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Mannapuram plans to start SME lending business in three months

Mumbai, Dec 27 (KNN) The non-banking finance company, Mannapuram Finance is planning to start lending to the small and medium enterprises and housing finance at the backdrop of RBI’s concern over the concentration risks of some gold loan companies.
The company said it will get into the secured SME lending business in three months.

The Managing Director and Chief Executive of Mannapuram, V P Nandakumar told reporters that, “The regulator wants us to diversify and there are synergies which we can tap.”
“About 30 per cent of our gold loan customers run small enterprises. So, this will open up another avenue for us to lend,” he added.

The company said it will also get into the secured SME lending business in three months.

Loans to the small businesses will be done in a secured way, against some underlying asset, he said.
No time frame too has been set for the housing loan entry; he said adding that the company will have a separate subsidiary for the housing finance business to take advantage of provisions like availing refinance from the National Housing Bank.

The company further said that 80 per cent of its borrowers own small businesses and hence getting into the fray for lending to small businesses makes a good business case.

“We will continue to be a pre-dominantly gold loan company for now,” Nandakumar said.
The RBI had expressed concern over the concentration risks of some gold loan companies. In September, the regulator had set out rules to prevent uncontrolled growth of gold loan enterprises.
RBI had reduced the loan to value (LTV) ratio, or the maximum permissible limit of lending up to 60 per cent, which resulted in massive reductions in asset growth for such companies.
 According to a recent report, the gap between demand and supply of bank credit for the MSME sector is a huge 56 per cent in the fiscal 2013-14.

According to the report of the Private Sector Investment for MSME Sub Group under Working Group for the 12th Five Year Plan (2012-2017), the estimated outstanding credit demand and supply gap of MSMEs will be 56 per cent in 2013-14 at Rs 15,66,089 crore.

In the report, RBI had said that the ability of MSMEs (especially those involving innovations and new technologies) to access alternate sources of capital like equity finance, angel funds/risk capital is extremely limited.
According to the RBI data, at present, there is almost negligible flow of equity capital into this sector, which poses serious challenge to development of knowledge-based industries, particularly those that are promoted by first-generation entrepreneurs with the requisite expertise and knowledge.

“Venture /Risk capital is, therefore, often a more appropriate financing instrument for high-growth-potential and start-up SMEs. However, access to this type of financing is often not available to them,” RBI said.

In the absence of alternate sources of finance, the SMEs’ reliance on debt finance is very high.