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MSMEs will now have to contend with higher input costs
April 10, 2023
Micro, small and medium enterprises (MSMEs), which benefited from government measures during the pandemic, will now have to contend with higher input costs and increasing interest rates amid volatility in the commodity prices impacted the profitability of MSMEs, ratings agency Crisil said in its ratings round-up report for the second half of FY23.
The agency’s credit ratio (credit rating upgrades to downgrades) moderated to “expected” 2.19 times in H2 FY23 from 5.52 times in H1 FY23 “because of rising global inflation and the resultant interest rate hikes,” it said. Overall, there were 460 upgrades and 210 downgrades in the credit rating of companies across sectors in the second half.
About 60 per cent of the downgrades were in the sub-investment grade category, largely comprised of MSMEs and as much as around 70 per cent of the downgrades were because of a decline in profitability and/or liquidity pressure.
“The downgrade rates have started reverting to their long-term averages. Volatile commodity prices have impacted profitability, particularly of micro, small and medium enterprises (MSMEs), while export-oriented sectors face headwinds from slowdown in their major markets,” said Gurpreet Chhatwal, Managing Director, Crisil Ratings in a statement.
Importantly, a slew of measures was announced by the MSME ministry and finance ministry post Covid such as the ECLGS scheme, revised MSME definition, Udyam registration portal, inclusion of retail and wholesale traders under MSME definition, RAMP scheme, revised CGTMSE, and more.
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