Thursday, January 28, 2016

MSMEs in the eye of the storm

MSMEs are in the eye of the storm with NPAs reaching 5.90 percent as of March 2015 even though the net accretion to the portfolio has gone down from 12.3% in 2014 in terms of number of accounts to 10.1% with a corresponding decline in amount outstanding from 23.9% to 13.6%. The industry NPA level was 5.47 although at the systemic level both industry and MSMEs represent 4.7%.  Only 7.9% constitute MSME advances to the total advances. (Financial Stability Report No.11, July 2015)
Risk appetite for the MSMEs is very low among banks and their adherence to the guidelines of both the RBI and GoI to identify sickness at incipient stage and introduce corrective action plans is highly suspect. There is reluctance among banks for either restructuring or revival of even viable advances. Their credit origination has also no less to blame. Monitoring and supervision are hit hard by lack of adequate field staff leaving most accounts for arm chair surveillance.

Friday, January 1, 2016

A Year 2015 that could be Better looking for the Best 2016

Reminiscing into the past to move fast on the promises for a bright future is the usual year end exercise. Many soothsayers lend their voices. The year 2015 is just about to close. Not many are jubilant. Farmers in a couple of southern States and Punjab and elsewhere committed suicides in penury, groaning under heavy private debt.
Parliament had two wash-out sessions, courtesy, the Congress, save just nine Bills passed by both the Houses. All the major reforms, particularly the GST the game changer, are on back burner.
Nature’ fury brought a major metropolis to ruble. El Nino caused havoc in several States turning the cool weather of the year into hot climate. Discussions on Climate changes, Environment, containing terrorism carried an imprint of Indian view making history. PM Modi with his birthday greetings to his counterpart in Pakistan on the 25th December, created waves in international relations although moving on rocks in India.
Expenditure on Defense and Police modernization has increased. Yet civic protection is on thin edge. More chain snatchings, more ATM thefts, and money-on-call crimes, gold smuggling surfaced. Most of the states have been galvanizing to digitization to tame the corruption. Not a single economic offence barring the decade-odd Satyam scam has put the culprits behind the bars and not a rupee of black money has been brought back from Switzerland to India. Cyber crimes continue to show their ugly face robbing the institutions and individuals’ wallets.
States are competing for ‘ease of doing businesses’ more through policy tweaking. Implementation issues and gearing the grassroots administration remain formidable. Hikes in pay and slides in rights make labour moving to roads.
Micro and small enterprises are still fighting for their space in credit markets and their contribution in manufacturing Make in India sector is full of tears. Although Bankruptcy Act gave hope to the India Inc there is still no exit route for the MSEs. Decade after winding up the unit, it receives a claim for payment of EPF where as Sec.14 of the BIFR Act provides relief for the corporate units.
Laws leave more for interpretation than for a conclusive ruling. Speed of justice is yet to roll out. The silver lining is that the Judiciary has been able to gear up the administration to timely action responding to PILs – food security for the poor in situations of drought, asserting the domain of Right to Information Act in certain restricted areas and the like.
Inflation has been tamed. Indices maneuvered to project higher growth thanks to a statistical model. The alert finance regulator reasserted his commitment to growth – reduced interest rates. But amidst rising NPAs credit markets are tepid. Volatility of capital markets amidst global concerns continued and the initial surge of investments has become timid.
Fed Rate hike as expected made its beginning as if the recession unwound. Yuan became the recognized third largest international currency. Amidst stable exchange reserves RBI is confident of holding the rupee range bound. Banks are at their wits-end to raise capital to meet the demonic Basel III norms by April 2017.
2015 in review