RBI rate hikes throwing SMEs out of biz: Survey

Continuously rate hikes by RBI have thrown many SMEs out of business and others are on the brink of being out of business, an industry body survey Thursday said. Increased policy rate hikes by the Reserve Bank of India (RBI) consecutively for twelve times have thrown many small and medium enterprises (SMEs) out of business and others are on the brink of being out of business, an industry body survey Thursday said. There was utter disappointment and serious concern over the RBI's continued strategy of increasing lending rates without attempting to address the issues of high credit cost to the SME sector. Hike in interest rates by the RBI may lead to more non-performing assets (NPAs) of banks, as high raw-material cost and low margins would put pressure on SMEs, leading to their inability to repay loans, said survey conducted by ASSOCHAM. "...increased cost of inputs may affect their (SMEs) ability to service loans/interest commitments and may be a major factor for increased NPAs of banks," it said. However, the study did not mention about the present NPAs in the small and medium enterprises (SMEs) sector. The chamber surveyed 1,000 small and medium enterprises. Despite concerns of the industry that any further increase in interest rates would impact growth, the RBI went on for another round of hike in its first quarterly review of Monetary Policy for 2011-12 on 26 July, raised its key rates by 50 basis points. However, the market had expected only 25 basis points hike. The RBI's next review is scheduled on 16 September. Since March 2010, the RBI has raised the key rates 11 times to control price rise. Releasing the survey the Chamber spokesman said the RBI weapon of increased key rates though goes well for attempting to rein in inflation with growth a not so important idea, the impact on overall survival of SMEs have been very serious and alarming. ASSOCHAM said that the continued increased fuel prices, ever increase in lending rates are the worst hit and could be heading for a serious trouble. Consequently, SMEs have shared that there has been a decline of around 15 percent market share of SMEs, 20 percent in their profit margins and 24 percent reduction in total production capacity, which are serious subjects. On the various parameters of production targets, market competitiveness, job loss, squeezed margins, already very high cost of funds, non implementation of various Task Force recommendation, lack of export intelligence, growing tax liability , uneven playing field in respect of tax concessions and a host of other issues, RBI increased thrust on inflation control by hiking cost of funds, have received a thumps down reaction from SMEs who feel isolated in their war of survival. Majority of the respondents says the chamber Secretary General D.S. Rawat was drawn from manufacturing as well as ancillaries of the automotive sector including export units. All most all of them expressed deep anguish that the steps taken by the authorities seems to retard the growth of this highly vulnerable sector and government should address these issues by fiscal measures including incentives for the SME sector and not alone by monetary instances of RBI. Therefore, ASSOCHAM Survey has revealed the serious undercurrent of the financial position and its impact on the rising cost of funds, consequent upon undeterred hike in key policy rates of RBI, affecting one of the most important sectors of the economy—the SMEs.

SME Times