Pain points for the MSME sector
MSMEs Credit woes in stock
The RBI has its task cut out as it sets about addressing
the sector’s credit and viability concerns.
A debate on MSMEs has come alive due to the Centre’s
insistence on a regulatory reprieve for the beleaguered sector post GST and
post demonetisation. The RBI at its last Board meeting that Urjit Patel
chaired, promised to set up a Committee on the MSME sector by the end of this
month.
There is an estimate, authenticated by the Centre, that
there are around 50 million MSMEs, both registered and unregistered, employing
120 million, second only to agriculture.
Credit crunch
MSMEs contribute 6.11 per cent of manufacturing GDP and
24.6 per cent of services GDP. They also account for 16 per cent of bank
lending. Around 8 per cent of credit to manufacturing micro and small
enterprises and 13 per cent to medium enterprises are estimated to be gross
NPAs.
MUDRA (Micro Units Development and Refinance Ageny) and
the ‘59-minute loan sanction’ promises enhanced credit reach to the sector with
SIDBI in the lead for both. MUDRA helped banks to push the services sector
lending below Rs. 5 lakh significantly.
Field studies reveal that MUDRA loans have been used by
several banks to swap a good number of failing micro service sector loans.
There is also evidence of moral hazard following adverse selection as several
enterprises are non-traceable at the location mentioned in the applications.
In the band of Rs. 5-10 lakh the percentage of loans is
less than 20 per cent, indicating preference for a risk free portfolio and lack
of interest in the manufacturing sector.
The government has put in place e-Invoice, TReDX,
Samadhan, GeM to ensure prompt payment of bills from public sector undertakings
and central government departments. Even so, the State PSUs and state
government departments continue to delay the bills of MSMEs, leading to NPAs.
A procurement policy has been put in place to provide for
preferential purchase from MSMEs, without sacrificing the conditions of quality
of goods and services supplied to the buyer.
The process of loan disbursal is also cumbersome. Quite a
few banks follow a multi-layered approach to lend to the sector and as a result
due diligence suffers. The branch that disburses is also expected to monitor
and supervise the credit but does not have the time or manpower for that.
There is hardly any communication between the
entrepreneur and the credit authority until an irregularity in the account
surfaces.
So given declining credit and growing NPAs, the following
12-point Agenda is a way ahead for the RBI panel:
* Thresholds in priority
sector portfolio.
* Credit risk assessment
of the MSMEs
* Thresholds for declaring
the MSMEs as NPAs — 98 per cent of the portfolio in the fold of
proprietors/family owned enterprises in the shape of partnerships, have no exit
route of the sort facilitated under the IBC code or the Industrial Disputes
Act.
* Revival and restructuring
of sick enterprises — Innovative institutional interventions like the
Industrial Health Clinics in States that carry the highest numbers of
enterprises in this category.
* Cluster Development —
Additional lending incentives.
* SIDBI’s Role — Review
and Redefine for assuming real leadership role.
* The guarantee
mechanism in the shape of the Credit Guarantee Fund Trust for Micro and Small
Enterprise (CGTMSE) needs to be reviewed and redefined.
It has a role conflict with SIDBI as the latter is its
promoter and at the same time secures its guarantee for the enterprises
financed directly by it. CGTMSE premia rates were found to be high by their
primary lending institutions and the claim settlement process unacceptably
late.
* Role of credit rating
agencies and effectiveness of internal credit rating tools.
* Recommendations to the
Centre on policy initiatives.
* Digitisation of MSME
lending and managing its transition.
* Setting up of Movable
Asset Registry — Operational issues and directions.
* Setting up of Public
Credit Registry — Roadmap for data integration without sacrificing data
privacy and data security.
Given the cascading effect of the large corporate
manufacturing and services enterprises on the MSMEs, their healthy growth is
crucial for employment and growth of the manufacturing sector as a whole.
Since MSMEs are still largely debt driven and not equity
driven, it is important that access to credit should be easier, cleaner, and
faster.
The writer is Adviser, Government of Telangana on Micro
and Small Enterprises
Published on December 27, 2018, The Hindu Business Line
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