Non-performing assets force banks to woo small cos

MUMBAI: Banks’ lending to small enterprises rose sharply in June from a year ago, but it fell for larger companies in the same month, as economic slowdown forced lenders to rely more on smaller units to boost their loan books.

While loans to micro and small enterprises, with a total portfolio of Rs 2.92 lakh crore as of end June, grew 21.2% year-on-year, lending to bigger companies grew only 14.2%, according to the latest data from the RBI.

Lending growth in these segments in the same month last year was 12.7% and 20%, respectively. Loans to medium-sized firms, too, recorded a surge, rising to 12.2% from 1.5% in the previous year. “Banks are exploring this segment as there are opportunities in extending working capital loans here,” said BA Prabhakar, CMD of Andhra Bank.

“In the absence of opportunities for lending to large companies on account of fewer investments, banks are tapping this segment to grow their loan books.” This change in banks’ focus is also helping address the SME sector’s problem of inadequate funding. Although there are risks associated with lending to SMEs, experts say they are about the same as that with the other sectors.

For Union Bank of India, for instance, gross non-performing assets (NPAs) to the advances for this sector was 3.79% as of end March—a tad higher than gross NPAs of 3.5% of total advances. SME firms are of two types: suppliers to large firms and those that sell their products in the market to retail buyers. Bankers have been very cautious about lending to large corporates on fears of deteriorating asset quality.