My Unforgettable Moments

 

My Unforgettable moments

B. Yerram Raju

The year was 1979. I was Project Monitoring & Evaluation Officer in the Department of Agricultural Finance and Rural Development at the Local Head Office of the SBI. I was having regular interface with the then faculty and Dean of the Andhra Pradesh Agricultural University -APAU (now Prof. Jayashankar Telangana State Agricultural University – PJTSAU). One evening in July 1979, I received a call from A. Appa Rao, then Dean and later Vice Chancellor of the APAU to join a meeting being held at the local Horticulture Department of the University at Khairtabad, the next morning at 11 a.m., as the topic for discussion was on Agricultural Credit under the joint auspices of the APAU and the Society of Scientists for Advancement of Agriculture (SSAA).

After the discussions, they invited me to be a Life member of the SSAA. I did not hesitate  a moment as it would give me the association of several leading agricultural scientists that periodically holds conferences, discussions, deliberations on key issues affecting the farm sectors and farmers in general. J. Raghotham Reddy, the only farmer Vice Chancellor of an Agricultural University to which he donated his family property  of 200 acres. His memoirs have been published in a book form latter by the Farm and Rural Science Foundation (FRSF), which was a Trust formed by the family members of Raghotham Reddy garu. Almost a year later, I was requested to be a member of the Board of SSAA. I was on the Board for a decade.

There used to be field visits and training of farmers and frequent interactions with the scientists, agricultural economists in which I had a unique opportunity to learn. Under the auspices of this platform, it was decided to give Awards to the best farmers in agriculture, animal husbandry, agri-technology, agricultural journalism in first and second categories. It was an experience to select the Awardees as part of the jury. Those progressive farmers and their achievements have always been moments of great learning and interactive experience.

My six-year stint as Senior Faculty and Vice Principal ( for a few months) during 1984-90 at the Stte Bank Institute of Rural Development (SBIRD), this association and learning experience made me different from others both academically and administratively. After leaving SBI in 1994, thanks to such association and learning experience, I was taken as Senior Professor and Area Chairman, Agriculture and Rural Development at the Administrative Staff College of India (ASCI). It also helped me to interact with persons like Pascal Lama, the first President of World Trade Organisation.

In the year 2000, when AP Government formulated Vision document, sectoral vision aspects were discussed at a Roundtable conference in MANAGE under the auspices of the then Vice Chancellor and Ganaga Prasada Rao, a very eminent farm scientist and former Vice Chancellor of Pantnagar Agricultural University. This was brought out as a Conference Publication under the joint authorship of Ganga Prasada Rao and me. This was uploaded to academia.edu and this continues to get readership of high value. APAU published the vernacular version of the book that was released by the then Minister for Agriculture, Government of AP, Vadde Sobhanadreeswara Rao.

In one of those precious years, all the members also visited Marathwada Agricultural University and held intense discussions.

I was entrusted with organising the first Memorial Lecture in memory of the Founder J. Raghotham Reddy garu and the SSAA took the lead. This Address was given by R. Radhakrishna (popularly known as RR), an eminent agricultural economist in his capacity as the then Vice Chancellor of Andhra University. Since both SSAA and FRSF were housed in the building donated by Acharya JRR, and since both the organisations were performing similar functions, it was decided to merge both as FRSF. From that day, I had been member of the Board of Trustees of FRSF and biannually we have been conducting the Annual Award and Memorial Lecture Function. As I have decided to bid goodbye to my 45 years of association with the FRSF, it would be a worthy recall and hence this blog. A period of great association and learning when I interacted with great savants in farm science like late M.S. Swaminathan, K. V. Raman (NAARM fame) Ganga Prasada Rao, E. A. Siddique, Yella Reddy (Extension Specialist), A. Appa Rao, V. Praveen Rao ( Vice Chancellor of PJTSAU where he retired last year), Dr. Padma Rao, Anil Epur and many others is an unforgettable journey in my life.

I salute to all of them in all humility.

 Cumbersome Guarantees and Insurances for MSEs Need Redress

This Blog was published in the Times of India ( see the link below)

Micro, Small, and Medium Enterprises (MSMEs) are extolled as the engines of employment, growth, and key to the supply chain management of medium and large corporate enterprises, leading exporters, manufacture over 6000 products. They have been redefined during the first Covid-19 disruptions to the economy in terms of investment and turnover, replacing the earlier definition restricted to investment in plants and machinery. This sector is next to agriculture which employs the largest number of persons. 98% of enterprises are micro, mostly owned by proprietors or partners. Even partnerships are to a large extent family partners.

Access to credit for the sector is the Achilles Heel. To provide easy and better access the GoI and SIDBI have set up Credit Guarantee Trust for Micro and Small Enterprises in 2000 (CGTMSE). Even during the pandemic, GoI introduced Emergency Credit Linked Guarantee Scheme under Atma Nirbhar Bharat Abhiyan with CGTMSE holding the baby.

