Bikky Khosla | 11 Dec, 2018
Well, this week hasn't begun with a good note. In a
surprise move, RBI Governor Urjit Patel on Monday resigned from his post with
immediate effect. He cited "personal reasons" for the decision, but
still raising a lot of speculation about the ongoing conflict between the
central bank and the Centre, over several serious issues, which include, among
others, how to increase liquidity so that credit flow can be increased to the
industry, especially MSMEs.
While it is not the intention here to discuss the Government
vs. RBI debate further, one thing is fairly clear by now that credit flow is
still tight and there is an urgent need to address this concern. A recent
Business Confidence Survey finds that the proportion of respondents, citing the
cost of credit and availability of credit as a major constraining factor, has
gone up to 60 percent and 48 percent respectively. In such a situation, there
is naturally a growing demand for more credit to the industry.
Meanwhile, another trade body has recently pointed that red
tape is no less responsible for this crisis. It adds that PSU bank officials
are not accessible to exporters, particularly from the MSME sector.
Additionally, they demand bundles of documents and collateral for considering
applications for even smaller limit of loans. Even if granted, it takes months
to get these limits approved. Similarly, the government-owned ECGC is very
reluctant to extend insurance cover to exporters and it rejects claims on
There is no doubt that liquidity stress in sectors like
banking, NBFC and housing finance needs to be urgently addressed to help our
MSMEs get more credit, and a solution to this problem will depend on finding a
balanced approach based on both "empirical evidence" as well as sound
theories. But at the same time it is equally important to take complementary
steps in order to smoothen the credit delivery mechanism, so that we can at
least make the best of the resources that we already have.
I invite your opinions.