Sensing opportunity in mid-sized companies, Standard Chartered Bank sharpened its focus on this segment last year. However, like large corporates, the smaller companies were also impacted by the slowdown and the bank believes it will take another year for revival of credit demand from these companies. Manish Jain, regional head (commercial clients), in an interview with Shayan Ghosh, says though Make in India is expected to give a boost to this segment, his clients are still waiting for clarity from the government.
How important is the SME segment to Standard Chartered?
We had enhanced our focus on mid-sized companies last year where we reorganised to have a dedicated and focused segment on them. But we were catering to this segment earlier as well. There are about 6,000 clients in this segment and we have a book size of about $4 billion across variety of products and we plan to grow our client base in 2015.
There are be term loans, working capital, trade, cash management, forex and a full gamut of financial products and services. It was more than 10 years back when we first started focusing on mid-sized companies, which was followed by a rapid growth in the segment. These companies started with their first manufacturing facility and, after they witnessed good demand, they started setting up their second manufacturing facility and also went overseas to set up their subsidiaries.
How have the smaller clients performed compared to the large corporates?
From 2004-11, there was a healthy growth in the mid-sized companies and a lot of banks got attracted to this segment. During that time, the growth was much higher compared to the large corporate segment.
However, in the last few years since the growth has turned tepid, all companies across sectors have got impacted. In 2012-13, larger companies got impacted more and, then, there was a trickle-down effect on the smaller ones.
Are your clients seeking fresh loans and how is the credit offtake scenario?
Although the last round of capex happened in 2010-11, those capacities have not been utilised because the demand had taken a beating. Whether it is a large or a mid-sized company, no one has seen any significant increase in the turnover in the last couple of years and, hence, the capacities have not been utilised. Therefore, the next round of capex cycle has still not come.
Most of these companies are over-leveraged and, hence, the lower credit growth. The whole cycle will pick up when the demand starts picking up, which still seems to be at least12 months away.
How do you think the Make in India programme — targeted at the smaller companies — will help your clients?
Make in India is something that we are all very hopeful of. It should really help the mid-sized companies in improving their business prospects.
They are at a stage in their lifecyle where they have lesser capacity to go influence various parties and get approvals to grow their business. So, they really need an environment where regulations are very supportive.
These companies are still waiting for the details on how Make in India will be implemented; what the plan is; and once the government brings the detailed plan, probably only then, mid-sized companies will start taking advantage. Currently, the overhang is still there, which is underutilised capacities and low demand, coupled with higher leverages.
With larger public sector banks present, how difficult is it to operate in this segment?
The mid-sized space has been growing well in the last 10 years and it has created space for all banks. Today also, the public sector banks hold around 70% of the total market, but there would be companies that start evolving and, when they do, they need some more sophisticated products, more customised solutions and global reach.
Some of these companies start finding these solutions from private and foreign banks who have been growing at a higher rate than other banks in the SME space.