New Delhi: Lenders are considering options including a waiver of administrative charges such as processing fees, forex hedging costs and collection charges to provide immediate relief to small and medium enterprises that are expected to bear the brunt of the steep US tariffs on India.
The move follows a nudge from the government, said a government official aware of the matter.
“There have been representations from the industry and also exportoriented MSMEs and these were shared with banks, which in turn have said that they will be providing options through these immediate relief measures,” he said.
Bankers said while offering discounts on interest rates and extending loan tenures would be account-specific, they would also look at not charging penal interest on missing payment deadlines to save the accounts from turning into bad assets.
“Unless there is a subvention scheme from the government, or some sort of a relief package is announced, there is limited scope for banks to drastically bring down interest rates or provide other systemic support,” said an executive director at a state-run bank, who was part of the discussions with the government over the relief measures.
While these reliefs are likely to be offered immediately, the government is working on an elaborate plan to support exporters impacted by the US decision to impose a 50% duty on imports from India.
Tailor-made Schemes
The plan includes offering tailormade schemes under the proposed Export Promotion Mission for the affected sectors, diversion of goods to other geographies, and identifying products with less export orders that could be diverted to meet the domestic demand.
The commerce and industry ministry has also urged exporters to build and promote homegrown brands for coping with the steep tariffs. Meanwhile, industry has also demanded that penal interest on non-repayment of loans be charged only after an account becomes non-performing. Businesses have also made a case for risk-proportionate collateral in case of forex loans.
“Collaterals are a major impediment. Banks often don’t accept textile machinery as collateral when it comes to giving loans to textile manufacturers, which cripples loan access,” said an industry official, requesting anonymity. Discussions on launching sector specific credit lines with relaxed collateral and ways to enable low-cost export factoring access are also ongoing to relieve the credit pressure for these exporters.
Under the existing factoring mechanisms, a bank or a specialised financial firm buys an exporter’s short-term foreign account receivable for cash at a discount from the face value and assumes the risk on the ability of the foreign buyer to pay, improving the seller’s liquidity position.
Indian exporters currently use factoring services offered by Singapore as they are 10-11% cheaper than in India. The relief is crucial for MSMEs, a segment that accounts for a significant share of India’s exports and employs millions.
In the textile sector, for instance, a lot of these exports are by small enterprises. Another bank executive said they are advising clients to go for coverage under the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTSME), where loans up to Rs 10 crore per borrower are covered.
“We are actively pursuing this and, in some cases, handholding firms to get the Udyam registration, among other documentation, to be eligible under the guarantee scheme,” he said.
The move follows a nudge from the government, said a government official aware of the matter.
“There have been representations from the industry and also exportoriented MSMEs and these were shared with banks, which in turn have said that they will be providing options through these immediate relief measures,” he said.
Bankers said while offering discounts on interest rates and extending loan tenures would be account-specific, they would also look at not charging penal interest on missing payment deadlines to save the accounts from turning into bad assets.
“Unless there is a subvention scheme from the government, or some sort of a relief package is announced, there is limited scope for banks to drastically bring down interest rates or provide other systemic support,” said an executive director at a state-run bank, who was part of the discussions with the government over the relief measures.
Tailor-made Schemes
The plan includes offering tailormade schemes under the proposed Export Promotion Mission for the affected sectors, diversion of goods to other geographies, and identifying products with less export orders that could be diverted to meet the domestic demand.
The commerce and industry ministry has also urged exporters to build and promote homegrown brands for coping with the steep tariffs. Meanwhile, industry has also demanded that penal interest on non-repayment of loans be charged only after an account becomes non-performing. Businesses have also made a case for risk-proportionate collateral in case of forex loans.
“Collaterals are a major impediment. Banks often don’t accept textile machinery as collateral when it comes to giving loans to textile manufacturers, which cripples loan access,” said an industry official, requesting anonymity. Discussions on launching sector specific credit lines with relaxed collateral and ways to enable low-cost export factoring access are also ongoing to relieve the credit pressure for these exporters.
Under the existing factoring mechanisms, a bank or a specialised financial firm buys an exporter’s short-term foreign account receivable for cash at a discount from the face value and assumes the risk on the ability of the foreign buyer to pay, improving the seller’s liquidity position.
Indian exporters currently use factoring services offered by Singapore as they are 10-11% cheaper than in India. The relief is crucial for MSMEs, a segment that accounts for a significant share of India’s exports and employs millions.
In the textile sector, for instance, a lot of these exports are by small enterprises. Another bank executive said they are advising clients to go for coverage under the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTSME), where loans up to Rs 10 crore per borrower are covered.
“We are actively pursuing this and, in some cases, handholding firms to get the Udyam registration, among other documentation, to be eligible under the guarantee scheme,” he said.
You may also like
India to host Singapore ministers for key talks ahead of PM Wong's visit
Delhi-NCR on yellow alert as heavy rain hits early morning commute
Trump says he will try to get back territory for Ukraine in summit with Putin
Why should you add a pinch of black pepper to lemon water
Is Prabhas getting married soon? Baahubali star's aunt breaks silence: 'When Lord Shiva...'
