Kotak Mahindra Bank has received over 500 applications under the government’s Emergency Credit Line Guarantee Scheme (ECLGS) 5.0 as businesses seek to build liquidity buffers against disruptions arising from the ongoing conflict in West Asia, Shekhar Bhandari, head-SME at the bank said. The applications received under ECLGS 5.0 have come from across sectors, with most borrowers seeking sanctions as a precaution rather than an immediate funding requirement. “Entrepreneurs are taking precautionary steps with ECLGS 5.0 rather than requiring money today,” he said.
Precautionary Liquidity
While lenders are yet to witness any deterioration in borrower behaviour, the impact of higher fuel prices, currency movements and rising input costs could begin reflecting in business activity from the second quarter of the current financial year, he said. “Our general estimate is that you should see a demand erosion of 4-4.5% for Q2,” Bhandari said, adding that he expects a resolution to the conflict only after couple of months and not in the immediate term. Kotak Mahindra Bank’s small and medium enterprise book grew 19% on year to Rs 1.22 lakh crore as on March 31. The book forms 24% of the total advances.
According to him, rising costs could weigh on consumer spending and corporate profitability, leading to a more cautious operating environment for businesses. Despite these concerns, banks have not seen any stress in cash flows or repayments so far. He said that any impact is likely to emerge with a lag.
MSME Outlook
Bhandari said FY26 was a healthy year for lending, with MSME credit growing by around 14%, but expects corporates and smaller businesses to become more cautious if geopolitical uncertainties persist. However, he does not foresee a significant rise in delinquencies, particularly in the organised MSME segment. For the full year, Bhandari remains optimistic, saying any weakness in the first half could be offset if geopolitical tensions ease by August, allowing demand to recover in second half.