SME Banking The Way Forward

Challenges for SMEs: Adopting and absorbing technology is the biggest challenge for SMEs, which need to adapt to latest technologies in their manufacturing processes and also go in for support from IT system to the extent possible. Manufacturing technology is changing rapidly with more emphasis on green technologies and pollution control. The water used by the SMEs will be priced commercially and this will have a big impact on the viability of SMEs who will have to constantly upgrade their manufacturing processes. There is a need for universities and technology institutions to support SMEs in making available new technological developments at affordable cost.
Over the years, the information and communication technology has changed very rapidly. There is easy availability of computers, laptops and advanced software for implementing various management solutions and communication. Technology majors such as Microsoft, Intel, SAP are sup-porting clusters of SMEs in absorbing these technological developments. SMEs have to invest in these changing tools of management in order to reap long term benefits and imbibe modern management practices. There is a need for family-owned concerns and SMEs to move with the times and adopt professionalism to withstand competition from India and abroad.

Banks and FIs’ role in growing SMEs: The commercial banks in India have been very proactive in supporting the SMEs. Banks not only provide loans and other banking services, but also help the SMEs become technologically sound. Some Of the banks have started technical consultancy cells to provide technical counselling services to SMEs. Specialists within these banks help the entrepreneurs to assess their viability, offer solutions in manufacturing processes, assist them in chosing appropriate machinery as well as technology and lastsly, if SMEs get into sickness, aid them by working out rehabilitation packages.Banks also provide assistance to SMEs in the area of identifying better technologies in several clusters. These initiatives have helped the SMEs in reducing operational costs, get better prices for their products and reduce pollution levels as well as energy consumption. Banks have also used external consultants to support these initiatives with either zero or very low costs for the entrepreneurs.
Most of the banks have also started providing services to SMEs through the hub-and-spoke model, to have credit experts and risk management specialists to provide support to the entrepreneurs. The Government of India has floated through SIDBI a Guarantee Trust to support lending institutions with risk cover to enable and encourage banks from granting financial assistance to SMEs without any collateral security.
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Government support to SMEs: The SMEs need assured supply of various essential inputs to function efficiently and compete with large industries and international markets. There are SMEs such as foundries, forging units, etc. that are power intensive. Their viability depends upon availability of power in quality and quantity. In the absence of assured power supply, SMEs have to either scale down their operations or go for high cost diesel generated power, which make them unviable and sick. Similarly, availability of other raw materials such as coal, iron, non-ferrous inputs, quality bulk drugs and formulations etc. has to be ensured. There has to be canalizing service from government bodies to ensure uninterrupted availability of these inputs.

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However, more fundamental issue is the availability of industrial plots and sheds at affordable price. SMEs were set up in the 60s and 70s in various industrial estates formed by various state government’s promotional agencies. Such developed industrial sheds and parks for SMEs are becoming unaffordable today. Investments made in non-productive component of fixed assets such as sheds, plots, etc at times cost more than the productive assets like plant and machinery.
Also, complex procedures for approval and clearances from various departments like revenue, pollution control, labour, etc. make the SMEs very vulnerable to various inspectors and the consequential delays and disruptions. Of course, there have been efforts to introduce single window clearances but effective implementation of such facilities are a far cry. The MSME Ministry as well as the state governments should facilitate a conducive environment for SMEs to flourish and compete in the globalised economy.

Growth Vision: SMEs in India have a good future and this has been observed form the fact that despite the adverse effects of globalization, Indian SMEs have proved their mettle and have consolidated their position in the economy. If India has to become a global hub for manufacturing, SMEs will have to play an important role. SMEs will have to keep costs low and quality high to retain their pre-eminent position in the manufacturing sector. SMEs have a very good scope in food processing and light engineering. If the export sector recovers, the SMEs in auto components as well as garments will have very good growth prospects. India is already becoming a hub for manufacturing of small cars and a substantial share of inputs that go into manufacturing small cars come from the SME supply chain.
The SMEs have a bright future in the economic value chain of India and banks will continue to play an important and supportive role in encouraging development of SMEs.