HSBC pens new payment recovery for POS terminals

The leading foreign banks are targeting the small enterprises thereby coming up with novel loan products. HSBC has introduced the concept of equated daily instalments (EDI) against the normal practice of making recoveries through equated monthly instalments (EMIs).

The UK-headquartered HSBC has tapped the merchant establishments which have installed the bank's POS (point-of-sale) terminals for card payments.

HSBC lends to these merchants on the basis of level of purchases made at their outlets through credit and debit cards and recovers the EDI from the merchant's daily receivables against card purchases.

"The amount lent out to these merchants is recovered via equated daily instalments. This helps the bank bind the merchant in a two-way relationship and improve the cross-sell ratio," said Subir Mehra, head-commercial lending, HSBC India.

The EDI product makes the lending more secure as the bank deducts the loan instalment from the daily dues to the merchant against purchases made on cards. The effective interest rate for the merchants is around 10 per cent.

HSBC has installed over 11,000 POS terminals at over 4,700 merchant establishments across India. It lends upto 65 per cent of the assessed annual card sales of each outlet.

Foreign banks have been late entrants in the competition for lending to merchant outlets, when nearly 60 per cent of the total lending by the banking sector as a whole is to the SME sector. Standard Chartered entered SME lending business recently and Citibank a few months ago created an organisational structure for SMEs.

HSBC is also planning to introduce a factoring product and cash management services for its SME clients soon. Factoring involves selling of a company's receivables at a discount and passing the credit risk of the debtors to the acquiring bank.