Over the last couple of years, while discussions centered on large corporate loans going bad, stress in the small and medium enterprises (SMEs) segment has witnessed perceptible increase. SMEs are also struggling to access funds due to the prevailing tight liquidity position in the domestic market.

 

Banks’ disinterest to grant loans to SMEs (especially from manufacturing units) is not new. Despite government directions to clear loan applications in 15 days, most banks take 30 to 45 days on an average for loans to manufacturing SMEs. While the government recently announced a scheme to approve loan applications of small businesses in 59 minutes (to improve their access to credit), many bank managers are still unaware of such schemes and are awaiting directives from higher authorities.

 

The liquidity crunch faced by SMEs started with the unearthing of the PNB fraud after which banks turned reluctant to offer trade finance to small businesses. Loan repayments default by debt-laden Infrastructure Leasing and Financial Services (IL&FS) further aggravated the situation as non-banking financial companies (NBFCs), a key source of funds for small businesses, saw their liquidity drying up. The latest cash crunch is affecting working capital requirements of SMEs and their investments into plant and machinery. Of the 1.5 million (incorporated) companies in India, 15,000 are medium-sized ones. If the liquidity crisis is not resolved soon, experts fear that none of these would graduate into larger companies in the next few years. 

 

The Government has been urging Reserve Bank of India (RBI) not to let the liquidity issue to get out of hand and make adequate funding provisions for SMEs. As a result, after the Board meeting on November 19, the RBI agreed to provide relief and ease lending to SMEs by working out a loan restructuring scheme up to Rs 25 crore and to ease liquidity for the financial sector. The central bank even agreed to ease lending restrictions on some of the state-owned banks.

 

On a positive note, despite a plethora of headwinds (including seasonality, rising crude oil prices, and rupee depreciation), the 4th CriSidEx survey showed that the sentiment among micro and small enterprises (MSEs) was largely intact in the quarter ended September 2018. Crisil-Sidbi MSE Sentiment Index (or CriSidEx), launched in February 2018, indicates the current state and expected outlook on the MSME sector every quarter. Interestingly, as per the survey, both manufacturing and services companies appear to be hoping October-December will be a better quarter. In fact, some of the SMEs have performed exceedingly well in terms of profitability and revenue growth amid trying circumstances.

 

To honour such outliers and their achievements, Industrial Products Finder (IPF) will host its 3rd IPF Industrial Excellence Awards on December 13, 2018 at NSE, Mumbai. It is the only award that recognises true achievers (via unbiased selection process involving industry stalwarts) in the SME sector and encourages them to raise their performance bar higher.

Come let’s celebrate!

 

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