Indian Bank Eases Lending Norms To Serve SMA Marked MSMEs With Good Track Record

New Delhi, Jul 31 (KNN) Indian Bank's Managing Director and CEO, Shanti Lal Jain, has announced the bank's willingness to lend to micro, small, and medium enterprises (MSMEs) in the Special Mention Account (SMA) category.

This decision comes in response to the government guarantee announced in the Union Budget 2024.

Indian Bank is open to lending to SMA 1 and SMA 2 category customers, citing their existing relationship and customer history. Jain emphasised that the bank's familiarity with these customers and their track records makes them comfortable with extending credit to this segment.

The move aligns with Finance Minister Nirmala Sitharaman's budget announcement of a new mechanism to support MSME credit during stress periods.

Federation of Indian Micro and Small & Medium Enterprises (FISME) had made a forceful presentation before the Finance Minister during pre-budget consultations that rigid SMA framework was leading to forced closures of MSMEs. FISME had made submissions before two deputy Governors of Reserve Bank of India also in this regard,

This initiative aims to facilitate the continuation of bank credit to MSMEs experiencing temporary financial difficulties, preventing them from sliding into non-performing asset (NPA) status.

To support this effort, a government-promoted fund will provide guarantees to facilitate credit availability for MSMEs in the SMA stage.

This measure is expected to provide a safety net for both banks and MSMEs, encouraging lending to businesses facing short-term challenges.

As part of this broader strategy, state-owned lenders are expected to develop in-house capabilities for MSME credit assessment. This approach marks a shift away from traditional asset or turnover-based criteria, potentially opening up credit access to a wider range of MSMEs, including those without formal accounting systems.

Indian Bank reported a 2 per cent drop in MSME collection efficiency in Q1 FY2024, attributed to factors such as heat waves, elections, and seasonality.

Despite this minor setback, the bank remains committed to the MSME sector, recognising its importance to the overall economy.

In a move to further strengthen its MSME lending portfolio, Indian Bank is set to finalise a co-lending partnership with Arka Fincap within the next two months. This collaboration is expected to enhance the bank's reach and efficiency in serving the MSME segment.

Indian Bank's Q1 FY2024 results show a 40.6 per cent year-on-year increase in net profit, with gross advances growing by 12 per cent and RAM (Retail, Agriculture, and MSME) advances by 13 per cent.

These figures underscore the bank's strong performance and its continued focus on key lending sectors.

This initiative reflects the banking sector's efforts to support MSMEs during challenging periods, aligning with the government's focus on strengthening this crucial segment of the economy.

(KNN Bureau)