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Liquidity crunch affecting credit flow to MSME sector: CII
25 Nov '18
2 min read
Indian micro, small and medium enterprises (MSMEs) are facing further challenges in accessing credit due to the recent liquidity crunch that hit their working capital and loan needs, says the Confederation of Indian Industry (CII). Delay by banks, demand for personal guarantees and additional collateral, extra charges and conditions have added to the problem, it said.
Delayed payments and higher interest rates have also contributed to the financial stress faced by this sector, CII said in a press release.
In addition to government initiatives to address these issues, CII has suggested several short term measures to be taken by the Reserve Bank of India (RBI) and the government to enhance credit access to the MSME sector.
The recommendations for RBI include limiting the collaterals sought by banks to 133 per cent of the exposure and eliminating of the need for personal guarantees where sufficient collateral exists; seeking personal guarantees only in case of collateral shortfall; capping the standard rate of margin money for loans and bank guarantees at 15 per cent; and permitting letters of undertaking (LoUs) for buyers’ credit for cases where the MSMEs are incurring capital expenditure.
Other suggestions are removing the requirement of returning bank guarantees to close claim period; allowing banks to sanction buyers credit facility to MSMEs, wherever import of raw materials is being done under letter of credit; and addressing the problem of delayed payments for the SME sector by instructing the public sector organisations to clear all pending payments of MSMEs within a stipulated time. (DS)
Delayed payments and higher interest rates have also contributed to the financial stress faced by this sector, CII said in a press release.
In addition to government initiatives to address these issues, CII has suggested several short term measures to be taken by the Reserve Bank of India (RBI) and the government to enhance credit access to the MSME sector.
The recommendations for RBI include limiting the collaterals sought by banks to 133 per cent of the exposure and eliminating of the need for personal guarantees where sufficient collateral exists; seeking personal guarantees only in case of collateral shortfall; capping the standard rate of margin money for loans and bank guarantees at 15 per cent; and permitting letters of undertaking (LoUs) for buyers’ credit for cases where the MSMEs are incurring capital expenditure.
Other suggestions are removing the requirement of returning bank guarantees to close claim period; allowing banks to sanction buyers credit facility to MSMEs, wherever import of raw materials is being done under letter of credit; and addressing the problem of delayed payments for the SME sector by instructing the public sector organisations to clear all pending payments of MSMEs within a stipulated time. (DS)
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