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‘Factoring regulation, a boost to cash-starved MSMEs’

Our Bureau Chennai | Updated on August 31, 2021

BusinessLine organises webinar on ‘How Banks Can Boost MSME Growth During the Pandemic’

The Factoring Regulation (Amendment) Act 2021, which has widened the scope of the entities that can engage in the factoring business, will significantly boost the funding availability to cash-starved MSMEs in the country, said a senior official of a TReDS (Trade Receivables Discounting System) platform.

“In the last 3-4 years, we have seen that banks on the TReDS platform prefer only the best-rated corporates. But the Factoring Act amendment has allowed participation of non-banking finance companies (NBFCs) in the TReDS platform. When NBFCs come into the platform, they will start discounting even for the low-rated corporates and that will significantly boost funding availability for MSMEs,” said Ketan Gaikwad, Managing Director and CEO, Receivable Exchange of India (RXIL).

Gaikwad was addressing a webinar on ‘How Banks Can Boost MSME Growth During the Pandemic’, presented by State Bank of India and BusinessLine on Tuesday. The webinar was moderated by BusinessLine’s Deputy Editor, Surabhi.

Factoring business

The Factoring Amendment Act, which was passed in Parliament and assented by the President recently, will bring in over 9,000 NBFCs into the factoring business against the current participation of just seven NBFCs, whose primary business was factoring receivables.

He also added that acceptance of the TReDS platform among corporates have significantly gone up post-Covid. “We are seeing phenomenal growth in our business. From ₹2,300 crore worth of invoice discounting in the previous year, we grew to about ₹6,500 crore last year. Corporates, who were giving a cold shoulder earlier, are eager to get into the platform as they realise the importance of supporting MSMEs that are crucial to their supply chain.”

B Sankar, Chief General Manager-SME and SCF, State Bank of India, said both the government and banks play a crucial role in providing liquidity to the MSME sector, which is one of the hardest hit by the pandemic.

“The government came up with three Guaranteed Emergency Credit Line (GECL) schemes to address the credit needs of various sectors affected by the pandemic. SBI also gave Covid emergency credit line, in addition to what the government has offered. So, if you take SBI alone, other than the normal requirements, we have disbursed around ₹27,000 crore to the MSMEs affected by the pandemic,” said Sankar.

On low credit demand among MSMEs, Sankar said that while banks are sitting on huge liquidity and are willing to lend, demand for credit among MSMEs is lower than expected due to a host of reasons, including poor seasonal demand, underutilisation of existing limits, and apprehension over the cost of loans among MSME borrowers.

Appetite for credit

KE Raghunathan, convenor, Consortium of Indian Associations (CIA), however, said there is still a lot of appetite for credit among people, who have not got any kind of stimulus, and the government and banks must ‘prioritise’ those beneficiaries, especially the micro enterprises.

“We had an Emergency Credit Line Guarantee Scheme (ECGLS), which was good, but the riding conditions prevented those who wanted to avail it.

“Even after one year, the Fund of Funds for MSMEs has not taken off, the loan restructuring failed because of the condition that the account has to be regular by March 2021, because there are several sectors that could never bounce back by that time,” said Raghunathan.

He also added that on one side it is heartening to see banks and corporates posting huge profits, but on the other, it is painful to notice the recoveries from micro entrepreneurs under the SAFERASI Act.

Urging bankers to at least allow ‘honourable exit’ to the entrepreneurs, Raghunathan said micro enterprises face a range of issues, including lack of responses from the bankers, summary rejection of proposals, demand for collateral security for loans even below ₹2 crore, no time-bound redressal, delay in sanction resulting in stress and cost ovrerrun, and fear psychosis among bankers at ground level on decision making.

The webinar can be viewed at https://bit.ly/3jwlIM5

Published on August 31, 2021

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