Indian banking industry to decide the next decade for MSMEs: Study
News Today , Aug 21, 2018
Metro cities are driving growth in current account balances as rural areas have grown by 19 per cent with respect to savings account balances.
With financial institutions providing easy credit facilities, consumers are encouraged to further discover money lending and credit facilities, stated a report that was jointly produced by Indian Banks Association, The Boston Consulting Group along with FICCI.
The annual FIBAC Productivity Report on Indian Banking Industry stated that there was a nine per cent growth in terms of credit in F18 as compared to FY17.
The report highlighted that banks are earning from third party products like mutual funds as there has been a steady shift in investments preferences from term deposits to mutual funds. Rs 9,000 crore in FY18 is the distribution through these incomes providing a silver lining for banks.
India is on the cusp of achieving financial inclusion with 80 per cent of the adult population bearing bank accounts. Southern and eastern States in India take charge in mobile and internet banking adoption with an average of 10 per cent penetration of internet banking and four per cent penetration of mobile banking for an active savings account.
"In terms of execution, we can see all these changes happening in the industry as mentioned in the reports. The PSU banks are doing great stuff and this will further lead to a generation of new markets. We have 35 banks participating in the FIBAC survey: PSU (Large, PSU (Medium), Private (New) and Private (Old banks). We need to understand that capital and digital capability is required especially for the SMEs and MSMEs in our country. They have been adding a huge number of products to markets and have been contributing to the economy despite suffering from lack of capital. The increase in credit growth this financial year has been uplifted mainly due to digital where the importance of physical channels remains high. The balance sheets are not affected by negative signs and are growing at 20 per cent. We are on the right path," said FICCI president, Rashesh Shah.
Partner and director at BCG, Yashraj Erande pointed out that the formal credit market of India is estimated to be around Rs 108 lakh crore, out of which only 25 per cent is given to MSMEs.
The impact of GST has accelerated mainstream MSME integrations by five per cent and has helped formalized this sector in a big way, the report stated.
The smaller segments, however, have also turned out to be more pronounced where the degree of formalization was much lower. Digital channels have also seen an increase with MSMEs comprising of 47 per cent post-GST, it added.
Yashraj said, "Due to the transforming economic activities, we can see a great time for the SMEs and MSMEs for the next 10 years. I can say the same implies to the credit market as well. The sources of capital are now increasing from informal to formal and we can see that as the Return on Assets have gone up. The cost of underwriting coverage is high and MSME credit will also go through a huge transformation. Many consumers are new to the credit and digital where the importance of physical channels remain high."
Banks have recognized the opportunities in providing capital to the MSME sectors as room for credit still exists. Eighty per cent of the hybrid channel consumers are interacting with their banks physically and digitally.