Slowdown in SME sector can hurt mid-sized private banks, be selective

RBL, Federal and City Union appear better-placed to handle the potential SME loans-related woes; investors should be cautious on DCB and Karur Vysya

Mid-sized private banks, such as RBL Bank, Federal Bank, City Union Bank (CUB), DCB Bank, and Karur Vysya Bank (KVB), have two common threads. First, they cater for an identified pool of customers, either by region or product category; second, their core strength lies in their ability to serve small and medium enterprises (SMEs).
 
But SMEs are a segment that draws strength from the underlying economy and when there is a downturn, it tends to take the blow first and is among the last to recover. Signs of this is already visible as banks have witnessed an increase in