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LATEST NEWS UPDATES | RBI data counters RBI claim: Credit to small firms shrinks -Sandeep Singh

RBI data counters RBI claim: Credit to small firms shrinks -Sandeep Singh

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published Published on Nov 16, 2018   modified Modified on Nov 16, 2018
-The Indian Express

On October 30, at the meeting of the Financial Stability and Development Council chaired by Jaitley and attended by Urjit Patel among others, the central bank is learnt to have downplayed the issue of liquidity crunch.

While the Reserve Bank of India said two weeks ago that there is no sign of a liquidity crunch, its own latest data shows that banks’ credit outstanding to the Micro, Small and Medium Enterprises (MSMEs) sector has seen a contraction for the first time in 14 months in September 2018. This is the month IL&FS began defaulting on its outstanding dues. According to RBI data released Wednesday, while the overall bank credit outstanding and that to the industry segment grew by 11.3 per cent and 2.3 per cent respectively in September 2018 (over September 2017), the credit outstanding to the MSME sector — which accounts for about 45 per cent of manufacturing output in the country and nearly 40 per cent of the total exports — contracted by 1.4 per cent during the month.

If the MSME sector were to be excluded, then within the industry segment, the situation was better for medium and large scale industries, which saw credit outstanding expand by 3.3 and 2.9 per cent respectively. The 1.4 per cent contraction witnessed by the MSME sector in September 2018 is the sharpest since February 2017 when the sector was continuing to reel under impact of demonetisation. In February 2017, the credit outstanding for the MSME had contracted 5.2 per cent over the same period previous year.

Economists say that the data reflects the fact that the MSME sector is facing constraints in availability of credit. “There is weakness in flow of credit to the MSME sector, they are finding it tough to raise funds. Even the government is trying to push liquidity for MSME players and that shows that there is some recognition of the fact that there are some issues,” said D K Joshi, chief economist at Crisil.

Experts say the September data does show a shift towards tightening credit situation for the MSMEs and the contraction figure may broaden when data is available for October and November 2018.

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The Indian Express, 16 November, 2018, https://indianexpress.com/article/business/banking-and-finance/rbi-data-counters-rbi-claim-credit-to-small-firms-shrinks-5448823/


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