While fund flows from NBFCs to micro, small and medium enterprises (MSME) have dried up in recent times, official data shows state-run banks too are cautious in lending with total credit outstanding to the sector growing at just 7.38 per cent to Rs 8.81 lakh crore in the three-year period ending March 2019.
As the sector is considered a key growth engine accounting for about 90 percent of businesses and more than 50 percent of employment, the credit growth pattern is a matter of concern.
Even as the government has come out with measures to promote the MSME sector, nudging banks to lend more, it is yet to reflect in actual numbers. One of the key steps announced is providing loans to smaller firms within 59 minutes of application but industry leaders point to sluggish disbursal under the scheme.
As per data compiled by the Reserve Bank of India (RBI), the outstanding credit of Public Sector Banks (PSBs) to the MSME sector increased from Rs 8.20 lakh crore in March 2016 to Rs 8.81 lakh crore in March 2019 (provisional).
"Even after the introduction of the 59-minute loan scheme, the disbursal rate is very poor. If you see the data of 59-minute approvals, it is not matching with the disbursal. Banks are still putting a lot of conditions and requiring a lot of paper work for disbursing the loan. We have apprised the government of this. The credit growth and disbursal are extremely poor," said Animesh Saxena, President of the Federation of Indian Micro Small and Medium Enterprises (FISME).
He further said that banks remain concerned with their rising non-performing assets (NPAs or bad loans) and scrutiny of their management.
"As a result, paper verification and due diligence is very slow. They refuse loans to SME firms on small issues. MSMEs, generally have problems with their paperwork and are not as perfect as big corporates. Banks find lacuna in that," Saxena added.
The latest official data shows that out of 2,00,660 applications submitted, 1,59,583 applications for loans on the psbloansin59minutes.com portal have been accorded in-principle approval since the launch of the portal. Sanctions have been made in respect of 1,33,448 cases.
In a meeting with the Union Minister for MSMEs Nitin Gadkari, the industry urged the government to provide short and medium term support to beat the slowdown in the economy. Among the urgent steps, the industry has demanded doing away with the requirement of third-party credit rating of loans and enforcing compliance of public procurement policy (PPP) that mandates government firms to take 25 per cent of supplies from MSMEs.
"While many agencies/organizations are slowly moving to meet the target of 25 per cent procurement from MSMEs, the compliance is not even. It's time a few measures are thought to reprimand those who are not reporting/following the MSE-PPP," the industry representative urged the government.