Bank credit to SMEs up 27% in 2008-09

Indian banks’ outstanding credit to the country’s micro and small enterprises, including manufacturing as well as service enterprises, rose by Rs 55,106 crore or 26.9 per cent during the year ended March 31, 2009 to Rs 2.59 lakh crore.

Industry experts said that with big companies having multiple financing options, banks had started looking at SMEs seriously. The government’s directed lending norms also helped smaller units to access banks’ money.

According to recent Reserve Bank of India (RBI) data, the total loan outstanding of micro and small enterprises was Rs 259,998 crore on March 28, 2009, compared to Rs 204,892 crore on March 27, 2008. During the same period total priority sector outstanding, which includes small-scale industries, was Rs 915,886 crore.

Uday Sareen, country head-retail banking, ING Vysya Bank (which has a high exposure to SMEs), said, “While there were such segments as textiles and leather which were affected during the second half of 2009, a lot of SMEs linked to domestic consumption grew and availed of incremental finance from the banking system.”

Big companies now have multiple financing options, like capital markets and private equity, which has led to wafer-thin margins for banks in their prime lending business. Banks have therefore started looking at smaller companies for higher returns.