SB: What are the problems hindering SMEs in Surat from accessing formal financing?
Jatin: Every bank has access to everyone’s banking history as they are all tied up with credit rating agencies like Cibil. From them we collect all the information we need on an individual. We get to know about any prior credit defaults. What we have seen is that most of the cases are related to credit card settlement cases.
I would emphasize that a bank cannot make a distinction between the individual and the proprietor of a business. If financial discipline is lacking in the proprietor’s personal finances, the bank will be tilted against him. After all we safe keep the money of our customers. We cannot take risks on that. The train stops on their journey to funding right there at the banking record check.
Exceptions are made if that person is associated with us for years. We overlook these matters by asking for more security, liquid security like LIC SV.
SB: In an RBI study, it came out that 93 percent of the MSMEs in the country do not get formal funding. What are your comments on this figure?
Jatin: When you come to a bank, the bank asks for security, call letter security, project report, etc. When we ask this of someone, they bolt out as they do not have the records maintained to complete these formalities. They then go to the indigenous money lenders and ask for money, which they get easily. There needs to be a cultural shift in this regard.
Also, it must be considered that an average SME does not have the time for maintaining records; a problem which affects them at the time of availing loans. But, we are a conservative bank and we cannot be lenient in this regard. Due to this our exposure to non-performing assets stands at 1.63 percent gross NPA.
SB: What is your advice to MSMEs who want to approach banks for finance?
Jatin: Stick to one bank and maintain a relationship. Today, when there are so many banks making offerings to MSMEs, it is important for an entrepreneur to understand the value of maintaining a steady relationship with a single bank. People are running around in search of a bank which does their job the fastest. This creates a situation where under the table transactions occur to facilitate financing, putting the possibility of NPAs on the horizon. Another benefit of being with a bank, as stated above, is that being an old customer could buy you some considerations.
Awareness is a big problem. By awareness I mean regarding machinery in which you want to invest. When you approach a bank for a loan to invest, you should have the clear vision of how the capital being injected will be used. There are financial parameters, marketing parameters, general administrative parameters and technical parameters of the bank which an applicant must clear.