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Rising rates may pose risk to MSME loan portfolio
December 21, 2022
“A lot of MSMEs are operating in the export market. So, if there is a slowdown in the global economy, these entities could see an elongation of working capitals or a decline in their revenues,” said Anil Gupta, Senior Vice President & Co-Group Head, ICRA.
“Rising interest rate would have a larger impact on MSMEs because unlike in the case of most retail loans, MSME loans are linked to a floating interest rate,” he added.
These comments come when a recent report from CRISIL Ratings indicated that around 43% of MSMEs would be unable to return to their pre-Covid-19 margins in 2022-23(April-March) due to high inflation, high interest rate, and depreciating rupee.
“MSMEs typically sit at the lower end of bargaining power and for them, passing on higher costs emerging due to higher interest rates is always behind the curve,” said Siddharth Mahanot, co-founder, Indifi Technologies.
In fact, bank loans to micro and small enterprises rose 20.4% year-on-year in September. Loans to medium enterprises rose 31% year-on-year.
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