Small wonder

Calcutta, Aug. 26: Yes Bank has created a business banking financial advisory division to arrange for private equity and debt syndication for small and medium enterprises. The division will also take up merger and acquisition mandates, both inbound and outbound.

“The division has already got four M&A assignments,” said Varun Tuli, president — business banking, Yes Bank. “Two of the clients are looking for acquisition overseas and two in the domestic market,” he added.

Over the last one year, the bank has helped some big companies in overseas takeovers. These include United Phosphorous’s acquisition of French company Arkema’s agrochemical division for $142 million, Sintex Industries’ takeover of the US-based Wausaukee Composites for $20.5 million and, more recently, Suzlon’s acquisition of RE Power of Germany.

“Opportunities in big deals are shrinking fast. There are not many companies willing to be sold out. Those who are willing are asking for a steep price,” Tuli said. Not much money can be made in such deals. The bank feels mergers and acquisitions will perk up in the SME sector.

“A big company can easily raise capital as equity or debt to fund its expansion,” Tuli added. However, for a closely held small-scale enterprise, capital is scarce. The promoters neither have enough money to support their business growth nor do they have easy access to low-cost funds from banks and financial institutions. Inorganic growth is the best option for them, Tuli said.

“A foreign company that does not have a presence in the country also finds it easier to buy a small company here and enter through the backdoor,” he added.

There are nearly 20 lakh small and medium enterprises in the country. The bank has also reclassified corporate banking business. Till now, the bank lent to companies with an annual turnover between Rs 50 crore and Rs 500 crore under the SME category.

“This excluded companies with turnover of less than Rs 50 crore. We recently reclassified our SME business into two categories,” Tuli said. Companies having an annual turnover between Rs 10 crore and Rs 100 crore will comprise the bank’s SME portfolio, while those with turnover between Rs 100 crore and Rs 750 crore will fall under the emerging companies category.

The bank is also giving unsecured loans to companies having a turnover of less than Rs 10 crore. It is also increasing headcount in its SME business to 450 by the end of this year from 225.

“We are aiming between Rs 2,500 crore and Rs 3,000 crore worth of business from the SME segment and another Rs 2,000 crore from the emerging companies segment,” Tuli said.

Last fiscal, Yes Bank reported business worth Rs 3,000 crore from its SME portfolio.

It has also got approval for 56 branches out of 75 it had applied for. The bank has 60 branches in the country.

“By the end of this year, we will have over hundred branches and plan to have 250 more in two years. Once we have 100 branches, we will enter the credit card business,” Tuli said.