RBI Governor’s evaluation on SME Loans: making of revival scheme for MSMEs

MSME sector

To explain about the credit and finance issues being faced by MSME sector, industry chambers representing a wide section of the Micro and Small & Medium Enterprises (MSME) and met RBI Governor Shaktikanta Das on Monday.

Seeking the Central Bank’s intervention in addressing Non Performing assets (NPAs) in MSMEs, the Federation of Indian MSMEs, the umbrella organization representing MSME sector, asked for setting up of a separate track for dealing with non-wilful defaulters, classifications of the account into viable and non viable categories and the creation of a viable, revival scheme for stressed MSMEs.

To actively support ‘Medium’ enterprise, FISME in its presentation, pitched for specific support measures for units/accounts having exposure greater than Rs 5 crore.

With regard to Bank Loan Rating (BLR), while stating that BLR-external credit rating is “becoming a drag and tool for blackmailing”, the industry body asked for Credit Rating Parameters (CRP) to be defined by RBI to bring transparency to the entire process.

As per it, fresh guidelines needed to be issued on aspects such as dilution and eventual freedom from collateral, performance guarantees (PG) and the treatment of no-fund differs from the fund based limits.

“MSMEs should be considered at par with financial creditors and their dues should be secured in the IBC and guidelines to be issued for credit rating agencies for BLR rating,” stated FISME’s statement presented to RBI governor.

Sustaining that trading in bills under Trade Receivables Discounting System (TReDs) has the potential to be a very powerful tool not only for providing liquidity to MSME sector at reasonable cost but also at bringing financial discipline among the corporate, the industry body pitched for an increased securitization of accounts receivables, acceptance of trade receivables across sectors, and the need for more bill discounting entities of the platform. Worth noting is, a fast track implementation of Gol Policy has already been announced in this regard.

The other major proposals submitted by FISME included the demand for bank guarantees by insurance companies—whereby Indian or foreign companies will be able to issue performance guarantees/bid bonds, etc. and the demand for making available overseas funds with SIDBI collating and intermediating between groups of suitable borrowers and the overseas lenders.

As per RBI data, India’s MSME sector contributes to nearly a third of the Gross Domestic product, accounting for about 45% of manufacturing output and 40% of the country’s total outward shipments.

The Narendra Modi government’s last budget,  before general elections that are slated to be held this year, is to be presented by Finance Minister Arun Jaitley on February 1. Worth noting is, in order to minimize the cash crunch woes of MSMEs, country’s central bank, on Jan 1, opened a loan- restructuring window for them, for a year.

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