Just a month ago, questions were swirling about whether the golden age for Indian banks was drawing to a close. Yet, recent market trends suggest the party is far from over. The Nifty Bank index has impressively outpaced the broader market this month, signalling renewed investor enthusiasm. This surge comes even as fundamental challenges like deposit growth persist for the banking sector. While there are glimmers of hope in deposit accretion, the gap between credit and deposit growth remains a concern, potentially squeezing bank margins in the current fiscal year. Analysts are cautiously optimistic, noting that while valuations may be peaking, the sector’s return ratios are still robust compared to previous years.

MSME Reality Check On Ground

However, while banks bask in investor favour, another critical engine of the Indian economy, the Micro, Small, and Medium Enterprise (MSME) sector, faces a different reality. MSMEs are vital contributors to employment and GDP, with a staggering 97.7 percent being micro-enterprises. Despite government initiatives and financial support schemes aimed at this sector, particularly post-pandemic, the failure rate of MSMEs, especially new ventures, remains stubbornly high. The issues are not solely financial. Lack of sound business plans, unique value propositions, and basic business acumen plague many MSMEs. Government support largely focuses on funding, but neglects crucial non-financial aspects like training, mentoring, and digital literacy.

Bridging The Support Gap

The proposed overhaul of the MSME Development Act, 2006, presents a golden opportunity to broaden the support framework. Legislation needs to move beyond just financial assistance and incorporate mandatory training programmes for entrepreneurs, simplified regulatory compliance, and robust mentorship schemes. In today’s digital age, digital skills are paramount for MSME survival and growth. Initiatives like ‘Make in India’ and ‘Digital India’ require practical, qualitative training to empower small businesses in online marketing and visibility. A truly effective MSME policy must recognise and address these non-financial parameters, ensuring that businesses not only start but also thrive in the long run.

Will the banking sector’s continued good fortune translate into more robust and holistic support for MSMEs? For the Indian economy to truly flourish, both sectors must prosper in tandem. Perhaps the upcoming budget will reveal measures that bridge this support gap and channel the banking boom into a lifeline for struggling MSMEs.