Credit-deprived MSMEs need alternative funding mechanism: Indian Bank ED

Our Bureau Chennai | Updated on August 11, 2019 Published on August 11, 2019

Co-origination of loans will help solve their credit crisis, says MK Bhattacharya


“It’s high time the setting up of an alternative funding mechanism to support the MSME sector was discussed,” said MK Bhattacharya, Executive Director, Indian Bank.


Delivering the keynote address at BusinessLine’s Surge SME Conclave, which was presented by Aditya Birla Sun Life Mutual Fund, Bhattacharya said that economists, corporates, and news organisations should deliberate more on the idea of creating additional funding channels for the credit-deprived micro, small and medium enterprises (MSMEs) sector.

“Private equity players are interested in investing in MSMEs, but they will come only if they see a clear roadmap for exit,” he added.

Indian Bank’s focus

Noting that lending to MSMEs is a profitable business, Bhattacharya said that Indian Bank was able to survive because of its greater focus on retail lending than to the corporate sector.

“From the beginning, corporate books never gave any comfort in the balance sheet of most banks, both in terms of earnings as well as asset quality,” said Bhattacharya.

Highlighting the lending mix of Indian bank (42 per cent to the corporate sector and 58 per cent retail), he said of the retail exposure, SMEs account for 20 per cent and agriculture 22 per cent, while retail lending is 18-20 per cent.

“As a banker I feel the only solution to the issue of credit availability to MSMEs is to look into their working capital cycle,” said Bhattacharya.

Elaborating, he said working capital cycle and working capital requirements are two parallel lines that never meet, and as long as the cycle elongates, the requirement will also elongate.

Co-origination of loans

He added that co-origination of loans is another new product that will help solve the credit crisis of MSMEs. The new product leverages on the low cost resource of banks and the ability of NBFCs to reach out to more people.

“Co-origination of loans will bring down the credit cost of entrepreneurs and most banks will take this route than purchasing pools or giving term loans,” said Bhattacharya.

In his welcome address, Raghavan Srinivasan, Editor, BusinessLine, said: “Today, we have a number of sophisticated products to help SMEs to more effectively manage their money and flows.

“Banks are leveraging their technology to bring a lot of new products, which were earlier available only to large corporates,” he added.

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Published on August 11, 2019
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