'Banks not understanding SMEs' problems from high rates'

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SME Times News Bureau | 29 Aug, 2016
Commerce Minister Nirmala Sitharaman said on Sunday that banks were not fully understanding the problems faced by micro, small and medium enterprises (MSMEs), whose performance has been affected for long by high interest rates.

Replying to tweets on the issue saying it is for the industries to manage their funds, while banks can only lend, Sitharaman said: "But, the argument here is 1. Banks havent been understanding enough of #SMEs. 2. High interest rates for long period."

Sitharaman, who had recently pitched for an interest rate cut by 200 basis points to help the sector but seen her demand attract criticism that such a step would drastically affect interest income from fixed deposits, said that SMEs invest from their own and families resources but they create jobs with minimum or no support from commercial banks.

"I still hold that the cost of credit in India is high. Undoubtedly, particularly MSMEs, which creates a lot of jobs, contribute to exports, are all hard-pressed for money and for them, approaching a bank is no solution because of the prevailing rate of interest. I have no hesitation to say, yes 200 basis points, I would strongly recommend," she had said.

In a series of tweets on Saturday, she defended her demand for a two percent cut in interest rates by the Reserve Bank of India (RBI).

"My comment about SMEs, their access to credit is based on real environment in which SMEs are doing business... World over interest rate is low... Equally, income generation/jobs are important," Sitharaman said.

Bankers' understanding of the SME business needs a relook, she said.

"...for long periods, if rates remain high who can afford borrowing?" she responded to tweets by an individual who said: "Have you suggested 2 percent cut in repo rate? Are you aware how will it affect the rate of interest on FDs?... Since you will probably never contest a direct election in your life, you are not really in tune with the mood of common people".

Announcing his last monetary policy review earlier this month, outgoing RBI Governor Raghuram Rajan maintained the repo, or the central bank's short term rate at which it lends to commercial banks, at 6.5 percent.

The RBI's next policy review is scheduled for October 4.