“The banking industry has exposure of ₹10 lakh crore in the MSME sector and NPAs are at 18-19 per cent of the book,” said RK Gupta, Executive Director, Bank of Maharashtra. “The slowdown of the economy is the main reason for this.”
But banks are willing to lend to SMEs, adding that lenders , at the behest of the RBI, also put in a framework for the revival of SMEs and set up committees at the zonal level of each bank branch to work with local businesses.
Sifting good from bad
Newer banks, in fact, are using the opportunity to bet on the SME sector, said Bhadresh Pathak, Senior President and Head, Business Banking, YES bank. “While the stress in this sector has come because of several reasons, banks have evolved new methods of evaluating the good SMEs from the bad ones,” he said.
“Funding SMEs is a large segment for us with fabulous return, and it also diversifies your risk, In fact, the risk-adjusted return on capital is the highest in this segment.”
Sekhar Mosur, Executive Vice-President, Aditya Birla Finance, said that non-banking financial companies (NBFC) are also betting big on small businesses, since they see this as a sunrise sector.
“NBFCs, by their nature, can make smaller-ticket loans and are more nimble-footed and can take decisions faster,” Mosur said. “This is a very attractive segment for us and we are consciously diversifying into SMEs and it is growing at an exponential rate.”
Listing option
SMEs can look for financing other than fromal banking by listing on stock exchanges, said Ravi Varanasi, Group Head, Equity Derivatives and SME Verticals, National Stock Exchange (NSE).
He said that NSE is also in the process of setting up a receivables exchange, and it will let promoters discount their bills of exchange over a formal platform.
“The RBI approval for this exchange is awaited,” Varanasi added.
Sanjay Agarwal, Group Business Head-SME Finance, CARE Ratings, said that the SMEs are often not aware of how to present data that puts them in the best light. “Data with SMEs are often optimised for tax management, but what credit rating agencies are looking for is the cash-flow required to pay back loans.”
Pushkar Mishra, Deputy General Manager, Small Industries Development Bank of India, Pune, said that lots of small industries have made successful overseas buys, and some have been very lucrative. “But it is important to make a good cost-benefit analysis first,” he added.
Considering all this, it is also important for promoters and businesses to focus on cash management, said Bhavdeep Bhatt, Head, Institutional business, Birla Sun Life AMC.
“Use liquid funds, make use of treasury management facilities,” Bhatt said.
“As a promoter, a lot of instruments are available that allow you to de-risk and participate in the growth of other businesses,” he added.
In his keynote speech, A Balasubramanian, CEO, Birla Sun Life Mutual Fund, said that despite a tepid stock market performance, investments in mutual funds have risen significantly in the current financial year, with Birla being a large beneficiary of inflows, particularly in the SIP (systematic investment plans) segment of the mutual fund industry.
Source: The Hindu Business Line