Having empathy towards distressed small businesses is important, says RBI DG to lenders

The Reserve Bank of India (RBI) Deputy Governor Swaminathan J on Monday (March 3) said that showing empathy towards distressed borrowers from small businesses is important for lenders.

Addressing the 29th Meeting of the Standing Advisory Committee (SAC) to review the flow of credit to the Micro, Small and Medium Enterprises (MSME) sector in Ahmedabad, the DG said small businesses play a pivotal role in India’s economic development.

“Deputy Governor emphasized the importance of fair lending practices, ensuring transparency and an empathetic approach towards MSMEs facing financial distress,” as per a central bank communique released after the event.

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The meeting also deliberated on “proactive revival and rehabilitation of MSMEs in financial distress”, it noted.

The RBI is committed to strengthening institutional credit support through initiatives like the Unified Lending Interface (ULI), the Account Aggregator framework, and the Regulatory Sandbox, the deputy governor said.

There are challenges like financial literacy gaps, information asymmetry, and delayed payments, he said, stressing the need for digital solutions, alternative credit assessment models, and greater participation in platforms like TReDS.

The panel reviewed the flow of credit to MSMEs and deliberated on ways to address the issues related to the credit gap in the sector, cash flow-based lending, and digital solutions for improved credit linkage, accelerating adoption of TReDS, and enhancing the usage of credit guarantee schemes, it said.

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RBI officials, the Ministry of MSME and Department of Financial Services, SIDBI, NABARD, Credit Guarantee Fund Trust for Micro and Small Enterprises, National Credit Guarantee Trustee Company Limited, Khadi and Village Industries Commission, Indian Banks’ Association, Finance Industry Development Council and MSME Associations attended the meet.