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Last updated: 11 Dec, 2018  

msme-THMB-2010.jpg MSME credit: Liquidity crunch and delivery challenges

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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 flimsy grounds.

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.

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Credt Support to MSMEs
Deepak Prasoon | Wed Dec 12 12:05:26 2018
There are plenty of Entrepreneurs moving from one Bank to another with their Project Reports for starting a new MSME in Manufacturing, Servicing & Business but Banks both Public sector & Private Sector are not willing to Finance the Projects. Even Micro Units have to beg for Bank Loans. In one Hand Govt has announced Collateral Free Loan upto 2 Crores but Collateral is being asked by the Banks even for PMEGP Loans of 25 Lacs. It clearly translates into Bank's attitude of helping only Riches & not to the Young entrepreneurs who are from Indian Middle Class. Several Skilled Persons having worked in certain Industries & acquired adequate knowledge about the manufacturing of a particular item & commodity , can not start their own Unit inspite for having the Capabilities of Margin Money or Down Payment. For Example , Polythene Bags have been banned in Karnataka & Maharashtra. a Young Unemployed Youth who is well conversed with making Paper Bags of all sizes & designs & having &.5 lac in his Savings Account has been visiting Bank Branches for a Loan of 18 Lacs only, but none of the Banks are willing to oblige him including ICICI Bank, Punjab National Bank & Bank of Baroda because He does not have Collateral Security to offer. His father is not willing to Mortgage their Residential House because it has got share of two more brothers into it . They have some Agriculture Land also but Banks would not Mortgage Agriculture Land. Clearly MSMEs can not be started in Rural areas.

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