SBI Factors takes a 30% hit due to downturn

Hit by the downturn, the total business of SBI Factors has shrunk by more than 30 per cent during 2008-09 to around Rs 1,200 crore from Rs 1,840 crore reported last year.

The core factoring business of the company, which includes receivables factoring facility, purchase bill factoring facility and export factoring, has been hit the worst, according to a top official at SBI Factors.

From Rs 540 crore in March 2008, the core factoring business of the company grew to Rs 750 crore by September itself. But, after October, it shrunk to Rs 570 crore as certain segments stopped payments, indicating a rise in defaults. Hence, the company had to go in for immediate payments to the parties where commitments had already been made, the official said on condition of anonymity.

 

“The whole factoring industry has been hit. The cost of export factoring has increased to 550 basis points over Libor, compared to around 200 basis points over Libor in the corresponding period last year. As a result, just in the case auto ancillary units, payments were pushed back to 170-180 days instead of 90 days, which affected our payments in turn,” he added.

Consequently, the company has decided to do away with purchase bill factoring facility for the time being as it accounted for the most delinquencies.

“Of the Rs 200 crore settled, at least Rs 100 crore was in the purchase bill factoring segment,” he added.

As a part of its new strategy, the company has decided to be selective about acquiring new clients.

“Our major clients are from small and medium scale entrepreneurs who are most vulnerable in the current economic crisis. We have now adopted a selective approach while expanding our client base. Consequently, we are looking for clients primarily from the State Bank group, and a few other top nationalised banks, rather than private banks and small public sector banks,” the source said.
 

A correction

SBI Factors and Commercial Services has clarified that following the changes in the Reserve Bank of India’s guidelines, it has consciously brought down the outstandings under factoring of bills and letters of credit, which were fully secured by commitments from various banks. It has said that the shrinkage in business was not due to the impact of the downturn in the economy, as was reported by Business Standard (SBI Factors takes a 30% hit due to downturn) on March 20.

It has stated that due to the downturn in the economy, the receivables of a few of its clients were stretched but there was no stoppage of payments from any segment. SBI Factors took steps to ensure that net NPAs were maintained at 0.66 per cent of the total assets.

Further, the company has stated that it perceived purchase bill factoring facility meant for substitution of sundry creditors to be relatively riskier than receivable factoring facility. It, therefore, focused on the former to reduce its exposure to the segment. 

The errors are regretted.