New Delhi, Aug 26 (KNN) The agony of MSMEs due to exorbitantly high interest rates is a well-known fact which is now being acknowledged by all the top ministers, senior bankers and other officials concerned.

On Wednesday, the Commerce and Industry Minister Nirmala Sitharaman, acknowledging the cash starved state of the sector, said, “I still hold that the cost of credit in India is high. Undoubtedly, particularly MSMEs which create a lot of jobs contribute to exports... are all hard pressed for money.”

Explaining the hesitance of the MSMEs in approaching the formal financial sector for cash, she said, “…approaching a bank is no solution because of the prevailing rate of interest. I have no hesitation to say, yes 200 bps, I would strongly recommend.”

Urging the entire banking system of the country to please be a bit more caring about the industry, Sitharaman said, “It is time now for the Indian economy to have a breath of fresh air. The competitiveness of smaller companies is affected purely because of rate of credit."

Addressing at the Idea Exchange programme, Sitharaman said she will take up the issue of bank funding to SMEs with the finance ministry as she wants the lenders to look at SME funding afresh.

“I will discuss the issue of funding with the finance ministry so that banks look at SME funding afresh because SMEs’ requirement of cash flows, investment and expansion capacities spring from a completely different understanding of business,” said Sitharaman.

Besides interest rates, Sitharaman said there are other SME-related concerns such as cash requirement, timely payments, issues with exporters and the fact that the announced benefits don’t reach them, need monitoring.

Bank lending significantly contracted to the MSME segment between 2015 and 2016 till May with loan growth registering at negative 12.7 per cent to medium-sized companies and negative 6.5 per cent to micro and small companies.

Recently, stressing that there is still a huge unmet demand for credit for MSMEs in the country, RBI Deputy Governor S S Mundra has said there is a total finance requirement of INR 32.5 trillion ($650 billion) in the MSME sector, which comprises of INR 26 trillion ($ 520 Billion) of debt demand and INR 6.5 trillion ($130 Billion) of equity demand). (KNN Bureau)