Businesses urge RBI to reform trade finance and ease MSME credit access
The PHD Chamber of Commerce and Industry (PHDCCI) recently met with Reserve Bank of India (RBI) Governor Sanjay Malhotra to push for key reforms in trade finance and credit access. The discussions focused on long-standing issues faced by businesses, including unfair banking practices and restrictions on credit flow to small enterprises.
Concerns were raised about inconsistencies in handling Letters of Credit (LCs) and the need for clearer operational guidelines to support smoother financial transactions.
During the meeting, PHDCCI highlighted persistent problems with LC discrepancies, where banks often refuse payments even after applicants formally waive issues. The chamber urged the RBI to issue strict guidelines requiring banks to honour LC documents unless fraud or significant risk is involved.
Another major concern was the treatment of Micro, Small and Medium Enterprises (MSMEs) in credit access. PHDCCI pointed out that the current ₹20 lakh limit per borrower for credit extended through Non-Banking Financial Companies (NBFCs) is too restrictive. The chamber proposed raising this limit to at least ₹1 crore and treating such credit as indirect finance to boost support for small businesses.
The chamber also flagged unfair practices by some credit rating agencies, which demand fees for future rating periods even when borrowers no longer require them. Additionally, operational challenges were noted, such as customers ignoring calls from 1600 and 1400 series numbers due to their resemblance to telemarketing spam.
To improve efficiency, PHDCCI recommended broader reforms, including greater uniformity and digitalisation in financial documentation processes. These changes aim to reduce delays and enhance transparency in trade finance operations.
However, despite these discussions, the RBI has not released any new guidelines addressing LC discrepancies in the past two years (2024–2026). No relevant circulars, amendments, or statements on the matter appear in official records.
The meeting underscored the need for clearer banking regulations and improved credit access for MSMEs. If implemented, the proposed reforms could help resolve long-standing operational challenges in trade finance.
For now, businesses continue to face delays and inconsistencies, with no updated RBI guidelines addressing these concerns.
