Huge
NPAs in corporate sector of the order exceeding Rs.10trillion and the
increasing credit outflow for MSMEs from the NBFCs, on the verge of taking away
the meat our of the portfolio have woken up the commercial banks to lend to
this sector more responsibly. Banks like SBI, Canara Bank, Indian Bank,
Syndicate Bank, and PNB are in the lead while the others are still in wait and
watch approach. This context demands an inquest of the present status.
Definition of the sector matters when we want to measure the MSME credit
growth.
SIDBI
defines MSMEs having credit outstanding of less than Rs.1cr as micro; 1cr-25cr
as small and Rs.25cr-100cr as medium and beyond Rs.100cr as large for measuring
credit growth while the MSME Development Act 2006 defines manufacturing MSMEs
by way of investment in plant and machinery as of now: Less than Rs.25lakhs as
micro; Rs.25lakhs-500lakhs as small; and Rs.500-1000lakhs as medium. An
amendment is awaiting Parliament’s nod for changing the measure to turnover to
make the sector ‘globally’ competitive and investment friendly. The new
definition keeps micro enterprises at Rs.5cr annual turnover. SIDBI’s analysis
follows neither the impending change nor the existing pattern for analyzing the
MSME credit growth.
MSME
Pulse April-June 2018, an arm of SIDBI measures growth in the sector by credit
exposure mentioned above: MSME with a portfolio of Rs.12.6trn is pitched at
22.2% for micro and 12.8% for small Y-o-Y at the end of March 2018. Medium and
large industry has recorded 7.2% and 5.9% correspondingly. The market share of
new private banks and NBFCs has been growing at 30% and 10.9% respectively.
NBFCs are now permitted the CGTMSE cover as well and this measure would see
further growth in lending by these enterprises.
RBI
Bulletin June 18 puts the micro and small, medium (as defined under MSMED Act)
and large enterprises’ credit growth Y-0-Y at 1%, 0.3% and 3.6% respectively
while in the financial year so far (up to end April), -1.8%,-2.7% and -0.9%
correspondingly. Manufacturing enterprises under micro and small segments
registered just 0.3% Y-o-Y reflecting the poor risk perception of the banks of
these enterprises. Viewing from the risk perspective, even according to MSME
Plus, NPAs of micro enterprises have been stable and range bound at 8.8% while
for SME segment it is 11.2%. NPAs of MSMEs have a cascading effect of the NPAs
in the corporate sector to which they act as vendors.
The
Corporate entities issue cheques for the bills payable to the MSMEs before the
last date of the quarter only to ask them not to present during the first week
of the following month lest their order book shrinks. This measure will help
conformance to the rule that above Rs.2lakhs dues to the MSMEs should be
reflected in their quarterly balance sheets. No MSME can complain openly as
they are in captive markets.
Most
of the PSUs and Government departments do not honor the bills on time and the
MSEs approaching the MSE Facilitation Council gets hardly a reprieve. The
lender is a government owned bank; the defaulter is a government department or
PSU; the arbitrator is a Government Executive. With such deep rooted conflict
of interest, the MSEs hardly got justice. Even the disputed claims are not
followed up with deposit of 75% of the amount settled by the Council. Even if
deposited such amount would be in the Court but would not go for credit of the judgment
debtor MSE that is reeling under NPA. Banks left with no option are proceeding
under SARFAESI Act provisions even against the only dwelling house of the
entrepreneur. They hardly have capacity and financial muscle to fight legally.
Many capable of producing to capacity close their shutters prematurely.
Trade
related electronic discounting system (TReDS) has on board only 34 PSUs.
Several Government departments are yet to register on the exchange. This is a
platform created for facilitating payment of 75% of the bill amount traded
through this exchange for MSMEs that also register on the exchange and sell
their goods to the registered members. Only a few banks registered on the
exchange. Several state run firms did not register on this exchange. To swear
by this instrument as a big boon to MSMEs will be unrealistic.
Banks
have not been putting their Board approved policy on their websites either for
MSME lending or OTS or Revival and Restructuring. Banks are also reported to be
charging huge penalties at no less than 18% p.a., on irregularities in the
accounts and collecting inspection charges for inspections they rarely did. So
is the case with SME Exporters. Banks have been mandated in June 2016 itself to
set up zonal committees to ensure conformance to put in place corrective action
plan, revival and restructuring and as a last resort recovery. But these
instructions are sparingly implemented. The recent amendment to NPA recognition
at 180days is hard to implement as the systems do not allow.
In
the current environment of trust deficit, proportionate regulation by the RBI
should help. RBI should move away from its stance of distancing from micro
management since banks are failing the MSMEs. They levy inspection charges for
visits to the units that were not made; debit interest and penal interest on
the overdue amount fully knowing that the account became overdue not because of
willful default but due to the cascading effect of the corporate NPAs. RBI should
therefore prescribe boundaries of penalties for the irregular accounts; charges
on forex dealings; modifying the IRAC norms and better monitoring of the
revival and restructuring processes. Instances are staring at us where the
proprietor or proprietrix falling terminally sick and unable to run the
industry seeks exit but has no exit route. Government of India would do well to
amend the SARFAESI Act 2002 provisions exempting the only dwelling house
offered as collateral and not recognizing collateral going concurrent with the
CGTMSE thresholds on par with the agricultural lands.
*The
Author is Adviser, Government of Telangana, Telangana Industrial Health Clinic
Ltd., The views are personal.
Published
on 12.07.2018
