If India is to grow at a pace matching the aspirations of the people, the dependence on bank finance should come down and the task of the Securities and Exchange Board of India (SEBI) is to educate industries as to how they can tap alternative funding sources, according to U K Sinha, Chairman, SEBI.

While SEBI is not for forcing SMEs to get listed, it is keen to assist entrepreneurs who want to list and raise capital.

Speaking at a meeting on `SME funding: role of capital markets’, organised by SEBI and the Small Industries Development Bank of India (SIDBI) in Coimbatore on Friday, he said CRISIL, at the instance of SEBI, did a study in Bihar a year ago about the financing needs of SMEs. It showed that in a three-year period the compounded annual growth rate (CAGR) of fixed assets (plant and machinery) by 100 companies was 30 per cent. However, bank finance to these companies grew by just 17 per cent year-on-year (yoy), while the promoters’ own contribution was growing by 26 per cent annually. But sales grew only marginally.

The SEBI Chairman said if only these companies had received adequate finance, their sales would have grown substantially. The shortfall in institutional capital for the growth of SMEs across the country may be similar at least in percentage terms. The study stressed the need for the availability of better and timely capital for SMEs.

Sinha said the observations made earlier by participants at a technical session here would be considered by SEBI and interested parties were welcome to share their views with SEBI, SIDBI, BSE and the NSE. Stating that 68 SMEs have been listed on the SME platform of the stock exchanges, he said this number “is not good enough”. While the venture capital industry has shown interest in SMEs, their dilemma is how to exit from the investment. The Institutional Trading Platform (ITP) provided under the SME platform gives institutional investors an exit option without involving the promoters or impacting their shareholding.

He said Coimbatore was the first SME-focused centre where SEBI and SIDBI, in association with the two stock exchanges, held a meeting to discuss the role of capital markets in SME funding. He said the purpose of coming to Coimbatore was “not to force you to get listed”. But if the SMEs felt that based on their own capabilities they could grow faster with more capital, the effort was to create awareness about how SMEs could get listed and raise more capital.

The SEBI Chairman said even as made clear by the RBI Governor, if “we want the country to grow at the pace that we all of us aspire to”, then the “dependence upon bank financing has to come down”. When compared with countries of India’s size or which had grown faster than India, it would show that sources of funding other than bank funding were needed. SEBI’s effort was to tell people to how to do it, he added.

Sinha, while cautioning industrialists to apply their mind seriously about entering the capital markets to raise resources, said if entrepreneurs were interested in doing so, it was SEBI’s job to provide the necessary advice/clarifications.

N K Maini, Deputy Managing Director, SIDBI, said his organisation has committed to or invested in about 60 venture capital funds across India and factoring is another area which SIDBI would be addressing. It has also taken up the services sector as a key area of focus.

He said SIDBI, through its subsidiary SIDBI Venture Capital Ltd, had invested in four companies that were listed on the BSE and NSE platforms, but he felt more institutional players were needed. He said SIDBI also has got a merchant banking licence and would play the role of a merchant banker for the sector.

Rajeev Agarwal, whole-time Member, SEBI, said the SME sector represented a growth model for the country and a business model that was much more inclusive socially and geographically. Its future growth was crucial for the development of the country.

Asish Chauhan, MD & CEO, BSE, said listing allowed entrepreneurs to create wealth. He said 95 per cent of the listed SMEs were listed on the BSE, which has 63 SMEs listed on its SME platform and their market cap was ₹7,300 crore.

Chitra Ramkrishna, MD & CEO, NSE, said the SME platform was not a “poor country cousin platform” but a platform to identify tomorrow’s growth companies. She felt that the financial institutions that assisted the establishment of the SMEs could help them come on to the growth (SME) platform and then move on to the main board (exchange) as well.

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