New Delhi: The micro, small and medium enterprises (MSMEs) may have been battered badly in the wake of Coronavirus pandemic-triggered lockdown but they could be the first to get back on their feet once recovery starts, says Indian Bank MD & CEO Padmaja Chunduru.
Speaking at a webinar organised by SME Chamber of India, the top banker said that MSMEs are currently facing myriad challenges such as liquidity and demand but with the help of support they would tide over the crisis.
Among the key supports announced by the government and banks are six month moratorium on existing loans and Rs 3 lakh crore collateral free government-guaranteed loans to resuscitate the sector.
Chunduru said that Indian Bank was among the first few banks that extended emergency credit to crisis-hit firms and the facility was put in place even before the government came up with a slew of measures to help MSMEs.
Indian Bank had announced 10% emergency credit to its borrowers to meet operational expenses.
“SMEs are the main engine of revival and they are the most vulnerable today but it is also one sector which can quickly come back to life and actually be lubricant for the rest of the economy,” the Indian Bank Chief said.
Even before the Coronavirus epidemic started playing havoc on business and economy, MSMEs were grappling with fund issues and weak demand. The epidemic has made things worse for them. Projections and estimates by most think-tanks have suggested that the world economy would shrink significantly and India will be no exception. Indian economy is likely to contract by 5% in FY21.
While giving a presentation on the prevailing economic scenario, Chunduru said that there are over 6 crore MSMEs and about 40% of them are on the brink of failure. This could result in bank NPAs on account of MSMEs rising to 15-18%.
On the additional credit provided by the bank, Chunduru however said that bank was not giving any favour to the enterprises as their good financial health ensures bank also has strong balance sheet.
Answering a question on the percentage of bank’s exposure to micro enterprises that account for 99.5% of the MSMEs, the Indian Bank chief said that it was not substantial but the small loan accounts of upto Rs 10 lakh formed bulk of the portfolio.
“Our portfolio in the micro is about 10%. But the less than Rs 10 lakh loans are about 90%. There is a loan component, if it is less than Rs 10 lakh, the percentage in the bank (portfolio) is 90%. The Rs 3 lakh crore package is about 20% of the existing loan. So, if they enjoy Rs 10 lakh, they will get Rs 2 lakh. So, the numbers will be more in the micro but the amount will be naturally smaller component of the whole,” Chunduru said.
While big firms and corporates have cash pile to face the headwinds, the smaller firms in the MSME sector can barely meet their operational expenses should even a mild crisis hit them. They are in dire need of funds to meet salary expenses and other fixed costs.
As per the Economic Census data, as many as 94% of the 5.85 crore establishments were not registered with the government and 95% employed less than five workers.
“Moreover, a large proportion (above 80%) of MSMEs are self-financed and only 7% borrow from formal institutions,” a CRISIL report had said earlier.