US tariffs impact: Lenders weigh MSME relief; government drafts wider export support

Lenders are exploring ways to ease the financial pressure on small and medium enterprises (SMEs) hit hardest by the United States’ 50% duty on imports from India. According to ET, lenders are considering scrapping certain administrative charges such as processing fees, foreign exchange hedging costs and collection charges after being nudged by the government.A government official cited by ET said that industry groups and export-oriented MSMEs had raised concerns, which were passed on to banks. “Banks have said they will provide options through these immediate relief measures,” the official said.While broad cuts in interest rates are unlikely without a government-backed subvention scheme, bankers indicated they may stop charging penal interest for missed repayment deadlines to prevent accounts from turning into bad assets. “Unless there is some sort of relief package announced, banks have limited scope to drastically bring down rates or offer systemic support,” an executive director of a state-run bank was quoted as saying by ET.The government, meanwhile, is working on a broader support plan under its proposed Export Promotion Mission. Measures being considered include customised schemes for affected sectors, redirecting exports to alternative markets, and pushing products with weak export demand into the domestic market.

Exporters are also being urged to build strong Indian brands to withstand the tariff shock.Industry representatives have asked that penal interest on loans be applied only once accounts become non-performing, and that collateral requirements be aligned with the level of risk. One industry official noted that banks often refuse textile machinery as collateral, hampering loan access for textile exporters. Discussions are also underway on sector-specific credit lines with relaxed collateral rules and cheaper export factoring services.Currently, factoring services in Singapore are 10–11% cheaper than those in India, prompting many exporters to use them. MSMEs, which contribute heavily to India’s exports and employ millions, are seen as the most vulnerable to the tariff impact, particularly in sectors such as textiles.Another banker cited by ET said that they are advising clients to use the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTSME), which covers loans of up to Rs 10 crore per borrower. “We are actively pursuing this and, in some cases, handholding firms to get the Udyam registration to be eligible under the guarantee scheme,” the banker said.