The MSME sector in India, which accounts for 30% of the country’s GDP and 50% of exports, wants the government to address an “unease in banking” for small businesses.
Finance Minister Nirmala Sitharaman should resolve this issue in the interim budget, says the Federation of Indian Micro and Small & Medium Enterprises (FISME).
Anil Bhardwaj, secretary-general of the federation, says the bank ombudsman scheme is ineffective and appears to favour the lenders over the customer. A big weakness is that it does not make it mandatory for the ombudsman to deliver reasoned or ..
FISME also highlights that banks levy a foreclosure charge on loan prepayment or when a borrower wishes to switch banks because of unsatisfactory services. These charges, ranging from 2-4%, contradict the RBI’s Code for Micro and Small Enterprises (MSE), which advises against such penalties, says Bhardwaj.
Another industry’s pain point pertains to the application of bank loan ratings (BLR). If the exposure of banks to an MSME account is beyond a threshold, banks insist on getting a third party rating known as BLR from RBI or SEBI-approved rating agencies. The trouble is that historically, these rating agencies were brought in to rate listed companies and assign A,B,C type of ratings. The same agencies were suddenly mandated to rate MSMEs for short-term “solvency” with the same set of formats.