Vinu: Manu, MSME lending is often called the backbone of banking, but also the riskiest segment. Why is that?

Manu: Because MSMEs offer high yield and growth, but risks are concentrated. Cash flows are volatile, records are informal, and businesses are promoter-dependent.

Vinu: From the start, what is the first reality bankers must accept?

Manu: That MSME financials are often tax-optimized, not performance-oriented. Profit numbers alone cannot be trusted without cash flow validation.

Vinu: How does scale affect risk?

Manu: Smaller the unit, higher the vulnerability. A ₹2 crore turnover firm losing one key customer can face immediate stress.

Vinu: What are the major risk areas in MSME lending?

Manu: Working capital mismanagement, delayed receivables, customer concentration, and diversion of funds for personal use.

Vinu: Many MSMEs seek higher limits frequently. How should bankers view that?

Manu:  As a signal. Frequent enhancement requests often indicate margin pressure or poor cash discipline, not genuine growth.

Vinu: Where does the reward come in for banks?

Manu: Higher interest spreads, cross-selling opportunities, and long-term relationships. A disciplined MSME can become a mid-corporate client.

Vinu: How important is promoter assessment here?

Manu: Critical. In MSMEs, the promoter is the business. Integrity, experience, and financial discipline matter more than ratios.

Vinu: What role does monitoring play after sanction?

Manu: A decisive one. Regular review of stock statements, account conduct, and GST data prevents slippages.

Vinu: So what’s the ground reality for bankers?

Manu: MSME lending is not a file-based job. It requires continuous engagement and judgment.

Vinu: Final takeaway?

Manu: Manage MSME loans, don’t just sanction them. Risk ignored today becomes NPA tomorrow.

Vinu: That sums it up well.

Manu: That’s the reality every banker must accept.

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