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Allow cash flow-based lending for MSMEs: industry body to RBI

Under cash flow-based lending, banks extend credit to companies considering their future sales projection; it is one of the relief measures MSMEs have sought amid coronavirus crisis

Nirbhay Kumar | September 28, 2020 | Updated 23:41 IST
Allow cash flow-based lending for MSMEs: industry body to RBI

KEY HIGHLIGHTS

  • MSMEs, in a meeting with RBI Governor Shaktikanta Das, reiterated the demand for extension in loan moratorium to March 2021 besides allowing banks to lend on cash flow basis
  • SME Chamber of India also urged RBI to ensure that banks do not harass borrowers and restructure loans without classifying them as stressed accounts
  • All MSMEs are not on the same page when it comes to demand for cash flow-based lending being considered by the central bank
  • Some of the leading players termed it practically difficult for banks to go for it

Reeling under severe cash crunch and tepid demand, micro, small and medium enterprises (MSMEs) led by SME Chamber of India have urged the Reserve Bank of India (RBI) to allow banks to undertake cash flow-based lending for the struggling sector.

Under cash flow-based lending, banks extend credit to companies considering their future sales projection.

In a virtual meeting with RBI Governor Shaktikanta Das last week, the Mumbai-based MSME industry body reiterated their demand for extension in loan moratorium to March 31, 2021.

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"There should be cash flow basis lending for the MSME sector. It is on asset basis currently which include stock, debtors, property etc. Big companies get loan on cash basis. We further demanded that moratorium should be extended till March 31, 2021, and borrowers should not be harassed," SME Chamber of India Founder and President Chandrakant Salunkhe said.

He said that recovery in the sector was far away and firms were struggling to survive due to poor demand conditions.

MSMEs have been one of the worst impacted due to coronavirus pandemic with a large number of them finding it hard to stay afloat. In order to help the industry, the government in May announced Rs 3 lakh crore loan for existing and eligible MSME borrowers as part of the Atmanirbhar Bharat package.

But MSMEs have termed it insufficient and have demanded for more relief measures. Cash flow-based lending is one of them along with other concessions they have sought. But all MSMEs are not on the same page when it comes to demand for cash-flow based lending being considered by the central bank.

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"Conceptually, it is very good idea but execution is a huge challenge. So, I don't see it becoming a reality," said Ashutosh Jatia, Managing Director, Emerys Holding.

Jatia identifies MSMEs for making private equity investment into them and is also a key member of leading industry body Federation of Indian Micro and Small & Medium Enterprises (FISME).

Chakradhar Chemicals Chairman Neeraj Kedia, however, said that both asset based and cash flow based lending were equally important depending on the sector.

"Businesses need both the models - cash and asset based lending. There are companies which have long-term projects they should be getting credit on cash flow basis. There are companies which are into manufacturing and supplies goods should be inventory-based. At times, there is excessive financing when there is cash-based lending and it becomes dangerous for the industry," he noted.

ALSO READ: Fund infusion in troubled firms, easing NPA norms top MSME demands

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