Once-bitten-twice-shy banks squeeze credit; small businesses suffer

Parliamentary panel objects to the banks’ reluctance to provide loan to them

New Delhi: Hit by scams scripted by Nirav Modi, Vijay Mallya and others of their ilk, the banks have tightened their credit norms so much that it has become virtually impossible for small businesses and exporters to obtain loans.

According to a report of the Standing Committee of Ministry of Commerce, tabled in Parliament on Monday, banks demand ratings of agencies like CRISIL, ICRA and CARE before sanctioning loans of over Rs 5 crore to small and medium enterprises. It is not economical for small companies to obtain credit ratings from these agencies.

The Committee has expressed displeasure over the banks’ reluctance to provide loans to MSMEs. Most of the small companies are sole proprietorships and so their ratings are low. The report says banks are taking long in sanctioning such loans. The ratio of corporate and retail loans has come down to 56:44 from 62:38 in 2016.

Wilful defaulters galore

  As on                                            Number of defaulters                    Bad debt (in Rs cr)

March 31 2016                                       8,315                                             76,730
March 31 2017                                       8,915                                             92,379
March 31 2018                                       9,331                                          1,22,017
June 30 2018                                         9,501                                          1,28,179
(Source: Information provided in Parliament)

Loans get costlier for exporters

The report said the decision of the Reserve Bank of India (RBI) to discontinue issuance of Letter of Undertaking (LoU) and Letter of Comfort (LoC) has made loans costlier by 2-2.5 per cent for small industries and exporters.

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