Commercial bank finance for SMEs and credit portfolio of commercial banks in India

Despite the widespread belief that the commercial banks are the major source of external funding for SMEs, there are only limited studies that have analysed the SME lending pattern of commercial banks with the comparison of the total credit portfolio. This study empirically investigated the issue, using an ARIMA model of the proportionate share of SME credit in the total credit portfolio of commercial banks of India from 1981 to 2019. The empirical results show that there is a significant increase in absolute credit to the SME sector along with the increase of total credit portfolio, but the proportionate share of SME credit shows a declining trend. The ARIMA model (1, 2, 1) predict the proportionate share of the SME credit for the next four years as declining. The study found that opaqueness of the firm and the negative attitude of the bank officials are the drivers of the downward trend.