PHD Chamber Urges Govt To Change Banking Norms For MSMEs

In a representation submitted to the Finance Ministry and Reserve Bank of India, PHD Chamber has urged the Government to consider changing the banking norms to advise banks to pay interest to MSMEs on their current account balances equivalent to the rate of interest paid by banks on saving bank accounts.

 MSMEs, as stated in the representation, are a major contributor to the socio-economic development of the country. The sector immensely contributes to the GDP and plays an important role in entrepreneurship development in semi-urban and rural areas thereby generating employment opportunities for a large number of people in the country, said PHD Chamber.

 It stated that the MSME units are banking with major public and private sector banks across India and collectively maintain substantial balances in their current accounts, as they are not allowed to open saving bank accounts with the banks. MSMEs which operate their borrowing accounts like Cash Credit or Overdraft etc. route their transactions through such accounts but, those MSMEs who do not avail any credit limits operate their current accounts by maintaining credit balances in such accounts.

 Since no interest is paid by banks on current accounts, the MSMEs lose out substantial interest benefit on such credit balances. Their funds remain idle in the current accounts, the benefit of which is enjoyed by the banks. On the other hand, banks impose charges for not maintaining a minimum threshold of balance in the current account, said PHD Chamber in its representation.

 MSME sector’s share of current accounts held with banks (public and private sector) is very large as they comprise 99 percent of all business enterprises and these banks have generated significant profits by not paying any interest to the MSME units’ Current Accounts which doesn’t seem justified, said PHD Chamber.

 Therefore, in order to obviate the financial loss incurred by MSMEs on their current account balances, there is a need to change the banking norms to advise banks to pay interest to MSMEs on their current account balances equivalent to the rate of interest paid by banks on saving bank accounts, said PHD Chamber.

PHD Chamber has submitted same representation to the Ministry of Commerce & Industry, Ministry of Micro, Small & Medium Enterprise and Niti Aayog as well.