Financial institutions should give loans based on long term projection of companies

The pandemic has made it clear just how much digital technologies can help businesses in the face of adversity. New and emerging technologies can be leveraged by SMEs to reach potential customers or to provide a distinct USP

In an interaction with TheSMEIndia.com Sandeep Tandon Director DST Tech Private limited a company into Zinc Die-casting shares his view on the impact of the second wave, their linkage with a broader SME system and how the government can help the sector by coming with a good package to handhold MSMEs/ SMEs to improve their financial health

Q. How is the impact of the second wave panning out on your business?

With the COVID-19 crisis forcing blanket lockdowns across the nation, the overall economy has taken a massive hit. The pandemic has capsized businesses across sectors, presenting them with unprecedented challenges and forcing them to adapt and re-invent to survive and thrive. 

As for the Zinc die-casting sector, the impact has been no different. Domestic market orders have reduced by nearly 80 percent. Domestic payments for supplies made before onset of lockdowns have been affected to the extent of 40%. Moreover, further surge in global commodity and fuel prices have had a serious implication for not just the economy but also for players like us given that we have to bear the financial brunt. So, Zinc die-casting sector wherein, most of the players are in micro / small scale category, who have already been encumbered with limited credit access and lack of technical knowhow, the second wave has exacerbated the challenges.

Q. Where is the major demand coming in from?

We see demand from domestic buyers substituting Chinese Imports of Zinc die-cast parts and exports

Q. How is the linkage with the broader SME ecosystem?

There has been an indelible impact on the Small and Medium Enterprises (SMEs) sector, which has perhaps been the most talked about during the pandemic. This is not unwarranted considering that SMEs/ MSMEs play a significant role in the country’s economy, employing over 100 million people and accounting for 45 per cent of manufacturing output and more than 40 per cent of the country’s exports.

Q. How do you leverage smart technologies?

We are a fairly small-scale organization so our technology uptake is limited. The pandemic has made it clear just how much digital technologies can help businesses in the face of adversity. New and emerging technologies can be leveraged by SMEs to reach potential customers or to provide a distinct USP. It also allows them to lower costs and overcome disadvantage of scale that they might have vis-à-vis larger players. Strategic investments in smart automation can help in the emergence of a tech-empowered SME, able to thrive in the new digital economy.

Investing in research and development to build skills and capacities to be able to efficiently operate in the post-Covid world will be extremely important. China, for instance, is using instruments for subsidized training for MSMEs/ SMEs and free access to online programs. While similar options are available in India, there is perhaps a need for a structured plan to help this crucial sector learn skills and be up to date with technology advancements. Creating institutions and skill development clusters for specialized domains such as Zinc Die-casting can definitely boost skill output, in line with the requirement of the transformed ecosystem and will make for a better equipped workforce.

Q. Has funding/finance been a challenge?

Complete stoppage of production due to the national lockdown during the first wave, regional lockdowns during second wave and reduced financial flow in the informal money market has adversely affected the operations and output of registered and informal SMEs.

Making matters worse, MSMEs and SMEs have faced issues with respect to piling up of loan repayments as financial institutions not offering any respite. Getting further credit has also become an issue. Government of India has given INR 1CR as collateral free loans through banks for SMEs. However, for a “Stand-up SME” in the manufacturing sector such as us, whose funds requirements are higher than INR 1CR, traditional banking based on “Collateral funding” cannot work. Moreover, banks are not very forthcoming in disbursing credit.

Q. What policy measures do you seek from an industry/business standpoint?

The second wave is bigger than the first in terms of impact. The government should come with a good package to handhold MSMEs/ SMEs and improve their financial health. Financial institutions too should start giving loans based on the projected balance sheet of companies and not focus on business in the past 1-2 years, which was anyway impacted by slowdown and COVID.

Conducive policy reforms must also mean an ease of credit access for MSMEs. Banks and NBFC’s will play a major role in facilitating easy financing for the sector. Incentives for banks focusing and innovating with lending strategies to MSMEs must be incorporated on a structured long-term basis. The sector needs to be positioned as a core business activity for these banks. Also, fintech sector can also be tapped into to provide unsecure loan offers to players in the MSME sector.

Targeted approach for specific sectors will be essential. For example, new frameworks for financing to manufacturing starts ups such as those in the Zinc industry can be looked at, as the gestation period for setting up such industries is much higher than the service start-ups.

Additionally, the private sector support does (and will continue to) play a huge role ensuring the growth of the SME sector. Take cue from technology leader Mastercard which recently announced an additional investment of INR 2.5 billion to help small businesses in the country go digital and have easy access to credit. Apart from fund support, corporates can also help SMEs with supplier development for future scalability and competitive advantage. The financial sector can also drive uptake and capacity-building in new channels and payment methods.