The bank uses a simple benchmark to identify an SME customer: annual sales of less than Rs500m.
Targeting possibilities
Initially, the bank’s large customer base of nearly one million credit card users, 5000 card merchants and several thousand savings and current account holders provided a captive market. Using direct sales agents to go out and talk to them, the bank identified possible target groups, such as exporters, recruitment companies, advertising agencies, and found a market for its transaction-banking services. Unsurprisingly, many customers were drawn from the burgeoning services sector that contributes more than half of the country’s GDP.
“It takes about three weeks for an exporter to route his documents through a state bank in India to the importers’ bank overseas. We could do that in a week to 10 days,” says Mr Mehra. “We reduced the normal 10-day turnaround time for the acceptance of letter of credit documents to zero, and we found customers who are willing to pay a realistic price for that sort of service,” he adds.
Apart from a cash management and trade finance product, HSBC began providing loans against collateral to SME businesses this year. This could be cash collateral in the form of bonds, mutual fund investments, bank deposits or credit card receivables of businesses such as hotels, shops or travel agents.
HSBC did not have to do much other than assess the quality of collateral and determine the margin at which it could lend to a particular customer. “Around the middle of last year, we started lending based on credit score cards that are mined out of data of the customer’s existing relationship with the bank,” says Mr Mehra.
That helped in assessing riskier loans against property for instance. Today the bank lends against all sorts of mortgages, where the customer owns the property and would like to offer it as collateral for a working capital loan, or wants a bank loan to acquire either a residential or commercial property.
The next step, says Mr Mehra, will be to begin unsecured lending and the bank plans to start that in the third quarter of this year. It proposes to tap industry associations to look for customers among firms of chartered accountants, legal and medical services. At present, HSBC does business with 20,000 SME customers, a third of whom were drawn from the retail bank, which covers 20 cities in India.
Small but profitable
Although SME loans do not yet add up to a significant sum, they are profitable customers for the bank.
“We have offered our trade finance and cash management services to large Indian and multinational companies for years. We now offer them to smaller customers for whom the savings in costs far outweigh the price they pay for those services,” says Mr Mehra.
Competition is not an issue, he says, because the market of an estimated four million SMEs is large enough for everyone. Clearly, HSBC wants an early start.
