‘Creative excuses’ by public, private enterprises in delaying payments hurt MSMEs in getting bank credit: CEA

Credit and Finance for MSMEs: To ensure transparency in lending to MSMEs, banks should be advised to mention loan conditions in local languages as well on their websites and also use images and visuals instead of only ‘complicated texts’ to make it easier for MSMEs to understand and avail credit facilities, said CEA Anantha Nageswaran at FE Modern BFSI Summit.

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Access to finance and working capital must be ensured and so whatever banks can do directly and indirectly will be of huge advantage, said Nageswaran. (Image: FE)

Credit and Finance for MSMEs: There are multiple ‘creative excuses’ used by public and private enterprises to delay supplier payments and hence most micro and small businesses face the problem of getting bank finance at reasonable rates, said Chief Economic Advisor (CEA) V Anantha Nageswaran on Friday. Addressing the delayed payments issue faced by MSMEs, the CEA strongly urged banks to ‘think about’ how to ensure large companies pay MSMEs on time for the latter’s working capital needs.

In his keynote address at the FE Modern BFSI Summit in Mumbai, Nageswaran said, “In what way can they (banks) make large buyers (payment) behaviour a part of their loan mandate is the question I would like to leave bankers with if we have to help MSMEs grow sustainably.” Access to finance and working capital must be ensured and so whatever banks can do directly and indirectly will be of huge advantage, he added. 

According to the delayed payments monitoring portal of the government MSME Samadhaan, 1.14 lakh applications involving Rs 29,500 crore were filed by MSEs so far since the launch of the portal in October 2017. Out of the total applications, only 16,882 cases amounting to Rs 3,144 crore were disposed by MSE Facilitation Councils, data from the portal showed. 

Earlier this week, a report by the non-profit entity for promoting entrepreneurship Global Alliance for Mass Entrepreneurship (GAME) and analytics company Dun & Bradstreet (D&B) had also noted the estimated amount stuck in delayed payments to be Rs 10.7 lakh crore amounting to 5.9 per cent of India’s gross value added (GVA) locked up annually. 

Meanwhile, the CEA also suggested a few steps to support MSMEs including cash-flow-based lending in financing new ideas, reconsidering prepayment charges for MSMEs, and developing a single platform for all lenders to ensure MSME loans can be restructured with a single application made by MSMEs.

Moreover, to ensure transparency in lending to MSMEs, Nageswaran said banks should be advised to mention loan conditions in local languages as well apart from English or Hindi on their websites and also use images and visuals instead of only ‘complicated texts’ to make it easier for MSMEs to understand and avail credit facilities. 

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Nageswaran, however, also highlighted the growth in bank credit to micro and small enterprises in the past few months. “Banks are doing quite well with respect to the MSME sector. It is not that there are not enough schemes to provide loans to the MSME sector…In the last three months, non-food credit growth is running at double digits and bulk of the loan is going to micro and small enterprises (MSEs) and personal loans.”

As per the data from the Reserve Bank of India, the year-on-year growth in gross bank credit deployed to MSEs during April had jumped 19.7 per cent to Rs 14.08 lakh crore from Rs 11.77 lakh crore in April 2021. The growth during March was 10.6 per cent vis-a-vis 8.4 per cent in February and 4.8 per cent in January, indicating gradual recovery among MSEs post pandemic. 

With respect to banks’ non-performing assets in the MSME sector, the CEA said after recapitalisation of banks, asset sales and balance sheet provisioning, the banking system is well capitalised and the NPA ratios have come down.  

“The bulk of the reduction in NPAs is also attributable to the Emergency Credit Line Guarantee Scheme (ECLGS). When the scheme eventually ends in 2023, will there be a spurt in NPAs? I don’t think so for the reason that banks have now far better provisioning than they had last decade. So even if the ECLGS scheme ends, the banking system should be able to absorb the minor tremors that may occur which is not necessarily a given situation,” he added.

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