Small Businesses Will See Subdued Growth Due To The Cash Crunch: CRISIL
Micro, small and medium enterprises will see muted revenue growth in the current fiscal on account of the demonetisation exercise, according to a nationwide survey conducted by ratings agency CRISIL. The cash ban has effected a major change in which these industries operate, with 41 percent of their clients switching to cashless modes of payment.
Overall revenue is expected to grow 6-8 percent in the current fiscal, lower than the 15-20 percent expected before demonetisation, the report said.
Typically, MSMEs perform better in the fiscal second half (October to March), which means annual growth will be muted.CRISIL Report
The survey which covered over 1,100 MSMEs, revealed that 29 percent of the respondents see their revenue in the second half of the current fiscal declining, while 41 percent expect their revenue to grow. The other 30 percent see revenue remaining stagnant or are uncertain about the outlook.
Sectors which traditionally have a high reliance on cash transactions were the ones which were most affected, the report noted.
Unorganised players, those with less than 10 employees, are expected to struggle more than their organised counterparts, with 37 percent of them likely to report negative revenue growth in the second half compared with a quarter of organised players.
Demonetisation has also impacted the liquidity situation of MSMEs. Nine percent of the survey respondents – each of which have a revenue lower than Rs 2 crore – said they will face issues in debt repayment.
This will present a huge opportunity for banks to capitalise on, according to Manish Jaiswal, Head of SME ratings at CRISIL.
Every fifth MSME surveyed planned to raise additional funding in the coming months, half of it for working capital. Interestingly, with unsecured loans from friends and associates drying up, 3 out of 4 respondents plan to approach banks for loans, while the rest will rely on internal accrual. That opens up a massive opportunity to banks currently a wash in liquidity.Manish Jaiswal, Head-SME Ratings, CRISIL
Almost half of the MSMEs with annual turnover of less than Rs 2 crore have reported a greater move towards less cash transactions, as compared to their counterparts with revenue of over Rs 25 crore, the report added.
This may also be because non-cash payments are already prevalent among mid-sized players. For the smaller ones, the shift is expected to translate into long-term benefits through quicker transaction processing and better record keeping.CRISIL Report
The transition is more visible in tier 2 cities and smaller towns, according to Ashu Suyash, managing director and chief executive officer of CRISIL.
MSMEs located in tier 2 cities and smaller towns have witnessed a significant shift (42 percent of respondents) to cheque or electronic payments, indicating that the transition is geography agnostic, and, therefore, has greater implications in the way transactions take place in small cities and townsAshu Suyash, MD & CEO, CRISIL
About 47 percent of the respondents were from tier 2 cities and smaller towns.