Banks taxing MSMEs

If Trend of disintermediation continues, it will leave much of the "tax" burden on MSMEs

As banks increased their margins to compensate for the stress on balance sheet, good borrowers shifted to bond market. However, this has left small and micro borrowers who are heavily dependent on banks getting taxed by them. “… if this trend of disintermediation continues (loan market shifting to bond route), it will leave much of the “tax” burden on MSMEs, who can’t decamp for the bond markets, since they require the knowledge intensive type of lending that is provided only by banks,” the Survey said. “This trend may also pose risks for the banks themselves, who risk being left with just the riskier ones, with the better ones migrating.”

 
By December 2016, the gap between the average term deposit rate and average base rate had grown to 2.7 percentage points, from 1.6 percentage points in January 2015. While this financing strategy has worked for some years, it might be “reaching its limits.”
 
“After eight years of buying time, there is still no sign that the affected companies are regaining their health, or even that the bad debt problem is being contained. To the contrary, the stress on corporates and banks is continuing to intensify, and this in turn is taking a measurable toll on investment and credit,” the Survey said.