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Increasing Competition in MSME Finance Segment in India with Many Banks, NBFCs and Micro Finance Institutions Eyeing for Profitability in this Segment: Ken Research

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Public Sector banks enjoy interest advantage over NBFCs and MFIs. Lending to MSMEs has been a part of the priority sector lending and the banks comply with regulatory norms of the RBI. State Bank of India & its Associates, Punjab national Bank and Bank of Baroda are the top ranked players to provide finance to Micro and Small Enterprises in India 2015. They provide the majority of finance to Micro and Small Enterprises. Nearly all banks prefer to lend to MSMEs only against collateral. Current trend is that majority of lending to MSME sector is against property mortgaged by promoters or owners or partners of MSME Unit to the bank.

With credit demand from the corporate sector showing no signs of a pickup, private banks are eyeing the opportunity in financing small businesses within the small and medium enterprise (SME) segment. In order to drive the business growth, private banks have shown an interest in lending to the MSME sector. During the period of FY’2010 to FY’2015, ICICI Bank led the market in term of total finance, ICICI Bank Followed By HDFC Bank, Axis Bank and Induslnd Banks in term of providing finance to the Micro and Small Enterprises in India. There are a lot of opportunities in this segment, as most large banks tend to focus on the top-end of the segment.

NBFCs have focused on MSME sector due to its high profitability. NBFC credit to the MSME sector has grown significantly during FY’2010-FY’2015 which can be seen from the growth in total amount of credit withstanding. NBFCs factor in the potential of the company besides the balance sheet and other financial statements to evaluate the credit worthiness of an enterprise. In the year FY’2015, Bajaj Finserv led the market in terms of total finance. Bajaj Finserv was followed by Religare Finvest. In MFIs, Bandhan Bank was the Leader of industry. Bandhan Bank is followed by SKS Microfinance in the field of providing finance to Micro and Small Enterprises.

The market intelligence publication titled “India MSME Finance Market Outlook to 2020 – Driven by Government’s Financial Inclusion Agenda and Newfound Profitability in Segment” by Ken Research provides a analysis of the MSME Finance Market in India and covers statistics such as market size of MSME finance market, demand-supply gap in MSME Finance and market share of various financial institutions. The publication also provides competitive landscape and profile of major players operating in India’s MSME Finance Market. The future analysis of overall MSME market has also been discussed in each of the sub segment under base case scenario, aggressive case scenario and conservative case scenario. The report is useful for various banking and non-banking financial institutions such as micro finance institutions including new entrants operating in or planning to enter the market to align their market centric strategies according to ongoing and expected trends in the future.

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Ken Research
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