Banking Sector Praises Budget for Enhancing Credit Access and Reducing Risk for MSMEs

New Delhi, Jul 25 (KNN) In a move that's expected to reinvigorate the micro, small and medium enterprises (MSME) sector, senior bankers are hailing the recent Budget announcements as a catalyst for increased lending while maintaining stable asset quality.

The centerpiece of these measures is a new credit guarantee scheme, allowing MSMEs to secure term loans of up to Rs 100 crore without collateral. Rajan Pental, Executive Director at YES Bank, emphasised the scheme's potential to "notably reduce risk for banks and expand their lending opportunities, facilitating greater investment in essential machinery and equipment", reported FE.

This initiative comes at a crucial time, with experts estimating a staggering Rs 28 trillion credit gap in the MSME sector. Finance Minister Nirmala Sitharaman's proposal aims to bridge this gap and stimulate growth in a sector vital for large-scale employment.

Debadatta Chand, MD & CEO of Bank of Baroda, views the Budget positively, stating, "The banking sector can see substantial positive takeaways... Any support to MSMEs will be a positive for not just the GDP, but also employment."

Indian Overseas Bank's MD, Ajay Kumar Srivastava, echoed this sentiment, highlighting the potential boost to entrepreneurship and improved credit accessibility for the sector.

The financial landscape for MSMEs has already shown signs of improvement. Sanjay Agarwal from CareEdge Ratings noted a 13 per cent growth in bank credit to industrial MSMEs over the past two years, coupled with a significant reduction in delinquencies from over 12 per cent in FY17 to 2.3 per cent in Q2FY24.

YES Bank's Pental also pointed out the transformative potential of new credit assessment models leveraging digital footprints, which could make credit access more inclusive for MSMEs lacking formal accounting systems.

Other notable measures include doubling the Mudra loan limit to Rs 20 lakh and initiatives to support stressed MSMEs, aimed at stabilising borrowers and reducing non-performing assets.

The Budget's impact extends to Trade Receivables Discounting System (TReDS) platforms as well. Sundeep Mohindru of M1xchange highlighted that lowering the turnover threshold for buyers could significantly increase participation, potentially onboarding 22 central public sector enterprises and 7,000 more companies.

As these measures unfold, the banking sector appears poised for a period of expanded MSME lending, potentially driving economic growth and employment while maintaining financial stability.

(KNN Bureau)