For small companies struggling for credit, money finds a way

Think non-performing assets. Think banks under tremendous pressure. Think credit squeeze. Think small and medium enterprises. Think, well, tough deadlock, but what next?

Indian MSMEs have been credit-starved for far too long

Around 90% of MSMEs are dependant on informal sources to meet their credit demand

MSMEs have found a welcome source of liquidity, and that too at a fair price in TReDS exchanges

The risk is now transferred from a weak seller to a strong buyer

For years, Indian banks granted huge unsecured loans to large companies, sweeping the mess of distressed assets under the rug and hoping it would somehow resolve itself. This mess has now reached gargantuan proportions. The gross non-performing assets (NPAs) of the entire banking sector now stands at Rs 8.41 lakh crore (~$126 billion). In that context, since January 2015, the Reserve Bank of India (RBI) reduced its lending rate to commercial banks by 200 basis points, but banks did not adequately pass this relief on to the market, citing the looming mountain of NPAs.

AUTHOR

Sidhartha Shukla

In his earlier stint at Moneycontrol, the website owned by the Network18 group, Sid wrote on cryptocurrencies, cybersecurity, business, and finance. Born in Raipur, Chhattisgarh, Sid has spent most of his life in Jalandhar, Punjab. He has a BSc in Mathematics from St Xavier’s College, Mumbai. Sid is a comic book nerd and a big fan of Alan Moore, Neil Gaiman and Brian Azzarello. He can be reached at sidhartha at the rate the-ken.com

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