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SMEs need to focus on equity: Andhra Bank Chief
SMEs Need To Focus on Equity: Andhra Bank Chief. Pointing out that small and medium enterprises (SMEs) had been overleveraging the debt, CVR. Rajendran, Chairman & Managing Director, Andhra Bank, on Monday underlined the need for SMEs to focus on low cost funds to compete in the globalised world.
Says small and medium enterprises have been overleveraging debt
Hyderabad: Pointing out that small and medium enterprises (SMEs) had been overleveraging the debt, CVR. Rajendran, Chairman & Managing Director, Andhra Bank, on Monday underlined the need for SMEs to focus on low cost funds to compete in the globalised world.
“Debt and equity are complementary to each other. The available of equity capital is more significant in the present globalised world as Indian SMEs have to compete with the global players and they are in need of capital at low cost,” he said while speaking at conference on ‘Financial management for SMEs: Raising capital through stock exchanges & criteria for listing on exchanges” organised by Fapcci here.
According to him, the current capital requirement of MSMEs is in the order of Rs 22 lakh crore. “They will need huge funding for their green and brown field expansion. This will likely to trigger higher listings on SME exchanges,” the Andhra Bank Chief said.
He however said that debt funding had always been the preferred source of financing of MSMEs. “But private equity funds and venture capitalists can become the equity source for MSMEs. Along with the capital funding, they can also lend to SMEs,” he explained.
At present, financing to SME sector through capital market is on very low level although capital markets offer an alternate long-term financing source. “Government and regulators have made efforts to promote financing of SMEs through capital market. In different parts of the world, SME markets have been established where listing criteria and disclosure norms are eased,” he added.
He further said that there was a need for educating the SMEs on the benefits of listing and the preparations required for listing on the SME exchanges. “There is also need for educating them so that they can reach the investors in a focused way,” he added. Listing of a company on the exchange gives better valuation to it and this would assist it in fulfilling financial requirements to execute the expansion plans. “The debt equity ratios will improve and the balance sheet looks much healthier,” Rajendran maintained.
Besides, the listed entities will unlock their wealth in the medium to long term and are expected to create wealth for promoters as well as the investors. “Transparency and corporate governance will improve manifold,” he added.
