The Indian SMEs are going to get increased lending from banks. Crisil, a credit rating organization, conducted a study on the funding patterns of 2,000 Indian SMEs. While the banks had been involved in lending to the SME sector, they still found a scope for increasing it. The study indicated that the lending by banks were increased by Rs.50,000 crore. The funding opportunity was found to be more for SMEs which have a turnover less than Rs.500 lakh.
According to the study, the banks in urban areas had more scope when compared to the semi-urban and rural branches to increase the funding support. Generally, the banks were to finance up to 75 percent of an entity’s working capital requirement. However, between 2006-07 and 2008-09 (fiscal year – April 1st to March 31st), they funded on an average only around 60% of the incremental working capital requirement. The SMEs funded the shortfall from their own funds.
So, the banks have the significant opportunity in the form of incremental SME funding. This is, however, not being exploited now. This increased funding helps the SMEs to grow their businesses faster and it will impact positively on industrial output, employment and wealth creation. In addition, the banks also derive commercial benefits from lending to the SMEs.