Digital revolution influencing new trends in SME financing: SME Head, DBS Bank

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Saurabh Gupta | 21 Apr, 2016
Small and Medium Enterprise (SMEs) are part of the ecosystem, which is getting transformed by the digital revolution. The new trends in SME financing too are getting influenced by digital revolution. This includes analytics based lending, peer to peer lending and various other variants, said Amitabh Verma, Head, SME Banking, DBS Bank.

In an interview to SME Times, he said, "Even the traditional modes of funding are getting better enabled through the use of technology (such as working capital analyser â Grow App of DBS). The regulations / infrastructure is also enabling far more easier and effective funding especially around ARP and supply chain. There is similar improvement happening on a host of trade, FX, transaction based solutions which are facilitating financing to clients much more effectively and competitively."

From your prospective, how you see the micro, small and medium enterprise (MSME) sector in India?
Amitabh Verma: SMEs contribute 45% to the countryâs industrial output and up to 40% of total exports. Various estimates, including that of DBS Bank, put Indiaâs GDP growth rate in FY15/16 at 7.4%. Of the many engines that are powering this growth, the SME sector is a powerful driving force and provides employment to more than 60 million people.

Despite this they face a number of hurdles including demand side constraints, absence of adequate and timely banking finance, limited capital and knowledge, ability to adapt and use latest technologies, identification of new markets, need for an effective marketing strategy, constraints on expansions and non-availability of skilled labour at affordable cost.

The Government has come up with a number of initiatives to capitalize on this growing sector. The Government as well as the Corporates should work together to ensure translation of intent to execution.

What are the key offerings that DBS Bank has for the SME sector?
Amitabh Verma: DBS aims at providing outstanding customer experience at every opportunity. At DBS we believe in making Banking Joyful for our customers. We differentiate ourselves by offering to SMEs a full range of products on the assets (including trade products) and liabilities products to enable operational efficiency.

The Bank has been a front runner for adopting technology â we are the first Bank to launch the Mobile Account Opening System (MAOS) in India using a fully integrated iPAD which helps accounts opening within four hours.

In addition, we have an exclusive online banking platform for corporates which is âDBS IDEALâ - It features a comprehensive range of products and services to manage working capital including monitoring incoming funds, viewing remittance advice and statement for reconciliation purposes as well as payments mechanism for employees/suppliers etc. We offer superior online FX based solutions which add value to the SMEs. It makes banking faster, simpler and smarter.

It has been observed that SMEs largely avail loans from NBFCs for expansion. What is your perspective on this? And what are your plans to tap this untapped segment?
Amitabh Verma: NBFC business model typically thrives on term lending, which is backed by higher amount of collaterals and a strong collection system. Also the cost of financing is comparatively higher in case of NBFCs and they offer limited range of products and services. Banks offer the full range of banking solutions including working capital and there is enough opportunity for both Banks and NBFCs to co-exist.

The ability to provide customized solutions and all solutions at one stop will allow us to deepen. We see DBS evolving as a significant player in the SME segment.

How you see the central government's 'Make in India' and 'Start-up India' movement shaping up?
Amitabh Verma: Recent policy changes have started aiding the growth of SMEs. India is taking rapid steps to improve the âease of doing businessâ through various regulatory policies. Initiatives such as 'Digital India' and 'Make In India' are opening up bigger opportunities for the SME sector.

Make in India:

Financing is a major pain point for the MSMEs and through this initiative the Government is aiming at making the sector attractive for Capital Investment.

Also as large entities set up base, they will need the infrastructure to handle the supply chain challenges. The supply chain makeover will provide enormous opportunities to MSMEs giving a huge impetus to the sector.

The Government is also aiming at many Quality Upgradation Schemes and âZero Defect productsâ in the MSME Sector so as to have global competitiveness.

Start-up India:

The Startup India Action plan is laudable and will definitely boost the much needed entrepreneurial spirit. All these entities will fall in the MSME segment. Several important steps around the ease of doing business, taxation, access to capital for MSMEs and skilling, 1-day incorporation have been considered and will have a positive impact.

The ultimate test however will lie in building a thriving ecosystem and will require action on the ground and long-term commitment.

What are your plans to stand-up for these movements and how?

The Banking sector has a very important role to play in realizing the Government's 'Make in India' and âStartup Indiaâ mission by enabling easy access to capital .An integrated approach to make the best use of these initiatives is the key in achieving maximal benefits. We are strengthening our solutions around Supply Chain Financing, providing operational support to startups through electronic banking solutions and creating digital based solutions.

Since 2012, DBS has partnered with Tata Institute of Social Sciences (TISS) to provide three years of seed funding and business mentorship to promising social enterprises through DBS-TISS Social Entrepreneurship Programme fellowships.

What is your SME customer base at present and how you see your SME loan portfolio in expanding future?
Amitabh Verma: We are focussing on building a granular SME portfolio. We see DBS India evolving as a significant player in the SME Segment.

What is DBSâ differentiating factor in SME Banking among other banks in India? What is the DBS advantage?
Amitabh Verma: We understand Asia much better than anyone and have been voted "Safest Bank in Asia" for the seventh consecutive year by leading trade publication Global Finance. We have a strong Asian network and bring combined knowledge to the table that clients can leverage on. SME business thrives on higher customer connect and customised solutions for client needs. We work towards excelling on this aspect and look at providing holistic solutions to support our clients to succeed and grow in the market place. Our wide range of product suite supplements this initiative.

Would you like to advise something to SMEs while applying for financing options?
Amitabh Verma: The biggest challenge in funding SMEs is the lack of publicly available information on the entities and perceived lower level of governance standards/disclosure by promoters. It would help SMEs if they invest in upskilling their team to help build transparency in their financials as far as possible. This builds trust. Obviously the basics such as a robust business model, having competitive advantage, the right set of people to drive the business and ability to manage growth makes the decision to fund that much easier.

What is the sector focus of DBS for SME Banking?
Amitabh Verma: We focus on the entire SME ecosystem for lending. Based on the location we are present we see a growing connect with clients in sectors such as chemical, auto and auto ancillary, pharmaceuticals etc. We would continue to provide holistic solution to good quality SMEs.

What are new trends in SME financing in India?
Amitabh Verma: SMEs are part of the ecosystem which is getting transformed by the digital revolution. The new trends in SME financing too are getting influenced by the same (analytics based lending, peer to peer lending and various other variants). Even the traditional modes of funding are getting better enabled through the use of technology (such as working capital analyser â Grow App of DBS). The regulations / infrastructure is also enabling far more easier and effective funding especially around ARP and supply chain. There is similar improvement happening on a host of trade, FX, transaction based solutions which are facilitating financing to clients much more effectively and competitively.