India’s big corporates with strong liquidity position hold close to ₹3.3-lakh crore of dues to micro, small and medium enterprises (MSMEs), according to a study by Brickwork Ratings.
In the wake of the Covid-19 crisis, MSMEs are facing a liquidity crunch on account of two key issues ― lack of a funding line from the banking system, and stretched working capital because of low bargaining power with large corporates to get payments released for materials supplied or services provided.
The Brickwork study has revealed that close to ₹3.3-lakh crore of MSME funds are stuck with strong, large corporates in the form of receivables.
“Even if 50 per cent of the funds held up by strong, large corporates with high creditor days are released, it will shore up liquidity for the MSME sector by close to ₹1.6-lakh crore and significantly reduce their liquidity pressure and working capital burden,” said Rajat Bahl, Chief Ratings Officer, Brickwork Ratings.
Access to funding from the organised banking sector has eased owing to the announcement of ₹3-lakh crore in collateral-free loans in the Atmanirbhar Bharat Abhiyaan package, of which about ₹32,000 crore has already been sanctioned, with about ₹16,000 crore disbursed by banks as on June 12.
However, the liquidity of MSMEs continues to be stretched, given the long credit period extracted from MSMEs by large corporates, many of which have sufficient liquidity of their own.
The BWR study is based on data analysis of the top 1,000 companies in terms of market capitalisation. After setting aside banking and financial sector entities, a total of 760 non-BFSI entities were considered and those are companies that have negative or low working capital requirement, albeit high creditor days.
Of the 760 large corporates, 14 per cent had negative or low working capital requirement as on September 30, 2019, implying that while they gave lower credit to their buyers, they got high credit from their suppliers.
Given the adverse economic conditions, large corporates have only increased their bargaining power with MSMEs in Q1FY21. The reduction in the credit period enjoyed by large corporates with strong credit profiles can have a significant impact on easing the liquidity pressures of MSMEs, it said.
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