Point number 8 of Modi’s 10-point plan, “Economy’s concerns to be addressed” needs to be elaborated. The biggest challenge for the new Government is to enforce inclusive growth.
How do we achieve thisIJ The nation can allow a person to live in a house worth Rs 10,000 crore, the nation can also allow the children of a corporate giant to live in a suite of 5-star hotel, throw lavish parties, but certainly not at the cost of starvation deaths, farmers’ suicide, selling human organs like kidneys, etc., to make a living.
The fastest and the easiest way for poverty alleviation is strengthening our agriculture sector, which needs MSMEs for value addition to their products. Similarly, the large-scale sector needs MSMEs for addressing their requisites. MSMEs are responsible for about 92 per cent of industrial employment and 42 per cent of exports in India. The country must prioritise this sector, which alone can convert India into a world power.
The numerous problems an MSME faces include under-financing, delayed financing or piecemeal financing that account for about 90 per cent of its woes. It is not the performing MSMEs, not the bankable MSMEs but the NPA viable MSMEs and the stressed viable MSMEs which need to be adequately funded for boosting the Indian economy. The focus in MSME must be on the low-cost manufacturing units rather than the service units.
The target set by the Government for financing MSMEs is generally flouted and manipulated for the sake of its satisfactory statistics. How many manufacturing units in the MSME sector have been funded to meet the target must be addressed. The funding must include only the fresh enhancement in that particular year and not inclusive of the last year’s limit. If an MSME has an existing limit of Rs 1 crore and an enhancement is provided for Rs 30 lakh, for the next year, only Rs 30 lakh must be considered towards achievement of the target and not Rs 130 lakh.
A handful of corporate houses or a few superrich Indians cannot boost our economy. It is inclusive growth which is important for alleviation of poverty and minimising crimes in the society. With our 25 years of experience in industry associations, we have encountered many cases of genuine MSME promoters being harassed; their units subjected to gradual decay, causing loss of public assets, employment and government revenue. Even the present RBI guidelines have been violated distinctly and dauntlessly. The biggest defaulter has been noticed to be the SBI, the country’s biggest lender.
In a recent case, an export-oriented MSME unit, which had employed over 300 persons, mostly women, and created a brand image in Western and Northern Europe was willfully and gradually closed down within a period of about five years by some SBI officials. An irrevocable lC at sight was sent for collection instead of negotiating the same. The export proceed was lost. Their account became NPA. When the RBI directed rehabilitation, the bank, instead of rehabilitating, took possession under the SARFAESI Act while the unit was already in the DRT (Debt Recovery Tribunal). When a complaint was made to senior RBI officials, the SBI simply replied that the matter was subjudice. So, the promoters are left helpless. Neither they have the strength to contest the cases nor can they run the unit as it is listed as defaulters in CIBIl.
Our country cannot afford to close down one MSME after the other. The following viewpoints need immediate attention by the new Government.
1) With the DRT and SARFAESI Acts, a banker is sufficiently equipped to recover his dues. Hence, with personal guarantee of the borrowers, the bank must fund the unit as envisaged in the project report. Equally important is to ensure the finance being released in time and not in piecemeal manner.
2) It is necessary to sanction the working capital along with the term loan and release the working capital sufficiently in time prior to the commercial production to ensure availability of raw materials as soon as the plant and machinery are installed.
3) Since the present NPA (Non Performing Asset) norm has been gradually reduced from 1 year to 180 days to 90 days of default as of now, the working capital which used to be reviewed every year needs to be reviewed now at quarterly intervals, every 90 days. With the rising prices, an MSME cannot wait until 1 year to top up its working capital needs. The present scenario is the best example since most MSMEs are either running with capacity underutilisation, many of them are suffering as stressed accounts and the remaining are NPAs and closed.
4) The RBI may monitor such quarterly enhancement of working capital to MSMEs proportionate to the rise in raw material and other input cost for different class of industries like textiles, plastics, marine, fisheries, rubber and chemicals. A policy in this regard may be formulated and implemented to ensure need-based and timely funding.
5) If the MSME still underperforms, the reason for the stress must be studied by the Director of Industries of the State. If the reason is nonfinancial, the Government must resolve the issue maximum within 90 days to prevent the account turning NPA. In case the cause is of financial nature, the account must be restructured with need-based finance within 90 days.
6) The Nayak Committee recommendations for extending working capital finance to MSMEs are on the projected turnover and not on the existing turnover of the unit. This must be followed in its right prospective.
7) The bills of MSMEs pending with the PSUs or the Government for supplies made must be resolved within a maximum seven days, after which the bills must be paid with bank interest and not later than 30 days. Penal action against the defaulters must be enforced to ensure compliances.
8) In case the MSME still slips into NPA, the bank must study the cause and at least provide one more opportunity by rehabilitating the unit with need-based finance.
9) Before filing case or taking over the unit, its borrowers and guarantors to the court, the bank must refer the matter to the State level Inter Institutional Committee. The SlIIC’s decision must be binding for the banks and all other regulating agencies affecting the unit.
10) like the BIFR, for mostly large and medium-scale units, the SlIIC must also be vested with statutory powers to ensure implementation of the SlIIC’s decision by all agencies, including banks. Until such an Act is formulated, the Ministry of Finance/RBI may issue a notification to all banks declaring the SlIIC’s decision binding on all agencies including banks.
11) Still if the case is filed, during its pendency in court, the reference made by the banks to the CIBIl or any other CIC (Credit Information Company) must show in their CIR (Credit Information Report) of the borrowers, guarantors and of the company as “Matter in court”.
12) Vide this, until a final decision of the court is made, neither the company nor the borrowers or guarantors must be refrained from availing finance from any of the banks/FIs in the country.
13) The banks must be allowed freehand to take over or finance an NPA unit, the borrowers/directors/guarantors of an NPA unit as per their decision depending on the viability of the unit until such time they have been declared defaulters by the court.
14) OTS (one-time settlement) being a legal means of exit, the promoters be empowered to raise the OTS amount legally through any bank or such banks or FIs be allowed to take over the OTS amount from the parent banker in genuine cases.
15) CIBIl or any other CIC must be equipped with a cell to screen the authenticity of the reports received from the bank before its publication in their CIR. Since the decision of CICs like CIBIl are so important that it can make or break any MSME, such decisions must be published with extreme caution and they should not be allowed to act like merely post offices as they claim to beIJ
16) A dynamic bank officer who funds a potentially viable NPA unit or stressed unit must be rewarded irrespective of whether the unit revives or otherwise.
17) Fraudulent acts like diversion and siphoning of funds must be notified on occurrence since the accounts are online and in any case not beyond seven days.
18) Declaration of Willful Defaulter especially on account of diversion of funds after months and years of occurrence is mostly strategised for recovery of the debt rather than being used in its genuineness. Such practices must be restricted by the RBI.
19) The RBI’s Banking Ombudsman must be empowered sufficiently to resolve issues of borrowers effectively and in time.
20) The e-banking system must be gradually introduced to ensure small borrowers like poor farmers, fishermen to continue with the conventional banking practices.
These points have grown out of practical experiences of MSME borrowers and are purely in the interest of the nation. If viewed in their right perspective, implementation of the points can turn around the country’s present economic scenario.
(The writer, the Working Chairperson of the Entrepreneurs & Finance Customers Association of India- EFCAI, can be contacted atefcai12@gmail.com)