Why are accounts of MSMEs (micro, small and medium enterprises) turning NPAs (non-performing assets) and how can we address the situationIJ Besides, under-financing and delayed financing which are the main reasons of an MSME account turning NPA, not addressing the NPA account through SlIIC (State level Inter Institutional Committee) and not rehabilitating the unit in time, deteriorates the situation further. When the MSME sector suffers, it has a toll on the agriculture sector and the large-scale industry sector. This means that the total economy of the country goes to jeopardy causing poverty and misery.
Though only about 15 per cent of the total NPA in the country is on account of MSMEs, the impact is so large that the country is heading for an economic recession. The factory output growth slowed down to 2 per cent in April this year; exports slumped 10.7 per cent in September last year; the rupee value has slipped to `65 to a Dollar which was `1 on the day of Independence. The prices of all commodities are on the rise. This obviously proves that MSMEs are the real growth engine of any nation. It is the link between the agriculture and large-scale sectors. Punjab is rich because of flourishing MSMEs and agriculture and not for large-scale sector. Odisha is poor because of sluggish MSME and agriculture sector
Realising such predicament, the Odisha Government has been initiating steps towards promotion of MSMEs. A new MSME Department has been lunched with a dedicated Secretary. But the main issue of MSMEs — financing of potentially viable NPA units and stressed accounts — still remains the major issue. These units are not eligible for regular bank finance.
We cannot overlook such a segment since it constitutes more than 50 per cent of the total MSMEs in the country and maybe around 70 per cent in the State. The banks are left with only the remaining 50/30% MSMEs to achieve their target. It is so natural that the banks are complaining of lack of good proposals! In contrast, if the banks are allowed free hand to take over, finance and revive potentially viable NPA units at their own discretion, the financial woe of not only the banks but the country can be addressed. When the infrastructure is ready, the unit is fully set up and running for years, if it turns NPA due to some unavoidable situation beyond the control of its promoters, it is wise to rehabilitate the unit rather than exercising coercive measures to extract funds from the helpless promoters while allowing public assets to rot. This situation is highly detrimental, responsible for spreading poverty.
When India is not poor then why should its people beIJ Unequal distribution of wealth is the biggest cause. How do we address this situationIJ
Money is circulated through banks or other financing institutions. There are petty borrowers, MSME borrowers and large-scale borrowers, besides the retail sector. When a petty or MSME borrower is unable to service his loan for more than 90 days, his entire loan is recalled, recovery action is initiated either through the DRT (Debt Recovery Tribunal) or through the SARFAESI Act. His business comes to a grinding halt; the employees lose jobs; the Government loses revenue. If it is a manufacturing unit, there is loss of product leading to rise in inflation; the entrepreneur instead of running his enterprise gets busy defending his assets from being auctioned. Months and years pass by; the unit, its promoters, directors, guarantors are all blacklisted against availing credit through any legal route. No one gains, the biggest loser being the nation.
Imagine thousands of such cases; where it leads the country to! It not only leads to economic disaster but social disaster as well!
Whereas the large borrowers generally escape this situation since before their account is classified NPA, the bank either restructures their accounts or provides enhancement. It’s natural that the bank cannot afford to allow a big-ticket loan to be declared NPA. If it does, provisioning for the NPA account would bring severe loss to the bank, depending on the size of the loan; it can even lead to bankruptcy of the bank. Via this process, big borrowers keep borrowing more and more. Since 2007, the credit to 10 big corporate houses has more than doubled as per the RBI.
This system of banking widens the gap between rich and poor. A rich man is provided more and more loans to prevent his account from becoming NPA whereas for an MSME borrower the situation is reverse. Even when deserving, they are refused enhancement. Obviously, when need-based funding, especially adequate working capital, is not provided in time, the unit’s capacity utilisation keeps reducing until it reaches the breakeven point and below. Finally, the unit starts incurring loss and turns NPA.
Especially when the market value of the assets exceeds the borrowing, some banks with a view to recovering their dues at ease deny needful enhancement. This has a serious impact on the economy and thousands of such cases lead to recession.
The net bad assets of the 40 listed banks have jumped 38 per cent to `1,28,533 crore during the 1st half of the fiscal, from `93, 109 crore at the end of the last fiscal. Gross NPA as of the September quarter stood at `2,29,007 crore, 27 per cent higher when compared to `1,79,891 crore as of the March quarter. Net NPAs of listed banks have risen by 140 per cent since September 2011. The rising provisions for bad assets pull down the net profit of the bank by 35.03 per cent. The total cases referred to the CDR (Corporate Debt Restructuring) cell rose to `3,62,370 crore. The CDR is mostly referring large borrowers. Whereas for MSME NPA accounts, restructuring or rehabilitation after NPA is generally refused despite clear RBI guidelines!
Now, only the SBI needs `2.3 lakh crore to meet the BASElIII norms. Where does this money come fromIJ
Our immediate concern must be for the stressed/NPA MSME units. How would such units meet their financial needsIJ An account becoming NPA is mainly through accidents rather than incompetence. When the payment is delayed beyond 90 days from a Government department or the public sector, which is common, the account turns NPA for no fault of the promoters. The banks plead helpless. Resources locked up in the NPA units must be recouped through need-based finance.
Our viewpoints for financing of MSME NPA units:
If NPA is a disease, it must be treated and not allowed to rot and perish. It is the most serious issue for the Government which must be attended with immediate effect and appropriate notification issued to all banks to rehabilitate the potentially-viable NPA units through legal routes. This would add capacity utilisation with minimum investment and within a shortest period. By reviving the NPA, the MSME sector would help agriculture and the large-scale sector develop, stabilising the economy.
(The writer, the Working Chairperson of the Entrepreneurs & Finance Customers Association of India- EFCAI, can be contacted at efcai12@gmail.com )
(Nadiya Chand Kanungo’s ECO DIARY will appear tomorrow)