Low demand, risk aversion hobble Rs 3 lakh crore MSME rescue

The government’s ambitious Rs 3 lakh crore rescue package for small- and medium-sized businesses is struggling to take off as a host of issues have hobbled its implementation.

Lenders awaiting the fineprint of the aid package from Reserve Bank of India (RBI), continue to be cautious about lending to small businesses due to poor demand outlook and risk aversion, two people aware of the issues said.

The size of the package notwithstanding, public sector banks have so far sanctioned loans worth only Rs 1,109 crore to micro, small and medium enterprises (MSMEs) in 12 states under the Emergency Credit Line Guarantee Scheme, or ECLGS.

Of this, Rs 599 crore has already been disbursed to 17,904 accounts, according to data compiled by the department of financial services.

Uncertain business outlook has made bank finance difficult for many small businesses, especially in manufacturing.

Despite the government push, many lenders view micro, small and medium enterprises utilising the loan moratorium as potential stressed cases with impaired repayment ability, industry watchers said.

On May 16, the government announced a comprehensive economic package for the micro, small and medium enterprises sector, which included the Rs 3 lakh crore collateral-free automatic loan scheme, Rs 20,000 crore subordinate debt scheme for stressed micro, small and medium enterprises and Rs 50,000 crore equity infusion scheme through a fund of funds.

Lenders, however, maintain loan growth will gain momentum gradually.

“There is traction in the Rs 3-lakh crore loan guarantee programme and MSMEs need some help with regard to cash flow, which have been constrained because of external conditions,” said Suresh Khatanhar, deputy managing director, IDBI Bank Ltd.

“It is taking time because all banks have started just about a week ago and, depending on the portfolio size and eligibility criteria, we are approaching small businesses. However, the other two schemes for MSMEs will take time to pick up as it involves analysing the viability of the business. These other schemes could also be helpful as many small businesses need capital,” Khatanhar added.

“The working capital facility is an automatic credit and it should be mandated by the Reserve Bank to banks that the credit should be extended to micro, small and medium enterprises without any credit appraisal or evaluation. The credit should be extended based on a certain percentage of average working capital facility drawn by banking customers,” said KR Sekar, partner, Deloitte India.

While government guidelines clearly said that lending institutions are expected to be liberal in sanctioning loans, they are, however, also “expected to evaluate credit proposals by using prudent banking judgement and use their business discretion/due diligence in selecting commercially viable proposals and conduct the accounts of the borrowers with normal banking prudence.”

This leaves the onus and accountability of sanctioning credit on banks.

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