Micro, small and medium enterprises (MSMEs), which are largely cash-dependent, have reported a substantial shift away from cash transactions following the government’s demonetisation move, with 41 per cent units saying their clients had shifted to cheque or electronic payments, says a recent survey by Crisil.

However, the note-ban had muted growth and dried up funds, with three out of four MSMEs saying they plan to approach banks for loans, the survey pointed out.

“To be sure, the cash ban has impacted business operations, but more importantly, demonetisation has spurred a major change in the way MSMEs conduct business,” said Crisil, which covered over 1,100 MSMEs between November 24 and December 24 for its survey.

Pointing out that “nearly half of the MSMEs with annual turnover less than ₹2 crore reported a greater shift toward less cash, compared with a third of those with revenue over ₹25 crore,” it said, this “may also be because non-cash payments are already prevalent among mid-sized players.”

The survey added that typically MSMEs perform better in the fiscal second half (October- March), which means annual growth will be muted.

On cashless transactions, the survey saw a “significant transition” among micro enterprises, while for the smaller ones, the shift was expected to translate into long-term benefits through quicker transaction processing and better record-keeping.

Terming the drying up of liquidity as “an opportunity for banks”, Crisil said at least 9 per cent of those surveyed, accounting for 6 per cent of outstanding debt of the sample, said they would face issues in debt repayment. Most of these are micro enterprises with revenues below ₹2 crore, said Manish Jaiswal, Head-SME Ratings, Crisil, said in a release.

According to the survey, every fifth MSME 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, three out of four respondents plan to approach banks for loans, while the rest will rely on internal accrual. That opens up a massive opportunity to banks currently awash in liquidity,” it said.

Delay in receivables The survey also found every third MSME facing delay in receivables from clients, which had curbed their ability to repay creditors — and pay salaries — on time. The steel sector was the most impacted, followed by textiles, logistics and construction.

“However, those engaged in human resource-based services, such as recruitment agencies, security services and IT services had it relatively easy,” it added.

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