Amidst praises galore, Minister of MSME Dr Damodar Rout stated, “The Government can consider additional support of Rs40 crore to the OSFC to bail out the corporation from the debt trap, but then whatIJ How is OSFC going to reviveIJ What is the investment planIJ No doubt, OSFC has industrialised the State; no doubt that OSFC has created many successful entrepreneurs; but now that OSFC is in the path of revival, can the participants, the employees of OSFC assure to work hard, honestly and revive the corporationIJ”
After listening to a loud cry, “Yes, we can do it,” the Minister was at peace and assured the corporation of the package. The foundation day of the Odisha State Financial Corporation (OSFC), celebrated on March 20, was a grand success. Encouragements poured in from all guests and participants singing the OSFC’s past glories and contributions to enrich the State.
The OSFC, established in 1956 under the SFC Act 1951, is indeed a great institution. While struggling to industrialise the State, it was a profit-making unit until 1997, but it gradually went into red and eventually stopped lending activities in 2002. Presently,
Rs 2,415.72 crore is pending for recovery from 9,289 MSME units, which the corporation is gradually recovering keeping in full view its social responsibilities.
The positive aspect is that the OSFC has already recovered more than what it has lent. The figure above is mostly on account of accumulated interests. But it is noteworthy to realise the OSFC’s large contributions in setting up and supporting MSME units.
Various industry associations, from the experiences of their member entrepreneurs, have resolved that most of the defaulting units have not been able to service their instalments to the OSFC due to unavoidable circumstances. When the industry fails, the unit has little choice but to default. Surprisingly, most such units, many with excellent repayment track records, have also failed because of problems relating to working capital funding. Many OSFC-assisted units were underfinanced for working capital right from their inception whereas many others suffered due to the delayed enhancement of working capital coupled with inadequate enhancement of working capital limits.
Realising this major factor, the OSFC again came to the rescue of entrepreneurs by floating a Short Term Working Capital (STWC). Scheme The scheme was introduced to bridge the gap of time for the commercial banks to sanction need-based working capital. The STWC had to be repaid within six months and attracted a slightly higher rate of interest which was, of course, a right of the OSFC. In many cases, the loan was even renewed and extended even after six months to help a unit raise working capital. But eventually if the working capital support was not available from banks, the unit in spite of its best efforts defaulted in payment of the STWC dues.
When loans worth thousands of crores of rupees could be waived in various States of the country under various schemes, a pioneering and responsible institution like the OSFC, which has turned sick today on account of promoting industrial growth in the State, definitely needs sympathy, encouragement and financial support. True enough, the State Government has been coming to the OSFC’s rescue time and again to recapitalise it.
Nevertheless, the remark of the Minister must be taken as the most significant lesson of the day, and a blueprint to work out an investment plan for the OSFC must be put in place. The product being funds, it has to be sold under a strategic market plan to generate profits which is essential for a turnaround of the corporation. A comfort level of working for the OSFC staff along with simple and pragmatic eligibility criteria would help the OSFC speed up its marketing activities.
Besides the Government support, the MFD OTS-07 scheme has also been a great help to the OSFC to generate funds for investment. This scheme has also revived many MSMEs in the various States, providing employment and generating tax revenues. In fact, this OTS scheme has been a great success story for Government, OSFC and the struggling MSME units of the State. It is abundantly made clear now that the OSFC has suffered since the assisted units could not repay their dues in time. It is also clear now that most such units failed on account of problems relating to working capital from commercial banks.
However, the brighter side of the situation is that many such defaulting units are potentially viable today but are under debt traps, unable to raise funds to meet their working capital requirements. Many such units have also been offered exit from the banks through OTS (One-Time Settlement) schemes. This being a legal route of exit, the OSFC can come to the rescue of such potentially viable sick units by funding the OTS dues of these unit to the respective banks and taking over the assets of the company which could be of high market value today.
On a case-to-case-basis, studies can be made and entirely on merit and the OSFC could revive such units through the above procedure while deploying their funds in a viable, safe and secured manner. Even, some units could be happy to pay a higher rate of interest to the OSFC to compensate for reduction in the loan amount through OTS.
Under such arrangements, it would also become necessary to tie up working capital support through any bank, preferably a smaller bank that would be happy and willing to partner with the OSFC and the MSME unit.
Association view points for OSFC’s revival:
The eligibility criteria for sanction of loans must be simple, pragmatic so as to attract large number of units and promoters.
2.Potentially viable NPA units should also be included for availing term loans from the OSFC for repair, maintenance, purchase of balancing equipments, etc, and also to settle dues with banks under the OTS scheme.
3.Fresh Working capital tie-up as per the OSFC MoU with any commercial bank must be made available to the unit.
Many MSME units today are NPA because the norm for NPA has been reduced from 180 days’ default period to 90 days. Besides several uncertainties under which an MSME unit operates today, many of their product cycles are also over 90 days. With such restrictions, uncertainties and working capital constraints, it is extremely difficult for MSME units to continue as Performing Assets.
The sad part is that instead of realising and bringing in reforms in such areas, now an NPA unit, its promoters, directors and guarantors are restrained from raising funds to meet the requirement of their units through various online publications. Many viable units, promoters, directors and guarantors are trapped under such predicament while the unit keeps suffering, underutilisation, assets decay and workers rendered jobless.
Institutions like the OSFC can definitely come to the rescue of such units purely on the basis of merit. Such a move could open a new stream of financing for the OSFC while reviving thousands of potentially viable sick MSME units, resulting in a win-win situation for all.
(The writer is the Working Chairperson of the Entrepreneurs & Finance Customers Association of India- EFCAI)