The success of a bank’s business client is imperative for the survival not only of that business, but of the bank, too. That’s why one bank in India is looking to invest in the markets in which its small business clients operate.
According to reports published Wednesday (May 20), the State Bank of India has struck a Memorandum of Understanding with Amazon to provide funding to Amazon sellers. “Facilitating SMEs to do their business will also help secure their loan repayments to us,” SBI deputy managing director Sunil Srivastava said.
It’s a deal that suggests banks are paying attention to the rise in eCommerce and digital operations, and want to gain a long-term footing in the industry. According to unnamed sources, SBI is likely to reach similar agreements with other eCommerce players including PayPal and Snapdeal. SBI is expected to hold a conference today (Thursday) on the matter.
India’s eCommerce market alone is expected to hit a value of $22 billion by the end of the year, reports said. With a rise in small businesses defaulting on their bank loans, it makes sense for a financial institution to look for other ways to financially support its borrowers.
By the end of last year, the bank’s ratio of non-performing assets for SBI hit as high as 8.05 percent for SMEs, according to reports. In addition to supporting its SME borrowers in their online initiatives, the bank is also launching a new plan to encourage other customers to do business online. Part of this plan, SBI said, is to reduce cash-on-delivery transactions on eCommerce sites. The bank is also said to be exploring the launch of its own payment mechanism to increase online transactions.
While the nation’s eCommerce market has a lot to gain in the next few years, there is a long road to travel, too. Statistics showed that only 16 percent of India’s population was connected online in 2013, and just 14 percent of those people were online shoppers. But major retailers like Amazon and Walmart establishing new eCommerce operations in India, combined with traditional banks’ efforts in the space, are likely to drive these numbers up.