Balance risks while funding SMEs: Gokarn to banks

Reserve Bank of India Deputy Governor Subir Gokarn today said banks would have to balance risks when lending to small and medium enterprises (SMEs).

"If banks are looking at SMEs as a significant part of their lending activity for expanding their portfolio, they will have to balance the credit to the sector with the consideration of increased riskiness that comes with the increase in portfolio," Gokarn told an SME summit here.

He said fair amount of attention had been given to the finance and credit problems of the SME sector as many banks had taken initiatives in providing funds to them.

"Banks need to realise that as they move down the scale of hierarchy, risks will increase...That is the nature of business and commercial environment. Therefore, there is a need to balance out risk with lending activity," Gokarn said.

He further said there was a need for developing a mechanism for risk management or risk mitigation. "Both lenders and borrowers need to develop a mechanism to mitigate or manage risk."

Gokarn also pointed out that government policy intervention could make this sector more viable and competitive. Besides, he said SMEs needed to adopt a collaborative approach for their overall development.

"If they collaborate, they will be able to leverage larger challenges such as technology availability, brand building and marketing among others," he said.