Study wants ₹3-lakh-crore Loans for MSMEs at 3.5-4% Interest

The measures taken by the Government through the Aatmanirbhar package to revive the MSMEs is commendable, but the impact and outcome at the ground level is uncertain.

To make a decisive impact, the RBI should mandate banks to disburse an additional ₹3-lakh crore as loan (as part of the Finance Minister’s package) at rates not exceeding 3.5 to 4 per cent apart from ensuring better access to funds, focus on reducing the rural credit gap, moot a few more development finance institutions and ensure better cash flow among others, the Senior Vice President of Bangalore Chamber of Commerce and Partner, Deloitte Haskins & Sells LLP – K R Sekar said.

Sharing an impact analysis report on Aatmanirbhar Bharat, a study initiated by Bangalore Chamber of Commerce, Sekar said “access to banking credit has always been a challenge for MSMEs. Though PSBs are now accelerating credit support to MSMEs, rural credit gap is significant. Around 51 per cent of MSMEs are in rural areas. The Government should therefore mandate banks to extend at least 25 per cent of their credit exposure to MSMEs. Further, going by September 2019 numbers, it is clear that banks can give an additional ₹5-lakh crore to this sector,” he said, adding, “I am not advocating a loan mela, only suggesting measures to revive the trouble-stricken sector.”

According to a BizFund report, only 16 per cent of MSMEs in India receive formal credit, leaving the rest either under-financed or supported through informal sources.

“Cost of borrowing and assessing the credit worthiness of MSMEs has been the biggest impediment to the sector’s access to credit, notwithstanding the perception of rising NPAs. Incidentally, most corporates operate with MSMEs on credit basis, but do not pay on time, resulting in a cash crunch,” the senior VP of Bangalore Chamber noted.

The government should consider amendments to the MSME Act, such that all corporates remit their dues to the MSMEs within 10 days. This would help increase the cash flow, he said.

Suggesting the need for linking interest payments to cash flows to tide over the present difficult period, he said “a new debt instrument for repayment of debt should also be considered apart from modification in credit appraisal process and lending norms (including insistence of collaterals on the lines of the UK Sinha Committee report) and creation of 4 - 5 Regional Development Banks for MSMEs on the lines of SIDBI (Small Industries Development Bank of India).

“Such development banks with an exclusive focus on the MSME sector could be mooted jointly by the Centre and State.”

“Demand revival is equally critical; towards ensuring this, the government should look to increase the spend on “common man’s” infrastructure projects, such as road connectivity (both rural and urban), establishment of schools and hospitals through PPP (Public-Private-Partnership) model, reduce GST rate on select goods, and above all, consider incentivising MSMEs. Such initiatives would go a long way in ensuring social well-being, job creation and pepping up demand.”