Small firms facing cash crunch seek cheaper funds, leniency on bad loans

Small businesses facing liquidity crunch are seeking cheaper funds and a long rope before lenders consider it fit to start recovering dues.

Micro, small and medium enterprises (MSMEs) say that the government and the Reserve Bank of India (RBI) should do more so that they have easy access to funds given that anaemic banks have been placed under lending restrictions and non-banking financial companies (NBFCs) are facing a liquidity crunch.

Earlier this month, Prime Minister Narendra Modi had announced several benefits, including an offer for loans of up to ₹1 crore in 59 minutes, and a 100-day drive to help MSMEs to secure loans. Small businesses had welcomed the announcement, but now want the measures to be more liberal.

They said the cost of funding, which ranges from 9-24% depending on the funding facility and risk, hurt their competitiveness. Banks charge about 9-16%, while NBFCs, bank-like financing institutions most of which do not accept deposits, charge up to 24%. One of the biggest problems of small businesses is that many do not have assets to pledge, which pushes up the cost of funds.

According to Chandrakant Salunkhe, founder and president of SME Chamber of India, while the authorities should ease lending restrictions on banks placed on prompt corrective action, bank officials should proactively implement the relief given by the RBI, especially those on classification of loans.

In June, the RBI had temporarily allowed banks and NBFCs to show loans of up to ₹25 crore given to small businesses as standard assets even if dues were unpaid up to 180 days. The norm is 90 days for big businesses. This relief was available only till the end of this year, and will be rolled back to 90 days gradually by May 1, 2019, for GST-regiswork, tered firms. For others, it will kick in from the beginning of 2019.

Salunkhe said that despite the RBI circular, the relief was, in effect, denied to small firms, as bank officials waited endlessly for instructions from headquarters. Once classified as a bad loan, banks either give a chance to correct the default, restructure the loans or initiate recovery. There are about 65 million MSMEs in the country, but only a fraction are GST-registered.

Loans to small businesses of up to ₹25 crore are covered under a special regulatory window, wherein either a bank official or a panel examines the best course of action in case of a default. Defaults of larger loans are covered under a rigorous frame- which was introduced by the RBI in February, and the Insolvency and Bankruptcy Code. Small businesses, which endured the liquidity problems during the 2016 high-value currency ban, and the subsequent business disruption caused by the goods and service tax (GST) roll out in 2017, are a major support base for political parties, including the ruling BJP.

MSMEs said the top brass of the banking sector was not interested in listening to them. “Monday’s (RBI board) meeting is crucial. We find that chairmen of banks are not available to listen to small businesses. We will stage road shows and morchas in December,” said Salunkhe. Small businesses also sought quick sanction of loans above Rs 1 crore for feasible projects, besides land for starting projects at a lower cost.

RBI data shows that bank credit to micro and small businesses had jumped 9.5% at the end of September from the corresponding period of the previous year to ₹9.4 lakh crore.

ONE OF THE BIGGEST PROBLEMS OF SMALL BUSINESSES IS THAT MANY DO NOT HAVE ASSETS TO PLEDGE