Small and medium-scale enterprises completely dependent on bank funds

The Reserve Bank of India left the repo rates and Cash Reserve Ratio unchanged in its mid-quarter monetary policy review on Monday.

For the micro, small and medium-scale enterprises in Coimbatore, this means they will continue to shell out high interest rates for their bank borrowings.

President of Coimbatore District Small Industries’ Association M. Kandhaswami says the interest rates for the small-scale units are now in the range of 12.5 per cent to 13.5 per cent. Last year, the rate was nearly 10.5 per cent. The small and medium-scale enterprises are completely dependent on bank funds for their financial needs. With no relief from unscheduled power cuts and labour shortage, the high interest rates are a burden to the units.

J. James, president of Tamil Nadu Association of Cottage and Tiny Enterprises, says the rates vary for the micro units, depending on the loan amount. Small-scale industries can avail themselves of over draft amount. The micro units are unable to give collateral for their loan needs and are largely dependent on private finances.

S. Ravikumar, president of Coimbatore Tirupur District Micro and Cottage Entrepreneurs’ Association, says the interest rates are three to four per cent of the production cost for the micro units. Nearly 70 per cent of micro enterprises take funds from private finances. “It is not just high interest rates, but availability of bank loans that is a problem to the micro industries,” he says.

Industry sources point out that banks ask for collateral security, specify certain conditions and this make it difficult for the micro and small-scale units to get loans. Interest rate for private finance is very high and this affects the viability of these industries.

The industries were hoping that the RBI will reduce the rate on Monday. “The interest rates should come down for the benefit of the SMEs,” Mr. Kandhaswami said.

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