Large number of MSMEs approaching banks for collateral-free loans: Survey

A large number of businessmen in the MSME sector have approached banks for collateral-free loans to tide over the crisis following the coronavirus outbreak, a Care Ratings survey has said.

According to the survey, nearly 70 percent of the respondents have approached banks for collateral free and government guaranteed loans, and a majority of them intend to borrow less than Rs 1 crore.

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It further revealed that banks have so far sanctioned loans to around one-third of the applicants, and the cost of borrowings is 8-9 percent for most of the borrowers.

The rating agency said the survey was conducted over two weeks - between June 23 and July 7 - and saw the participation of 345 respondents from a cross-section of sectors.

The size of the business of the respondents in terms of turnover ranged from less than Rs 25 crore to Rs 100 crore.

"The majority of respondents (over half) have availed moratorium from banks, while fewer (27 percent of those it is applicable) have been able to do so from NBFCs," the survey said, adding that the lockdown has severely impacted the bulk of the respondents (over 60 percent).

It also revealed that fall in demand, contraction in cash flows, finance, labour shortage, logistical constraints, and increasing receivables are amongst the main challenges faced by the segment due to the lockdown.

A third of the respondents have faced revenue losses of over 50 percent in the last three months.

Also, over 60 percent of them have been unable to pay full salaries to their staff. However, only a quarter of those surveyed have retrenched their staff, it added.

Further, nearly half the respondents feel they stand to benefit from the change in definition of MSMEs and a major part of them plan to increase their size.

The study further said the prevailing anti-China sentiments has not brought about noteworthy changes in terms of fresh business.

In terms of assistance, the survey said MSMEs are seeking interest waivers, extension in moratorium, loan restructuring, tax cuts, financial support from banks and government, direct cash transfers, relief in electricity and water charges, among others.

As per the study, about 65 percent of the participants expect that it would take 12 months and more for their business to get to normal, and nearly half those surveyed expect their business situation to improve in the next six months.