MSMEs disheartened despite RBI rate-cut making loans cheaper

Last Updated: Fri, Oct 04, 2019 20:56 hrs
Garments Factory

New Delhi: The Reserve Bank of India (RBI) has delivered steady rate cuts but micro, small and medium enterprises (MSMEs) still complain of banks not passing on the benefits of lower lending rates.

"There is still no change on the ground. The prime lending rates (PLRs) which the banks are charging are the same at around 10 per cent," said Animesh Saxena, President of Federation of Indian Micro Small & Medium Enterprises (FISME).

The RBI has been continuously cutting the repo rate to make loans cheaper for corporates and consumers but commercial banks have generally been reluctant in effecting a commensurate cut in interest rate for customers.

On expected lines, the RBI on Friday cut the repo rate by 25 basis points to 5.15 per cent from 5.40 per cent. This is the fifth straight cut in lending rate taking the cumulative interest rate reduction to 135 basis points since February this year.

Saxena said that banks appear to be improving their bottom-line and not passing on the benefits to the consumers.

"They are expected to reduce interest rates in the festive season for automobile and other personal loan category. We have not seen them cutting the rates for MSMEs or the industry at least in the last three months," the trade body chief said.

Complementing the government's fiscal measures, the RBI has reduced lending rates to push growth and investment in the country.

Despite government push to prop up the MSME sector byoffering them adequate credit, loan growth for this crucial segment of the economy has been tepid.

Official data shows PSU banks have been cautious in lending to MSMEs with total credit outstanding to the sector growing at just 7.38 per cent to Rs 8.81 lakh crore in the three-year period ending March, 2019.

Chandrakant Salunkhe, Founder and President, SME Chamber of India said that banks are not passing on the benefits of lower repo rate and it was a serious matter of concern.

"The government should intervene in this matter. Banks seem to be focussed only on home loans," Salunkhe said.

<br>