When our parents become old and sick, we do not dump them or kill them; we care for them. Conversely, when an MSME in India with change of technology or with any other unavoidable circumstances becomes sick after many years of running, we allow it to die a gradual death without treatment. Though RBI guidelines allow its rehabilitation, it is seldom done by banks and other FIs.
The proposition for rehabilitation of an MSME has become obsolete in the eyes of banks and even with the Government. Promoting new MSMEs are fine, but it is a bigger risk and investment compared to reviving a viable NPA unit. Additionally, a large-scale industry stands riskier. Till March 2011, a Rs 1.1 lakh crore-loan was recast for the large-scale sector. By November 2013, this figure exceeded Rs 3.25 lakh crore as per the RBI. Whereas the MSMEs need merely about Rs 100 crore in each State, maybe collectively about a Rs 1,000-crore rehabilitation fund to revive the viable NPA MSMEs across the country.
Almost 50 per cent of Indian MSMEs are either running with capacity underutilisation, suffering from incipient sickness or declared sick today. Under such circumstances, how will the “Make in India” concept of Prime Minister Narendra Modi see the light of the dayIJ The expertise available in the NPA units, the technology available, the systems they have developed, the market and the brand name they have created shall all be destroyed unless such units are rehabilitated. A new MSME may take decades before it reaches such status and with high uncertainty and risk factor.
Originally, an account which could not service its instalments over a period of 365 days was classified as NPA (Non-Performing Asset). This time period was slashed to 180 days in early 90s and subsequently to only 90 days of default presently to classify an account as NPA. This period may be considered appropriate for a developed country whereas in developing India it is definitely a big challenge and constant struggle to prevent the account from slipping into NPA. Where payments are stuck for years with government departments, where containers take several months for port clearance, where need-based funds are still not available to an MSME, it is unwise for our country to stick to 90 days of default to classify the account as NPA and still worse is that not to rehabilitate the unit. Thousands of crores of assets are locked up in these units which can be released through rehabilitation.
Even the MSMEs devastated in the Super Cyclone in Odisha in 1999 could not be rehabilitated. The so-called cyclone soft loan was provided to select MSMEs with 12% interest per annum. Most of this loan was adjusted towards the arrear dues; the balance fund if available was not adequate to rehabilitate the unit. The affected units instead of being rehabilitated were further burdened with loan. The representation to waive about Rs 58 crore of cyclone loan was not considered favourably; consequently, most units have closed down while the others are struggling for survival. It is a fact that the contribution of MSMEs with 92% industrial employment and 40% exports is far superior to the contribution of large-scale industries. Even the agriculture sector needs an MSME for value addition of its products. If all these could be accomplished with a meagre sum of Rs 100 crore in our State with NPAs of Rs 6,951.38 crore as on June 30, 2014, it is certainly wise to implement such an idea not only in Odisha but in all the States.
Besides, the Financial Corporations in all States mostly suffering from financial woes can be revived if the rehabilitation proposals of MSMEs are funded and monitored by the Financial Crporations.
Promotion of the near middle class can only be achieved through promotion of MSMEs. The near middle class which is struggling to come up to the middle class can do so best with their associated MSMEs flourishing. There are millions of such families suffering with their associated MSME being classified as NPAs.
India, the biggest democracy, has almost one-third of the world’s poorest people. As per a United Nations report, 33% of the world’s extreme poor live in India followed by China 13%, Nigeria 9% and Bangladesh 5%. The answer to their upliftment is promotion of MSMEs. In his historic deliberation at the Madison Square, Prime Minister Modi invited job creators on top priority and jobseekers as the next. He admitted of excessive government regulations. A file may be processed with as many as 32 departments before a project is finally set for implementation. Under such stringent probabilities, if an MSME slips into NPA, the government must have strict vigilance to quickly set the unit back on the rail instead of dragging the promoter to the court. Even with the best intentions of the Prime Minister what will a job creator do, risking his career, investments, his family and eventually his lifeIJ
On July 10, 2014 at a meeting to rehabilitate sick MSMEs, it was decided that since the OSFC is not extending rehabilitation funds, the State Government would take appropriate steps to organise funds for rehabilitating such units, as stated by MSME Minister Jogendra Behera. If with an investment of only about Rs 100 crore, the potentially viable NPA MSME units can be rehabilitated, the prosperity it would spell can definitely bring up the State from the second in poverty ratio (1.7 crore people poor in Odisha) to a much better position.
As per a survey, 3,066 MSMEs in Odisha are in the state of sickness. Out of this, 2,891 units are micro, 171 small and five medium scale. These units are mostly inoperative whereas there are far more units in the State which are suffering from incipient sickness or classified as NPAs being potentially viable. The prime cause for such sickness is non-availability of need-based working capital. Such units are not only to be rehabilitated, but after the rehabilitation they need to be provided regular need-based working capital for their growth.
Most funding is available for startups, like Rs 5,000 crore will be anchored by two public-sector institutions, life Insurance Corporation and Small Industries Development Bank of India (SIDBI). The SIDBI mostly provides term loans to selected SMEs which are performing well. What is important is to have a similar institution to provide rehabilitation funding to SMEs. It is also a wonderful move by the State MSME Department to launch a venture capital fund, “Odisha MSME Fund”, with corpus of Rs 100 crore to provide marketing and infrastructure development support to MSMEs. The State Government would invest Rs 50 crore in the fund as sponsored while the balance would be raised from banks, insurance companies, financial institutions and Central Government.
Association viewpoints:-
1) A corpus of Rs 100 crore rehabilitation fund be provided to extend term loan and working capital support to potentially viable NPA units of Odisha.
2) Such corpus be parked with the OSFC for identification of such units, and necessary funding under a guideline be provided by the MSME Department. In this process, the OSFC, also in a state of nonperforming today, can be revived too.
3) Units with good track records and units with export potentials be given priority.
4) Such funding should include OTS (One-Time Settlement) amount where applicable.
5) MoU to be drafted with one or more banks to provide working capital to the rehabilitated units.
6) The banks which shall partner this scheme must be supported by the State Government through deposits of funds by the State Government.
7) The Government/RBI must encourage all commercial banks to liberally fund potentially viable NPA units which would not only revive the units providing amazing benefits to the country but also reduce the bad loans which is of a great concern.
8) Cases to be filed against any MSMEs whether in DRT or under SARFAESI Act or under any other provisions only with the approval of SlIIC (State level Inter Institutional Committee).
The dream of our Prime Minister, to develop India, to make India prosperous, to promote the near middle class, to make the “Make in India” dream come true, to establish job creators, to clean India and many more such wonderful ideas taking shape would be possible when we start focusing on the development of MSMEs, rehabilitation being the first step.
(The writer, the Working Chairperson of the Entrepreneurs & Finance Customers Association of India- EFCAI, can be contacted at efcai12@gmail.com)