Bank lending to MSME's
Bank lending to India’s micro, small and medium enterprises (MSMEs) shrank from a year earlier as well as the beginning of FY20, despite measures by the government to boost credit flow to these businesses as lenders turned cautious due to slowing economic growth.
Banks have turned cautious about the slowing economic growth. The risk of having a defaulter has grown due to which the banks have turned sceptic towards lending.
A report of lending was published. Comparisons between data for previous years lending to MSME's was done.
RBI's guidelines on defaulters may be one of the reasons for this.
‘RISK AVERSION NEW GUIDING PRINCIPLE’
“With risk aversion being the new guiding principle of the Indian banking industry, banks have started to reduce working capital limits, increase risk premium — thereby charging effective interest of over 16% — and insist on additional security when these SMEs are not even generating positive Ebitda,” said Sridhar Ramachandran, CIO of IndiaNivesh Renaissance Fund. “Even large public-sector banks, once the backbone of economic development and now rightly concerned about nonperforming assets, are avoiding lending to companies that are less than investment grade.”