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Overview of Cluster Financing

This section of the publication is based on the analysis of primary data collected through a survey to understand the mode of finance and the fund requirements of auto components and textile companies operating in the industrial belt of the NCR.

The survey also tried to find the difficulties that companies faced while availing loans. According to the survey results, around 41% SMEs found loan availability to be moderately difficult and 32% felt that loan availability was easy. Further, banks were found to be the primary source for the SMEs’ credit requirements in the survey. In fact, when these sectors faced a credit crunch in recent times, banks supported them and helped them restructure their then-existent term-loans. The nationalised banks are the most preferred choice in terms of sources of funds; 89% of the surveyed companies chose to go to these banks for their finance needs. Moreover, 83% companies were satisfied with the services provided by their existing banks.

In the last three years, 45% of the SMEs in the auto components and textile sectors of the NCR availed loans but in the next three years, 53% SMEs plan to take loans, revealed the survey. In the last three years, these SMEs availed loans mostly for their working capital requirements (27%) as apart from meeting their working capital requirements, they also had to ensure sufficient cash flow for their short-term debt and operational expenses. In the next three years, majority of the survey companies plan to seek loans for meeting their working capital requirements and for business expansion.

Interest rates and time taken for loan approval continues to be major hindrances for companies operating in the cluster.

Section A: Auto Component Industry

Availability of loans

Among the surveyed auto component SMEs in the NCR, nationalised banks were found to be the most preferred choice for availing finance; 89% companies preferred nationalised banks and 11% companies preferred private sector banks for their financing requirements. The survey further revealed that around 85% companies were satisfied with the services rendered by their existing banks.

In terms of acquiring loans, 47% auto component SMEs found it moderately difficult to acquire funds while 35% found it easy to acquire funds.

Credit requirements

It was observed in the survey that only 40% surveyed companies in the auto components sector availed loans in the last three years and most companies sought loans for purchasing machinery and for business expansion. Surprisingly, a substantial number (60%) of companies had not availed any kind of loan in the last three years.

In the next three years, only 40% of the surveyed companies plan to avail loans; most companies are planning to seek credit for purchasing machinery to modernise their existing set-up and to meet their production benchmarks.

Credit obstacles

While applying for loans, interest rates and time taken for approval of loans were found to be the major obstacles that SMEs faced in the auto components sector of the cluster, revealed the survey.

Section B: Textile Industry

Availability of Loans

Like the auto components sector, companies in the textile sector also preferred nationalised banks for their credit requirements; 89% companies chose these banks for availing finance in the NCR. Further, around 80% companies were satisfied with the services rendered by their existing banks.

Only 35% of the textile players found it moderately difficult to acquire loans while 29% felt it was easy to acquire funds.

Credit requirement

In the study only 50% of the surveyed companies were found to have taken loan in the last three years and majority of the companies had taken loans to meet their capital requirements.

Unlike the auto components sector where a majority of the companies are planning not to avail loans in the next three years, 65% of surveyed companies in the textile sector is planning to take loan in the next three years. Furthermore, most companies are planning to meet their working capital requirements and their business expansion needs with the loans availed.

Credit obstacles

The textile companies also found interest rates and time taken for approval of loans to be the major obstacles while availing loans. However, interest rate was cited as the major obstacle, by the textile companies.