Banks must pay interest to MSMEs on current account balances, suggests PHDCCI

New Delhi, Mar 7 (KNN) The centre should consider altering the banking norms to advise banks to pay interest to MSMEs on their current account balances equivalent to the rate of interest paid by banks on saving bank accounts, said PHD Chamber of Commerce and Industry (PHDCCI).

The industry body has submitted this recommendation in a representation to the Finance Ministry and Reserve Bank of India recently.

In the document PHDCCI has highlighted the major contribution of MSMEs to the socio-economic development of the country.

“The sector immensely contributes to the GDP and plays an important role in entrepreneurship development in semi-urban and rural areas thereby generating employment opportunities for a large number of people in the country,” the Chamber said.

It stated that the MSME units are banking with major public and private sector banks across India and collectively maintain substantial balances in their current accounts, as they are not allowed to open saving bank accounts with the banks. 

MSMEs which operate their borrowing accounts like Cash Credit or Overdraft etc. route their transactions through such accounts but, those MSMEs who do not avail of any credit limits operate their current accounts by maintaining credit balances in such accounts, it added.

Since no interest is paid by banks on current accounts, the MSMEs lose out on substantial interest benefits on such credit balances. Their funds remain idle in the current accounts, the benefit of which is enjoyed by the banks. 

On the other hand, banks impose charges for not maintaining a minimum threshold of balance in the current account, said PHD Chamber in its representation.

Notably, MSME sector’s share of current accounts held with banks (public and private sector) is very large as they comprise 99 per cent of all business enterprises and these banks have generated significant profits by not paying any interest to the MSME units’ Current Accounts which doesn’t seem justified, it added.

Therefore, in order to obviate the financial loss incurred by MSMEs on their current account balances, there is a need to change the banking norms to advise banks to pay interest to MSMEs on their current account balances equivalent to the rate of interest paid by banks on saving bank accounts, said PHDCCI.  (KNN Bureau)