HSBC to lend more to SMEs despite risk

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MUMBAI: British lender Hong Kong and Shanghai Banking Corp (HSBC) will increase its exposure to small and medium enterprises (SMEs) in India, encouraged by growing demand, high yields and due to the limited pool of mid-cap companies.

The bank has so far shied away from lending to high-risk SMEs as it recovers from higher capital requirements post the 2008 financial crisis. But the opportunity is now too big to pass, said Rajat Verma, head, commercial banking, HSBC India.

“This sector has been the growth driver in India in the past eight years. These companies bank with one or two banks and there’s an opportunity for us to step up. It’s a conscious strategy for us to grow this SME piece.”

“Our approach is to find SMEs with good supply chain and track record. We use a cash flow analysis rather than a collateral as the primary methodology of lending. These companies will be in the Rs 50-150 crore turnover bracket,” Verma explained.

HSBC--SNIP

As head of commercial banking, Verma handles clients with annual turnover of $3 million to $3 billion. Large groups above this threshold are banked by the global banking and markets division, the biggest division for HSBC in India.

Verma said the pool of companies in the mid-market category in India is also limited which has forced the bank to expand to smaller companies. “In India, we still have no scale in the midmarket. If we cut off companies above Rs 1,000 crore, the number of companies is not enough. We have large groups and a lot of SMEs, but we have no mass in the middle. That is one reason why we had to look at SMEs because we covered a lot in midmarkets. Some of these SMEs are no different from MMEs. They will catch up too and become larger. We will grow with them,” he said.

Verma’s division made $159 million in pre-tax profit in the year ended 2017, up 29% from $123 million in 2016. Results released in February showed that commercial, international trade and businesses constitute 70%, or $6.43 billion, of the $9.17 billion total loans in India.

“The book has been growing in the mid-teens and we expect to continue this way. We are now telling clients to think of us as a rupee balance sheet as well along with the dollar balance sheet. We have a strong wholesale bank as well. We want to leverage on that strength and work on the supply chain of this base,” said Verma.

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