The micro, small and medium enterprises which availed of cheap credit available during the pandemic period under Emergency Credit Line Guarantee Scheme (ECLGS) and restructured loans may face a reality check as interest rates are hardening.
Currently, most MSMEs are able to service their debt with minimum delays, but the real test would be when further rate hikes come into effect in the year ahead.
Over 69% of all floating rate small business loans were linked to an external benchmark as of December, as against just 20.4% for large industries, and rates going up in tandem with the external benchmark will raise borrowing costs of these MSMEs. Loans to large corporates based on MCLR, where transmission is low.