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Last updated: 20 Mar, 2018  

Manufacturing.9.Thmb.jpg RBI ban on LoU to severely impact MSMEs: PPMAI

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SME Times News Bureau | 20 Mar, 2018

The RBI's decision to ban letters of undertaking (LoU) for trade finance in the wake of the Punjab National Bank fraud will severely impact at least in the immediate term on the capital goods industry,  as small businesses would require higher working capital, said the Process Plant and Machinery Association of India (PPMAI).

PPMAI, the apex body of capital goods manufacturer’s Industry.

"RBI’s banning of these instruments would result into increasing working capital requirement of industries as per their trade cycle and will disrupt trade, services and industry particularly MSMEs whose working capital is based as per their trade cycle, will require higher working capital or else suffer irreparable losses,”  said Mr Yatinder Pal Singh suri , chairman, PPMAI.

"Capital Goods industry mostly depends on imports and exports of goods, the industry which has been conducting business through these two instruments will now have to necessarily shift their transactions to Letters of Credit (LoCs) and bank guarantees," said Suri.

"RBI moves looks like more of punishment to entire industry  for fraud of select few and corruption in banking system. This Move will also  raise the cost of borrowing especially for small importers, slow the pace of imports. Capital good importers are already hurt by various anti dumping duties put by the government on various  in put products including stainless steel," he said.

"This will lead to undue stress on the working capital management and moves contrary to the stated objective of achieving ease of doing business.  With an output of INR 2,50,000/- crores contributing 2% of the GDP and generating 10 million jobs, this capital goods sector is on the cusp of expansion. Recognizing the same, the  Government of India has mandated the Capital Goods Policy with an aim to increase the output to INR 7,50,000/- generation of 30 million jobs by 2025.  As such, the banning  of LOU is contrary to all the aforesaid and creates hurdles in achieving the stated objectives," said Suri.

"PPMAI urges RBI and ministry of Finance to immediately lift the ban and allow Capital goods industry back bone of Indian economy to survive and prosper," he added.

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Sunil Sunderlal | Sat Mar 31 02:03:02 2018
MSME is already passing through great stress since last few years. Financial institutions have been remain linient while offering credit facilities to large corporates because of their brand name as well as their political resources.In present scenario most of Thier funding is in stress which they have given to such corporates. Hence now all restriction will be imposed to genuine businesses that too MSME sector which are very much depending on such financial instruments. In absence of the same business will go unviable in all aspects because Thier credit cycle with customers will never support and eventually they fail. When they fail financial instituations has all time and resources for recovery and kill those businesses.This is what happening since Banks are suffering with NPA monsters all these years.Being a business consultant to MSME sectors I have seen most of the MSME failing in repayments just because of those large corporates who defaulted in fulfilling commitments to Banks and now Govt wants MSME to pay the cost of the mess created by thier own administrative faliure as well as nexus between Banks and large corporates which is always there.Again No LOU is offered to MSME without 100% margins than what risk Banks are carrying!!

RBI ban on LoU to severely impact MSMEs: PPMAI
Vijay singh | Thu Mar 22 04:58:42 2018
The LoU should be continue . However, loan given against LoU shall be settled within 6 months. Maximum amount loan to be given business entity shall be 5 crore cumulative from all banks. LoU meant for small business men who don't have working capital. If loan is required more than 5 crore, there shall be Letters of Credit (LoCs) and bank guarantees. Business men can not play with money of poor public.

J.C. SEKHAR | Thu Mar 22 03:49:10 2018
SORRY TO SAY, the bankers have no banking knowledge. They misuse their powers to stop or cripple trade on the pretext of RBI guidelines.

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