7th November, 2012
The Reserve Bank of India (RBI) is now considering relaxation of NPA (non-performing assets) norms for housing projects. Earlier, the NPA norms were relaxed for infrastructure loans. But the MSMEs (micro, small and medium enterprises) which are the worst sufferer of the revision of NPA norms from 180 days of default to 90 days of default are still reeling under such predicament.
There are similarly thousands of MSME units in the country whose accounts have become NPA due to reasons beyond the control of the promoter; if right treatment was provided in time, the units would have revived through rehabilitation. The MSMEs are the growth engine of the nation. It is the link between agriculture and the large industries. It contributes to the growth of GDP and brings down inflation. The significance of MSMEs is, therefore, the biggest priority today, especially in view of the ongoing recession.
In Odisha, around 50 per cent to 70 per cent MSMEs are either closed or sick or suffering from incipient sickness. The banks have been provided with targets to fund MSMEs. The banks have also got their own funding parameters. If a unit is NPA or even with stressed assets, the banks normally do not fund such projects. Also, if an account has been settled under OTS (one-time settlement) scheme, the banks normally do not fund such a promoter. Under the above circumstances, the banks are only left with hardly about 30 per cent of MSMEs whom they find eligible for funding. How do they achieve their targets under such circumstances? Hence, the banks find it easier to extend credit to other sectors such as retail and heavy industries and the MSMEs remain neglected.
How do we address the NPA MSME units? Huge amounts of public money are locked up in such units. It is extremely important that we first rehabilitate such units as a national priority, where with minimum investments the unit can be revived extending various benefits to the nation. As per the RBI, NPA is just the status of a unit. There is no bar for the banks to finance an NPA unit, restructure and rehabilitate it. In fact, the RBI circular dated April 24, 2008, the abstract of which is produced below, is clear that in order to prevent the banks from initiating recovery action without providing adequate opportunity, it is necessary for the banks to follow the procedures laid down for rehabilitation of a unit.
A Working Group was constituted under the chairmanship of Dr KC Chakaroborty, CMD of Punjab National Bank to suggest measures for improving credit flow to SMEs as well as measures for early implementation of rehabilitation and nursing of sick SMEs by examining their feasibility. The Working Group has given various recommendations which need to be taken up by banks, NABARD, SIDBI, RBI and State Government for enhancing credit flow to the SME sector as well as for early implementation of rehabilitation of sick SMEs.
As an incentive for proper restructuring package at the time of rehabilitation, necessary support for business restructuring, modernisation, expansion, diversification and technical upgradation as may be felt necessary by the lenders may also be encouraged. Support schemes like credit-linked capital subsidy scheme in case of units in other (then rural) areas, KVIC margin money scheme (for units in rural areas) may be extended for rehabilitation package also.
The State Government should introduce a single-window concept for providing relief and concession to sick SMEs.
In order to incentivise the banks to take rehabilitation measures, the repayment of any additional exposure taken as part of the rehabilitation package should be given priority on the cash flow as well as security as compared to the other debt.
The interest of at least six months after commercial production can be included as part of the project costs. Sufficient moratorium, say two years, for repayment of the principal should also be given so as to prevent cases of incipient sickness at the commencement of the production and help units establish themselves in the market at the beginning.
The existing guidelines on rehabilitation, whether as regards the relief and concessions, viability parameters or coordination between the banks/FIs and Government agencies are adequate to manage the sickness in MSME sector. It appears that the implementation of the guidelines has not been done properly. More stringent monitoring at the level of HO of the banks/FIs, as also at the level of the RBI may help in timely identification and treatment of sickness in the MSME sector. However, minor modifications on the same are expected to further strengthen the guidelines.
It is just a simple letter that has to go from the Government/ the RBI to all banks allowing them absolute freedom to take their commercial decisions by funding NPA and OTS accounts despite their names reflecting in the CIBIL. Let the banks decide why the unit became NPA; why the account was settled under OTS or why the default has been cited in the CIBIL without prejudice. In case of a mindset of an original banker, let the other banks be free to take over and finance such accounts provided they find the project viable and the promoter reliable.
Like a small wound, not being treated grows septic and eventually may result in amputation of the organ; we now need to treat our NPA MSMEs adequately and in time as a national priority in order to bail out the nation from the present economic crisis.
(The writer is the Working Chairperson of the Entrepreneurs & Finance Customers Association of India-EFCAI)