This is the long-term outlook to improve the bank’s crisis response. All the global banks including the community banks are struggling with their future strategy. This strategy is focused on supporting the small businesses during the crisis and taking the economy to the ultimate salvage.
PwC recently surveyed to understand how small businesses are coping in the United States. It was seen that although the small and medium businesses are coping with the current crisis, they are expecting help from the financial institutions and banks. Small businesses are looking for increased support from their bank as they are worried about how their future will shape.
The ambiguity of lending in the struggling business segment of SMEs has replaced the vigor of financial institutions. Banks and NBFCs are trying to look for policy push to start functioning in their segment. Many technological and operational constraints are blocking their way too. For instance; SMEs are usually considered as a generic pool and this pool is created based on the turnover of these businesses. This might not be appropriate for the determination of their access to the working capital. The risk profiles and source of funding can be understood in a better manner by decoding the buyers and sellers of these SMEs.
The Categories of SMEs that need Bank Support Below are the 3 categories of SMEs that need support from banks:
SMEs that serve as vendors to government and large corporates - The category is safe for banks in terms of lending as the regulatory support is in place. The regulatory bodies force buyers to strictly pay back these businesses. NBFCs and Banks can lend through various platforms. The non-payment risk is minimal, and the banks are relieved from the task of KYC, Origination, or Invoice aggregation. The risk is on the government and not on the SMEs.
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