If India is to grow at a pace matching the aspirations of the people, the dependence on bank finance should come down and the task of the Securities and Exchange Board of India is to educate the industries as to how they could tap alternative funding sources, according to UK Sinha, Chairman, SEBI.
While SEBI is not for forcing SMEs to get listed, it is keen to assist those entrepreneurs who want to go for listing and raise capital.
CRISIL study on SME
Speaking at a meeting on ‘SME funding: role of capital markets’, organised by SEBI and the Small Industries Development Bank of India (SIDBI) in Coimbatore on Friday, Sinha said CRISIL at the instance of SEBI a year ago did a study in Bihar about the financing needs of SMEs. It showed that in a three-year period the compounded annual growth rate (CAGR) of fixed assets (plant and machinery) by 100 companies was 30 per cent.
However, bank finance to these companies grew only by 17 per cent year-on-year while the promoters’ own contribution was growing annually by 26 per cent. But the sales grew only marginally.
Sinha said if only these companies had received adequate finance, their sales would have grown substantially. The shortfall in institutional capital for the growth of SMEs all over the country may be similar at least in percentage terms. The study stressed the need for the availability of better and timely capital to the SMEs.
He said the observations made earlier by the participants in a technical session here would be considered by SEBI and interested parties were welcome to share their views with SEBI, SIDBI, BSE and the NSE. While stating that 68 SMEs have been listed on the SME platform of the stock exchanges, Sinha said this number ‘is not good enough’.
While the venture capital industry shows interest in SMEs, the dilemma it faces is how to exit from the investment. The Institutional Trading Platform (ITP) provided under the SME platform gives an exit option for institutional investors without involving the promoters or impacting their shareholding.
He said Coimbatore was the first SME-focused centre where SEBI and SIDBI, in association with the two stock exchanges, held a meeting to discuss the role of capital markets in SME funding.
He said the purpose of coming to Coimbatore was ‘not to force you to get listed’. But if the SMEs felt that based on their own capabilities could grow faster with more capital, the effort was to create an awareness of how could the SMEs get listed and raise more capital.
Growth and dependence
The SEBI Chairman said even as made clear by the RBI Governor, if ‘we want the country to grow at the pace that we all of us aspire’, then the ‘dependence upon bank financing has to come down’. When compared with countries of India’s size or which had grown faster than India, it would show that sources of funding other than bank funding were needed. SEBI’s efforts were to tell people as to how to do it, he added.
Sinha, while cautioning the industrialists to apply their mind seriously about entering the capital markets to raise resources, said if, however, entrepreneurs were interested in doing so, it was SEBI’s job to provide the necessary advice.