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MSME credit that shrank during note-ban back to pre-demonetisation level: RBI study

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MSME credit that shrank during note-ban back to pre-demonetisation level: RBI study

The flow of bank credit to micro, small and medium enterprises (MSMEs), hit badly in the aftermath of demonetisation, is back to pre-note ban levels, according to a study by Reserve Bank of India (RBI) officials.

Growth of bank credit to the MSME sector, which had started decelerating even before demonetisation and fell significantly and turned negative in the wake of the note ban, has rebounded, Harendra Behera and Garima Wahi of the RBI’s Monetary Policy Department wrote, said a report in The Hindu.

As of 25 November 2016— just over two weeks after the 8 November announcement of demonetisation—bank credit to MSMEs had fallen by 3.4% year-on-year. By December 2016, this had plummeted further by 4.3% year-on-year.

During the April-June quarter this year, bank credit to MSMEs increased on average by 8.5% year-on-year, mirroring the level of growth during April-June 2015, The Hindu reported. Credit to micro and small enterprises grew at an even healthier rate.

“MSME credit and especially micro credit to MSMEs, including loans by banks and NBFCs, shows a healthy rate of growth in recent quarters,” the officials wrote.

In contrast, while GST implementation does not seem to have had any significant impact on credit, it adversely impacted MSME exports.

“MSME exports were affected more adversely by issues relating to GST implementation… due to delay in refund of upfront GST and input tax credit affecting cash-driven working capital requirements,” they wrote.

“The MSME sector has witnessed two major recent shocks—demonetisation and introduction of GST. Contractual labour in both the wearing apparel and gems and jewellery sectors reportedly suffered as payments from employers became constrained after demonetisation. Similarly, the introduction of GST led to increase in compliance costs and other operating costs for MSMEs as most of them were brought into the tax net,” the study explained.

MSMEs, the RBI study said, face constraints in accessing credit through formal channels because about 97% of them operate in the informal sector.

“A large number of these firms depend on informal channels because of easy accessibility and availability of credit without any documentation hassles and mortgages, though the rate of interest on such loans may be very high. The challenges faced by MSMEs in accessing finance are due to lack of comprehensive formal documentation relating to accounts, income and business transactions,” said a report in Live Minit quoting from the latest Mint Street Memo, brief reports on topical subjects.

Loans are provided to the MSMEs mainly through appraisal of collaterals rather than an assessment of their true business potential. “Further, banks do not trust start-ups, view such loans as risky and thus do not prefer extending finance to MSMEs,” it added.

In the formal financial sector, MSMEs receive loans mainly from banks (around 90%). The study found that the share of credit provided by banks has declined since September 2016 partly reflecting the risk aversion of banks due to a deterioration in their asset quality. “In contrast, loans extended by non-banking financial companies (NBFCs) to MSMEs grew strongly at an annual average rate of 35% during the same period and their share in total credit almost doubled from around 5.5% in December 2015 to around 10% by March 2018. Lower non-performing assets (NPAs) of NBFCs in MSME credit might have helped them in extending credit to the sector,” the study said.

It said the share of credit extended to MSMEs in overall bank credit had declined to around 14% by end-March 2018 from about 17% in 2007 which could partly be due to over-lending to large corporates in the second half of the 2000s.

Bad loans of both public sector banks and private banks pertaining to the MSME sector have increased over time, with the level being much higher in the case of PSBs.

The MSME sector comprises more than 63 million units and employs about 111 million people. The share of MSMEs in GDP is about 30%, with the sector accounting for about 45% of manufacturing output and about 40% of India’s total exports.

“The sector faces operational problems due to its size and nature of business, and is, therefore, relatively more susceptible to various shocks to the economy. MSMEs largely operate in the informal sector and comprise a large number of micro enterprises and daily wage earners,” the RBI officials wrote.

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Adani, Torrent compete to purchase Gujarat Titans from CVC Capital

The probable sale of the Gujarat Titans, with the lock-in period coming to a close, will therefore be a defining moment in the changing face of IPL investments.

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The Adani Group and Torrent Group are currently negotiating a deal with private equity firm CVC Capital Partners to offload a controlling stake in the Indian Premier League franchise Gujarat Titans. According to sources, close to the development, reports say CVC Capital Partners will be looking to sell a majority interest while retaining a minority share in the franchise.

This becomes important because it is aligned with the end of the lock-in period by the Board of Control for Cricket in India (BCCI), which restricts any new teams from selling stakes until February 2025. The three-year-old franchise Gujarat Titans is reportedly worth $1 billion to $1.5 billion. CVC Capital Partners had paid ₹5,625 crore for the franchise in 2021.

