Working capital for MSMEs will deteriorate if inflation stays in double digits

India’s micro, small and medium-sized enterprises (MSMEs) working capital would deteriorate further if wholesale price inflation continues to stay in double digits, said Madhavan Kutty, Senior Economist, Aditya Birla Group, Mumbai.

Speaking at an event on “The Impact of Commodity Price Inflation on MSMEs” jointly organized by WTC Mumbai and Association of Indian Industries (AIAI), he said MSMEs are seriously affected by rising commodity prices.

“Prolonged periods of high inflation will erode the profit margin of large corporate buyers, who in turn will delay their payments to their MSME suppliers,” Kutty said.

Kutty called on banks and NBFCs to help MSMEs through this difficult time. Lenders need to increase the flow of credit to MSMEs and get rid of their risk aversion, he said.

Currently, 57 percent of private banks and 30 percent of public sector banks’ loan portfolio are linked to external references. By linking their loan portfolio to external benchmarks such as the RBI’s repo rate, banks are forced to pass on policy rate hikes to their borrowers.

However, in these difficult times, banks can refrain from passing on the RBI policy hike to MSME borrowers, he said, calling on public lenders to introduce innovative derivatives to hedge interest rate risks interest rate and thus support MSME borrowers.

Meanwhile, Vijay Kalantri, Chairman of MVIRDC World Trade Center Mumbai and Chairman of All India Association of Industries, said, “The recent increase in the RBI Cash Reserve Ratio (CRR) has reduced liquidity in the system. of Rs 87,000 crore, and will it impact growth? prospects for sectors dependent on bank financing.