Banks pushing for SCF on back of low SME bad loans

The SCF provides banks with greater opportunity for leveraging cross-selling and data analytics. SCF is a win-win opportunity for all stakeholders in the supply chain ecosystem — the corporates, their suppliers and dealers, said Axis Bank. It links small vendors to the large corporates. This enables SMEs to access credit at a lower cost with minimal documentation and lesser collateral.

Negligible non-performing asset (NPAs) in the segment is a driving factor for banks, which they attribute to the inherent structure of the SCF. Bank of Baroda claims to have zero NPAs in this segment.

SCF solves a lot of problems associated with lending to the SMEs. A key challenge is the lack of data when it comes to new to banking (NTB) customers. The challenge in SME lending is to reach and identify them and veracity of financial data of the borrower. This gets mitigated to a large extent in SCF by generating credit comfort from borrowers transactional behaviour with large corporate,said YES Bank.

Moreover, SCF digitally captures the purchases and sales data along with repayment history which can be mined for taking lending decisions. The implementation of initiatives like Goods and ServicesTax, E-Way bill etc., along with the borrowers’ data being captured through SCF can be used very effectively to build models to undertake digital lending.

Bank of Baroda said that SCF captures data across the value chain, which serves as a great platform to drive cross selling of other retail products to both the small merchants and the large corporates.

Banking experts said that they are seeing increasing demand for SCF from both corporates and SMEs and foresee a higher growth rate for the segment going forward.