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Funds Dry Up

Post the IL&FS crisis, banks and mutual funds are being very cautious about lending to non-banking finance institutions.
Aprajita Sharma Print Edition: December 30, 2018
Funds Dry Up
Reserve Bank of India data shows an over 2 per cent drop in bank credit to MSMEs until October.

India's MSME segment, which accounts for a third of GDP, faces a survival crisis. Post the IL&FS crisis, banks and mutual funds are being very cautious about lending to non-banking finance institutions, which has led to the credit for MSMEs drying up. Even banks' exposure to MSMEs is coming down.

Reserve Bank of India data shows an over 2 per cent drop in bank credit to MSMEs until October. Over 9 million MSMEs are now GST-registered, but banks have not been leveraging the GST data to quickly process loans, instead relying on documentation and collateral.

The government's 59-minute loan policy, while well structured, is yet to make any impact. Total outstanding credit to MSMEs stands at Rs 22.8 lakh crore, while demand is estimated to be Rs 45 lakh crore. Hope lies in digital lending, which has the potential to disrupt the lending landscape for not only fresh players but also traditional lenders in dire need of digitisation.

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