For the first time in the last ten quarters, loans to small businesses in Gujarat have registered a drop, said a banking report. Advances dropped by Rs 511 crore in the first quarter of the financial year 2019-20 compared to the previous quarter. According to industry representatives, slowdown-hit businesses did not fully utilise their credit potential as they fail to see consumer demand. They feel that, following a series of steps taken by the government in the past one month, things can turnaround in September. According to the report of State Level Bankers' Committee (SLBC) for the April – June quarter of the financial year 2019-20, total loans to Micro Small and Medium Enterprises (MSMEs) stood at Rs 1,26,663 crore, a drop of about Rs 511 crore compared to Rs 1,27,174 crore. This is after 10 quarters that outstanding advances have registered a drop and it is for the third time in 12 quarters that outstanding loans had actually declined. Previously it was October – December quarter (Q3) of 2016-17 that advances had registered a drop. That was the quarter when demonetisation was announced and businesses had repaid loans to dispose of the cash they had. At that time outstanding advances dropped from Rs 82,796 crore in Q2 of 2016-17 to Rs 79,816 crore, a decline of Rs 3,980 crore or 3.6 per cent. Prior to that, it was in Q1 of 2016-17 that loans had declined to Rs 79,664 crore from Rs 83,084 crore in Q4 of 2015-16, indicating a drop of Rs 3,420 crore or 4.15 per cent. (Source: SLBC Gujarat reports) "The mood was gloomy in the first quarter of this year. Businesses were not pumping money into their projects. There was a shortage of liquidity in the market. The textile sector has been hit because of over capacities and Free Trade Agreements (FTAs) with countries like Bangladesh and Sri Lanka. This has resulted in cheaper imports, which has decreased production in the country. The slowdown in the textile sector also reduced the demand for dyes and intermediates and had a cascading effect in the industry," said Natvarbhai Patel, Senior Vice President of Gujarat Chamber of Commerce and Industry (GCCI). Ajit Shah, Vice President of Federation of Industries Association (FIA) told DNA that as a result of the slowdown in demand, businesses did not fully use their loan quota resulting in lower off-take. After high profile NPA cases, banks are wary of lending to even MSMEs. "All the major industrial sectors of Gujarat are facing a slowdown. The chemical sector has been hit because of environmental issues, the plastic sector has had almost shut down now. There is no way loans could have grown," said Shah. A top banker in Bank of Baroda, now the convener of SLBC in the state declined to comment on why loans to small businesses have dropped in the state. Ragesh Saraiya, Chairman of Mahagujarat Bank Employees Association (MGBEA) told DNA that the decline is a result of an overall economic slowdown. "Banks are willing to lend. But there are no takers. The auto sector, housing sector as well as most of the sectors of the economy are facing a slowdown. Obviously, there would not be much off-take of loans under this scenario," said Saraiya.

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