For 53% SMEs, bank funding means pipe-dream: Crisil

Rating agency Crisil today said a large majority of SME promoters - as many as 53% - continue to use their own funds to tide over inflationary pressure as getting bank funds are not without difficulties for them.

"Easy access to bank funds has always been difficult for of small and medium enterprises (SMEs)...support from the lending institutions would have provided additional fillip to the sector," Crisil senior director for SME ratings Sachin Nigam said in a note.

After a survey of over 3,000 SMEs on their funding patterns, it has found that 53% of them met their funding needs through promoters' funds and personal loans in FY11, Nigam said quoting a survey finding.

The survey revealed that while revenue of the SMEs increased 29% last fiscal, raw material costs rose 31% while operating margins marginally declined (1%), showing their inability to pass on the inflation pressures to their customers, he said.

In the same fiscal, equity capital bought by SME promoters increased 29%, while loans from promoters' family and friends were up 24%, indicating that funding requirements were met through promoters' funds than through bank orrowings.

The Crisil study said companies in the engineering and capital goods, textiles and chemicals, which have high input costs, are most susceptible to inflationary pressures.

However, with the interest rates going down and ease in inflation, Crisil feels that the situation will get better for SMEs, its director for SME ratings Yogesh Dixit said. Notably, country's largest lender State Bank of India recently announced an up to 3.50% reduction in interest rates for the SMEs.