Wider TReDS adoption, alternative credit, transparent lending vital to revive viable distressed MSMEs: RBI

Reserve Bank of India (RBI) Deputy Governor Swaminathan J has emphasised the wider adoption of digital solutions like the Trade Receivables Discounting System (TReDS), alternative credit assessment models, and transparent lending practices to rehabilitate distressed but viable units. 

Chairing the Standing Advisory Committee (SAC) on Monday to review the flow of credit to the MSME sector, the Deputy Governor also urged MSME associations to play a greater role in capacity building and in bridging information gaps to help enterprises better leverage formal financial channels.

The SAC reviewed the flow of credit to MSMEs and deliberated on ways to address the issues related to the credit gap in the sector, cash-flow based lending and digital solutions for improved credit linkage.

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The industry associations during the review highlighted the challenges being posed by the uncertainty arising from geopolitical situations and sought the intervention of government, regulators and banks.

Among the major concerns for MSMEs in the country, lack of access to affordable and quick credit remains the prime bottleneck even as the situation has improved considerably over the past years.

According to a recent survey by SIDBI to gauge the business confidence and expectations among MSMEs, while 92 per cent of the manufacturing units say credit is available, many find it inadequate. In the services sector, 19 per cent MSMEs report difficulty in getting finance.

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In last year’s budget, Finance Minister Nirmala Sitharaman had proposed to reduce the turnover threshold of buyers for mandatory onboarding on the TReDS platform from Rs 500 crore to Rs 250 crore to help MSMEs unlock their working capital by converting their trade receivables into cash

Moreover, under the Credit Guarantee Scheme (CGS) for Micro and Small Enterprises (MSEs), an additional corpus fund of Rs 9,000 crore was infused to enable an additional credit of Rs 2 lakh crore. The guarantee ceiling was also increased from Rs 5 crore to Rs 10 crore from April this year, with guarantee coverage up to 90 per cent for various categories of loans under the scheme.