A source close to the development pointed out that IPL franchises have attracted many investors’ interest since the league has proved an asset with a good reputation for money-making capabilities and cash flows. This growing interest of investors embodies the financial value and stability that come with the IPL franchises.

Gautam Adani, who owns teams in the Women’s Premier League and UAE-based International League T20, is understood to be one of the serious buyers. In 2023, Adani’s group won the Ahmedabad franchise in the WPL with a bid of Rs1,289 crore, the highest offer. His interests in this potential deal signal his commitment to expanding his footprint in the cricketing world.

Arvinder Singh, COO of Gujarat Titans, exuded confidence in the financial future of the franchise. He said the team was confident of turning profitable in the next media rights cycle, referring to even the original ten IPL franchises that took four to five years to turn profitable. He added confidently that the Gujarat Titans would not only turn profitable but significantly enhance in brand value.
 
This surging interest of investors in it is evidence of the growing financial attractiveness of IPL franchises, driven by healthy revenue streams and an increasing global footprint. The probable sale of the Gujarat Titans, with the lock-in period coming to a close, will therefore be a defining moment in the changing face of IPL investments.

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PayTm share price slips 2 per cent over SEBI warning

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Paytm

The share price of PayTm fell by nearly 2 per cent on Tuesday following a warning from the the Securities and Exchange Board of India (SEBI).

PayTm’s parent One 97 Communication had got SEBI’s administrative warning letter on some transactions involving the PayTm Payments Bank during fiscal year 2021-2022. The bourses reacted strongly leading to PayTm shares falling by 1.88% to Rs 460.80 per share on the Bombay Stock Exchange.

SEBI said it had noted the violation with concern and said these matters are being viewed very seriously. The regulator warned the company to exercise caution going forward and improve compliance to rules to prevent similar incidents in the future.

The markets regulator added that failure to comply with rules may force it to invoke enforcement actions as per the law.

In its response to SEBI, PayTm said in a media release that it has always followed listing regulations, as well as any change to these rules over time. The company said it would keep up its commitment to maintain and follow high standards of compliance. Paytm said it intends to provide an adequate response to SEBI on this matter.

PayTm said it has always followed Regulation 23 along with Regulation 4(1)(h) of the SEBI Listing Regulations, without including any change made to these rules over time. Paytm added that the letter from  SEBI has no influence on its finances, operations or other activities in any way.

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Zomato, Swiggy hike platform fee by 6% 

After the hike, the platform fee would be Rs 6 per order from an earlier Rs 5 per order.

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The food delivery majors, Zomato and Swiggy, have recently increased their platform fee by 6 per cent for food orders initially in Delhi and Bengaluru.

The food giant is currently charging in the national capital and IT hub, Bengaluru, the platform fee is distinct from delivery fee, goods and services GST, handling charge and restaurant charges.

After the hike, the platform fee would be Rs 6 per order from an earlier Rs 5 per order. Gradually, the higher platform fee is expected to roll out to other cities as well.

Notably, this fee is applicable universally to all food orders, irrespective of customer enrollment in loyalty programmes offered by both food giants. The charges directly contribute to the companies’ revenue streams and cost management efforts. The platform fee goes to the food aggregators to apparently control costs and increase revenues.

In April, they charged Rs 5 per order, but now it’s been increased by Rs 6 per order. That’s a 20% increase in fees for food delivery. This change in their strategy to adjust the price in a market as they expand their services.

Increase in platform fees, impacting how much customers pay for their food deliveries across the board. When customers order food using the app, they will notice different charges, besides the platform fees. These include delivery fees, handling fees, GST (Goods and Services Tax), and charges from the restaurant.

The charges earned by the platform, directly go to the food delivery app, helping to manage all expenses and boost their wages. The food delivery platform aimed to make between Rs 1.25 to Rs 1.5 crore per day through the fee, the app charges.

In August last year, Zomato introduced platform fees of Rs 2 per order for the first time. In October, they raised their platform fees from Rs 2 to Rs 3 in most and in major cities. Additionally,  Zomato is a quick commerce platform.

According to reports, Zomato stock reached its highest price of Rs 232 on the Bombay Stock Exchange. This achievement has made Zomato founder and CEO, Deepinder Goyal, a billionaire. The company has experienced a strong upward trend over the past years, driven largely by the expansion and success of its quick commerce subsidiary in Blinkit.

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