A bank’s money is public money. Every borrower must endeavour his best to repay the bank dues. Similarly, the assets created in the MSMEs by such public money must also be protected and utilised in the best possible manner. Every day, we encounter a horde of possession notices issued by the banks. Each notice brings a death warrant for borrowers and their units.
For example, the SBI Chandbali branch took possession of 15 MSMEs while the same day, the SBI Balangir took possession of another three units; and yet the same day, the SBI Bhubaneswar branch took possession of another unit.
We wonder if that many MSME proposals have been sanctioned on the same day. If the deaths of MSMEs surpass their creation, true enough the MSMEs, particularly in Odisha are a dwindling lot.
Why are so many MSMEs failing in the countryIJ If the Modi Government today does not realise the significance of MSMEs, all their efforts for revival of the Indian economy will be in vain. Simple as it is, only with a strong MSME sector agriculture and large-scale industries can grow.
About 92 per cent of industrial employment is generated by MSMEs and over 40 per cent of exports. Why then the Government still does not engender the required faith in the MSMEs! The new MSMEs are fine, but the viable NPA MSMEs which are struggling for revival must be rehabilitated as the first and foremost step.
Just a procedural requirement without consideration of merit that even a viable MSME is left to sink. The steps usually followed by the banks irrespective of whether the borrowers have willfully defaulted or compelled under circumstances, the unit when classified as NPA (Non-performing asset):
1. A recall notice is issued within about 90 days of the date of NPA.
2. Within about six months hence, the file is handed over to the bank’s lawyer to initiate legal action.
3. The borrower’s names are then sent, listed in CICs (Credit Information Companies) like CIBIl, prohibiting them any access to credit.
4. Interestingly, most NPA borrowers are also served the notice of willful defaulter in order to pin them down further, whether they actually are or not.
The RBI has defined categorically who a willful defaulter is. The most important willful defaulter is a borrower who has siphoned out funds from his account and the second most applicable willful defaulter not paying the dues despite having the capacity.
While all accounts being transacted online, the siphoning of funds must be evident on the day of occurrence. If not, at least the borrower must be notified about within a month of such occurrence.
Banks rather use this term for most borrowers as a tactic to recover dues. The second offence of a willful defaulter is a matter of document, which can easily be verified whether the borrower has the capacity to pay or is willfully defaulting payment. Accordingly, the banks can proceed with their decisions.
When the case is filed, the borrowers under such circumstances are left with no recourse but to contest in courts. Years pass by, running from one court to the other sacrificing their entrepreneurship, resulting in the demise of the unit.
An SBI AGM in charge of rehabilitation once remarked, “An NPA file is like an atom bomb. I can’t sit over it.” The borrower said, “Why don’t you rehabilitate the unitIJ It is a viable project.”
(Incidentally, the account was declared NPA on account of non-negotiation of an irrevocable lC at sight. Despite prevailing banking practices and the bank’s commitment to negotiate the bill on presentation of the shipping documents, the lC was sent for collection. The amount eventually could not be realised and it became NPA for this particular bill amount.)
“I have no manpower to work on rehabilitation,” said the AGM. “Why Duttasaheb (name changed) is available,” said the borrower. “You can request him,” said the AGM. The borrower quickly contacted Duttasaheb who politely said, “I’m proceeding on lTC to Singapore next month. Ask the bank to provide more staff.”
This concerned an export-oriented unit, which had established its brand in Europe engaged about 600 workers. The unit used indigenous raw materials mostly and was earning foreign exchange. With the noncooperation of the AGM and his assistant, the story came to an end.
The file was handed over to the bank’s lawyer, and till today the borrowers are victim of such predicaments. The unit is closed with its directors busy contesting court cases. Several complaints have been made up to the RBI Governor and the Finance Minister and to the bank’s Chairman, but nothing has worked.
Day by day, one after the other MSME is closed. There are nonperformers in banks too. If a nonperformer decides to hand over the file of a viable NPA project to his lawyer instead of rehabilitating the unit, it is virtually the unit’s death. The process of law obviously takes time which may last for 20 or 30 years; the unit cannot contest that long.
This proves that the filing of case here is the most significant issue which obviously must be under the control of the Government. A unit cannot just be left in the hands of one or two bank officials. Unfortunately, such is the case in our country!
The SlIIC (State level Inter-Institutional Committee), formed by the RBI and chaired by the State’s Industries Secretary, can play a vital role in deciding whether a bank must file a case or rehabilitate the industry.
But the SlIIC, because of lack of statutory powers, is dormant and no State agency regards its decision as binding on them. Hence, the SlIIC must be vested with statutory powers. At least they must accord approval for filing of a case by the bank, for recovery of their dues against any MSME.
The Debt Recovery Tribunals (DRTs) are surprisingly still functioning under the Union Ministry of Finance and yet enjoying the status of a court in violation of the Supreme Court’s directives.
A borrower obviously does not find justice in the DRTs, where almost 100 per cent of the cases are decided in banks’ favour. The next appeal for the borrower is the DRAT (Debt Recovery Appellate Tribunal), where the appeal is registered under deposit of fees which the borrowers may not be able to meet. Can justice be deprived for lack of fundsIJ Of course, the next appeal is with the High Courts, which are graciously defending the MSMEs.
Of course, the banks have the financial muscle to drag on the case until the final decision in the Supreme Court; not many MSMEs can contest that long. So, a borrower is left with no option but to surrender to the bank’s desire or loses the unit.
The OTS (one-time settlement) scheme of many banks is definitely an unrewarding scheme for both the bank and the unit. The compromise proposal is worse still. No one gains. It is just a relief from the legal battle after incurring severe losses by both sides.
The NPAs are alarmingly high, taking a toll mostly on the PSU banks, definitely with severe negative impact on the country’s economy.
This can be grossly avoided if the SlIIC is empowered. There are several cases where promoters are genuinely interested to revive their units whereas banks adamantly continue with the case, realising fully that the borrower would soon be exhausted, financially, physically and mentally. Association viewpoints:
1. Before filing of any case, banks must try to rehabilitate the unit after it is classified as NPA, at least once with need-based induction of funds.
2. If the unit still does not perform, the proposal must be placed in the SlIIC and only with the SlIIC’s decision, filing of case for recovery of bank dues should be made.
3. During the pendency of the case, if the borrowers approach the bank with an OTS or compromise proposal, it must be considered by the bank with sincerity and urgency for closure of the case and for the unit’s revival.
4. Until the court’s final decision, the names of the borrower and the unit should not be published in the CIR of any CIC.
If the Government is really able to comprehend that MSME is the thrust engine and driving force of the country’s economy, it must initiate early and substantial action to prevent filing of cases arbitrarily by the banks for recovery of their dues.
It is a harder right for the bank to rehabilitate a viable NPA account rather than adopt the easier wrong of handing over the file to its lawyer in order to shun its responsibilities. The RBI guidelines for rehabilitation of an MSME must be exhausted step by step before initiating legal action.
(The writer, the Working Chairperson of the Entrepreneurs & Finance Customers Association of India- EFCAI, can be contacted at efcai12@gmail.com )