SBI Global Factors is planning to offer credit protection and collection services to parent State Bank of India (SBI) to mitigate the risk of defaults in the foreign currency credit facilities extended by the latter to its exporter clients.
This move could open up a new revenue stream for SBI’s non-banking finance company (NBFC) subsidiary.
The NBFC, which is the business of providing factoring (discounting invoices of clients to reduce the wait time of their billing cycle) services for domestic and international trade, is banking on its membership of Factors Chain International (FCI) to provide credit protection to foreign currency credit provided by SBI.
FCI is an umbrella organisation of independent factoring companies around the world. It is a global association for open account receivables finance, including factoring and other supply-chain finance solutions.
Collection services
When it comes to collection services, SBI Global Factors has an in-house mechanism for tracking receivables on an invoice-to-invoice basis.
While SBI will continue to provide foreign currency funding to exporters, SBI Global Factors will provide the bank credit protection through the FCI network, and also do the receivables collection, said Tushar Buch, MD & CEO, SBI Global Factors.
“Let us say, an exporter of engineering goods from Ludhiana has a tie-up with SBI for pre-shipment and post-shipment foreign currency credit.
“The bank could take the FCI network cover (for credit protection). We will do the collection. We will charge a small fees for this. So, our machinery is there for the bank for an invoice-to-invoice follow-up (of receivables),” explained Buch
The invoice-to-invoice follow-up by SBI Global Factors could help the bank have better control over the loan facility extended to the exporter.
Buch observed that one of the reasons for bad loans in the banking system is non-moving book debts.
“They (banks) don’t have the wherewithal to closely monitor whether book debts are moving up or down, whereas we do invoice-to-invoice financing. So, if there is a delay in payment of even one invoice, we get the early warning signal,” he said.
SBI Global Factors clocked a turnover of ₹3,555 crore for FY2018, compared to ₹3,047 crore in FY2017. Export factoring turnover touched ₹452 crore for 12 months ended FY2018 against ₹321 crore in previous year, an increase of 41 per cent.