Banks begin to accept GST input claims to grant working capital

More than 90 days after the roll-out of the goods and services tax (GST), lenders are gravitating to sanctioning working capital loans, especially to micro and small units, against documents used in the new tax regime.

They are no longer looking at just sales of the units concerned to decide on loan sanctions.

Banks are looking at input credit in deciding how much working capital loans they should advance.

The country’s largest lender, State Bank of India, and Union Bank of India, also a public sector bank, have started giving loans, especially to micro, small and medium enterprises (MSMEs) after assessing their input tax credit claims.

A public sector bank executive said the large number of small and medium enterprises (SMEs) had been included under the ambit of formal trade with the introduction of the GST.

SMEs are facing a working capital crunch because in the absence of proper financial returns, they are unable to access bank credit.

In the traditional route, banks make working capital assessments based on sales, as indicated in the balance sheet.

Besides this, entrepreneurs are facing a credit crunch because in the GST regime SMEs are entitled to input tax credit, and it is stretching their operating cycle.

A Punjab National Bank (PNB) official said the banking system is shifting to looking at the history of transactions such as GST credit-based decisions about credit, especially for SMEs.

SBI Chief General Manager (SME) V Ramling said using GST claims by banks would give SMEs the time to manage their working capital requirements till the time they got input tax credit. It will also help stabilise SMEs to run their operations without any hurdles.

SBI said the loan would be sanctioned outside Assessed Bank Finance (ABF) at 20 per cent of the existing fund-based working capital limit or 80 per cent of input tax claim due on purchases, whichever is lower.

Units and companies seeking a loan under the product need to give a certificate from their chartered accountant, confirming the input credit claims.