If we have to walk far, we must all walk together : V. Ramling
V Ramling, CGM, (Small & Medium Enterprises), State Bank of India, believes credit delivery systems need to change and that banks must reach out and partner small and medium enterprises (SME) in a much bigger way. Read On...
What is the role of banks in growing the small and medium enterprises (SME) sector?
The number of SMEs is increasing; there are more opportunities not only in terms of funding but also the onward sale of products that are being manufactured and offered by the micro, small and medium enterprises (MSME) sector in ever-newer markets that are being created. This is likely to increase hugely in the next three-four years. My estimates are the total credit exposure to the MSME sector today would be around Rs 14 lakh crore. However, if you look at the latent or unmet demand due to which the MSME sector has not been able to fulfill its potential, this would be in a range between Rs 28-30 lakh crore. The possibility exists to double the credit exposure. As far as SBI is concerned, our own exposure is about Rs 2.5 lakh crore to the MSME sector across 16 lakh units that have received funding.
How does the SME sector in India compare to its counterparts globally?
This is a great question and it is exactly why banks must continue to rise in relevance for the sector in India, primarily because it has yet to reach its potential. Just in terms of employment alone, today, about 50 million MSME units collectively offer about 106 million employment opportunities. This data is about two years old and the numbers would have surged since then. Let us take another statistic. Of the total manufacturing output and of the total exports, 40% is from the MSME sector. However, in terms of contribution to the gross domestic product (GDP), it is still lower than what the MSME sector contributes in most other countries. Globally, the sector contributes in a wide range between 25-60% of the GDP whereas in certain countries like Taiwan, it is much higher at about 85%. Here, we are only just realising what the MSME sector can do for the economy and for the country. There are two factors about the MSME sector that is important for any government across the world. One is the growth momentum that this sector can generate and sustain for an economy. The second is how it can create more employment opportunities to meet growing aspirations. This has a huge social context also attached to it and these two factors can be met only by the MSME sector. I think the country realises this today.
What is the banking industry doing to further empower them?
Actually, all of us financiers should be empowering ourselves to be able to serve the MSME sector in a much better way. In the last two years or so, I believe there have been changes in the way we have calibrated how to remain relevant in terms of products, become more reachable, deploy manpower on the ground, use technology and generally change the way we have been dispensing credit traditionally. We know there are issues relating to management of accounting, because in a smaller scale of operation, there won't be enough manpower to ensure compliance; although the level of compliance is only going to go up in future. Moreover, the number of units that are going to come from the organised segment of the MSME sector because of the introduction of the Goods and Services Tax (GST) and other initiatives of the government has already begun to grow. In this scenario, should the banks always be waiting for companies to provide us the financial information we require? Do we fund them only when these parameters are met? I don't believe this should be the case. We cannot wait because there are so many other competitors today. We have understood this aspect. As a result, we are changing our thought processes and the way we were working earlier. We have made a very strategic shift in the way credit proposals are processed and how credit delivery is taking place.
SBI is the largest lender in the country today in various segments. Can you say what you have done in the SME sector?
The part I would like to touch upon briefly is in the last two years, we have done some restructuring, keeping the SME sector in focus. Across India, today, we have roughly 150 centres where credit delivery happens in a centralised location and where retail loan processing also happens. There is an uniform approach and a standard process due to which a lot of delay has been eliminated. For instance, in terms of manpower, earlier, we were only looking at our branches and delivering credit from that standpoint. In the last two years, we have built a dedicated credit personnel force comprising 1,600 relationship managers, who are fully dedicated to serving the MSME sector across India. And as I said, for credit delivery, we were used to looking at audited financial statements and revenue projections all along and based on this, we would assess the credit limits. Now, in the last one year, we have changed these parameters, keeping aside what we had been doing for the last three-four decades.
For instance, with the help of an outside consultant, we have built a platform which takes care of two critical things. One is the the risk rating wherein 54 parameters go into the system, and the second is a bit of predictive analysis. There are varying algorithms that look at various aspects and once the inputs are provided manually, you get a thoroughly technologically-driven output. We have stress-tested the system in various ways and it is operational already. In fact, we have sanctioned 3000 cases and also provided ratings for another 5000 units across India. We also have a package which does not necessarily depend on your audited financial statements and projections while assessing your credit worthiness and processing your application. If a project is to be funded and the working capital requirement has gone up, the system will take care of it all, based on certain inputs, and give out an objective, not a subjective result. As a result, the credit delivery process which used to take about 60-65 days has shrunk to just 22 days. We are obviously aiming to refine this and bring it down further.
What is your advise to young entrepreneurs?
My advise would be to focus on three critical elements. One is optimisation of resources. Second, while growing, it is possible you neglect what has gone into building up a particular resource and whether you are leveraging it optimally or not, be it working capital, manpower, ensuring timely receivables, or anything else. The funding has come to you at a cost, and certainly, we do not wish to enjoy anything which is more that what is due to us. Focus on these areas as well as on productivity. All the economies I have mentioned earlier have focused mainly on productivity; and wherever you can adopt technology and innovate, just like what I said about SBI where we have adopted new technology, I want the SME sector to also adopt and leverage the benefits of technology. There is an African proverb which says if you want to walk fast, then you should walk alone. At SBI, we always say that we have to walk far, and not fast, and to be able to do that, we must all walk together.
- TradeBriefs Bureau -