Risk-wary banks may stall small biz res­cue

Hindustan Times (Jalandhar) - - HTBUSINESS - Shayan Ghosh shayan.g@livemint.com

MUM­BAI:Banks wary of bad loans could de­rail the gov­ern­ment’s mega res­cue pack­age for small en­ter­prises, in­dus­try of­fi­cials said, since much of the promised money is to be given out as loans.

Fi­nance min­is­ter Nir­mala Sithara­man an­nounced ₹3 lakh crore col­lat­eral-free loans and par­tially guar­an­teed ₹20,000 crore of sub­or­di­nated debt for mi­cro, small and medium en­ter­prises (MSMEs). How­ever, the whole plan hinges ex­clu­sively on greater lend­ing by banks, which have so far pre­ferred pal­try in­ter­est from RBI to greater re­turns from riskier loans.

Ex­perts said pri­vate banks will be more choosy un­der the scheme than their pub­lic sec­tor coun­ter­parts. Also, while ₹3 lakh crore of loans will be fully guar­an­teed by the gov­ern­ment, the par­tial guar­an­tee for sub­or­di­nate debt may de­ter lenders. Banks have been park­ing over ₹7 lakh crore daily with the Re­serve Bank of In­dia for quite some time now, stash­ing a whop­ping ₹7.83 lakh crore on May 14 un­der the re­verse repo op­er­a­tions of the cen­tral bank, at a mea­gre in­ter­est rate of 3.75%.

RBI has cut the re­verse repo rate by 115 ba­sis points in just a month to dis­cour­age banks from park­ing funds with it in­stead of lend­ing. How­ever, the mea­sure has had lit­tle ef­fect—while banks kept ₹4.43 lakh crore with RBI on March 27 when the rate was first cut, the amount was ₹7.09 lakh crore on April 17.

“Col­lat­eral-free loans as well as sub­or­di­nate debt schemes to MSMEs are positive, but rely sig­nif­i­cantly on the bank­ing as well as the NBFC sec­tor to pro­vide the fund­ing,” Care Rat­ings said.

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