Standard Chartered Bank joins SME bandwagon

Standard Chartered Bank (SCB) is among the latest player to jump onto the bandwagon to cater to small and medium enterprises (SMEs) in India, alongside ICICI Bank, HDFC Bank, IndusInd Bank, IDBI Bank and Citibank.

It doubled its exposure to SMEs in the past two years, to capitalize on returns of between eight to 10 percent in the sector.

To cater to the growing SMEs sector, SCB created a virtual SME Banking arm to serve as a one-stop financial service center for SME customers.

Under this unit, customers can have access to term loans, pre-shipment or post-shipment credit, currency risk hedging or personal loans, housing loans or car loans.

Murali M Natrajan, SCB head of consumer banking said that unlike public sector banks which are offering similar services to the SMEs, the bank’s services are unique in terms of global reach, speedier service and a wide range of products.

"Public sector banks need to tie up with foreign banks in order to do letters of credit (L/C), trade, or other transactions. As a global bank, we already have the networks in place. We are also well-known abroad and that is a big advantage to SMEs when they have to deal with customers abroad. The credibility is higher," Natrajan added.

The bank also understands that SMEs desire speedy transactions as any delay may hurt their sales and livelihood. Hence, SCB upped its standards in servicing the SMEs.

In addition, the bank "tailor makes" a suite of products to suit the needs of the SMEs, from term loans and structured loans to exercising greater flexibility in accepting collateral. Its relationship managers also help SMEs make sense of all the products available to them, besides advising their clients to avoid unnecessarily high-risk territories.

"This helps the bank to expand the business, and it helps the clients to mitigate risks," Natrajan said.

Before banks like SCB offered such services, Indian SMEs had limited access to the capital markets due to limited assets to set as borrowing collateral and a lack of credit information. There was an urgent need for proximity to delivery channels, doorstep banking and a combination of personal and business banking amongst SMEs.

But, the diffusion of trade barriers, constant product innovation and rapid technological improvements has transformed the business operations of SMEs. SMEs now contribute approximately 35 to 40 percent to the Indian gross domestic product (GDP), and the overall Indian banking sector advances to SMEs is estimated to be at 38 to 40 percent. This makes SME Banking one of the fastest growing businesses for the bank in India.

Currently, the bank is focusing on the trading, manufacturing and service sectors, for the industries identified as target segments. It is spreading the word about its SME bank by concentrating its promotions on these segments, by sponsoring and carrying out discussions at the relevant trade forums.

"We are looking at sunrise segments and segments that are immune to economic ups and downs, which have shown resilience," the bank executive said.

He cited the businesses of making and selling incense sticks which are commonly used in India, or of distributing products to pharmacies, as segments that he would consider to have potential.

Apart from industry segmentation, SCB also divided the SME market into several segments based on size. For instance, a smaller SME may need a three-year term loan while a larger one may need working capital, trade, forex, bill clearing and an overdraft facility.

With the success of the bank’s SME Banking model in India, StanChart is considering adopting it in markets beyond India. – TAB