MSMEs in Tamil Nadu fear impact of RBI rate hike

CHENNAI/COIMBATORE/MADURAI/TIRUCHY: Micro, Small and Medium Enterprises (MSMEs) in Tamil Nadu have expressed concern over the RBI’s 25-basis-point increase in the repo rate to 5.50%, saying higher borrowing costs could affect their cash flow, investment and export competitiveness.

Tamil Nadu All Entrepreneurs Federation state general secretary M Jayabal said higher industrial loan rates could hurt the ability of manufacturers to compete with China and the US in global markets.

The Federation of Coimbatore Industrial Associations (FOCIA) coordinator S Surulivel said industrial loans were already attracting interest of around 10%, and any further increase could slow growth.

Tamil Nadu Small and Tiny Industries Association has urged Union Finance Minister Nirmala Sitharaman to ensure that the repo rate hike does not result in higher interest rates for MSME loans. In a letter to the minister, TANSTIA said micro and small industries were already under financial pressure due to rising raw material, and other operating costs.

It sought stable and affordable interest rates for MSME loans and a special support scheme to deal with the rise in raw material costs linked to the West Asia crisis.

A former Madurai District Tiny and Small Industries Association member said the repo rate hike would increase the cost of working capital for MSMEs that depend on bank loans. “MSMEs borrow for raw materials and daily operations, while payments from customers often come only after 30 to 90 days.

Higher interest rates mean businesses have to spend more to bridge this gap, putting pressure on their margins and cash flow,” he said. He stated that exporters could face greater pressure as they had limited scope to pass on higher financing costs to overseas buyers. Banks should provide adequate working capital at affordable rates, and exporters should get targeted liquidity support, he added.

Rajappa Rajkumar, treasurer of the Tamil Nadu Boiler and Boiler Components Manufacturers Association, said the rate hike could affect MSME vendors supplying to BHEL, Tiruchy.

“Higher borrowing costs could make it difficult for members, many of whom are already facing NPA-related issues, to mobilise funds,” he stated. With the festive season beginning, South India Hosiery Manufacturers Association secretary R Damodharan said the rate hike will add to the burden on garment sector.

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