Things have not been easy for micro and small industries who are finding it tough to operate due to interest rates hitting the roof.
Industries which normally rely on banks as a source of funding , say interest rates nowadays are hovering over 14 per cent , making life tough for them.
With weak global sentiments impacting buying, industries say it is a double whammy for them, as commodity prices are moving up and so are the interest rates , thus leaving them to operate on wafer-thin margins.
Many micro and small industries, in the absence of good credit history, tend to rely more on banks for their capital needs.
Arun Rawat , president , Baddi Barotiwala Nalagarh Industries Association (BBNIA) , says non-banking finance companies(NBFCs) have started penetrating , into small and medium enterprise (SME) lending , but the lending is still restricted.
The NBFCs not only rely on good credit history of the company , but also lend at higher interest rates than banks, thus limiting the borrowing options for SMEs.
Ajit Lakra, president, Ludhiana Knitters Association, says industry growth is being stifled because of higher interest rates.
According to an earlier report of research firm CRISIL, a percentage hike in interest rates results in a 14 per cent decline in profits for SMEs.
Lakra alleges that with the spike in interest rates, SMEs have been forced to spend more on clearing the interest amount than utilising funds towards working capital.
A L Aggarwal, general-secretary, Haryana Chamber of Commerce and Industry, rues the fact that despite the government laying down norms for the micro, small and medium scale enterprises (MSME) sector , laws are being blatant misused.
“AS per the MSMED Act ,2006 micro and small industries should get loans at a 2 per cent discount over prime lending rates, but this was not the case.”
Rawat says that higher interest rates are resulting in a net loss for the industry, as profitability is falling.
