Strange. Dollar has crossed Rs 60; the inflation is high and rising; the factory output growth slows to 2 per cent in April 2013. The MSME sector, which is responsible for about 40 per cent exports, 45 per cent manufacturing and about 92 per cent industrial employment is ever complaining of lack of credit.
The Government seems to be equally concerned. It has floated different schemes and provided the SIDBI with MSME funds. The problem doesn’t lie with new MSMEs or performing MSMEs, eligible for Bank finance. The problem lies with the potentially viable sick MSMEs or MSMEs with incipient sickness and stressed account. They are as large as about 70 per cent across the country. By funding only 30 per cent of the MSMEs, the situation doesn’t change, which we have been experiencing for last several years.
With various restrictions like CICs, mainly CIBIl displaying the credit worthiness of a unit or the promoters as per the bank guidelines, the units / the promoters who do not qualify the minimum requirements of such CICs are declined credit.
What if the entry in the CIR (Credit Information Report) of the CICs is wrongIJ What if the account has been classified as NPA due to reasons beyond the control of the promoterIJ How does the unit surviveIJ The assets, mostly created out of public money, gradually start decaying. In most cases, being a time-bound programme, the bank sticks to its guidelines of recalling the loans and initiating recovery measures under the various Acts. Court cases continue for years together while the unit remains closed. The combined effect of these factors is largely responsible for the ongoing economic crisis in the country. Such measures never yielded results in the United States, nor in Europe though pioneered by them.
What are the rehabilitation measures for such potentially viable sick unitsIJ What are the Government guidelines for funding of stressed accountIJ More important is to ensure the implementation of the same. In most cases, the banks play safe. Their contention is, if they fund an NPA account or a stressed account and the unit doesn’t revive, the bank officer is taken to task. Whereas refusing credit even in deserving cases or delaying the process doesn’t draw any penalty. It is but human that most bank officials will choose the latter instead of risking their retirement benefits and subjecting themselves to harassments. The unit is sacrificed in the bargain. Thousands of cases bring down the GDP, hence, high inflation, weakening of the Indian Rupee resulting in financial slowdown.
Even the Government officials, mostly in the industrial sectors like in SFCs and SIDCs, including in the Industry Department suffer the same plight. Obviously, even most action oriented officials have found ways to dodge decision making. The idea is to complete their tenure, acquire the retirement benefits and enjoy a peaceful family life. Who then shall address the issues of an MSMEIJ
The examples are many all over the country. What are we waiting forIJ Should we take action when the rupee crashes or we have no money to import oilIJ Are we waiting for a disaster to formulate measures or should we take preventive measures right awayIJ
Why not we honour and reward those gutsy bank officers and Government officers who in spite of the prevailing threats are willingly to jump into action and help the deserving casesIJ Such rationalistic and patriotic moves must be appreciated. No one can predict the success or failure of an industry, especially an MSME, which operates under numerous impediments and needs support from all authorities, largely the bankers. They must be allowed free hand to assess and fund an NPA unit or stressed accounts to ensure higher GDP and promotion of exports. Of course, action against corruption and fraudulence as per law needs to be initiated. But we must remember that “let 10 criminals escape, but one innocent should not be punished.” The impact is extremely severe. There are several cases of innocent bankers and Government officers being harassed. Their suffering has left a toll in the society today where the decision-making is almost stagnant.
The Government in its endeavour to help MSMEs raise liberal funds has introduced a Credit Guarantee Scheme described below. This makes it easier for the unit to raise funds but also in a way since the bank is assured of at least 75 per cent of their cover; they do not risk funding the stressed account even in deserving cases. The excellent move of the Government is thus largely sacrificed in anticipation of penal measures on the decision-making authorities.
There are an estimated 26 million micro and small enterprises (MSEs) in the country providing employment to an estimated 60 million persons. Of all the problems faced by the MSEs, non-availability of timely and adequate credit at reasonable interest rate is one of the most important issues.
The major cause for low availability of bank finance to this sector is the high risk perception of the banks in lending to MSEs and consequent insistence on collaterals which are not easily available with these enterprises. The problem is more serious for micro enterprises requiring small loans and the first generation entrepreneurs.
The guarantee cover available under the scheme is to the extent of 75 per cent of the sanctioned amount of the credit facility. The extent of guarantee cover is 80 per cent for (i) micro enterprises for loans up to Rs.5 lakh; (ii) MSEs operated and/or owned by women; and (iii) all loans in the North-East Region.
In case of default, the Trust settles the claim up to 75 per cent (or 80 per cent wherever applicable) of the amount in default of the credit facility extended by the lending institution. For this purpose, the amount in default is reckoned as the principal amount outstanding in the account of the borrower, in respect of term loan, and amount of outstanding working capital facilities, including interest, as on the date of the account turning non-performing asset (NPA).
In the Seventies, the film industry in India, which was restricted of bank finance, suffered growth and raised funds through private sources.
This nourished the underworld and resulted in crimes, the impact of which is still being felt today. The so-called parallel economy drains the society of rightful living. Thanks to the Government for its timely intervention and recognition of films as an industry. Similarly, we need to formulate ways for funding of potentially-viable MSMEs rather than blocking their finances through all possible measures, including online sites. A unit will definitely pay if it has the resources. By exerting pressure especially on genuine enterprises and promoters, we tend to lose as a nation.
Viewpoints:
1. All officials who have helped an NPA account to revive must be sufficiently rewarded to set an example for others to follow.
2. All bank officials, authorities of the associate departments funding a potentially viable NPA unit must not be subjected to inquiry in case it fails to revive.
3. Move against corruption and frauds are welcome but must be carefully made only with sufficient evidence.
4. The banks and FIs must be instructed to freely fund potentially-viable NPA units even with negative reports in CIBIl. CIBIl or the CIC reports must be kept only for reference.
5. The OTS (One Time Settlement) Scheme, which is a legal means of exit for genuine cases, may be allowed to raise funds through legal channels may be with marginally higher rate of interest ensuring the viability remaining intact.
6. SlIIC (State level Inter-Institutional Committee) must be vested with statutory powers and their findings must be binding on all agencies as required, for revival of the unit.
7. To move court by banks and FIs, it must be necessary for SlIIC to declare the unit unviable first.
Ours is a dynamic and powerful economy which we are willfully holding back. Funding of potentially-viable sick MSMEs and stressed account in the MSEM sector will not only rejuvenate the growth process by strengthening our agriculture and large-scale sector, it will also spread inclusive growth in the country.
(The writer, working chairperson
of the Entrepreneurs & Finance Customers Association of India (EFCAI), can be contacted at efcai12@gmail.com)