Call it the PNB scam fallout. Micro, small and medium enterprises (MSMEs) are facing working capital squeeze, with most bankers shying away from issuing letters of undertaking (LoUs) or extending buyers’ credit facility after the PNB scam to light.

Even if some bankers do extend credit facility or issue LoUs, they demand margin as high as 110 per cent from the importer, rue industry insiders.

“The Government and the RBI must address the systemic failure rather than tightening the screws on good entrepreneurs. It will be unfair on their part to treat a donkey and a horse in the same fashion,” Anil Khaitan, President, PHD Chamber of Commerce and Industry (PHDCCI), said here on Thursday. Khaitan said that industry is facing stiffer riders for credit facilities. “Banks have slowly and steadily clamped up. That is what we as a chamber had feared the most,” he said.

“If the entire system is penalised because of two or three black sheep, it will greatly affect industrial growth, ease of doing business and definitely make foreign investors shy away from making investments,” Khaitan said.

Following the PNB scam, the RBI is understood to have issued instructions (on a confidential basis) to banks on the issuance of fresh LoUs and extending buyers’ credit.

The nitty gritty of the directions has not been made public, but industry insiders believe that bankers have been asked to withhold extending new buyers’ credit until a fresh set of RBI guidelines is issued.

Khaitan said that the PNB fraud was a case of negligence. “It is a fault right from the bank’s board, chief executive and the branch concerned,” he said.

Meanwhile, Shyam Poddar, Chairman-Foreign Exchange Committee, PHDCCI, said banks have started demanding 110 per cent margin to extend buyers’ credit, open letters of credit or issue LoUs. “The biggest sufferers now are MSMEs,” he said.

Dollars from spot market

This clampdown by banks on extending buyers’ credit has increased demand for spot dollars (import dollars) and reduced the forward premium.

In the past few days, the spot dollar-rupee rate has fallen from 64.50 to 65.30 per dollar.

“If banks are not offering buyers’ credit, importer MSMEs are compelled to buy dollars from the spot market, thereby raising demand for spot dollars. This has led to the rupee falling in the spot market in recent days,” Poddar told BusinessLine .