MSMEs are an important pillar of the Indian economy. Like agriculture, which supports nearly 10 crore farming families, MSMEs are also a major employer helping about 10 crore Indians earn a living and contribute 30 per cent to India’s GDP. Agriculture contributes nearly 20 per cent to the country’s GDP. Unfortunately, MSMES were amongst the worst victims of Covid-19 induced lockdowns with their capacity utilizations dipping to low teens in percentage in May 2020. Reports of closures and job losses would have been much worse had there been no timely interventions from the government to support the sector during the pandemic. HDFC Bank as a responsible player in the ecosystem continued extending credit to small businesses during this entire period, expanding credit extension in the range of 30 to 40 per cent at various stages! 

Attractive Business Segment for Banks

Extension of credit in the deepest geographies of India is important to encourage industry and commerce to create jobs and ensure sustainable prosperity. It is a key to supporting growth in semi urban and rural India, thus helping bridge the urban-rural divide. HDFC Bank has recently formed the Commercial and Rural Banking vertical. This is not only a proof of our commitment but also a testimony of our confidence in these sectors. During the quarter ending September 30, 2021, credit extended in this business grew by 27.5 per cent over the last corresponding quarter, and 7.5 per cent over the quarter ending June 30, 2021. Credit extension to large SMEs grew by 33 per cent on a year-on-year basis while it increased by 57 per cent for small kirana shops and retail SMEs.

Despite the growth, our NPA experience has been favourable. It is a belief that drives the bank that funding small businesses is good business for the bank. Today, we extend support to SMEs in around 575 districts in the country and are working to expand our footprint to 650 districts over the next two to three years.

As a bank, we are absolutely clear that we cannot grow without going deep in semi-urban and rural (SURU) segments. That is the reason we have decided to expand our reach to 2 lakh villages in the country in the next 18 to 24 months and thus cover about one third of the villages in the country. We will do this through a combination of expanding our branch network, business correspondents, business facilitators, CSC partners, virtual relationship management and digital outreach platforms. We are planning to hire 2,500 more people in the next six months to facilitate this.

Policy Boost to the Industry

The Emergency Credit Line Guarantee Scheme (ECLGS) unveiled during the pandemic has brought MSMEs back to life and enabled them to stand strong on their feet. It enabled banks, financial institutions, and other permitted entities to extend long term liquidity to eligible MSME entities helping them repair their balance sheets and self-heal as the economy normalised. The government has demonstrated its serious intent by recently expanding the scheme size to Rs 4 lakh crores. At HDFC Bank, we feel privileged to have contributed in a robust manner under this scheme disbursing over Rs 32,000 crore till September 30, 2021. Apart from this, we are participating in various other government schemes such as AIF, CGFMU, LGCAS, CGTMSE, Central Interest Subvention Scheme, PM-FME, PM-KISAN saturation, PMMSY, MIDH, and PM-KUSUM.

While the overall policy environment has been conducive, a few new measures may be helpful. Supporting non-borrowing SMEs is one such measure. There are approximately five crore SMEs who do not borrow from the formal banking system. These entities were also impacted during the pandemic and may want to avail quick loans for their expenses like salary, electricity bills, etc. Credit extension on the basis of GST returns up to 20 per cent of their turnover from the banking system under the ECLGS will be very beneficial, especially to micro-enterprises.

As businesses have grown in step with the economy, coverage under the CGTMSE scheme from existing Rs 2 crores to Rs 5 crore would support a larger number of entities, providing fillip to job creation in the process. Similarly, an agriculture credit guarantee fund for small and marginal farmers is the need of the hour. They constitute 8.5 crore farmer families. Leverage for each family unit has continued to rise over the last few decades. The benefit of the agriculture credit guarantee fund and also bringing Kisan credit loans under the ambit of crop insurance will alleviate risks and allow our brothers and sisters to build themselves economically.

The Way Forward

On our part, our commitment to facilitating MSME and rural growth remains unwavering. As far as the SME book is concerned, we believe we are poised to grow in a one plus one manner, that is, match our entire existing credit book built over 26 years since our inception, one-for-one, with incremental disbursements during our 27th year of banking. We remain committed to extending credit, responsibly, in the service of the nation. Going forward, we dream of making ourselves accessible in every pin code and serving the nation responsibly and inclusively.

(Rahul Shukla is Group Head – Commercial and Rural Banking, HDFC Bank. This article is exclusive to Bureaucrats India.)