Bank loans to MSMEs continue to decline despite government push

India’s micro, small and medium enterprises (MSMEs) continue to face severe cash crunch. Loan disbursement to MSMEs has not picked up despite the government’s promise to provide the necessary push to this critical sector, which is one of the largest employment generators in the country.

As part of the Centre’s ‘Atmanirbhar Bharat Abhiyan,’ Finance Minister Nirmala Sitharaman announced a Rs 3 lakh crore collateral-free automatic loans to MSMEs with the aim of easing the liquidity crunch.

However, the Reserve Bank of India (RBI) data show that banks’ loan disbursement between April and July this year to the micro and small industry actually shrank by a whopping 7 per cent.

“While all segments of industries registered contraction in the year-to-date (YTD—or the period from beginning of the financial year to now) incremental credit in July, the situation has worsened more for micro and small industries,” brokerage firm Anand Rathi said in a statement.

Amid the non-performing asset (NPA) level, banks have continued to show their reluctance to lend. The only silver lining is that loan disbursement to MSMEs has started showing an uptick since June.

“The government must ensure that banks lend more to the MSME sector, which has been one of the worst impacted by the national lockdown of over two months,” Anil Bhardwaj, secretary general, Federation of Indian Micro and Small and Medium Enterprises (FISME) told IN.

The MSME sector, which employs over 11 crore people, is critical for economic revival of the country. India registered a 23.9 per cent contraction in its economic growth—the worst ever.

According to India Briefing, a platform providing insights on doing business in India, the MSME base is the largest in the world after China. “The sector provides a wide range of services and is engaged in the manufacturing of over 6,000 products—ranging from traditional to hi-tech items,” India Briefing website said, adding that there are about 63.05 million micro industries, 0.33 million small, and about 5,000 medium enterprises in the country.

The sector also provides employment to lakhs in the country’s unorganized sector..