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2011-01-25

SMEs low on priority of banks: CRISIL

The small and medium enterprises (SME) sector is low on the agenda of the country’s banks as a study by ratings agency Crisil Ltd has found that the bulk of the expansion in these companies had to be

The small and medium enterprises (SME) sector is low on the agenda of the country’s banks as a study by ratings agency Crisil Ltd has found that the bulk of the expansion in these companies had to be funded by the promoters themselves. While credit facilities by banks to the SME sector rose continuously from Rs.127,000 crore in 2006-07 to Rs.369,866 crore in February 2010, according to the Reserve Bank of India (RBI), the Crisil study, which looked at a sample of 2,000 SMEs between the financial years 2006-07 and 2008-09, presented a slightly unexpected picture.

It estimated that Indian banks funded on an average around 60% of the sector’s incremental working capital and long-term borrowing needs, representing a gap of Rs.50,000 crore of untapped opportunity.

This shortfall was funded, overwhelmingly, by the promoters’ own funds, apart from internal accrual, which was the next most oft-resorted avenue to financing. The third route was to lean on suppliers to extend short term—and often informal—credit agreements, the data revealed.

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