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Banking

SEBI May Raise Borrowing Threshold for Large Corporates While MSMEs Struggle With Loan Access

Meanwhile, banks have written off bad loans worth Rs 14.56 lakh crore since 2014-15.

New Delhi: Three recent developments in the banking sector may shed some light on the contrast in priority given to the large corporates and the Micro, Small and Medium Enterprises (MSMEs).

While the capital markets regulator reviews corporate borrowing limits, MSMEs grapple with loan rejection challenges. The developments come amid another news on the banking sector – that banks have written off bad loans worth Rs 14.56 lakh crore in the last nine financial years starting 2014-15.

The top 50 wilful defaulters – including Gitanjali Gems, Era Infra Engineering Limited, REI Agro Limited and ABG Shipyard Limited – owe Rs 87,295 crore to banks and financial institutions.

In the end, who pays for cronyism: the taxpayer.

Also read: How in First Eight Years of Modi Government, Nearly Rs 12 Lakh Crore ‘Disappeared’

Raising borrowing threshold for large corporates

The Securities and Exchange Board of India (SEBI) on Thursday, August 10 proposed to raise the borrowing threshold for large corporates to Rs 500 crore from the current Rs 100 crore.

The capital markets regulator has also proposed several other norms such as removing the 0.2% penalty on large corporates for any shortfall in their incremental borrowings.

According to the present norms, large corporates are required to raise 25% of their incremental borrowings in a financial year by issuing debt securities, Business Standard reported. A penalty of 0.2% of the shortfall is to be levied in case of not meeting the threshold.

Apart from increasing the outstanding long-term borrowing threshold to Rs 500 crore or above for eligibility as a large corporate, SEBI has removed the requirement of credit rating for the same.

Under the current rules, large corporates are those that need to have an outstanding long-term borrowing of at least Rs 100 crore; a credit rating of ‘AA’; and a target to finance themselves with long-term borrowings (above one year).

Raising funds from banks and financial institutions is a cost-effective option. Raising funds from debt securities, however, is costly because the borrowing cost is high, due to tightening liquidity and hikes in the benchmark rate.

Around one-third of the identified large corporates did not raise the minimum 25% of their incremental borrowings through issuance of debt securities in the financial year 2021-22, IANS reported.

Meanwhile, large corporates are turning to large banks or foreign banks for their borrowing needs, the Financial Express reported, citing a report from Coalition Greenwich, which is a division of CRISIL.

From 2021 to 2022, the share of Indian corporates working with one of the largest private sector banks for overall corporate banking services increased to 38% from 33% earlier. Over the same period, the share of corporates working with at least one large foreign bank climbed to 21% from 18% earlier, the report showed.

Also read: Most MSMEs Are Not Even in the Policy Net

Loans to MSMEs

Separately, bank credit growth to Micro, Small and Medium Enterprises (MSMEs) has decelerated on a year-on-year basis in the first three months of the current fiscal, Reserve Bank data showed. This is because risk averse banks are reluctant to lend to small units.

Biz2Credit co-founder and CEO Rohit Arora told PTI that MSMEs in India are facing challenges in obtaining credit from banks and financial institutions due to factors like collateral requirements, limited credit history and high-interest rates.

MSMEs are the backbone of the economy in terms of employment and contribution to the GDP. These enterprise contribute around 30% to the GDP. Moreover, NITI Aayog CEO Amitabh Kant had said that these business are crucial for India to become a $5 trillion economy.

However, MSMEs face the problems of access to long-term credit, delayed payments and heavy debt, every single day, reported BusinessWorld.

Experts told BW that the rise in bad MSME loans in India is due to factors such as the impact of slowing exports, the slowdown in certain global markets, sectors, withdrawal of COVID-19 concessions and rising interest rates.

In March, banks had reached out to the Reserve Bank of India seeking relaxation of bad loans norms for MSMEs.

Banks want that a restructured MSME account under the COVID-19 package be considered NPA from the latest date and not from the date prior to restructuring, the Economic Times reported.

This would give some relief to banks as it would decrease their provisioning burden, the report added.

In January, chief advisor to West Bengal chief minister Mamata Banerjee and finance department, Amit Mitra, had written a letter to finance minister Nirmala Sitharaman saying that loans to 40,000 highly skilled weavers and artisans were denied by the banks.

The letter sought the finance minister’s intervention in easing certain stringent requirements for borrowing by these artisans and weavers.

From April to September 2022, 66% of 15,298 loan applications by weavers were rejected. Similarly, out of 48,153 loan applications of artisans, 62% faced rejection.
Amid all these numbers and developments, a Right to Information reply to the Indian Express revealed that the banking sector wrote off Rs 10.57 lakh crore since 2014-15.
Out of the total Rs 14,56,226 crore, written off loans of large industries and services stood at Rs 7,40,968 crore.