SBI Factors, a leading factoring company and a subsidiary of India’s largest banking and finance conglomerate, the State Bank Group, is going full steam ahead on international trade. A new management team positioned last year has set a new agenda for the company and identified this as a thrust area.
Dev Shankar Das, managing director and chief executive officer, says: “With India scaling new heights in international trade, the decision made perfect sense. The progress achieved since then has vindicated our belief. Giving a directional change to the company is the priority, now, and all options – including that of a strategic partnership – are open.”
Rajiv Ranjan, senior vice-president and chief operating officer, adds: “Up until a few years back, Indian economy was known only for its slothful ways. The Economist had, somewhat disparagingly, labelled it the ‘Elephant” – a slow, lumbering giant that lived in isolation and compared unfavourably with the East Asian Tigers and the Chinese Dragon. Times have changed and both, the Elephant and the Dragon are now dancing on the same floor, and having quite a ball.”
The story India is scripting is very different from China’s , though. Whereas China’s growth is export led, with manufacturing forming the bedrock, the Indian economy draws its sustenance from domestic sector growth, and services account for 54% of the GDP. In manufacturing, whereas China has become a factory to the world, particularly in respect of items of mass production, Indian companies are busy building competencies in technology-driven sectors such as engineering goods, machinery (including electrical machinery), vehicles, auto components, chemicals and pharmaceuticals.
It may be news to some that India’s banking sector, 75% of which is controlled by public sector banks, ranks among the most efficient banking systems in the world, today, claims Ranjan. Indian Railways, owned and operated by the federal government, is the most productive railway in the world and Harvard Business School has done a case study on it, he adds. The Indian space research agency, ISRO, also run by the federal government, is counted among the most technologically advanced and admired space agencies in the world.
As everywhere, small and medium enterprises (SMEs) form the backbone of India’s manufacturing and services sectors. Although they are entrepreneurial and full of dynamism, their financing structure is very different from that of SMEs located in other parts of the world. A majority of these enterprises are family owned and managed. Equity investment by outsiders is virtually unknown. The most important sources of finance for SMEs are: loans from friends and relatives, internal surplus and, interestingly, trade payables. Traditionally, SMEs have exported goods under letters of credit but the changing global scenario is forcing them to deal with open account terms.
That is the opportunity for SBI Factors; for, under its Two Factor Arrangement it can handle international trade conducted on open account terms better than other intermediaries.