Defaults in traditional brick-and-mortar companies and the fast-projected growth in e-commerce firms are pushing finance companies, including Reliance Commercial Finance, Aditya Birla Finance, Bajaj Finance, Religare, Tata Capital, to lend to suppliers of Flipkart and Snapdeal.
State Bank of India, the country’s largest lender, announced a tie-up with Snapdeal last Friday. SBI will lend to suppliers of the e-commerce firm.
A day before, Reliance Commercial Finance, part of the Anil Ambani-led Reliance Capital, which lends largely to the SME sector (small and medium enterprises), entered into a similar agreement with Snapdeal to offer supply chain financing to over 80,000 vendors across the country. It is also in discussions with Amazon and Flipkart to expand this e-commerce supply chain financing portfolio.
Other finance arms of big companies — Aditya Birla, Bajaj Finance, Tata Capital, Religare — are queuing up too, expecting e-commerce to account for at least a third of their supply chain book. “We see it contributing 30-40% in three years. Right now it’s just a small share,” KV Srinivasan, CEO, Reliance Commercial Finance, told HT.
Traditionally, supply chain finance has been one of the most reliable branches of borrowing for companied as it allows businesses to extend payment terms to suppliers and optimises working capital. It has been the most popular option and is now seeing a change due to the growth of e-commerce where possibilities of defaults are low and the risk spread over multiple players.
“It is a very viable segment. Lots of vendors in brick-and-mortar businesses are moving to e-commerce. The advantage of a tripartite tie-up — parent e-commerce firm, vendor and finance company — keeps bad loan lows,” said Srinivasan.
According to SBI’s Bhattacharya, platform performance data enables the bank to “assess the merchant’s credit worthiness without relying on traditional financials like balance sheet and income tax returns.”
SBI will now offer working capital loans to sellers on e-commerce websites with immediate approvals. Snapdeal currently has over 23 million sellers.
Reliance Commercial Finance currently has a Rs 1,000-crore book from supply chain financing, which is expected to grow to Rs 1,500 crore by the end of 2016. The company expects over 10% of its total supply chain portfolio to come from e-commerce vendors by the end of this year.