A Time to Handhold

As MSME tariff woes increase, lenders have to work closely with smaller industries, even as demand for a lifeline grows, reports Raghu Mohan

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In November last year, Swaminathan J urged bankers to work collaboratively with small businesses "to build trust, enhance credit discipline, and ensure that they are equipped with the financial tools needed to succeed".

The Reserve Bank of India's (RBI's) deputy governor was speaking at the CEO Forum of the Federation of Telangana Chambers of Commerce and Industry. The topic was 'MSMEs - Bridging the credit gap through improving confidence in lending'.

That time is well upon us now. Micro, small and medium enterprises or MSMEs are coping with US tariff related woes, and a closer engagement between lenders and the sector has already started.

"The bank is watching the impact on the book closely and will take appropriate calls on any support required by MSMEs after due assessment," says Debadatta Chand, managing director and chief executive officer (CEO), Bank of Baroda.

He feels the sector is quite robust, strong and resilient to wither away any adverse impact due to the tariffs. Vijay Shetty, president & head, commercial banking group, Axis Bank, points to near term headwinds for some export oriented clusters, but believes that these challenges can "be catalysts for MSMEs to diversify markets, upgrade capabilities, and strengthen competitiveness".

These are potholes that cannot be paved over double quick. But as August 27 approaches - the date on which the additional 25 per cent on India for Russian oil purchases kicks in - there is consensus that forbearance to hand hold MSMEs is called for.

But first, what about the impact of MSME stress down the line on lenders?