As large corporates are deleveraging and growth in the segment expected to be measured, the country’s largest private sector lender, HDFC Bank, is looking to leverage its distribution in non-urban markets and digital strengths in expanding its SME banking platform.

Sashidhar Jagdishan, MD&CEO, HDFC Bank, in an analyst call organised by Jeffries, said SME will be the fastest-growing segment over the next 3-5 years.

“We have had about 20 years of good track record in the SME space. We are probably the second largest MSME banker in the country, after SBI. But, even though we may pride ourselves in having had a fantastic book, we believe that with the kind of distribution we have, the digital offerings we have for the MSMEs, there is a great opportunity for us to expand further”, he said.

Jagdishan also said that as far as big corporates are concerned, the debt-to-EBIDTA ratios have been coming down, which is extremely important from a confidence perspective both, at the rating agency level and from a credit perspective. "With economic activity going up, we will see the good corporates in the right sector growing, but the pace of growth will be measured," he said.

Commenting on the impact of the second wave, Jagdishan said, "Going by what we are seeing at the ground level, I think it’s slowly starting to pick up from the complete paralysis that we saw over the last 30 days."

“From a near-term perspective, I don’t see any great shakes in terms of performance in the quarter. We are not too worried even if it’s a very tepid quarter. What I can see is the resilience, the buoyancy when things normalise,” he added.

On the client side, the bank is largely comfortable as 85 per cent of retail customers work with companies rated and above , where job losses have been low. SMEs were better prepared than in past, and larger corporations have better liquidity in their balance sheet.

“In terms of consumption, which will be a key indicator of economic activity, I see the upper-middle-class segment bouncing back and creating a surge in spending and driving consumption. But the middle and the lower-middle-class segment will be reasonably stable. They would want to recoup their savings. So, consumption on a mass basis will take some time,” Jagdishan said.

On the technology issues the bank has faced for which it was pulled up by the regulator, the management highlighted that it continues to work with the Reserve Bank of India (RBI) to resolve the issue and at the same time build more robust platforms.

“While tech-outages are a normal business risk for any bank/ financial company, bank could have built a system to ensure faster recovery here”, Jagdishan said.

An umbrella body for micro, small and medium enterprises AICA on Wednesday sought immediate intervention of Prime Minister Narendra Modi on rising prices of raw materials such as steel, iron ore, aluminum, copper, plastics and paper.

As many as 170 industry associations have joined hands to form the All India Council of Association of MSMEs (AICA) in order to deal with issues of the sector hit hard by the pandemic.

In a representation to the prime minister, AICA said that the sector is facing huge challenges due to erosion of working capital on account of huge rise in prices of raw materials like steel, iron ore, aluminum, copper, plastics, PVC, paper, and chemicals.

"We understand this volatile situation is temporary in nature. However, it can cause permanent damage to the MSME sector. In spite of a drop in demand due to lockdown, prices are on the upswing, particularly steel, pig iron and other raw materials, too," it said.

It claimed that steel and other base material manufacturers are declaring 10-20 times higher profit whereas all the MSMEs are on the verge of extinction.

The association has suggested eight points to overcome the crisis and it includes protection against escalation in prices for some period; public sector enterprises must be instructed to accept cancellation of orders from MSMEs with no penalty/ black listing; a formula should be derived for price escalation; and quota for MSMEs at concessional price.

It said that the government should allow import of all steel materials based on cost and quality requirements at zero import duty and no anti-dumping; and banning the export of iron ore and steel products.

It also recommended that MSMEs, under government contract and suppliers to PSU, should be allowed to revise their price with fresh quote and for all finalised government and PSU supplies, they should be permitted to invoke escalation clause and requote.

"If the MSMEs get crippled and choked this way, due to spiraling price rise of raw materials, it will only discourage entrepreneurship, ultimately leading to failure of the government's objective of Atma Nirbhar Bharath.

"We, therefore, urge the government to take concrete steps to reign in raw material prices," it said.

The core team members include Coimbatore District Small Industries Association President M V Ramesh Babu, Arise Chairman Yogesh Pawar, Southern India Engineering Manufacturers' Association President K V Karthik, and Ludhiana Hand Tools Association President S C Ralhan.

MSMEs account for 30 per cent of India's GDP, 45 per cent of manufacturing output, 48 per cent of total exports, and employ over 11 crore people. There are about 63.5 million MSMEs in the country.

Covid-19 crisis: Relief for MSME promoters under debt scheme likely

Shreya Nandi, Busienss Standard

The Centre is planning to make procedural changes in the stressed asset guarantee plan for small businesses to make it more popular. With this, promoters may not need to take risk in their personal capacity to avail the benefits of the scheme.

“The industry has been calling for tweaking some provisions of the scheme so that more businesses are able to avail benefits. There could be around four-five procedural changes in the scheme,” a senior government official told Business Standard.

The micro, small and medium enterprises (MSME) ministry will soon take it up with the finance ministry's department of financial services before implementing any changes, the official cited above said.

The government had, in May last year, announced a slew of measures to help MSMEs tide through the Covid-19 crisis. Credit Guarantee Scheme for Subordinate Debt was announced to revive small business units that had become stressed. The idea was to support distressed MSMEs by infusing capital in the form of equity.

In the scheme, the government is facilitating a provision of Rs 20,000 crore as subordinate debt. According to the guidelines, personal loans are given to promoters of stressed MSMEs, which are infused by the promoter as equity into the business unit, thereby enhancing the liquidity and the debt-equity ratio.

Promoters of distressed units are given a debt facility of up to 15 per cent of the promoter’s stake or Rs 75 lakh, whichever is lower. Besides, the promoters are required to bring in 10 per cent of the sub-debt amount as collateral, while 90 per cent guarantee coverage is given under the scheme. Such guidelines have been the main reasons for the scheme not gaining popularity among businesses, the official said.

The response to the scheme has been lukewarm, government and industry officials said. As of May 14, guarantees to the tune of only Rs 68.39 crore were issued, benefitting 632 businesses, Business Standard had reported earlier.

The subordinate debt is provided by banks and guaranteed through Credit Guarantee Trust for Medium and Small Enterprises (CGTMSEs). The Centre has offered Rs 4,000 crore support to CGTMSEs. The scheme was operationalised in August last year and aims to benefit 200,000 small and medium businesses. It is valid till September 30.

“The objective of the scheme is to provide personal loans through banks to promoters of stressed MSMEs for infusion as equity/quasi-equity in the business eligible for restructuring, according to the RBI norms for stressed MSME advances,” the guidelines said.

The scheme was announced as part of the government's Aatmanirbhar Bharat package amid a nationwide stringent lockdown, along with the popular emergency credit-linked guarantee scheme that has now been extended to a bunch of sectors.

Support for small businesses is crucial as they are considered the backbone of the Indian economy and are major job creators as well.