May 11, 2021 05:09 PM
FY22 fund-raising outlook; Small and medium enterprises (SMEs) are the backbone of the Indian economy as they contribute 30 percent to the country’s gross domestic product (GDP) and are the second-largest contributor to employment after the agriculture sector.
The second coronavirus wave has created the largest public health crisis in the country, which has forced state governments to impose lockdowns. This has affected both large and small businesses. However, the impact on SMEs is severe, particularly because of the higher levels of vulnerability and lower resilience in comparison to larger firms.
This will result in a deterioration of the SMEs’ balance sheet and put a significant share of jobs and debt at risk. Therefore, the sheer magnitude of crisis and distress among the SMEs requires an innovative approach, whereby the liquidity needs to be injected, both through debt and equity participation.
The Reserve Bank of India (RBI) has taken proactive steps and announced a sleuth of measures to inject liquidity into the system. The decisions for allocating Rs 50,000 crore for the healthcare industry involved in manufacturing COVID related medicines and infrastructures, allowing a one-time restructuring of loans of retail borrowers and small business.
To bring sustainable growth in SMEs and reduce the overdependence on debt financing, equity injection is the need of the hour. Equity funding through the stock exchange platform will help the company’s growth in regulated and transparent manner.
FY22 fund-raising outlook It will further help in creating a healthier balance sheet, increase the visibility of the company, give credibility to the promoters and unlock the valuation of the company.
The stock exchanges launched the SME platform in 2012 to help the SMEs raise equity funds in a cost-effective manner under relaxed eligibility criteria and post-listing compliances. The eligibility criteria have been amended time-to-time depending on the prevailing situation so as to help more and more SMEs access the capital market for raising funds.