India’s lenders urged to be more supportive of MSMEs
India’s financial institutions should look at introducing supportive measures, including restructuring options, grace periods and tailored repayment plans, to help micro, small and medium enterprises (MSMEs) get back on track when they encounter difficulties, the Reserve Bank of India (RBI) deputy governor, Swaminathan Janakiraman, has said.
Speaking to the Foreign Exchange Dealers’ Association of India (FEDAI), he said the financial sector should “adopt a more sensitive and empathetic approach” towards MSMEs, given the important role they play in the economy.
“While financial discipline is crucial, the unique challenges faced by MSMEs — such as low capital base, lack of scale, cash flow constraints from delayed payments, fluctuating market conditions and external economic pressures — necessitate a more nuanced approach to assessment as well as follow-up,” he said.
He added that dialogue between lenders and borrowers can help create solutions that protect both financial interests of the lender and viability of MSMEs.
Janakiraman call comes as the government is encouraging banks to provide collateral-free loans to small businesses and offer additional loans during times of financial stress, as it outlined in the recent Union Budget.
He added: “MSMEs have limited access to affordable finance since they lack adequate assets for collateralization, particularly for working capital needs, and banks often use asset-based lending, which relies on collateral rather than cash flow. Also, since many of these entities operate in the informal space, assessing their creditworthiness becomes difficult due to lack of financial information of their businesses.”
He said that as more MSMEs adopt digital payment systems, mobile banking and online accounting tools, their expanded digital footprint allows financial institutions to gather more accurate and comprehensive data on their financial health, transaction history and cash flow patterns. This enhanced data should enable better risk assessment and development of customized financing products, Swaminathan said.
In his speech, the deputy governor also highlighted that delays in receiving payments, infrastructure bottlenecks and high compliance costs are among the major challenges plaguing the MSME sector.
Crackdown on abuses of input tax credit
The Directorate General of GST Intelligence (DGGI) has vowed to crack down on criminal enterprises after having detected tax evasion of Rs 1.2 trillion (£10.9bn) using fake input tax credit (ITC) since 2020, the finance ministry said in a statement.
It added that the Goods and Services Tax (GST) intelligence department has identified about 59,000 potential fake firms for verification and further inquiry, while 170 individuals involved in fraud have been apprehended. This was revealed during the national conference of enforcement chiefs of GST, following which the ministry’s statement was issued.
Revenue Secretary Sanjay Malhotra said: “This comes against the backdrop of a special drive being undertaken by both the Centre and State to identify and weed out fake registrations. The two-month special all-India drive was launched in [August] to detect suspicious/fake GSTINs [Goods and Services Taxpayer Identification Numbers], conduct requisite verification and take remedial action to weed out these fake billers from the GST ecosystem in order to safeguard government revenue.”
While addressing the conference, Malhotra stressed the importance of maintaining a fine balance between enforcement actions and ease of doing business. He encouraged Central and State GST formations to focus on fake registrations during this special drive and stressed the need for tracking the criminal syndicates and beneficiaries of fake ITC so that strict action is taken to have the necessary deterrence effect.
Malhotra said that recent changes implemented in the GST returns such as GSTR-1A would further aid the efforts towards tackling GST evasion in a systematic manner.
During the event, Sanjay Agarwal, chairman, Central Board of Indirect Taxes and Customs (CBIC), advised the enforcement units to focus on real evasion rather than interpretative issues and general industry practice. “Some of the best practices/guidelines issued to bring uniformity in action and ensuring ease of doing business were also deliberated upon,” ministry release said.
