Capital crunch continues to haunt micro and small units even as large industries see credit growth

The RBI had earlier assured that the economy’s productive sectors will have access to credit.

India’s micro and small businesses continue to struggle with their requirements for capital even as banks seems reluctant to provide credit to them. According to the RBIdata, the amount of loan disbursed to these enterprises have fallen by Rs 8,000 crore in the nine months ended December last year.

The data showed 2.14% decline in credit from Rs 373,000 crore in March 2018 to Rs 365,000 crore as on December 21, The Indian Express Reported.

In May 2017, six months after November 2016 demonetisation that impacted the micro and small business community with thousands of small enterprises being shut, the credit flow was down to Rs 360,500 crore.

Micro and small enterprise loan disbursement rate couldn’t pick even through the RBI had assured that the economy’s productive sectors will have access to credit. “After demonetization and the NBFC liquidity crunch, fund flow to small units has been impacted,” The Indian Express quoted a senior bank official as saying.

The funding crunch of small enterprises continues amid increasing credit growth for large and medium industries. The non-food credit went up by 12.8% as of December 21, 2018 and 14.5% as on February 1, 2019 year-on-year.

The credit growth for large industry segment increased by 5.1% to Rs 22,79,800 crore while medium industries witnessed 9.2% rise in credit to Rs 104,600 crore on a year-on-year basis.

Further, the services sector and personal loan segment also saw boom in loan amount of 23.2% and 17%respectively. Within the personal loan segment, credit card outstandings shot up by 31.7% to Rs 81,500 crore as of December 21, 2018.

Credit flow to micro and small units was a subject of conflict between the RBI under Urjit Patel and the government which pushed for more steps to improve credit flow to the small sector. The RBI then decided to set up an expert committee under former Sebi chairman U K Sinha to suggest long-term solutions for the economic and financial sustainability of the MSME sector.

In its report on credit deployment released last week, the RBI said credit flow to micro and small industries continues to be negligible, with growth still in the contraction zone.

“Several policy efforts, viz., speeding up of loan processing by banks, placing of adequate collateral system and loan guarantees can further enhance credit to micro, small and medium enterprises,” the central bank said.