Crisil SME Tracker: With PSUs on board, TReDS may ease MSME liquidity woes

The government’s recent fiat asking major public sector undertakings (PSUs) to register on the TReDS platform should come as a big relief for their MSME suppliers. CRISIL’s analysis of 3,000 small manufacturers in infrastructure, engineering and capital goods sectors between fiscal years 2015 and 2017 shows delays in receivables are endemic, which squeeze liquidity and force them to resort to high-cost funds that erode profitability.

For financiers on the platform, the high credit ratings of major PSUs, which are mostly Central government enterprises, offer a source of comfort. Earlier, corporates, including PSUs, have been chary of being on TReDS to accept MSME seller’s invoices, since that meant no flexibility to defer payments and renegotiate payment terms because of transparency.

CRISIL’s analysis shows that while average receivables days and cost of funds of MSMEs are declining, they still remain high. As per the MSMED Act, 2006, MSME suppliers have to be paid within 45 days by the buyer, failing which steep penal interest can be levied. But small suppliers rarely exercise the option, fearing loss of business.

CRISIL believes that a vibrant TreDS platform will lead to an improvement in both — business opportunities and liquidity — for MSMEs. But this will require incentivising large corporates to come on board, and attracting financiers through a robust credit assessment ecosystem that helps identify creditworthy enterprises to transact the invoices. So steps to encourage small players registering on TreDS to get themselves rated will enhance investor confidence.