HSBC plans plunge into unsecured lending to SMEs

HSBC proposes to launch unsecured lending to small and medium enterprises (SMEs) by July this year.

The foreign bank, which has just started to crawl into the SME lending space, will introduce a unique product for SMEs. "We are going to lend to SMEs on the back of a score card, just as in the case of retail lending when we offer personal loans and credit cards," said Subir Mehra, head, commercial banking, HSBC.

Scoring off the strengths and weaknesses of SMEs would be the decisive factors in whether an individual or small proprietary organisation can avail of a loan, and if so, at what rate of interest. HSBC's venture into unsecured lending, will start with small amounts.

"Currently we lend up to Rs 1 crore against property, but in the case of unsecured lending, we will not commit such large amounts," said Mehra.

A key problem in lending to SMEs is the fact that their financial statements are not as transparent as banks would like. "It is not possible to rely on what it indicates, and hence we need to ensure means to mitigate risks," said Mehra.

HSBC has been in the SME space for some time, but it was only early this calendar year when it decided to give collateralised loans to this segment. Its SME lending is next to nothing, accounting for less than 10 per cent of corporate banking business.

"We see huge potential in this sphere. As industry and services sector develops, there will always be a large number of SMEs in every market, whether they be sellers or suppliers to large corporate," said Mehra.

The bank is now offering loans to SME clients who can put up cash collateral in terms of time deposits, government bonds, mutual fund units, and the like.

It has also started lending against office property, and offers loans against residential property provided that it is in the name of the SME, said Mehra.

"We are committed to grow the SME business following our group's positive view on India. As large Indian corporates are growing, we expect SMEs to grow with them," said Mehra.

The bank has started processing loans to SMEs, which are suppliers to its global garment and textile clients. "We are lending against overseas purchase orders," said Mehra. In addition, the bank is also giving loans to its merchant outfits against credit card receivables.

"The loan is granted provided that the merchant location uses our terminal and not that of any other bank," said Mehra.