Tamil Nadu MSMEs Warn RBI Repo Rate Hike Could Raise Borrowing Costs

Chennai, Oct 9 (KNN) Micro, Small and Medium Enterprises (MSMEs) in Tamil Nadu have raised concerns over the Reserve Bank of India’s (RBI) 25-basis-point repo rate hike to 5.50 per cent, warning that higher borrowing costs could strain cash flows, delay investments and weaken export competitiveness.

M Jayabal, state general secretary, Tamil Nadu All Entrepreneurs Federation, said higher industrial lending rates could undermine manufacturers’ ability to compete with China and the US in global markets.

S Surulivel, coordinator, Federation of Coimbatore Industrial Associations (FOCIA), said industrial loans were already carrying interest rates of around 10 per cent, adding that a further increase could slow industrial growth.

Industry Seeks Affordable Credit

The Tamil Nadu Small and Tiny Industries Association (TANSTIA) has urged Union Finance Minister Nirmala Sitharaman to ensure that the repo rate hike does not translate into higher interest rates on MSME loans.

In a letter to the minister, the association said micro and small enterprises were already facing financial pressure due to rising raw material and operating costs. 

It sought stable, affordable lending rates and a special support scheme to address raw material cost increases linked to the West Asia crisis.

A former member of the Madurai District Tiny and Small Industries Association said the rate hike could raise working capital costs for businesses dependent on bank finance.

MSMEs typically borrow to meet raw material and operational expenses, while customer payments may take 30–90 days, creating cash flow gaps that become more expensive to finance when interest rates rise, he said.

Exporters could face additional pressure as they have limited scope to pass higher financing costs on to overseas buyers. He called for adequate working capital at affordable rates and targeted liquidity support for exporters.

Vendors And Garment Sector Face Pressure

Rajappa Rajkumar, treasurer, Tamil Nadu Boiler and Boiler Components Manufacturers Association, said higher borrowing costs could affect MSME vendors supplying Bharat Heavy Electricals Ltd (BHEL) in Tiruchy.

He said the increase could make it harder for members, many of whom were already dealing with non-performing asset (NPA)-related issues, to mobilise funds.

R Damodharan, secretary, South India Hosiery Manufacturers Association, said the rate hike could add to the financial burden on garment manufacturers as the festive season begins.

(KNN Bureau)