Demonetisation hits road blocks in rural areas

Though late, demonetisation has hit as many bottom lines as the media headlines. Life will never be the same for those demanding gratis for nothing. No longer can the Private Medical Colleges sell the management quota for crores of rupees, for few are left with such crores. Even private money lenders would dispense credit at lower rates than before. NBFCs compete with banks getting their vaults overflowing with deposits in a couple of months from now. Institutional credit will be able to fall in line only banks change their mindset to serve the farmers, rural artisans, and MSMEs in a big way. While this is music to the ears, rural areas at the moment are in tears.

Out of 1,50,000 odd commercial bank branches, there are only other 1,30,000 access points with just 22 percent of them in the Post Office fold. Primary Agricultural Credit Cooperatives and District Cooperative Central Banks’ rural branches do not have currency holding capacities. A visit to the neighbouring villages on Thursday in Mahabubnagar and Nalgonda districts revealed the sob stories of the effect of demonetisation.

This being the season of marriages, several of those engaged in wedlock said that they took cash to buy the wedding clothes and decorations and they have to miss the Muhurtham if they were to draw exchange only Rs.4000 per day and that too travelling a distance of at least 20-30km to reach the Bank branch as the post office did not receive cash in lower denominations to substitute the withdrawn currency notes of Rs.500 and Rs.1000. And they have to do it every working day for at least 20 or 25 days if their dreams of marriage were to come true.

A tribal village in Adilabad served only by a Business Correspondent during the last ten months its banking requirements has a different story to tell today. The tribal families that are used to spending in Rs.500 denominations and remitting into the bank have no outlet to convert their Five hundred rupees into lower denominations.

Rural and tribal unbanked areas are not on the antenna of either the Union Ministry of Finance or the RBI when the demonetisation is announced. The FAQs of the RBI did not even make a mention of the Business Correspondents and Business Facilitators on the route map of monetising the demonetised currencies.

RBI should mobilise safe and secure Mobile cash dispensing vans to the rural unbanked areas for pre-specified and notified hours to exchange and remit cash up to the specified limits.

Presently, the BCs have limited holding capacity that is used for putting cash into the savings bank accounts of the villagers. The BCs since the early hours of 9^th November stopped receiving the barred currencies. They also are losing their earnings by the day. Even they can exchange cash only to the extent of limits specified for individuals.

Several Indians staying abroad hold up to Rs.25000 per person in these withdrawn currencies. All the foreign banks and exchange kiosks abroad as understood from my daughters staying abroad have closed the counters for exchange of Indian currency. They also said that the currency to the earlier legitimised limit no longer holds valid and they can burn their Indian Rs.500 and Rs.1000. Our embassies and the RBI site does not provide appropriate answers.

Yet, the villagers and tribals are in great rejoice as they get money in smaller denominations hence forward to spend on consumables and liquor. Before it is late, the RBI would do well to immediately address the issue of replenishing the stock of old withdrawn currency wherever it existed with the new and lower denominations and also provide new outlets of exchange on war footing.  

For the first time after independence, the efficiency of Currency Department of the RBI and the Security Transport system are put to test and it is hoped that the central bank would live up to the expectations. Initial baby steps hold many lessons to correction.

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22nd Convocation Address on 22nd October 2016

Mrs Arthy Sampathy, Mr Sailesh, Prof V.G. Chari and all other Professors, distinguished audience and most importantly, all the graduates getting coronated today -  I am delighted and privileged to be amidst these blossoming flowers of life whose petals are in pleasant colours that the most beautiful butterfly would envy. At the outset, let me congratulate all of you for all that you achieved on this illustrious Siva Sivani Campus. I also congratulate the faculty and staff who should be feeling equally proud of seeing you transcending to a different territory.

When Dr Chari called me on the morning of 16^th of this month to adorn this dais I instantaneously accepted the invitation for, it is a great honour to be in the hall of fame of Siva Sivani Institute alongside doyens like Abdul J. Kalam who ignited the minds of youth and scientists alike. I also realise the responsibility to share with you such lessons of life that you would love to hear.

If it is my parents who taught me love and affection, it is my gurus who made me sterner stuff. I shall invoke my parents’ and Gurus’ blessings before I call upon you to do all that you wanted to do after you leave this campus. “Matru Devo Bhava, Pithru Devo Bhava, Acharya Devo Bhava.

I was wondering what you would love to hear for the next few minutes different from what you had been listening during the last two years on this campus. I thought the choices made in my life at different points of time could be of interest to you. You are today fortunate to stand in the midst of an intersection that takes you to the roads leading to join a job or setting up an enterprise that creates the jobs.

