The Supreme Court has issued notices to relevant authorities for the inhuman case of chopping off of palms of two migrant labourers by their contractor. Yet in another case, the hand of a child labour was mercilessly hit with an iron rod, resulting in permanent disorder of the organ. Five bonded labourers from Odisha are suffering in the prison in Malaysia. Several cases of bonded labourers working in wretched conditions in brick clines and elsewhere have been hitting the headlines.
Bonded labourers and labourers under indentures keep migrating from one State to another and also to the foreign lands to seek livelihoods. The State Governments have tried restricting such moves through governance, but it cannot restrict a labourer of one State seeking job in another lawfully. The best option could be providing equal opportunities in the home State.
To provide such opportunity, we need to ensure proper functioning of our MSMEs (micro, small and medium enterprises). India has 361.76 lakh MSMEs, registered and unregistered, providing employment to 805.24 lakh persons as per the 2012-2013 Annual Report. Odisha has about 15.7 lakh MSMEs generating employment for about 33.20 lakh persons. Interestingly, the average employment generated by an MSME in the country is 2.23 whereas in Odisha the figure is 2.11. Further, the average employment per unit is far too less since many units out of the above listed MSMEs are NPAs (non-performing assets) and non-operative. The lower average employment in Odisha may denote higher sickness of the State’s MSMEs.
Out of these MSMEs, some are operative, many under stressed conditions operating with capacity underutilisation, while there are several such units which are classified as NPAs. Most NPA units are closed and some operating under extremely low capacity, about 5 per cent to 10 per cent, mostly to avoid pilferage and for basic maintenance of plant and machineries. Though it is difficult to obtain the exact statistics, the units under stressed conditions and NPA units together would be around 50 er cent of the total MSMEs cited above. If the reason for such capacity underutilisation is ascertained and need-based remedy provided to revive such units, an additional employment of about 181 lakh persons can be generated in the country and 16.60 lakh in Odisha.
With such available opportunities, the migration of labourers could be minimised and the practice of bonded and indentured labour shall find a natural death.
The MSMEs being the link between agriculture and large-scale industries, strengthening MSMEs can strengthen the nation’s economy. This can be easily achieved through policy decisions which the Finance Ministry or the RBI is empowered to take.
With the MSMEs responsible for 92 per cent of industrial employment, it is imperative that we must focus on revival of such units and ensure that the MSMEs operate with at least 70-80 per cent capacity. Association studies have revealed and reports from the credit agencies identified the main cause of NPA or stressed accounts of MSME is either under-financing or delayed financing. The threshold limit of 90 days’ irregularity which turns a unit into an NPA has also been questioned in several forums as too short a period in the Indian context.
An NPA MSME cannot raise funds from the system. Equally important are the stressed accounts which the banks do not normally fund. Out of such units many are potentially viable and many suffer due to unavoidable circumstances.
The SFCs (State Financial Corporations) and SIDCs (State Industrial Development Corporations) were set up in all States to provide term loans to MSMEs. Whereas most of these SFCs and SIDCs today are sick by themselves, they have withdrawn their financing portfolios. Why have the SFCs and SIDCs gone sickIJ It is obvious that they could not recover the loans that they had extended to MSMEs. Most MSMEs paid back their instalments as long as the unit was performing. But when the units could not generate revenue to service the loans, the recovery from the SFCs and SIDCs gradually dwindled.
No unit becomes NPA due to term loans. If the term loan is not provided, the unit is not created. It is only when the term loan is provided but need-based working capital is not available, the unit’s capacity utilisation reduces, the productivity and profitability reduce and finally the unit starts making losses and becomes NPA and gradually closes down.
The promoters and directors run from pillar to post for funds and in most cases take shelter in courts of law as defendants. The workers remain unemployed and migrate to other areas mostly as bonded labourers.
