Fair solution to rate transmission in the works: FM Nirmala Sitharaman

The finance minister told the industry it needed to introspect on how businesses are run and on Aatmanirbhar Bharat, for India to realise the full potential.

Finance Minister Nirmala Sitharaman said on Thursday the ministry has been in talks with the Reserve Bank of India as well as banks on why transmission of interest rate reduction was not happening at the pace at which it should.

”The benefit of reducing interest rate should not be denied to the customer. The RBI is engaged with us. Hopefully, we will come up with some fair solution quickly," she said, while addressing a webinar on MSMEs organised by Chennai International Centre. She said she had been made aware of "reasons", but they were “not convincing”.

Responding to complaints that private banks were not providing support under the emergency credit facility, she said she would have “agreed to the comment 10 days back, but now the private banks are getting on board”. She said that while the public sector banks have cumulatively disbursed around Rs 22,200 crore, private sector banks have disbursed around Rs 10,700 crore. “But then, private sector banks have to buck up a bit more,” she said.

She said the government would consider extending the Rs 3-trillion emergency line of credit to include individual proprietors. Also, Sitharaman said, the industry’s suggestion on providing collateral-free credit based on outstanding goods and services tax bills as security would be discussed internally in the ministry before a call is taken.

The finance minister told the industry it needed to introspect on how businesses are run and on Aatmanirbhar Bharat, for India to realise the full potential. Even while understanding that we have the capabilities, for some reason there is no interest to pursue it, she said. Taking manufacturing of active pharmaceutical ingredients in India as an example, she said: “India is a big captive market and there is a need to produce more within the country.”

Banking system is in a Catch-22 situation: Indian Bank's Padmaja Chunduru

Indian Bank has 450,000 MSME customers who are eligible for loans guaranteed by the government.

The Indian banking system is in a Catch-22 situation — balancing between credit growth and bad loans, said Padmaja Chunduru, managing director (MD) and chief executive officer (CEO) of Indian Bank.

Chunduru was speaking at a webinar organised by the Indian Chamber of Commerce (ICC) on quantitative easing and credit risk. “Banks are in a Catch-22 situation. If banks don’t give credit, there is a risk of failure of organisations. If banks lend too much, lending might take a hit on the balance sheet. Credit quality is a constraint, and we have to look at ways to assess risks in an uncertain environment,” she said.

However, the immediate concern for bankers was to manage the present situation, she added. Indian Bank has 450,000 MSME customers who are eligible for loans guaranteed by the government.

Chunduru’s views were echoed by Chandra Shekhar Ghosh, MD and CEO of Bandhan Bank. Banks are in a challenging spot as they need to balance credit growth with non-performing assets, he said. “Banks are in a very critical situation as on one hand they are required to assess the credit worthiness of customers, while on the other hand they have to balance it with credit growth.”

Credit growth should start picking up in the second quarter, said Ghosh. But, the biggest challenge would be to give credit to small enterprises which do not have any credit ratings.

While the schemes announced by the government to help the MSME sector are good in intent, the key lies in administering the same, said Rajesh Kumar, MD and CEO, TransUnion Cibil.

“There needs to be a tight monitoring mechanism for assessing MSME's cash flows and production cycles. We have created a Cibil MSME rank to provide risk differentiation," he said.

Lockdown 2.0: Coronavirus-hit units get Rs 10,000 crore from banks

Banks have built internal capacities for assisting companies, including micro, small & medium enterprises (MSMEs).

Ahead of finalising the package for industries hit by Covid-19, the Union finance ministry reviewed support extended by large public sector banks (PSBs), including via the emergency credit line, to affected firms. 

State Bank of India (SBI) and Bank of Baroda (BoB) have together sanctioned close to Rs 10,000 crore as immediate credit assistance to the affected units.

PSB executives said this was a regular review with top officials of large banks, including SBI. There was also discussion on working capital re-assessment.

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Banks have built internal capacities for assisting companies, including micro, small & medium enterprises (MSMEs). Feedback from interactions is expected to act as an input for policies that are in works.

However, it is not clear when the package would be finalised, officials said. A SBI executive said the bank is giving these emergency loans to those in need. It does not involve elaborate scrutiny. Only thing is that borrowers have to establish the Covid impact.

Covid-19 lockdown 2.0: Need govt support to keep units open, say MSMEs

On Tuesday, MSME Minister Nitin Gadkari had stated during a meeting that unpaid dues of MSMEs at the central and the state levels will be released at the earliest.

Micro, small and medium enterprises (MSMEs) across the country are keeping a wary eye on the government's decision to allow select manufacturing units to reopen on April 20. While MSMEs in most sectors have welcomed the latest move, they argue that lack of financial support from the government might result in these firms not running even if they manage to reopen.

The Confederation of Indian Industry (CII) has recommended focus primarily on increasing the financing available to MSMEs with relaxed collateral norms, an extension of the RBI moratorium and wage support. It also suggested expediting fund of funds for MSMEs which has been under the government's consideration and augmenting the assets of MUDRA Bank.

“Many MSMEs are an important part of larger supply chains and their health has a bearing on the supply chain, including large firms. Therefore, special, immediate, and substantive support measures are required to see MSMEs through this crisis," said CII Director General Chandrajit Banerjee.

To ease the liquidity crisis that most MSMEs had been facing for the last couple of months, Assocham has suggested a 40 per cent government or Reserve Bank of India guarantee on fresh loans, while the balance risk premium can be made up by a huge spread available to banks between their cost of funds and the yields.

On Tuesday, MSME Minister Nitin Gadkari had stated during a meeting that unpaid dues of MSMEs at the central and the state levels will be released at the earliest. He estimates Rs 40,000-50,000 crore could be injected into the market by releasing the due payments.