NBFCs lend to SMEs when Banks don’t

An increasing number of non-banking finance companies (NBFCs) are ramping up their reach to small and medium enterprises (SMEs) to tap these “high-quality borrowers”. Bank lending to this sector leaves a lot to be desired — it declined 3.3 per cent in April-September this fiscal.

This is precisely what NBFCs such as Edelweiss, Indiabulls Housing, IndoStar Capital, Dewan Housing and IIFL Group, among others, are cashing in on as they remain optimistic about the funding scenario.

On an average, they already have a quarter of their assets devoted to the small-scale sector. In the case of Edelweiss, the sector accounts for 60 per cent of its total assets at about ₹2,500 crore.

NBFCs normally lend in the secured category, thereby ensuring minimal defaults. On an average, non-performing assets NPAs) from their SME books are under 0.3 per cent, many of them told PTI.

Loan growth

According to a recent Crisil report, the loan against property segment for SMEs is expected to grow by ₹5 lakh crore by 2018-19 and NBFCs are expected to account for nearly half of this growth.

According to the latest RBI data, bank credit to SMEs declined 3.3 per cent to ₹3,67,500 crore as of September 18.

The RBI classifies all loans to MSMEs as priority sector lending and all banks are required to extend 60 per cent of total MSME sector advances to micro enterprises.

According to a recent Dun & Bradstreet report, aggregate borrowings of SMEs grew 13.3 per cent in 2014-15.

NBFCs, typically, offer loans against property, consumer durable loans and business loans, among other products, to SME customers or self-employed professionals.

Edelweiss Housing Finance head Anil Kothuri said the company’s SME book constitutes a whopping 60 per cent of its ₹4,000 crore loan book.

“While 25 per cent of our loan book of ₹4,000 crore is unsecured SME lending, our secured lending to them is much higher, taking our total exposure to over 60 per cent of our loan book at around ₹2,500 crore,” Kothuri said.

Its loan ticket size varies from ₹10 lakh to ₹30 crore and the company does not demand collateral up to ₹50 lakh, he added.

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