MSME enterprises not availing for new loans despite being available in pandemic times

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MThose enterprises operating in the Micro Small and Medium Enterprises (MSME) sector in India are not availing for new loans. Even on providing credit plans through improved financing limits as part of the government’s drive to infuse up to Rs 3 trillion liquidity into small businesses. Analysts presume that prolonged uncertainty is the prime reason why they are hesitant to take new loans, despite the availability.

In the current scenario, borrowers are opting to increase their limits through existing schemes, but they are hesitant to avail fresh funds, placing lenders in a spot. Government data says that under the emergency credit line guarantee scheme (ECLGS) scheme, public and private sector banks have sanctioned loans worth over Rs79,000 crore as of 20 June, of which only Rs35,000 crore have been disbursed. “Despite sanctioning Rs18,000 crore as loans, people have not drawn the entire amount and even if they have drawn, they have put it in their cash credit account because they are not sure how this is going to play out,” says C S Setty, managing director of State Bank of India (SBI). People are saving funds for meeting future contingencies and several people have been asking for extra credit, but not fresh loans. “There is a great amount of uncertainty and hopefully July and August will help us understand how it will play out,” added Setty. The difference in the sanction numbers and disbursement numbers is because of the disinclination to utilize the new loans.

Few of the MSMEs are availing for loans without appropriating them because they want to assure that they have adequate liquidity when market demand starts to gather. Industry spectators say that while timely availability of affordable credit is important for the MSME sector, it is not the only thing the sector needs. It is also crucial that these small enterprises get their dues on time and corporates do not hold up large receivables. A study by Brickwork Ratings has reported that around Rs3.3 trillion of MSME funds are stuck with strong, large corporates. The study by Brickwork is based on data analysis of the top 1,000 companies in terms of market capitalization. Rajat Bahl, chief rating officer, Brickwork Ratings said 50% of the funds are held by large corporates, and if released, it will shore up the liquidity for the MSME sector by close to Rs1.6 trillion and significantly diminish their liquidity pressure and working capital strain.

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