Easing Liquidity for MSMEs to Tide Over the Crisis

Economists and business experts are debating whether India can afford to go for a long haul lockdown of the Industries, especially when the MSMEs are considered to be backbone of Indian economy and second largest employment provider. According to Barclays the estimated cost of Covid19 lock down is about $5.7 Billion per day for India which will work out around 228 Billion US $ for the first 40 days which will increase on an exponential manner eventually. The commercial Banks are saddled with huge sum of Money which rarely reaches the deserving MSMEs due to the mismatch factors like collateral and creditworthiness issues between the lender and borrower.

The lender, especially the banker, is extra cautious when he wants to lend to the MSMEs particularly for startups for want of collaterals and asset backups. Despite the government's push on development of startups, the ecosystem is yet to pick up to meet the aspirations of the huge no of aspiring educated masses, throwing them back into the job market.

Create multiple credit guarantee trusts

Currently, there are only two credit guarantees trust mechanisms available in the country hardly sufficient to provide the genuine credit requirements of the MSMEs without collaterals under the normal circumstances. But the liquidity crisis which has hit Indian MSMEs post Covid cannot be easily rescued by the existing credit guarantee outfits or Government. Schemes like Moratorium, interest reduction or writing off loans etc. will cripple the banking industry at the present rate of lending.

As in a bid to comforting the languishing industry, RBI has already cut the Repo rate from 5.15 % to 4.4 % and reverse repo rate from 4.9 % to 4 % making the loans cheaper. Similarly CRR ratio is reduced from 4 % to 3% resulting in additional cash availability from bankers. Besides many small time measures like no charge on ATM withdrawals, moratorium on the WC loans upto May 31 ,2020, increase in the WC loan by 10%, Over draft, cash credit facilities etc have given little breather. SIDBI has come out with an attractive working capital loan upto Rs 50 lakhs @ 5% interest with 5 years repayment tenure.