Credit likely to be costlier for MSME Sector: A.Sakthivel, President, FIEO

Mr A Sakthivel, President, Federation of Indian Export Organisations (FIEO) while commenting on RBI data released on 25th December, 2009 stated that while credit off take had picked up marginally to double digit levels (10.5%) vis-à-vis last year (26.4%) the banks are lending idle cash for higher returns to companies for advance tax payments which has sucked up about Rs.40,000 to Rs.45,000 crores. This is supported by RBI data (23rdDecember, 2009) stating that banks parked Rs.40,000 crores through the reverse repo auction as against Rs.90,000 crores on December 14, a day before the payment of the third installment of advance tax.

The FIEO Chief stated that the inclination of the banks to lend to the larger corporates, increasing call money market rate (from around 2% at the previous closing to 3.0 to 3.25% at present), a possibility of increase in CRR would impact interest rates for MSME export sector.

President, FIEO elaborated that the diffidence of the banks in lending to the MSME export sector and services due to a higher risk perception is reflected by the moderation in priority sector lending to 17.5% as against 22.7% last year with sectors such as services showing the sharpest fall from 33.7% to 11.0% at present.