Wednesday, August 31, 2016

Industrial Health Clinic for Telangana MSEs on the Anvil

Telangana Government has already put in place transparent, accountable, progressive and globally acclaimed industrial policy through TSiPass, T-Hub etc. Its inclusive industrial growth agenda required that the MSEs that actually oil the wheels of innovation shall be put on even keel with non-discriminatory promotional framework.

This has propelled the Industries Minister to adequately and appropriately respond to the call of the MSME Associations in the State that bee-lined to him to pour out their woes with the bank’s hurried actions in declaring them as NPAs only to sell of their silver that included their only dwelling house!!. KT. Rama Rao, Minister for Telangana deserves kudos for taking the initiative of reaching the Governor RBI directly – the first ever such effort in the Federal Republic of India to bat for the MSEs’ issues.

Several micro and small entrepreneurs suffered setbacks due to self-inflicted injuries. But there are many others who suffered at the hands of the banks. There were cases of under-financing, untimely release of credit, wrong application of interest, failure to handhold at the right time etc.
When the entrepreneurs came with their statements of accounts and other particulars and the way their requests were turned down by banks under the ruse that they defaulted in payment of principal or interest for 90 days, the Minister wanted the Department of Industries to inquire into the true state of affairs in the light of RBI’s instructions and brief him.

The Minister realised that the entrepreneurs had genuine grievances and the Banks have been putting in their own justification for the punitive measures taken against the MSEs. He sized up the issues in four parts: 1.State’s responsibility to bail out the enterprises that are falling or tending to fall sick through an effective policy; 2. Ambiguities in RBI instructions and 3. Ambivalent attitude of the bankers and 4. Banks’ non-compliance of the RBI instructions

The Minister’s first salvo against the bankers was on the lack of integrity of the data they produce at the SLBC that has been blocking a meaningful review of the progress of industrial growth. Banks declared even Rs.5000 loan under manufacturing category!! In the same breath banks declared that they had no units to show under manufacturing under the targets for PM Task Force. He escalated this issue to the corridors of RBI for ensuring data integrity with the banks showing them the data placed before the government by the Banks.
For example, quarter ending 31st March, half-year ending 31stt March and year ending 31st March in the same year unfolded three sets of figures in terms of number of accounts, and so is the data relating to the figures of sick, potentially viable, and viable enterprises. SLBC has invariably been furnishing only data relating to the number of accounts and not number of units in spite of specific request.

SLBC report
Medium units
Total MSMEs
April 2015
548107 (as on 31.3.15)
3834 (as on 31.3.15)
551941 (as on 31.3.15)
July 2015
508313 (as on 31.3.15)
2723 (as on 31.3.15)
511036  (as on 31.3.15)
April 2016
687537 (as on 31.32015)
93717 (as on 31.3.15)
781254 (as on 31.3.15)
Source: SLBC to the Empowered Committee of SLIIC
Category/quarter ending
Sick Units
Potentially Viable
Viable under Nursing
TEV studies
March 2015
25398 (3.26)
966 (12.20)
274 (14.4)
24920 (2.48)
June 2015
8471 (7.26)
903 (8.1)
142 (10.40)
8096 (4.13)
Sept 2015
7565 (10.72)
646 (6.9)
135 (6.08)
7287 (6.81)

In order to simplify the RBI guidelines on declaration of NPAs and pursuing legal actions against non-wilful defaulters he sought a check list for compliance by banks that would bring about transparency.

The Minister also requested the RBI for necessary support to the Corporate Fund for establishing the Industrial Health Clinic (IHC) by classifying any contribution to such fund as equivalent to Priority Sector Lending. Telangana Government would be the first state to establish such Clinic with a view to supplement and not supplant responsible and responsive institutional finance support to the MSEs as a SPV under the TSIDC.
*The views are personal. The author is an economist and SME Consultant.