSME sector was Rs 13,884 crore by end of September 2008, which is about 16 percent of the total advances. This is 31.44 percent higher than Rs 10,563 crore sanctioned by the bank during the same period last year.