Indian Bank is prepared to extend loans to micro, small, and medium enterprises (MSMEs) in the Special Mention Account (SMA) category, following the government guarantee introduced by the finance minister in the Union Budget 2024, said Managing Director and CEO Shanti Lal Jain in an exclusive interview.
“We’re up for anything. We are open since we are a bank and know that our customers have a history with us. We are lending to our consumers under SMA 1 or SMA 2,” Jain stated, citing the government’s announcement that these two groups would be eligible for the guarantee.
In her Union Budget 2024, Finance Minister Nirmala Sitharaman introduced a new mechanism to ensure the continued provision of bank credit to MSMEs during periods of stress. When MSMEs reach the ‘ special mention account’ (SMA) stage due to circumstances beyond their control, they require credit to sustain their operations and prevent falling into non-performing asset (NPA) issues.
According to Finance Sitharaman’s budget address, credit availability will be backed by a guarantee from a fund that is sponsored by the government.
She continued by saying that rather than depending on outside evaluation, state-owned institutions will strengthen their internal capacity to evaluate MSMEs for credit. “They will also lead in developing or getting developed a new credit assessment model based on the scoring of the digital footprints of MSMEs in the economy.”
Sitharaman added that, compared to the conventional method of determining credit eligibility based solely on asset or turnover criteria, this is anticipated to be a major improvement. That will also include MSMEs that don’t have a set accounting system.
Regarding MSME collection effectiveness during the April–June quarter, Jain explained that a number of variables, including nationwide heat waves, elections, and seasonality, contributed to the decline in collection efficiency.
Jain said, “During the April to June quarter, the country experienced severe heat waves, general elections, and some seasonal effects in the first quarter.”
The bank’s collection efficiency in the MSME segment decreased by 2 percent in the April–June quarter, both annually and sequentially. According to a lender investor
presentation, it was 92 percent on June 30, compared to 94 percent on March 31, 2024, and June 30, 2023.
Additionally, the overall collection efficiency decreased by 1% in the reporting quarter, falling from 96% to 95% in the previous quarter.
According to Jain, the Indian Bank plans to cease its co-lending arrangement with Arka Fincap within the next two months.
“Maybe, by the end of this quarter or the beginning of the next quarter, we may start our co-lending partnership with Arka Fincap,” Jain stated.
According to a report on July 21, the Indian Bank, State Bank of India, and Indian Overseas Bank are only three of the state-owned institutions that Arka Fincap, a lending company that specializes in SME and MSME financing, may collaborate.
The talks with these institutions, according to sources, are progressing and might be finished in the next two months or so.
According to Jain, the bank has six or seven co-lending partners, but the lender is willing to expand that number.
Co-lending is the practice of two lenders working together, usually a bank and a non-bank, to provide loans to various market groups.
Indian Bank said on July 29 that its net profit for the first quarter of the current financial year increased by 40.6 percent year over year to Rs 2,403.42 crore. The profit increased by about 7% sequentially.
Gross advances rose from Rs 4.8 lakh crore in the April-June quarter of last year to Rs 5.40 lakh crore, a 12 percent year-over-year gain.
Advances for RAM (Retail, Agricultural, and MSME) increased by 13% year over year to Rs 3.13 lakh crore on June 30, 2023, from Rs 2.76 lakh crore on the same date in 2023.
RAM made up 62% of the country’s gross domestic advances. Advances in retail, agriculture, and MSME sectors increased by 14%, 18%, and 6% year over year, respectively.
Mortgages included in home loans increased by 13% year over year, while auto loans increased by 55% year over year. As of June 30, the priority sector advances as a percentage of ANBC were at 43 percent, or Rs 1.80 lakh crore, compared to the statutory requirement of 40 percent.