The Governments have set targets for banks for funding MSMEs. In most cases, the target is not achieved under the pretext of no suitable proposals. True, when the Government does not allow funding of NPA accounts, even the potentially viable NPA accounts, and in normal case the banks are also averse to funding of stressed accounts, aggregating to about 50% of MSMEs, how would banks find suitable proposals to meet their targets only out of the remaining 50%IJ
In some cases the authenticity of the target data provided also needs to be verified. When a bank enhances the limit of an MSME by say Rs 50 lakh and the existing limit was 100 lakh in the previous year, the current year sanction towards the target would be Rs 50 lakh and not Rs 150 lakh.
A bank official, who funds a stressed account or a potentially viable NPA unit as part of his social responsibility to revive the unit, should not be subjected to inquiries if the unit fails to revive, unless there is prima facie evidence or fraud which is detected. Such action would otherwise kill the spirit of an honest and diligent bank officer.
An MSME which operates under various adverse situations is bound to pass through roadblocks. The RBI has formulated a rehabilitation policy for sick units. If the market is demanding and the entrepreneur is genuine, the unit suffering from either inadequate funding or from any other unavoidable circumstances can be rehabilitated by the bank suo motu. This is not very prevalent and in some cases especially when the option of recovery of their dues is available though sale of fixed assets, the banks prefer seeking legal action instead of passing through the process of rehabilitation. In the process, the industry is killed, which in any case is a national loss.
A State level Inter Institutional Committee (SlIIC) was formed by the RBI for rehabilitation of sick MSMEs. In every State, an SlIIC operates with the Secretary Industries (MSMEs) chairing its meeting. This is attended by all bank heads, the Director of Industries and the other nodal agencies for MSMEs.
The deserving units are supposed to be rehabilitated. This is in line with the BIFR for large industries. The main difference is that the BIFR enjoys statutory powers and its decision is binding whereas the SlIIC is not vested with such powers and its decision is not binding on the agencies, especially banks.
This being so, many sick units do not opt for rehabilitation through SlIIC considering the delay and the decision of banks being optional.
Association’s viewpoints:
A. The banks and financing institutions be provided free hand to fund potentially viable NPA units as per their assessments.
B. Takeover of NPA units from one bank to another be freely allowed
C. 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.
D. Funding of stressed accounts by diligent bank officials not be subjected to inquiry in the case of failure of such unit, unless fraud is evident.
E. Need-based working capital be provided by banks as envisaged in the project proposal.
F. Keeping inflation in view, need-based enhancement of working capital be provided to MSMEs, especially when the period of default to tag NPA classification remains 90 days.
G. At least in restructuring of the account, need-based funding be provided to the unit after it is classified as NPA.
H. Before proceeding for legal action, the proposal has to be approved by SlIIC and its decision whether to rehabilitate the unit or initiate legal action should be binding on all agencies.
I. The powers vested with BIFR be extended to SlIIC.
J. As the data of CIBIl or any CICs are often erroneous, the score of such CICs not be made mandatory for funding of a unit. The banks’ dealing officers be empowered to adjudicate the score of such CICs or CIBIl on documentary evidences.
In the 80s, the banks had no option but to recover their dues through civil suits. This was not fair to the banks, which lost huge money. In 1993, DRTs (Debt Recovery Tribunals) were formed to ensure speedy recovery of bank dues.
This provided a fair platform to banks to recover their dues within a shorter period. In 2002, the SARFAESI Act was formulated where a bank’s Authorised Officer could take possession of a unit without going to court under the Act after serving a 60-day notice for recovery of dues. With such legal provisions, it is rather incomprehensive why banks do not fund the borrower.
The banks are flushed with money and they are looking for takers; the MSMEs are starving for funds; the capacity underutilisation is severely hampering the GDP of the nation. The system definitely needs an urgent policy change. To start with, let the RBI/MoF review and allow the association’s viewpoints.
(The writer, the Working Chairperson of the Entrepreneurs & Finance Customers Association of India- EFCAI, can be contacted at efcai12@gmail.com )