Indian Bank open to MSME lending under special mention accounts, says CEO

S L Jain - MD CEO of Indian Bank

Indian Bank is open to lend to the micro, small, and medium enterprises (MSME) in the Special Mention Account (SMA) category because of the government guarantee announced by the finance minister in the Union Budget 2024, Managing Director and Chief Executive Officer Shanti Lal Jain said in an exclusive interview with Moneycontrol.

"We are open to everything. We are open because we are a bank and we know the customer is with us, history is with us. We are lending under SMA 1 or SMA 2 to our own customers," Jain said, pointing out that the government has said that the guarantee will be available for these two categories.

Finance Minister Nirmala Sitharaman in her Union Budget 2024 announced a new mechanism for facilitating continuation of bank credit to MSMEs during their stress period. While being in the ‘special mention account’ (SMA) stage for reasons beyond their control, MSMEs need credit to continue their business and to avoid sliding into the NPA woes.

Credit availability will be supported through a guarantee from a government-promoted fund, Sitharaman said in budget speech.

She added that state-owned lenders will build their in-house capability to assess MSMEs for credit, instead of relying on external assessment. "They will also take a lead in developing or getting developed a new credit assessment model, based on the scoring of digital footprints of MSMEs in the economy."

Sitharaman also said this is expected to be a significant improvement over the traditional assessment of credit eligibility based only on asset or turnover criteria. That will also cover MSMEs without a formal accounting system.

On the MSME collection efficiency front during the April-June quarter, Jain said that the drop in collection efficiency is due to various factors such as heat wave across the country, elections, and seasonality.

"In the April to June quarter, there are heat waves scorching the country, then general elections and, of course, there were some seasonality at play in the first quarter," Jain said.

In the April-June quarter, collection efficiency of the bank in the MSME segment has dropped 2 percent on an annual as well as on a sequential basis. It stood at 92 percent as on June 30, as against 94 percent each on March 31, 2024 and June 30, 2023, as per an investor presentation by the lender.

The overall collection efficiency too went down 1 percent in the reporting quarter to 95 percent from 96 percent a quarter back.

Jain said that Indian Bank is expected to close its partnership with Arka Fincap for co-lending in the next two months.

"Maybe, by the end of this quarter or beginning of the next quarter, we may start our co-lending partnership with Arka Fincap," Jain said.

On July 21, Moneycontrol reported that Arka Fincap, which specialises in SME and MSME lending, may tie-up with at least three state-owned banks for co-lending, including Indian Bank, State Bank of India, and Indian Overseas Bank.

Sources had told Moneycontrol that the discussion with these banks is in advanced stages and may conclude in the next two months or so.

Jain said that the bank have 6-7 co-lending partners and said the lender is open to increase the count.

Co-lending refers to partnerships between two lenders, typically a bank and a non-bank to offer loans to different segments.

On July 29, Indian Bank reported a 40.6 percent on-year rise in net profit at Rs 2,403.42 crore in the first quarter of the current financial year. Sequentially, the profit was up around 7 percent.

Gross Advances increased by 12 percent on-year to Rs 5.40 lakh crore in April-June quarter, from Rs 4.8 lakh crore in a year ago period.

RAM (Retail, Agriculture and MSME) advances grew by 13 percent on-year to Rs 3.13 lakh crore as on June 30, from Rs 2.76 lakh crore as on June 30, 2023.

RAM contribution to gross domestic advances stood at 62 percent. Retail, agri and MSME advances grew by 14 percent, 18 percent and 6 percent on-year, respectively.

Home Loan (including mortgage) grew by 13 percent YoY and Auto Loan by 55 percent YoY. Priority sector advances as a percentage of ANBC stood at 43 percent at Rs 1.80 lakh crore as on June 30, as against the regulatory requirement of 40 percent.