While appreciating the moves of the Union and State Government to develop the MSME sector, it must be noted that the Indian MSMEs are still ailing due to various issues, the most important being under-financing. A slew of measures are in the pipeline to boost funding for small and medium enterprises (SMEs) including making listing norms easier and a bankruptcy code. The measures are likely to be announced in the Budget Session. “SMEs are stressed for funds. Due to the high debt-equity ratio, PSBs cannot give additional loan to SMEs though such companies may have good growth potential,” said a public bank official.
The State Governments are formulating various measures. For example, the steps taken by the UP Government has prioritised rehabilitation of sick units as it has realised that the increasing sickness of units is adversely affecting the State’s industrialisation.
The main factors of sickness are non-availability of timely loans to units, non-availability of working capital, irregular power supply and ineffective management. Due to sickness, a unit is unable to utilise its full operational capacity and, subsequently, closes down on account of losses suffered. As a result, recovery of the loan given by financial institutions is not ensured; workers face unemployment; and the capital invested becomes unproductive.
For rehabilitation of medium and heavy industries, a Board of Industrial and Financial Reconstruction (BIFR) has been constituted at the national level. Time limits for implementation for packages decided by the BIFR would be specified by the concerned departments. Such units which are basically viable from an economic perspective but become sick due to several other reasons would be rehabilitated and revived. Exit policy and progress would be determined for permanently closed units. For rehabilitation of sick micro and small units, an agency would be nominated at the State level to formulate the rehabilitation and exit policy.
More than half the country’s MSMEs are either sick or suffering from incipient sickness. Rehabilitating these units on a priority basis could generate millions of jobs along with additional Government revenue. The time taken shall be far less than investing on new projects and even the investments shall be minimal.
Every day, the number of MSMEs closing down in the country through “Possession Notice”, “Demand Notice”, “Auction Sale Notice,” etc., by banks may exceed the number of MSMEs being created. Hence, if about Rs 500 crore is set aside for rehabilitation of potentially viable NPA units in each State and the task being implemented through SFC (State Financial Corporation), both the MSME sector and SFC shall revive.
Association Viewpoints:
1. Rs500 crore be deployed for rehabilitation of potentially viable NPA MSMEs in each State.
2. Identification of such projects be assigned to the SFCs.
3. SFCs carry out survey and undertake total rehabilitation of these units till its turnaround takes place.
4. Working capital tie-ups with banks for the rehabilitated units be documented simultaneously during rehabilitation.
5. Units with good track record and units with export potential be given priority.
6. MoUs be drafted with one or more banks to provide working capital to the rehabilitated units.
7. The Government/RBI encourage 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. Before initiating legal action, the banks try to rehabilitate a unit after it is classified as NPA, at least once with need-based induction of funds.
9. Provided the performance of a unit still does not improve, cases be filed against any MSME whether in DRT or under SARFAESI Act or under any other provisions only with the approval of the SlIIC (State level Inter Institutional Committee).
10. Since the SlIIC has been formulated by the RBI and is chaired by the State’s Industries Secretary, it is the most appropriate forum to resolve all banking issues of MSMEs. Hence, the SlIIC be vested with statutory powers and its decision be binding on all agencies concerned. SlIIC meetings be held once every month for speedy disposal of banking issues with focus on rehabilitation of units.
11. Only those banks willing to enter into MoU for rehabilitation of MSMEs as identified by the SlIIC be rewarded through deposit of State funds. Only these banks be authorised for Government revenue deposits. Cooperative Banks be encouraged to participate.
12. Since the OTS (One-Time Settlement) scheme is a legal means of exit, the rehabilitation of potentially viable MSMEs include funding of OTS amount to banks or FIs from the proposed rehabilitation fund or from the Cooperative Banks.
13. For redressal of MSME banking issues of the State, the MSME Secretary, the Director of Industries, the Banking Additional Secretary and the MSME Director of Government of India be empowered to adjudicate all banking issues including commercial matters either directly or through the Banking Ombudsmen.
14. The Banking Ombudsman must cover all complaints against a bank except for reported frauds within the jurisdiction of investigating agencies. Complaints concerning commercial decisions of the banks such as need-based funding, periodical enhancement of working capital, rehabilitation of sick units, assessing viability of the unit and delay in sanctioning of the loan must also be covered within the ambit of the Ombudsman.
15. The Ombudsman must dispose of cases in a time-bound programme which must be binding on the banks. However, the banks may appeal against the order of the Ombudsman to the SlIIC Chairman, who may decide on a case-to-case basis either independently or jointly with the RBI’s Empowered Committee.
16. Accountability be fixed on individual dealing officers of the bank for adequate and timely funding of MSMEs, similarly, for rehabilitation of the unit with need-based funding. The provision for penalising the defaulting bank official be incorporated in the MSME Act along with rewards for successful rehabilitation of units.
17. The RBI must have working cells to dispose of complaints against banks on a daily basis. The Director of Industries and the MSME Department of MSME in the State be empowered to resolve banking issues on a daily basis.
18. The pecuniary jurisdiction of the Banking Ombudsman prescribed under the Banking Ombudsman scheme 2006 be amended to pass award directing payment beyond Rs10 lakh which is the limitation of the Ombudsman.
19. The NPA classification norms for all MSMEs be extended to 365 days of default instead of 90 days. When the infrastructure sector can be extended such facilities, the MSMEs are in dire need of the same.
20. Alternately, the review, renewal and enhancement of working capital be undertaken at quarterly intervals to match the NPA norm of 90-day default.
21. The RBI must allow free hand to all banks/FIs to take over NPA units; fund and convert to standard accounts as per their discretion if they find the proposal viable.
22. The CIR (Credit Information Report) of CICs (Credit Information Companies), especially CIBIl be used as a guideline but not as a deciding factor for funding.
23. During the pendency of a case, if the borrowers approach the bank with an OTS or compromise proposal, it must be considered by the banks with utmost urgency for closure of the case and for revival of the unit.
24. When the matter is sub-judice, until final court decision the names of the borrowers, guarantors, including the units should not be published in the CIR of any CIC as defaulters and mention must be made as “matter sub-judice”. This should not draw any adverse point in CIC until disposal of the case.
25. The CIBIl or any other CICs be equipped with a cell to screen authenticity of the reports received from the bank before publication of the same in their CIR. Since the decision of CICs like CIBIl are so important today that it can make or break any MSME, such decisions be published with extreme caution and they should not be allowed to act like merely post offices as they claim to beIJ
26. Fraudulent acts like diversion and siphoning of funds be notified on occurrence since the accounts are online and in any case not beyond seven days.
27. 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 be restricted by the RBI.
28. E-banking system be gradually introduced to ensure small borrowers, like poor farmers, fishermen, etc., to continue with the conventional banking practices. Sufficient banking hours be available for them and wherever possible on Sundays and holidays banking may be introduced.
29. SME funding generally extending to the SIDBI (Small Industry Development Bank of India) has proved to be a failure so far. The SIDBI is more of an ornamental institution. More purposeful institutions are the SFCs. Many SFCs have gone sick due to their assisted units’ failure caused largely on account of working capital inadequacy. Hence, SME funding if released through the SFCs, besides the SFCs being rehabilitated, the MSMEs will benefit.
30. PF (Provident Fund) and ESI (Employees’ State Insurance) Acts be amended to allow MSMEs the liberty of providing the social security and insurance coverage for an employee from any agencies either from the private or the public sector. The Government may empanel such agencies offering an option for MSMEs to select which would build competition.
(The writer is working chairperson, Entrepreneurs & Finance Customers Association of India-EFCAI. Email: - efcai12@gmail.com)