Banking the SME Market

SME banking is an untapped market in terms of digital transformation. SMEs have not benefited from the same innovation in India’s SME banking sector compared to retail clients since it has not been adequately digitalized.

SMEs are frequently ignored and underutilized despite their need for simple access to financing. Most economies, especially emerging nations, depend heavily on SMEs, which also make up the bulk of enterprises globally. The World Bank claims that SMEs, which account for 90% of firms and more than 50% of employment, are crucial drivers of job creation and global economic development. However, banks frequently view SME lending as a low-priority issue. Why? Because supplying SME customers has a high operating cost for banks but also comes at a relatively high cost compared to the possible reward. SME customers might be challenging to serve due to their diversity. Many banks don’t adjust their offerings for sub-segments or different stages of business life.

SMEs’ demand for better digital banking services is motivated by their need for more unique product offerings and lower friction. Banks refocus on this sector due to demand and competitive pressure from digital rivals. Views about SMEs are starting to alter as institutions want to understand their requirements and demands.

Why have banks not yet developed a quick and dependable strategy to support the growth of small businesses?

A loan takes a long time to be granted because the onboarding and loan processes are laborious and disjointed. SME lending was mostly an in-branch or paper-based process. This procedure has slowed down considerably further due to COVID-19, which requires banks to digitize their operations. The volume of SMEs requesting government assistance in many nations during the past few months provides unmistakable proof.

What SMEs’ pain issues should banks concentrate on addressing?

There are many issues on the transformation agenda for traditional SME banking, from stiff procedures and inflexible products to consumer friction and legacy technology that prevents change.

  • Personalize – The diversity of SMEs is a significant factor in why they don’t profit from the same financial innovation. SMEs can range in size from a one-person business to an organization with 200 employees; however, many banks do not customize their products to specific market segments or business life cycles. It highlights the significance of personalization.
  • Getting rid of legacy – Manual processes are frequently drawn-out and tedious. Because front- and back-office procedures are frequently copied from retail or corporate models, there is a great deal of complexity and friction, which results in lengthy, complicated, and friction-filled client experiences for SMEs. In addition to preventing change, legacy systems remain a massive barrier to SME banking transformation efforts.
  • Enhance access to funding — the loan application process is still complicated for SMEs, and there are often lengthy delays. This can severely strain the resources of SMEs. More SMEs than large businesses in Europe struggle to obtain loans. Access to financing is the most significant concern for 8% of SMEs, twice the percentage for larger businesses (4 percent). SMEs encounter lengthy, complex, and friction-filled client journeys because their business models are typically borrowed from retail or corporate ones. In addition to preventing change, legacy systems remain a massive barrier to SME banking transformation efforts.

A cutting-edge mobile banking system gives Small and Medium Enterprises (SMEs) access to financial services and business intelligence. The marketplace of all registered members is accessible, and SMEs may manage their daily operations, obtain financial services, contact subject matter experts inside the banks for guidance, and more. The bank adopts the solution and makes it available to its SME clients.

  • Utilize the influence of SME banking
  • comprehensive transaction support
  • tailored to SME requirements

Direct connect features provide expert advice for SMEs

Variety of specialized solutions to assist SMEs in gaining access to banking services and starting a fundamental relationship with us for advising, transactional, and credit-related services. Here are a few of the main items we provide:

  • Term Loans: Secured by immovable property or other suitable collateral, term loans typically range in length from one year to as long as thirty years, supporting growth in a variety of ways, including capacity expansion, product diversification, plant modernization, and similar other requirements. The obligation to repay is based on the anticipated cash flow of your company.
  • Working capital loans are intended to support a company’s ongoing operations. These are provided in the form of cash credit or overdraft to satisfy working capital requirements.
  • Export Fund: This loan can be used as a Pre-Shipment Credit against a firm order or as a Letter of Credit for acquiring raw materials, manufacturing/processing, packing, and shipment of goods. Either foreign currency or Indian currency is used for financing.
  • Import funding: This typically goes to raw material and capital goods importers.
  • Letter of Credit: Depending on the trading cycle, this form of facility is typically offered for three to six months. We offer a variety of non-fund-based facilities in addition to money-based working capital facilities, such as a letter of credit, bank guarantees, solvency certificates, and so on.
  • Buyers’/Suppliers’ Credit: By the RBI, Our Bank arranges buyers’/suppliers’ credit through foreign banks or correspondents to help importers save money. Commercial vehicle loans are offered to our SME customers to purchase and/or upgrade commercial vehicles used for business-related transportation.
  • Inland bill discounting: This service gives domestic traders a rapid and affordable finance option. Depending on the tenor of the bill, discounts can be given for three to six months on creditworthy invoices or receivables drawn against letters of credit or firm orders.
  • TReDS Bill Discounting: To make it simple for MSMEs to convert their trade receivables into funding, the Trade Receivables Discounting System (TReDS) was established in 2017 under the supervision of the RBI. Thanks to trends, MSMEs can receive discounts on invoices and bills of exchange in exchange for early payment.
  • Cash Credit/Over Draft: A short-term loan to cover your ongoing needs for operating cash. As and when necessary, you may constantly draw up to the predetermined limit.

A quick and inexpensive funding solution is provided by inland bill discounting facilities. Depending on the tenor of the bill, discounting of credit-worthy invoices or receivables drawn against letters of credit or firm orders may be offered for 3-6 months.


One may say that SMEs are the lifeblood of the economy. If they succeed, the economy succeeds. Therefore, small is not only attractive but also crucial when it comes to SMEs.

But it’s also tricky. SMEs have a structural disadvantage when asking for capital, which may be amplified during times of crisis. I’ve discussed how banking supervision and regulation might aid SMEs with funding issues. But let me be clear: our responsibility is only to assist banks in maintaining their stability.


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