Lack of oversight on credit guarantee raises concerns

Lack of oversight on credit guarantees raises concerns

Just a year back, Pradeep Malgaonkar, the chief executive (CEO) of Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) scheme was extolling the great strides it made in the geographical space of such guarantees. The Trust has issued cumulative guarantees to 23.23 lakh MSE loans involving an aggregate credit of Rs1.08 lakh crore over the past 16 years. Its corpus grew to Rs4,328 crore as of 31 March 2016. About 133 member lending institutions are participating in the scheme. 

But the Reserve Bank of India (RBI) in its Annual Report for 2016 expressed concerns about overleveraging of corpus and the way the guarantee scheme is functioning. Information asymmetry and adverse selection on the part of member lending institutions seem to worry the regulator. More worrisome issue is the absence of regulatory oversight on this institution. 

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.

STRENGTHEN THE MSE FACILITATION COUNCIL SOONER THAN LATER

Most micro and small enterprises suffer from delayed payments for their supplies and services. Several contractual engagements with both the government and public sector undertakings also are not honoured.

In line with the long-standing demand of small-scale sector to alleviate the problem of delayed payments the Delayed Payments Act came into being in 1993. The hope that the small scale industries would be relieved of the stress in working capital was short-lived due to ineffective implementation. The Act has been amended in September 1998 providing for payment of penal interest at 150% of the prime lending rate of SBI, defining default period as 120 days. It also provided for an alternative mechanism of arbitration and conciliation and also redefined the term supplier to include any institution, agency or undertaking notified as such by the Union Government. Industrial Facilitation Councils empowered to act as arbitrators/conciliators were to be notified by the State/UT governments. The amendments were effected to strengthen the Act, to make it more useful without disturbing the buyer - seller cordial relations and to provide a relief to the small suppliers from undergoing the cumbersome recourse of legal redressal through civil suits.

Subsequently, in 2006 when the MSME Development Act was brought in, the Delayed Payments Act was subsumed in Sections 15to18 of the MSMED Act whereby the MSE Facilitation Councils replaced the Industrial Facilitation Councils. 

MSMEs on the Roller Coaster

Unhelpful Banks and Less Understood Regulations

B. Yerram Raju and K. Manicka Raj*

In a recent address RBI Governor Raghuram Rajan said: “A Banker who lends with the intent of never experiencing a default is probably over-conservative and will lend to too few projects, thus hurting the growth.” In the same vein he added: “Indeed, sometimes banks signed up to lend based on project reports by the promoters’ investment bank (in the case of MSMEs chartered accountants), without doing their due diligence.”

There is a total mismatch between the banks understanding and RBI's intentions on the guidelines issued in respect of MSME financing , follow up and useful implementation of the various schemes. Because of accumulation of NPAs banks seem to have lost their sense of judgement and MSMES are the victims and the SARFAESI ACT 2002 has become very handy. Even in the best of times banks did not revive or restructure small scale industries more than 1.5 percent of their own assessed potentially viable enterprises as revealed by the RBI Annual Reports.

Are we on the right track in tackling NPAs?

Are we on the right track for NPA resolution?

B. Yerram Raju*

In the last few years, barring the 2008 Recession and its global impact, no subject other than NPAs of the Indian Banks has occupied so much print space and media attention.

If good number of banks in the public sector has faltered in loan origination succumbing to external pressures, some others have failed to supervise their loan portfolio. But their contribution to NPA portfolio may not be more than 25 percent. NPAs that turn as bad loans are the real culprits. Only 20 percent of the total quantum of loans at the doorsteps of legal system could be resolved to the satisfaction of the banks, notwithstanding the projected empowerment of banks through the SARFAESI Act. The real reason is, therefore, beyond banks – the law and justice.

MSME Amendment Bill Destroys the Sector

MSMEs in India have great significance as they will be the drivers of ‘Make in India’, Start Up India, and Digital India strategies unfolded by the Union Government. They are governed by the provisions of MSME Development Act 2006, with the principal objective of promoting, developing and enhancing the competitiveness of the MSMEs.

Two years since the NDA government came to power MSME sector seems to be in a confused state with unresponding credit markets, slow moving equity, and adverse global positioning in spite of large potential for job growth.

MSMEs are redefined in September 2015 by way of amendment to rules to the 2006 MSMSE Act providing for vertical growth. Earlier definitions of SSI and MSMEs post 2006 accommodated horizontal growth and perverse incentives. But all the states have not fallen into grove.

New regulations and rules seem to be compounding the problems for the sector when it comes to revival and rehabilitation even as the Bankruptcy Law provides the long awaited relief for the large industry.