Bet big on MSMEs in Telangana
Low NPAs in the sector should drive financial institutions
for proactive interventions rather than waiting for things to happen
The Telangana government has created efficient policy
instruments around TS-iPASS, T-PRIDE, T-IDEA, RICH (Research and Innovation
Circle of Hyderabad), TASK (Telangana Academy for Skill and Knowledge) and
TIHCL (Telangana Industrial Health Clinic Limited) for the MSME ecosystem. The
micro, small and medium enterprises (MSMEs) in the State today do not face
power outages, voltage fluctuations and scarcity of industrial water. Tolerance
to pollution is going down slowly but surely.
Digital technologies, particularly artificial intelligence
and man-machine learning, are changing the way businesses are moving. Large
enterprises are also making a beeline to industrial parks and clusters like
never before. Credit institutions, however, are yet to match these efforts.
The questions that arise now are: Where are the entrepreneurs? Why are they not crowding in? What to do to make the ecosystem deliver?
The questions that arise now are: Where are the entrepreneurs? Why are they not crowding in? What to do to make the ecosystem deliver?
Copability and Capability
Risk profile of the MSME sector indicates the copability and
capability of the financial sector. Business risks surrounding industry,
markets, operational efficiency, management risks and financial risks impact
credit quality and infringe on standalone credit risks. Low NPAs in the sector
should drive financial institutions for proactive interventions and not wait
for things to happen. Enhanced CGTMSE (Credit Guarantee Fund Trust for Micro
and Small Enterprises) threshold to Rs 2 crore is again an opportunity for the
banks to move to trust-based lending from the balance sheet and ratio-based
template lending platforms.
Both MSMEs and entrepreneurs are also changing the way they
run their businesses. The other day I noticed as many as 60 young men and women
at Cherlapally in the shoes of their parents or grandparents. The aspirations
today for most of them are moving from legacy and archaic systems to newer ways
of doing things; catching up with emerging technologies; setting up new systems
and moving to global markets as well.
Banks should view such enterprises differently and wherever
such change has been occurring; human assets should be valued and embedded into
their risk profiles. This should enable better credit scoring and higher volume
of credit to meet the challenges.
Cross-holding Risks
Going forward, industrial clusters should provide lenders a
risk mitigation platform and for borrowers, scope for moving to value chain
from supply chain management. But such clusters should have an interdependence
between large enterprises and MSMEs in a seamless manner cross-holding the
risks. All shall be on ERP platforms enabling easy data-based monitoring.
According to a recent report by the Planning Department, Adilabad, Gadwal,
Rajanna Siricilla, Siddipet and Warangal districts require skill adaptation,
promotion and skill building in textile technologies (handlooms, powerlooms,
technical textiles, fabrics, apparel and readymade garments).
All other districts in Telangana, except Wanaparthy, require
skills related to food processing machining, chemicals, and heat treatment.
Wanaparthy district requires skillsets related to solar technology. TASK should
also encompass providing for industry association interface and incubation
centres in at least four key districts – Warangal, Nizamabad, Adilabad (around
IIT) and scaling up the VTIs, ITI and polytechnics both in regard to
technologies and faculty.
Mudra-enabled banks show more performance in the MSME sector
but lending lags for manufacturing ones. Textile Mudra has extended the
threshold to Rs 20 lakh at the extreme and this also provides a great
opportunity for banks and NBFCs to lend for manufacturing MSMEs since the State
is set to emerge as a major operator in the sector both in domestic and foreign
markets. The future of MSMEs rests on embracing digital technology.
Declining growth in lending to the sector from commercial
banks provided a great window of opportunity to the NBFCs. The latter are
devising credit products based on GST data driven by the latest relaxations in
thresholds and submission of returns and take very limited recourse to the
credit rating agencies. CRAs have not been able to come up with a rating tool
for new enterprises that the lenders can latch upon readily. Banks would do
well to look at their lost loan book during the last five years. They should
extend credit without cross-selling products like insurance and MF that led to
the shortage of working capital upfront.
Competitiveness of future MSMEs comes from knowledge-based
enterprises and global markets. Entrepreneur development centres in the DICs,
NIMSME, and MSME-DI should work in collaboration to identify and train
entrepreneurs and develop shelf of projects around the prospects within the
shortest possible time. Lending institutions should tweak their products to
cater to such situation providing environment for growth.
Disciplined Accounting
The MSMEs’ rate of vertical growth has not much to cheer as
micro and small tended to remain in that status for decades. Product
differentiation and price differentiation continue to be drawing less
attention. Organisation of their sales books needs the willpower to move on
disciplined accounting track. This would mean a change in the mindset of most
of them. Digital training of both bank staff and MSMEs needs tools for
kick-starting learning appetite within optimal costs for such initiatives.
Banks should consider failure as integral to the development.
The GoI in its draft industrial policy has recognised Industrial Health Clinic
modelled on TIHCL as a key intervention. Revival of a viable enterprise revives
dormant fixed assets and sustains employment in the sector.
The government is also committed to seeing the MSMEs in good health.
Seventy-five MSMEs through TIHCL are set to join the recently turned around
Rajarajeswari Spinning Mills, Sirpur Kagaz Mills and the likes, with special
support from the government.
Opportunity mapping as indicated in the infograph unfolds a
large canvas for those who can take the risks and manage them well. Time and
tide wait for none. Banks and NBFCs would do well to seize the emerging
opportunities in the sector.
https://telanganatoday.com/bet-big-on-msmes-in-telangana
