The Small Industries Development Bank of India is working on creating an ecosystem whereby the assurance level for lending for small players goes up and at the same time working on digital means to push more lenders in the system, said Mr Sivasubramanian Ramann, IAAS, Chairman & Managing Director, Small industries Development Bank of India (SlDBl) at an E-Conclave: Financing India’s MSMEs “Ease of Financial Access & Economic Sustainability to MSMEs” organised by The Associated Chambers of Commerce and Industry of India (ASSOCHAM).
Speaking at the event, Mr Ramann stated that there are a lot of credit guarantee schemes through which the own cost of lending for these financial institutions gets reduced, the same can then be passed on to the borrowers. “We are planning an outreach program. Lending can be done at 5.5 to 6 percent to the MSMEs,” he said.
Mr Ramann stated that there are a lot of schemes introduced by the central government which many MSMEs are not aware of. “These smaller enterprises need to register at the Udyam portal to avail a lot of benefits announced by the government which would otherwise be denied to them. Then there is this ECLGS (Emergency credit line guarantee scheme) whereby the micro, small and medium enterprises (MSMEs) can get loans at a reasonably lower interest rate,” he said.
He also explained that through the Trade Receivables Discounting System (TReDS), MSMEs who are plagued by the issues of delayed payments can avail of extra credit. “The delay in payment cycle from the 90 days to 180 days is bleeding MSMEs. Through TReDs, MSMEs can encash their receivables and at the same time eliminate credit risk,” he said.
Mr Mahabaleshwar M.S., Managing Director & CEO, Karnataka Bank Ltd explained that nearly 20-40 percent of loan books of most banks are reserved for the MSME sector which was maintained even during COVID times. “Banks have undertaken a more scientific approach and have migrated from manual underwriting to a digital based one. This helps in faster disbursement of loans to the MSME sector,” he said.
Mr Mahabaleshwar also explained that in the last six months, they have managed to 75 percent of the home loans through digital means. “On an average almost 55 percent of all our daily sanction happens through the means of digital underwriting. This, we believe will be the next big thing in the banking sector. Not only does it increase the compliance and risk management levels but at the same time makes banking a much rewarding experience for the customers,” he said.
Mr Alok Kedia, Country Head, Business Banking, IndusInd Bank Limited stated that there is a financing gap of almost $300 billion for the MSME sector. “A requirement for collateral security for most banks still remains a huge stumbling block. Through innovative means like supply chain finance can this gap be filled,” he said.
Mr Umesh Balani, Chairman, ASSOCHAM MSME Development Council & MD and CEO, Rotomag Motors and Controls Pvt Ltd informed that finance for Micro, Small and Medium Enterprises (MSMEs) has been a concern for all stakeholders including Entrepreneurs, Financial Institutions, and Government organizations.
“Lack of adequate and timely access to finance continues to remain the biggest challenge for the MSME sector and has constrained its growth. International Finance Corporation (IFC) estimates that 65 million firms, or 40% of formal micro, small and medium enterprises (MSMEs) in developing countries, have an unmet financing need of $5,200 billion every year, which is equivalent to 1.4 times the current level of the global MSME lending,” he said.
Mr Balani also informed that as per an RBI report, the total commercial lending exposure in India stood at $919.06 billion as of June 20 of which the MSME segment holds only 25.27% of the total lending amounting to $232 billion of credit exposure. “Moreover, the estimated debt requirement for Indian MSMEs points to a colossal credit gap of over $219 billion, outstripping the available supply of finance from the formal sector,” he said.
Mr Uddhav Poddar, Co-Chairman, ASSOCHAM Council on Ease of Doing Business & CMD, Bhumika Group added that MSMEs have gained increased attention in India in recent times, considering their strategic importance to the economy and the country.