SMEs prove a tough call for banks

The gems and jewellery sector, which is one of the best performing industry in the SME category is going through a rough patch owing to the lack of transparency in business operations and bank funding.

Banks suffered non-performing assets (NPAs) of 40-50 per cent in their loan exposures to the gems and jewellery sector over the past couple of years.

Bankers find the supply chain in the sector extremely ambiguous as margins of each segment - diamond processors and exporters - are not clear.

The other SME sectors to which bankers are hesitant to extend finances are those engaged in seafood processing and sports goods manufacturing. Over 50 per cent of banks exposures to these sectors have turned bad, according to CRIS-Infac sources.

Bankers said, the high rate of growth of the gems and jewellery exporters led to increased lending to the sector and thereby camouflaging bad loans.

"The seafood processing sector registered huge losses in exports as most of the stock were rejected from Europe and Japan, due to presence of ecoli-bacteria. Hence, we are hesitant to extend loans and advances to these units," said US Poojary deputy general manager, credit administration, Dena Bank.

The growth in the sea food processing sector is also hampered due to pesticide content and inability to meet regulations in the importers' countries.

Banks are very selective when it comes to lending to this particular sector as a lot of loans have been turned into NPAs in the past, said an official of a large public sector bank.

The banker said, sports goods SMEs are bound to face a lot of difficulties due to severe competition from Chinese manufacturers. The sports goods sector has not taken off despite government support. Banks have already lent large amounts to manufacturers in this sector, he added.

The SME sectors preferred by bankers for lending include bulk drugs, knitwear and auto-ancilliary goods. Bankers said textiles, pharmaceutical companies, chemicals and dyes sectors will continue to find favour with banks as these businesses are thriving.