Page 40 - BANKING FINANCE JULY 2016
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ARTICLE
sector for sustenance of economic development is a prior- Sustainability is an integral part of Bank's activities - in core
ity for the policy makers, in both developed and emerging business and beyond. Banks that have been able to convert
economies. In India too, MSME sector plays a pivotal role sustainability challenges into opportunities are the ones that
in generating employment , increasing cross - border trade are most likely to thrive.
and fostering the spirit of entrepreneurship. The sector
contributes to economic development in variety of ways The strategy of 'profitable growth from the grassroots' is
such as creating employment opportunities for rural and achieved by the bankers through lending to small entrepre-
urban population, providing goods and services at afford- neurs.
able costs by employing innovative solutions and support-
ing the export initiatives of the country. Advantages in Small Size Advances:
If India has to regain its high growth trajectory and to push Minimization of Negative Branches:
growth into top gear, it needs a vibrant MSME sector.
Negative Branches are those branches wherein the ad-
A strong SME Sector is fundamental to building a resilient vances are below the previous March figure. In addition
and dynamic corporate sector. to the negativity of the branches, these branches bring
down and hide positive performances of other branches
during consolidation of data.
However, it is deplorable that despite recognizing a wide- If small ticket advances are focused by the branches, stable
spread need for supporting the sector, the progress on the & steady growth is ensured and there cannot be any nega-
ground is extremely lackluster and the extent of financial tive growth in the branches.
exclusion in the sector is very high. Only 5.18% of units had
availed finance through institutional sources with further Improvement in Net Interest Margin:
2.05% relying on non-institutional sources for finance. The
remaining 92.77% of units had no access to finance or de- Net Interest Margin is the margin in the interest income
pended on self finance. over the interest expenditure. Generally, there is no de-
mand for interest concessions from the borrowers of small
From Bank's point of view: ticket advances unlike the big proposals and proposals of
short term bulk advances . Hence there is definitely scope
A dynamic credit market for small businesses allows Banks for improvement in Net Interest Margin, if the funds are
to grow and drive the nation's competitiveness globally. focused towards small ticket advances.
Bank credit is a vital lifeline for small businesses, and often
ranks in importance as high as equity from the business Improvement in Priority Sector Lending:
owner or friends and family.
Most of the credits extended to small businesses are cat-
egorized under Priority Sector lending. The Bank has been
lending to these sectors so as to achieve the National Goals.
Lending under the Priority Sector has a positive impact on
the standards of living of the weaker sections of society by
providing them with the funds to start small businesses and
become self reliant. It has a social objective and the Banks
could comply with the guidelines and make its contribution
to social upliftment.
Less impact on NPAs:
The impact on NPA level is very much on the higher side ,
even one large account goes out of order . The increase in
delinquency ratio is also very high in case of large advances.
Moreover, the advantage in low value advances is that
40 | 2016 | JULY | BANKING FINANCE
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