Retail Wholesale Credit given to MSME

Written by: Abinash Mishra
About the author: Dy Executive Director | Dalmia Cement | Alumnus IIT Bombay & Olin Business School | Ex. Holcim | Ex. Pidilite | Ex. Jk Cement


The retailers are now getting MSME tags, but will banks lend to small business retailers or not?

When the government announced plans to provide MSME tags to small retailers, it was expected that at least 2.5 crore retailers would benefit from this decision. The decision made was actually a demand for long years which was made by retailers and small-scale investors.

As per reports, Covid-hit businesses have access to finances from banks and financial institutions under priority sector lending. With the new tag, traders can also avail of schemes announced by the government for MSMEs to stay afloat.


Kumar Rajagopalan, CEO of Retailers Association of India (RAI), said. “Those businesses up to Rs. 250 crore of turnover, will get benefits in terms of getting the required capital to survive, revive and thrive”

RAI survey revealed that retail sales in May stood at only 21% as compared to that before the pandemic, as there were strict norms and various rules and regulations, even consumer sentiment kept buyers away.

Retail Business Problems

Retail businesses have faced a lot of financial crises due to pandemics, the Confederation of All India Traders (CAIT) also demanded the restoration of MSME status in March for retail and wholesale trades which was taken away in 2017.

With the upcoming second wave of Covid, there were problems across sectors that impacted the repayment capacity of borrowers, MSMEs created one more reason as stress for banks.

The Reserve Bank of India (RBI) said in its report, The banking industry has cumulatively restructured loans worth Rs. 36,000 crore under the August 2020 Covid-19 loan restructuring scheme.

“Despite restructuring, however, the stress in the MSME portfolio of PSBs (public sector banks) remains high”

RBI Governor Shaktikanta Das even sent a warning signal to banks on the risks that have taken place out of loans to small businesses and asked them to reinforce their capital and liquidity positions towards potential balance sheet stress.

There have been certain guidelines for the priority sector by the government:

  1. The banks must achieve a 20% year-on-year growth in loans to micro and small businesses. And also requires a 10% annual growth in the number of micro-enterprise loan accounts.
  2. Out Of the total loans to MSME and SSI units, 40% of the loans to be provided to micro (manufacturing) businesses having investment in plant & machinery of up to Rs.5 lakhs or micro (service) businesses having investment in plant & machinery of fewer than Rs.2 lakhs.
  3. Further, out of the total loans to MSMEs, 20% of the loans must be provided to small scale businesses (manufacturing) with an investment in plant & machinery of more than Rs.5 lakhs and up to Rs.25 lakhs or small scale businesses (service) with an investment in plant & machinery of more than Rs.2 lakhs and up to Rs.10 lakhs.
  4. The bank can provide a balance of 40% of the loans to MSME or SSI units not falling in any of the above categories.

Access to Priority Sector Lending

  1. Take out credit to the stock challenge of small retailers that have tie-ups with day-to-day funding from enterprises or super stockists.
  2. Allow retail points with more access to stock keeping.
  3. Provides access to a choice of SKU from an array of Suppliers.
  4. Helps to improve competition as these retailers have met their financial means, and also benefits consumers with more resources and access.
  5. Leads to innovation in services also.

So With the lending to MSME’s the Indian economy can grow at a very significant scale along with the increase in resources, output, and product quality and service.

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