We stress on sick MSMEs because the rise in sickness of MSMEs is at 221 per cent with around 50 per cent of them in the country either sick or suffering from incipient sickness. Any performing unit for any reason when deprived of need-based enhancement of working capital will gradually become NPA (non-performing asset).
If not treated, the unit will become sick and will be closed. The NPAs of public sector banks rose by 28.5 per cent from Rs1.83 lakh crore in March to Rs2.63 lakh crore in September 2013. Unless drastic changes are enforced in the policy guidelines, almost all MSME loan accounts may gradually be classified as NPAs in future.
New MSMEs are welcome, but before identifying the causes for present sickness increasing rapidly and its cure, by investing in new MSMEs we are risking further public funds and careers of young budding entrepreneurs.
The Government has launched various programmes for development of MSMEs which is responsible for about 92 per cent of industrial employment and about 40 per cent of exports. These programmes are focused on the MSMEs which are eligible for bank finance.
The Government has not adequately floated schemes for revival of the remaining MSMEs which as per present banking norms or practices are not eligible for bank finance. These MSMEs will easily outnumber the qualifying MSMEs for bank finance. How do these MSMEs sustain and growIJ The Inter-Ministerial Committee on accelerating manufacturing in the MSME sector has made over 60 recommendations with stress on revival of sick units.
Many similar recommendations made earlier lack implementation. SBI Chairperson Arundhati Bhattacharya rightly said, “NPA koi gunah nahi hai” (NPA is not any crime). She said adding corrective measures would have to be initiated to control it. The RBI has a restructuring policy which is pragmatic and its timely implementation could save any unit from turning NPA. Similarly, the policies to develop MSMEs including revival of sick MSMEs are many. The main issue still remains implementation of such policies and guidelines.
Surprisingly, the election manifesto of no political party has highlighted neither revival of sick MSMEs nor even development of MSMEs. The Government is planning to borrow Rs3.68 lakh crore in the first half of FY15. Such borrowings in due course would not be essential provided we strengthen our MSMEs.
MSMEs are the link between agriculture and large-scale industry. As ancillary, an MSME practically drives the large-scale industry. Similarly, the agricultural produces need to be marketed with value addition. Processing and distribution by the MSMEs strengthens the agri sector. A highly developed European country is by size similar to Punjab, but it is the sixth largest exporter of agri products in the world. Their MSME works in tandem with their agri sector.
Having realised that the MSMEs in India are inadequately and untimely funded, many such units have been classified as NPAs. The policy guidelines formulated today provide targets to the banks for funding of MSMEs. It is natural the banks will only fund not only performing MSMEs but performing satisfactorily, meeting all criteria of bank finance. We estimate not over 20% of the MSMEs in India would satisfy such requirements for bank finance. The concern is for the remaining 80% which includes potentially viable sick units whether closed, NPA, working with reduced capacity utilisation or stressed accounts. It is high time the Government realised such need and formulated policies for funding such units through official channels. Assets of thousands of crores locked up in these units can be revived. This can substantially contribute to the GDP and alleviation of poverty.
The SBI Chairperson says NPA is not a crime; then why are the NPA account holders being treated as criminalsIJ The promoters, directors and even their family members are barred from access to any credit facility from banks including essential loans like educational loans, home loans. Admittedly, it is an accepted norm that due to various issues like corruption, delays in receipt of payments, infrastructural issues, inadequate funding and problems relating to electricity an MSME inadvertently may turn NPA despite best efforts from the promoters. It’s a priority today to bail out such units in the interest of the country’s economic development.
India is suffering today mainly due to the NPA factor. Firstly, the period of default to classify an account as NPA has been reduced from 1 year to 180 days and finally 90 days as of now. This being too impractical for a developing country, the effect has multiplied further due to erroneous CIR (Credit Information Report) of CIBIl (Credit Information Bureau Of India limited). A defaulter in CIBIl list generally, cannot be funded by any bank FI as per the present norms. Whereas there are many issues, complaints and even court cases on CIBIl report of a borrower being misrepresented. There are instances where a borrower has repaid his dues, but his name still reflects as a defaulter in his CIR.
Similarly, there are many innocent residents who have not even availed any credit facility but their names have been wrongly shown as defaulters in their CIBIl reports. As per CIBIl, they pose to be doing a post office work of just forwarding the database provided to them by a banker.
The bankers blame it as either a clerical error or on some bank employee who has been transferred, retired or resigned. But it takes years for a borrower to firstly identify the mistake in his CIR and by the time it is resolved by CIBIl through the bankers, it may take even a decade. Resolving the matter through court may be further delayed. There are no options for the individual but to continue suffering.
It is never desirable to leave an MSME’s destiny either in the hands of a banks’ dealing officer or a young executive in the CIBI office.By restricting financing of a potentially viable sick MSME, we are driving the entrepreneur from his ability to innovate and develop the unit to a state of virtually beggar, begging round for funds from friends, relatives and even from private financers mostly operating in clandestine manners with interest rate as high as 10% a month.
Recalling the bad days of the cinema industry in the 60s and 70s when it was not eligible for bank finance, a producer was compelled to borrow funds from various sources most of which was through private financing. This led to the flourishing of the underworld empire in the film city of Mumbai.Hence, it is highly essential that changes in the policy guidelines to allow funding of potentially viable MSMEs through legal process by banks and FIs be implemented.
(The writer, the Working Chairperson of the Entrepreneurs & Finance Customers Association of India- EFCAI, can be contacted at efcai12@gmail.com )