Merely realising MSME as the backbone of our economy is not adequate. We need to plan, implement and review the performance of this sector. Glad that the Union and State Governments have both adopted substantial norms for revival and growth of MSMEs. Why is it that about 50% of our MSMEs are still sick or suffering from incipient sicknessIJ Why is it that the emerging MSMEs are still struggling for various clearances, the biggest challenge being tying up need-based financeIJ
Precisely, two major issues of MSMEs are rehabilitation of the potentially viable NPA units and providing a time-bound, friendly platform to the new MSME entrants.
NPA units need not be necessarily sick units. If a NPA unit is not able to service its quarterly dues in time, this relates to cash flow which may be temporary. Often, bills payable by Government agencies get stuck. Most significant is enhancement of working capital not available to the unit. A profit-making unit with good brand image becomes NPA. Our policies are such that once it is classified as NPA, such a unit is gradually killed. First, the loan is recalled within about 90 to 180 days since no borrower can logically refund the entire funding which the unit must have availed over a period of decades. The bank notwithstanding the reasons files suit and hands over the case to its advocate. Then, the borrowers, the unit, the guarantors are blacklisted and funding to them is denied. Even beyond, their sister companies which may be performing well are denied funding. This is absolutely unfair, especially for genuine borrowers. The enterprise and entrepreneurs are ruined.
To successfully implement the ‘Make in India’ policy of the Prime Minister, we need emphasis on the MSME sector, which is the link between the agro and the large-scale sectors. In the last financial year, some significant changes for the MSMEs are discussed below: The new Companies Act 2013 came into force from April 1, 2014; the CSR has become mandatory. MSMEs are worried about the deposit rules under the new Act taking effect from April 1, 2015.
The RBI should not bail out banks with liquidity infusion -- a welcome move. The banks must generate their own revenue for growth. EPF account holders to get universal account number: This will make life easier for those shifting jobs.
Central, State policies on MSMEs should be synchronized. The steps the Union Government should initiate to improve the State MSMEs must be in harmony with the State Government’s. Banks sell Rs10K crore of bad loans to ARCs in March: The total NPAs stood at 4.2 per cent as of September 2013. Together with restructured assets in the system, it touched 10.2 per cent as of the December quarter. A large chunk of this could have been avoided through need-based and timely funding.
Around 46per cent MSMEs under stress, reports India Rating. Many units are languishing under stress; their recovery in the near future is also bleak. Odisha signs pact with the NSIC to facilitate credit flow to MSMEs. What the MSMEs need is real funding. Facilitating credit flow may be a step forward, but hardcore funding the SFCs and SIDCs used to provide is the need of the hour.
Don’t levy penalty on loan prepayment. The RBI directed banks not to levy penalty on individual borrowers for prepayment of floating loans. The prepayment penalties on home loans are already waived. This provision should be extended to all loans.
Bad loans result of bad banking policy. The laxity banks have shown in advancing loans to undeserving firms mainly in the large-scale sector while under-financing the MSMEs. Industrial production remains negative, dips 0.5 per cent in March. The ailing MSMEs need to be revived specially the potentially viable NPAs in the manufacturing segment of MSMEs.
The Odisha Government to go on overdrive to promote MSMEs: The DICs have been directed to make the entrepreneurs aware of various steps to provide prompt and hassle-free services. The industry leaders are of the opinion that the new Union Government must focus on manufacturing, which can be best achieved by funding the potentially viable NPA units.
Make access to credit easier for small units. The SME associations suggest that MSMEs contribute to 8% of the country’s GDP and more than 40 per cent of the country’s manufacturing output to revive this flagging segment of industry.
SME funding to get Rs 5K crore boost: This will be anchored by lIC and SIDBI, The SIDBI was originally set up to fund SMEs mostly through SFCs. Since most SFCs are themselves reviving and have done away with lending portfolio, the SIDBI must either fund SMEs directly or the SFCs must be revived to resume funding to SMEs.
There are encouraging suggestions to set up a National Asset Management Company to take over the NPAs and help revive companies ridden with bad debts. Separate MSME policy on cards, said Union MSME Minister Kalraj Mishra.
Odisha plans 7,700 new MSMEs with Rs770-crore investment. These units would create employment for 62,200 persons, said MSME Minister Jogendra Behera. Odisha to boost exports: The Government proposes to fund travel expenses of export firms, an assistance of Rs50,000 for two persons of a firm, freight subsidy to exporters, nearly 50 per cent of the cost and proposes export cards with a host of facilities.
The CAG indicted the Idco for system deficiencies which was criticised by most MSME associations of the State. The Idco’s move to grant NOC for availing finance, mutual transfer, etc., were necessary steps which the Idoco has judiciously initiated for development of MSMEs.
Banks continue to insist on collateral from MSMEs despite clear provisions for providing collateral free loans for MSMEs up to Rs1 crore. MSMEs in the trading sector rely more on supplier credit for working capital, reports CRISIl. This is due to lack of timely and collateral free credit available to MSMEs.
The sick MSEs have increased from 77,723 in October 2010 to 4,56,710 in 2014. Credit to medium scale units drops by 23.5 per cent in Odisha: Credit flow to medium scale industries decline 23.5 per cent to Rs2,616 crore, said SBI CGM KM Trivedy. Most private sector bankers are of the view that defaults by SMEs are fewer than large corporate and since the quantum of loan is smaller, the risk is much lesser. At the last SlBC meet, the Odisha Government asked banks to give more stress on MSME financing for the State’s development.
Kalraj Mishra said credit flow to MSMEs is not adequate; they are facing huge difficulties while availing bank loans. The demand and the possession notices issued everyday by banks are mostly on the MSMEs whereas in the large-scale sector with mounting defaults, the loans are recast or enhanced. Banks in Odisha register rise in deposits, decline in advances: Controlling heads of banks asked to achieve allocated targets before 31st March next year. Odisha to float Rs150-crore VC funds for MSMEs: It is aimed at providing seed funding to start up MSMEs. A part of this may also be used for rehabilitating the potentially viable NPAs.
The credit coverage to MSMEs is dismal, said the Odisha Chief Minister. If banks continue to neglect budding entrepreneurs, the youth will be forced to come to streets and protest. The Odisha MSME policy 2009 will be replaced with a new one of 2015. As many as 24,481 MSMEs sick in Odisha: Out of this, 1,734 have been identified for rehabilitation. Banks in Odisha miss credit disbursal target: Priority sector lending was 48.01 per cent of the annual credit plan. Mega Seafood Park of Rs107 crore approved, to come up at Deras. Top 30 defaulters’ NPAs amount to Rs95,122 crore in PSU banks: The default of MSMEs is insignificant compared to this. While the country is emphasising on sustenance and growth of MSMEs, the struggle of an MSME entrepreneur must be respected ad supported in this country.
(The writer is working chairperson, Entrepreneurs & Finance Customers Association of India-EFCAI. Email:efcai12@gmail.com)