Liquidity support might not be the only solution to the problems faced by the micro, small, and medium enterprises (MSMEs) due to Covid-19, as several firms might need “deep restructuring”, said Rajkiran Rai, managing director and chief executive officer of Union Bank of India.
Speaking at a webinar with members of the Bharat Chamber of Commerce and Industry on Monday, Rai said the Indian Banks’ Association (IBA) had taken up the issue of restructuring with the Reserve Bank of India (RBI).
Last year, the RBI introduced a one-time restructuring scheme for MSMEs with a maximum exposure of Rs 25 crore. There have been demands to further increase this limit to encompass more enterprises in the fold of restructuring.
“Quickest response in this crisis is temporary liquidity support to MSMEs. As we go forward, lot of policy interventions will be needed…we need to see what kind of cash flows is available with the MSMEs. Based on that, some kind of deep restructuring needs to be done, but this has to come from the regulator. Viability of units will depend upon much bigger issues than just credit alone,” said Rai.
Also, interest subvention schemes can help bring interest rates down. “Our hands are tied with regards to reducing interest rates. Our source of funds is deposits and as long as that remains high, lending rates will continue to be high. Moreover, the credit cost in lending to MSMEs is higher due to the high NPAs so it is difficult to bring down interest rates” he said.
One way of bringing it down could be interest subvention but banks cannot do this alone they need support from government and regulator.
On the issues of moratorium, Rai said while not many large corporates opted for moratorium in a big way, about 50 per cent MSMEs opted for it.
Also, while banks have been working with CIBIL, a credit information company, for an alternative rating mechanism for MSMEs, there has not been much progress so far on the issue, he said.
“The immediate need of MSMEs is credit. But credit is not the only solution. Too much of credit destroys MSMEs by overleveraging. We need to balance borrowing in such a way that MSMEs remain viable,” he said.