CHENNAI: Amid rising interest rates and a slowdown in demand, micro, small and medium enterprises (MSMEs) in TN find it difficult to obtain cheap credit for their business. Micro players who borrow below Rs 15 lakh are the hardest hit, according to industry representatives.
“We have to run from pillar to post for working capital daily,” said Aathmanesan, who runs an auto component manufacturing unit in Chennai’s Ambattur. He added that it was difficult to obtain loans from public-sector banks without collateral. This sentiment was echoed by many small and micro enterprise owners. They alleged that the Center’s Emergency Credit Line Guarantee Scheme (ECLGS), aimed at reviving pandemic-hit MSMEs with unsecured loans, benefitted only large players in the bracket.
Currently, interest rates for enterprises is around 9% at public-sector banks for applicants with good credit score and a security. It hovers around 10.5% to 12% at private banks, based on credit parameters. However, small business owners said banks were hesitant to lend to small-scale enterprises, citing higher risk. This forced such businesses to relay on advances from non-banking financial institutions, where interest rates ranged between 16% and 24% and, in some cases, go up to 36%.
CK Mohan, a consultant for SMEs and an industry representative said, the revival of small-scale enterprises depended on fund availability. Even if banks and governments completed their sector-specific targets, finance eluded small-scale borrowers, who comprised the majority of MSMEs, he said. Discrepancies in CIBIL score should be addressed and parameters such as years of business experience and order book should be taken into account while lending to small players, he added.
According to sources, delayed payments from large enterprises or original equipment manufacturers remain one of the key issues for small and micro companies. Industry bodies said the scope of Trade Receivables Discounting System (TReDS) could be widened so that they don’t have to depend on loan advancement. TReDS electronically accepts and settles bills so that MSMEs could encash their receivables without delay.
Chandra Hasan, who runs a structural engineering enterprise supplying to Bharat Heavy Electronic Limited in Ranipet, said it was difficult to survive the situation. “Orders from PSUs are down and interest rates are unbearable. It’s difficult to borrow from banks as my credit score was affected by a one-time settlement I made years ago. I was not aware of the repercussions and officials from the bank persuaded me to take the option,” he said.
Small business owners claimed they opted for settlement route due to unsustainable debt over years. “We are demanding more loans from interest subvention schemes from Tamil Nadu Industrial Investment Corporation (TIIC),” he said. Medium enterprises recorded credit growth of 35.6% across India in August 2022, compared with 52.3% last year, while credit growth to micro and small enterprises accelerated to 28.2% from 12.1% during the same period, according to the Reserve Bank of India.
“The share of loans within the sector is pointless after reclassification of MSME definition and the value of loans extended below Rs 20 lakh is less. The government should develop a dedicated policy to provide credit to micro enterprises,” said CK Mohan.
Tariff hike last straw?
TN government’s electricity tariff hike also poses challenges to small enterprises as consumption charges and fixed charges have been hiked steeply. The hike in local body taxes, without any basic infrastructure, is hampering business, an industrialist from Chennai told TNIE