But did the sector gain much from the insurances and guarantees in their existing shape? This needs a probe.

Insurance:

When the small-scale industries of Yester decades used to take out insurance cover for the plant and machinery against fire, riot, and risks, through the liability jointly owned by both the credit institution and the borrowing enterprise. After universal banking was ushered in, several banks took to Bank Assurance. A transparent joint insurance policy gave place to a policy that just lists the names of the borrowing MSME firms with the amount insured. The firms are ignorant of their liability under such policy and its renewal terms annually.

There is no evidence of any insurance claim of such bank insurance of enterprise machinery as a primary asset response. On the other hand, as several MSMEs noted that banks have over-booked insurance premium amount upfront with every loan sanction – whether term loan or working capital. Never did such insurance pay off for the MSE in trouble.

Both the MSMEs and the Banks have debated their mutual deficiencies in several media discussions, and they are plagued by mutual distrust.

While the redefinition helped many scale up their enterprises and move to exports quickly, there were lakhs that shut their doors during the pandemic. The impact of redefining has been such that a negative 1.8% MSE outstanding loan in FY20 has moved to 4.8% year-on-year by the third quarter as the existing.

Guarantees:

The 'strength' of a guarantee that allows credit to the enterprises without collateral or third party, is context-dependent: it depends on its nature, the legal environments that are relevant, current practices, and the context when the lender exercises his right. Yet, for twenty years, institutional credit to the sector leaves a gaping hole of Rs.279 trillion according to the International Financial Corporation (2015) study.

RBI mandated Banks to extend credit to micro-enterprises under CGTMSE up to Rs.10lakhs per enterprise. While the CGTMSE can extend guarantees to MSEs up to Rs.2crore, the covers range from 75 to 85 percent of the loans. During the last three years (2018-21), even retail loans and the service sector are being covered with guarantees while the extent of such guarantees is limited to 50% of retail loans. One hundred Member-Lending institutions (MLIs) that include 23 NBFCs are availing of the facility and yet several of them express serious reservations over such ailment.

Annual Report of CGTMSE for Fy2021 reveals that 47 percent of guarantees pertained to loan amounts of less than Rs.10lakhs (mandated by the RBI to extend without any collateral); 18% are in the range of loan amount of Rs.10lakhs-25lakhs; 14% are in the range of Rs.25lakhs-50lakhs; 12% are in the range of Rs.50lakhs-100lakhs, and 9% are in the range of Rs.100lakhs-200lakhs. Rs.45,851crore have been provided guarantee cover during the year 2020-21.

MLI concerns:

The guarantee portfolio increased after the retail, hybrid-collateral, and NBFCs joined, as these three constituted 49% of the guarantees extended during FY 21. It is the 1.18crore of the 6.3crore MSMEs that need a guarantee more than the rest. MLIs opine that the guarantee premium of 1-1.25 percent involved a lot of paperwork, follow-up for receiving the claim amount that too, after declaring the asset as NPA.

Banks have to prove that they have taken all the measures that include issuing legal notices, follow-up on recovery, provisioning for the loans, and proceeding against the borrowers under SARFAESI Act where the assets are partially guaranteed. These factors lead to a lack of trust by the CGTMSE both the MSEs and Banks.

The Way Forward

MSEs in manufacturing that forms an important component of sustainable supply chain management of Industry 4.0 need different forms of credit acceleration and insurance mechanism.

While the Banks should evaluate the credit risks of such enterprises on transparent parameters and extend credit to MSEs along with counseling, mentoring, and follow-up, the enterprises should digitize their operations and derive benefits from a large number of schemes recently floated by the Ministry of MSME, GoI.

Since fourteen states take 88 percent of MSE outstanding credit, and these MSEs reported less NPAs than their elder brothers in the corporate sector, each enterprise can be insured for various risks that include, fire, riot risks, natural calamities, the pandemic-like situations, plant and machinery, storage, other supply-chain disruptions, and cash flows on a graded scale. Once the enterprise pays the premium based on the risk it chooses to cover, and such risks are well-measured, insurance will ensure that the enterprise will be a going concern, and banks can extend the needed help duly assessing their risk cover as well. It is time for a change the guarantee is looked at and replaced it with Insurance, for which purpose, the GoI may appoint a High-powered Committee.

The policy should be transparent and discussed with the stakeholders in at least ten of the fourteen MSME-dominant states before introduction.

https://timesofindia.indiatimes.com/blogs/fincorp/cumbersome-guarantees-and-insurances-for-mses-need-redress/

 

 

10-Point Agenda for Rebuilding Trust in Banking - PNB Fraud

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Bad banking has now become major concern of the body democratic. PNB fraud of Rs.11300cr proved a saga of utter disregard to responsible banking. Ethics took hard beating and governance in utter disarray in the backdrop of unlearnt lessons of the similar past offences both within the bank and outside. It takes years to build reputation but only a few minutes to destroy.