Large corporations hold back Rs 3.3 lakh crore payment to MSMEs: Study – The Economic Times

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A research by rating agency Crisil, had earlier said the 5% contraction in the Indian economy wrought by the Covid-19 pandemic could lead to an existential crisis for MSMEs.

MUMBAI: Micro, small and medium enterprises continue to face stretched liquidity cycles despite easing of credit from the banking system as large corporates with stronger liquidity backing have held up nearly Rs 3.3 lakh crore payable to MSMEs, a new study has revealed.

This is largely due to the low bargaining power that small businesses have with large corporates to have payments released for materials supplied or services provided, according to the study by credit rating agency Brickwork Ratings.

Large corporates extracting long credit periods despite sufficient liquidity has logjammed credit cycles for MSMEs, it said.

“Even if 50% of the funds held up by strong large corporates with high creditor days are released, it will shore up the liquidity for the MSME sector by close to Rs.1.6 lakh crore, and significantly reduce their liquidity pressure and working capital burden,” said Rajat Bahl, chief ratings officer of Brickwork Ratings.

Many large corporates have increased their bargaining power with MSMEs amid adverse economic conditions in the April-June quarter.

A research by rating agency CrisilNSE 5.12 %, had earlier said the 5% contraction in the Indian economy wrought by the Covid-19 pandemic could lead to an existential crisis for MSMEs.

While the pain is expected to lead to a 15% decline in revenue and 25% fall in Ebitda for India Inc, for MSMEs, the fall in revenue will be steeper at 17-21%, and Ebitda margin my shrink 200-300 basis points to 4-5% as weak demand gnaws away gains from lower commodity prices, Crisil had said.

“The current facilitations may not have the heft to crank up demand in the near term because fiscal stimulus is limited and only to vulnerable households,” said Amish Mehta, chief operating officer of Crisil. “It is critical that the demand curve is yanked steeply northwards, especially in discretionary products and services. Lenders have to go beyond traditional credit processes because they have to play a seminal role in recovery,” he said.

As per Brickwork Ratings’ study of top 760 non-BFSI (banking, financial services and insurance) companies basis their market capitalisation, only 14% had a negative or low working capital requirement at the end of September 2019. This implies that while they gave lower credit to their buyers, they got high credit from their suppliers.

Small enterprises are facing this liquidity crunch despite bank credit flow to MSMEs improving in the last two months. Top state-run banks and developmental finance institutions such as National Housing Bank (NHB) and Sidbi together disbursed nearly Rs 50,000 crore in the last two months under the government’s credit guarantee scheme and the Reserve Bank of India’s Covid-19 package.

State-run banks took the lead and sanctioned Rs 40,416 crore, nearly 14% of the total target of Rs 3 lakh crore.

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