Authorize Cash Flow Based Loans for MSMEs: Industry Body at RBI

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HIGHLIGHTS

  • MSMEs, in a meeting with RBI Governor Shaktikanta Das, reiterated the demand for an extension of the moratorium on lending until March 2021, in addition to allowing banks to lend on the basis of cash flows. Treasury.
  • The Indian Chamber of SMEs also urged the RBI to ensure that banks do not harass borrowers and restructure loans without classifying them as stressed accounts.
  • Not all MSMEs are on the same wavelength when it comes to the central bank’s demand for cash flow-based loans
  • Some of the major players said it was practically difficult for banks to go there

Shocked by a severe liquidity shortage and lukewarm demand, micro, small and medium enterprises (MSMEs) led by the SME Chamber of India have urged the Reserve Bank of India (RBI) to allow banks to grant cash flow based loans for the struggling industry.

Under cash-flow-based loans, banks extend loans to businesses taking into account their forecasts of future sales.

In a virtual meeting with RBI Governor Shaktikanta Das last week, the Mumbai-based MSME sector body reiterated its demand for an extension of the loan moratorium until March 31, 2021.

READ ALSO : MSMEs fight to open payment dispute resolution boards to medium-sized enterprises

“There should be cash flow based loans for the MSME sector. It is based on assets currently which include stocks, debtors, property, etc. Big companies get loans on the We have further called for the moratorium to be extended until March 31, 2021, and borrowers should not be harassed, ”said Chandrakant Salunkhe, founder and chairman of the SME Chamber of India.

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

MSMEs have been one of the hardest hit due to the coronavirus pandemic, with many struggling to stay afloat. In order to help the industry, the government announced in May a loan of Rs 3 lakh for existing and eligible MSME borrowers under the Atmanirbhar Bharat program.

But MSMEs called it insufficient and called for more relief measures. Cash flow based loans are one of them along with other concessions that they have been looking for. But not all MSMEs are on the same wavelength when it comes to the central bank’s demand for cash flow-based loans.

READ ALSO : Center says no data available on number of startups, MSMEs shut down during COVID-19 lockdown

“Conceptually it’s a great idea but the execution is a huge challenge. So I don’t see it becoming a reality,” said Ashutosh Jatia, Managing Director of Emerys Holding.

Jatia identifies MSMEs to invest in private equity and is also a key member of the Federation of Indian Micro and Small and Medium Enterprises (FISME).

However, Chakradhar Chemicals chairman Neeraj Kedia said asset-based lending and cash flow were equally important depending on the industry.

“Businesses need both models: cash loans and asset loans. Some companies have long-term plans and should get credit on the basis of cash flow. Some companies specialize in manufacturing and supplies of goods must be inventory-based. Sometimes there is excess funding when there are cash loans and it becomes dangerous for the industry, ”he noted.

READ ALSO : Infusion of funds into troubled companies, relaxation of NPA standards, main requirements of MSMEs

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