MSMEs Must Embrace Formalisation and Credit Discipline: RBI Deputy Governor

ENA MSME 2024-11-26 14:36:12 Hyderabad, Nov 26 (KNN) Swaminathan J, Deputy Governor of the Reserve Bank of India (RBI), underscored the importance of formal registration, accurate financial records, and digital payment systems for Micro, Small, and Medium Enterprises (MSMEs) to strengthen their financial health and credibility. His remarks were delivered at the CEO Forum of the Federation of Telangana Chambers of Commerce and Industry and later published on the RBI website on Monday. Swaminathan emphasised the need for MSMEs to adopt a disciplined approach to borrowing, advising them to align credit products with their business needs and cycles. MSMEs should familiarise themselves with different credit products—term loans, working capital loans, overdrafts, and invoice discounting—to match them with their borrowing requirements and cash flows, he stated. He warned against over-leveraging and stressed the importance of a strong credit score to enhance access to funding. He also highlighted the role of platforms like the Trade Receivables Discounting System (TReDS), which can unlock liquidity, streamline cash flows, and foster trust with financial institutions. Additionally, he urged MSMEs to invest in capacity building through skill development, fintech adoption, and mentorship from industry bodies to boost operational efficiency. Swaminathan shed light on the persistent challenges MSMEs face in securing timely credit. Despite their significance, many MSMEs lack formalisation, comprehensive financial records, or sufficient collateral, which impedes their ability to secure adequate financing, he noted. The RBIs Expert Committee on MSMEs estimated a credit gap of Rs 20-25 trillion, highlighting the urgent need for intervention. Reflecting on the findings of the U K Sinha Committee report from five years ago, he pointed out that inadequate collateral and information asymmetry continue to hinder MSME growth. Addressing these barriers, he said, is critical to unlocking the sector's potential. The deputy governors insights serve as a clarion call for MSMEs to embrace formalisation and modern financial practices, paving the way for their sustainable growth and integration into Indias formal economy. (KNN Bureau) 40038 https://knnindia.co.in/news/newsdetails/msme/msmes-must-embrace-formalisation-and-credit-discipline-rbi-deputy-governor 2024-11-26 14:36:12 knnindia.co.in MSMEs Must Embrace Formalisation and Credit Discipline: RBI Deputy Governor