(MENAFN- KNN India) New Delhi, Dec 5 (KNN) Industry associations have hailed the RBI's 25-basis-point cut in the policy repo rate to 5.25 per cent as a timely measure to enhance liquidity and ease borrowing costs for businesses and MSMEs.

The Federation of Indian Micro and Small & Medium Enterprises (FISME) stated in a communique,“If transmitted promptly by banks to borrowers, the rate cut will be especially beneficial for smaller firms with tight cash flows, easing working capital, inventory, vendor payments, and expansion costs.”

With the latest cut, the RBI has cumulatively reduced key lending rate by 125 basis points this year.

The Confederation of Indian Textile Industry (CITI) also welcomed the rate reduction while hoping that it will be transmitted fully by banks.

“Our expectation now is that this will be reflected in a lower cost of borrowing, with banks easing access to capital for MSMEs in the textile and apparel sector, many of whom often face challenges in this regard,” CITI Chairman Ashwin Chandran said. MSMEs in the textile sector continue to be a major employment generator.

The Federation of Indian Export Organisations (FIEO) highlighted the potential benefits for exporters, stating that lower credit costs would enable investments in working capital, technology upgrades, and international marketing.

FIEO President S.C. Ralhan emphasised that MSME exporters, in particular, could see strengthened cash flows, improved margins, and enhanced capacity to scale operations and enter new markets amid global demand volatility and unpredictable input costs.

Providing affordable finance for the MSME sector is crucial considering its role in the economy. The sector contributes around 30 per cent of India's Gross Value Added (GVA) and is the largest job-provider outside the farm sector.

With digital lending on the rise and new-age fintech firms aggressively pushing various loan products tailored for small businesses, MSME credit through formal channels has witnessed growth. Outstanding MSME credit from Scheduled Commercial Banks (SCBs) is estimated to have grown by 14.8 per cent year-on-year in FY25, reaching Rs 31.3 lakh crore.

But despite this, affordable credit remains elusive for a large number of small businesses.

A SIDBI report recently pegged the credit gap in the MSME sector at a whopping Rs 30 lakh crore.

While formal credit remains elusive for many MSMEs, informal credit is often prohibitively expensive.

(KNN Bureau)

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