Private sector banks turn spotlight on small businesses

With credit demand from the corporate sector showing no signs of a pick up, private banks are eyeing the opportunity in financing small businesses within the small and medium enterprise (SME) segment.

According to Reserve Bank of India (RBI) guidelines, micro and small enterprises are those in which the loan size is up to Rs 5 crore. This segment is dominated by public sector banks. Barring large players such as HDFC Bank and Axis Bank, private sector lenders in general have so far been cautious in lending to such businesses Free Stock Share Market Tips

“There are a lot of opportunities in this segment, as most large banks tend to focus on the top-end of the segment. We believe that in the coming days, the contribution from the small segment will grow significantly and we are looking at working more closely with the smaller end of the business segment,” said Mahesh Dayani, country head (retail assets) atING Vysya Bank.

Dayani noted these small-ticket loans also qualify for priority-sector lending and, if done prudently, can turn out to be profitable Intraday Trading Tips

“Currently, of the total SME book, the smaller enterprise constitutes 40 per cent of the book for ING Vysya and is increasing at a robust pace. We do not have a target that we are looking at achieving, but it is clearly our focus area,” said Dayani. Business banking / SME constitutes 56.2 per cent of the total portfolio for the bank.

Considering the fact that the corporate end of the business continues to recover at a slower pace, banks have also been focusing on the SME business to drive their overall business growth Commodity Trading Tips

Similarly, YES Bank, another private sector lender, has also been focusing on the smaller part of the business. “We are seeing an opportunity in the smaller pie of the market. However, we are still growing cautiously on this part of the business and are lending to select sectors where we see a value proposition and not across the board,” said Sanjay Agrawal, senior president (business banking) at YES Bank.

Retail banking (including SME) / business banking accounted for 28.6 per cent of the total advances for YES Bank Nifty Trading Tips

Having burnt their fingers in the SME book as well, the banks are moving rather cautiously, continuing to avoid certain sectors such as infrastructure and power. However, bankers believe the defaults are much lesser than large corporates and since the quantum of the loan is smaller, the risk is much lesser.

“If the lending is cautiously and with a more granular approach, then the risk can be mitigated. Moreover, banks should also see to the sectors that they are lending to. For instance, currently, there are a lot of opportunities that can be seen in the services sector within the SME space,” said Rajeev Ahuja, head of strategy at RBL Bank.

RBL Bank has also been focusing on the smaller businesses within the SME segment and it currently contributes about 10 per cent of the total advances for the book. Ahuja added that in the next two-three years, this part of the business might begin to constitute 15-20 per cent of the total advances Free Share Tips