The Indian banking sector is grappling with mounting NPAs (non-performing assets) and a host of scams and frauds. The NPAs stood at a staggering Rs 8.31 lakh crore as of December 2017 and Rs 9.5 lakh crore by March 2018! The scheduled commercial banks’ NPAs may rise from 11.6 per cent in March 2018 to 12.2 per cent by March 2019.
The FSR report highlighted that large borrowers accounted for 54.8 per cent of gross advances and 85.6 per cent of NPAs of the scheduled commercial banks. The MSMEs (Micro, small and medium enterpsries), thus, contribute to hardly 15% of the gross NPAs including housing loans, retail loans, etc., where as the MSMEs generate over 90% of industrial employment and over 40% of experts.
India has become the world’s sixth-biggest economy, pushing France into the seventh place, according to updated World Bank figures for 2017. It is estimated to be a $10-trillion economy by 2030. Whereas 639 farmers ended their lives only in Maharashtra between March and May this year. India is fast becoming one of the most unequal societies in the world.
Besides generating employment and its contribution to the GDP, the most significant role of MSMEs is to mitigate the gap between the rich and the poor. What is more important for India today is to focus on inclusive growth, which is best possible through development of MSMEs.
Our ‘Make in India’ initiative to boost manufacturing to 25% of India’s economy by 2020 is steadily declining. From a peak of 18.6% in 1995, it has shrunk to about 15% in 2018. ‘Make in India’ has failed to revive manufacturing.
The MSMEs are the link between large-scale sector and the agri sector.
Unless the MSMs revive, the country’s manufacturing is bound to suffer. With over 50% of the MSMEs in the country either sick or suffering from incipient sickness, it is evident that the manufacturing activities are steadily declining. Many of these units have suffered due to reasons beyond their control.
The rehabilitation policy of the RBI for MSME is seldom implemented. Neither the State Governments nor the Central Government have such a policy; and if so, it is hardly implemented. What is the recourse for the MSMEsij
With a major legislative step that could allow bankers and public servants to unburden themselves of the fear of the four Cs -- Courts, CBI, CVC and CAG -- as they take bona fide decisions in good faith, the MSME sector is poised for a dynamic growth that could boost the large-scale and agri sectora as well.
The major issues of MSMEs have always been finance and, to some extent, approvals and clearances. With the welcome decisions of the lok Sabha passing the changes to the Prevention of Corruption Act 1988, which has also been cleared by the Rajya Sabha, the major bottlenecks of MSMEs are deemed to be resolved. Now, any banker or a public servant can work fearlessly and take decisions in good faith which was a major cause of suffering for MSMEs earlier.
Though in the larger interest of the nation demonetisation and GST might have been essential steps, it was a severe blow to most MSMEs.
What MSMEs need today is funding. Over 50% of them today are actually under the NPA category. Many out of these are potentially viable and can be easily revived, but because of banking norms the banks cannot fund such companies.
Out of the rest 50%, around 30% are actually suffering from incipient sickness. Such units also cannot raise funds from banks since their performances do not meet the sanction norms of banks. All the incentives, sops of various kinds which are published by the Government are only applicable for the balance 20% of healthy operating units. In backwards States, these figures could be even less. By this, all the benefits are available to well-performing MSMEs only which could be about 10 to 20%. The remaining MSMEs continue to suffer.
Association viewpoints:
1) Manufacturing should be separated from trading and service sector for better clarity and control.
2) When targets are monitored, especially funding to MSMEs, a clear picture can be obtained by the regulating authorities as to how much fund has been provided to manufacturing MSMEs.
3) All potentially viable sick MSMEs must be rehabilitated with need-based funding.
4) The State Financial Corporations (SFCs) must be assigned to identify such NPA MSMEs and the implementation of rehabilitating such units should be carried out by them. This will also revive many SFCs which are themselves struggling for survival.
5) A rehabilitation fund of about Rs 10,000 crore should be set up by the Government for revival of MSMEs.
6) For funding MSMEs, the profitability and turnover should be of the projected figures after receiving the funds and not on the basis of present performance. When a unit is under performing for lack of funds, if assessment for its requirements of funds is calculated on the basis of its present performance, the unit will never qualify for additional funding.
7) The schemes floated by the Government or by the RBI must be monitored strictly to ensure its implementation. like CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises) schemes are often non operative in most banks.
8) For assessing loans to MSMEs, the CIBIl score should not be considered as a major criterion due to frequent errors in the CIR of CIBIl. Whether it is the mistake of the banks or the CIBIl, the borrower should not suffer. By the time a correction is made, the borrower could suffers irreparable loss.
9) The RBI must ensure that its scheme for rehabilitation of MSMEs is implemented.
The Government is initiating various measures for strengthening the MSMEs through implementation of various schemes, but the applicability of such schemes is mostly for well-performing MSMEs. Realising that such units constitute about 10% to 20% only, there is an immediate and substantial requirement of a robust rehabilitation scheme for revival of potentially-viable of MSMEs.
(The writer is working chairperson, EFCAI; ex-chairman, Orissa Assembly of Small and Medium Enterprise. Email:efcai12@gamil.com)