Credit and Finance for MSMEs: Small and medium businesses, which constitute 19.3 per cent of the total bank loan, are likely to tap into their sanctioned working capital limits by banks amid squeezing liquidity and financial crisis due to the Covid-19 outbreak. “We expect immediately that companies will draw more from their sanctioned working capital limits for a couple of months but it will be difficult for them if it persists for long,” according to the SBI Ecowrap report. According to the data from the Reserve Bank of India, bank credit as of February-end stood at Rs 89.8 lakh crore out of which Rs 10.95 lakh crore was deployed in micro and small enterprises – 6.7 per cent up from same period last year.
“They are in need of more working capital to sustain and bear their fixed costs etc. to keep going. They need that liquidity. Some of them may be earning revenues, some of them not depending on the sector. For instance in FMCG, they may be but perhaps not in sectors like automobiles while the effect varies. It is for the banker to assess their viability of stay alive and whether liquidity issue doesn’t morph into insolvency issue,” Renu Kohli, a Delhi-based independent economist told Financial Express Online. According to the RBI, as per Nayak Committee Report, working capital limits to small scale industry (SSI) units is computed on the basis of minimum 20 per cent of their estimated turnover up to credit limit of Rs 5 crore.
Small businesses, for example, in retail are staring at job cuts amid crumbled operations due to Coronavirus. As per a survey by the retail trade body Retailers Asociation of India, small retailers are likely to lay off 30 per cent of their employee strength ahead while medium retailers are expected to cut 12 per cent of their manpower, according to 768 retailers (including 682 small and medium retailers) responding in the survey. “Support for salary, a larger amount for sustaining business, relief in interest rates, and a better moratorium for repayments is what we seek from the government,” Kumar Rajagopalan, CEO, Retailers Association of India had told Financial Express Online as among they asks from the government to help small and medium retailers financially.
The report from SBI also noted that the loss in labour and capital income of around Rs 3.60 lakh crore is maximum in hotels, trade, education, petroleum and agriculture. This is due to the “unorganized and proprietary form of business organization and nature of self-employment in our economy that accounts for around 30 per cent of GDP,” it added seeking a fiscal package for them. “There is a case for a fiscal package for them. Many of them may be just self-employed or at best having two-three people who are very often family members etc. All monetary, regulatory or fiscal measures taken by the government and RBI have been limited to one quarter. There will be many businesses will flounder, which is to say they are very weak. So viability is an issue there,” added Kohli.