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MSMEs hope near future benefits from RBI rate cuts; seek mindset change for bankers towards lending

Sandeep Soni

Despite multiple repo rate cuts by the Reserve Bank of India (RBI), which is likely to make retail loans cheaper, India's micro, small, and medium enterprises don't see the benefit of getting loans at reduced lending rates reaching out to them immediately even though they are hopeful of it in the near future. "Whenever some policy structure changes, it takes three-six months to percolate to the bottom level. We are hopeful that in the near future there will be some sort of variation as far as interest rates are concerned for MSMEs. I don’t expect it to happen immediately," Vinod Kumar, President, India SME Forum and Member, Standing Advisory Committee on Flow of Institutional Credit to MSEs, RBI told Financial Express Online.

Last week, the RBI had cut the benchmark lending rate or repo rate, fifth in a row, by 25 basis points and 135 basis points since February this year. The repo rate now stands at 5.15 per cent. The RBI, in order to have banks pass on the benefits to customers, The RBI had last month asked banks to link new floating-rate loans to retail and MSMEs to an external benchmark from October 1 onwards to boost transmission of policy rate cuts to borrowers.

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"While the government is looking at more ways of inclusion but at the bottom level, as far as bank branches go that have created loan centres for lending to MSMEs, none of them are tuned to lending out money. Every branch manager is not an entrepreneur nor an analyst. There has to be a mindset change towards lending to entrepreneurs," said Kumar.

The government had also launched scheme - to offer credit to MSMEs for in-principle approval for a term loan or working capital loan up to Rs 5 crore. The portal received 2,00,660 loan applications out of which 1,59,583 were accorded in-principle approval since the launch of the portal and 1,33,448 applications were sanctioned, according to Anurag Thakur, minister of state for finance who informed the Rajya Sabha in July this year.

"There are so many businesses listed on the 59-min loan scheme but for 99 per cent of them, no bank is willing to lend them. These people are going from one branch to another seeking money," Kumar said. 

The total credit outstanding of public sector banks to the MSME sector increased marginally by 7.38 per cent from Rs 8.20 lakh crore in FY16 to Rs 8.81 lakh crore in FY19. For FY17 and FY18, the amount stood at Rs 8.28 lakh crore and Rs 8.64 lakh crore respectively, as per the RBI data.