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Last updated: 28 Jul, 2015  

Rupee.9.Thmb.jpg Tight credit: MSMEs in dire need of a solution

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Bikky Khosla | 28 Jul, 2015
Lack of adequate, low-cost and timely credit, along with reputation of small business lending as being highly risky, poses hurdles before the micro, small and medium enterprises, the MSME minister informed the Parliament last week. Over 5 lakh MSME units, which are owed over Rs 33, 378 crore to commercial banks, have been reported sick as on March 2015. This situation demands higher fund flows from banks to the sector. Traditionally, SMEs have always relied on banks for funds, and with alternative funding options hardly available for them, they still cannot help doing so.

But unfortunately, our banks are never interested in financing MSMEs, and worse than that, they are currently suffocating under the weight of NPAs. According to official data, bad loans at public sector banks have increased to Rs 2.67 lakh crore at the end of March 2015 from Rs 2.16 lakh crore a year ago. NPAs of public sector banks as a whole are increasing continuously and in this situation I think the Centre should undertake urgent steps to prevent the problem from growing to a severe macroeconomic challenge. At the same time, I think a comprehensive MSME policy that addresses the lingering credit issues faced by the sector should be the top most priority of the Centre.

For quite some time now the MSME sector has not been getting enough attention. Under UPA rule, it took several years to prepare a report by a Task Force on MSME under T.K.A.Nair, Principal Secretary to the then Prime Minister Manmohan Singh. It clearly identified lack of availability of adequate and timely credit, high cost of credit, collateral requirements, and limited access to equity capital as some of the major hurdles. But no comprehensive action followed the report to address the credit crunch challenge. Later when the NDA government came to power, some quick steps and concrete results were widely expected, but instead a new committee was formed to chalk out a policy for the sector. I think most of the problems being faced by our MSMEs are clearly evident and too simple to be studied, again and again.

Meanwhile, the first quarter results of India Inc released till now gives not a pretty picture. Total net profit growth of 215 companies that have announced their results (excluding banking and financial services firms) stands at 5 percent over a year ago, compared with 12 percent in March quarter. Experts view that high interest costs have played a role in this. Net profit of several Nifty companies has fallen sharply below expectations. However, I think the corporate earning scenario will improve in the coming quarters. Some major macroeconomic drivers of growth have already turned positive, and it seems earnings are bottoming out.

I invite your opinions.
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Govt should have implemented Nair recommendations
Kewal Singh Paneser | Sun Aug 2 16:02:48 2015
I have been an MSME for 16 years. one problem with MSMEs is exploitation by the inspectors when there is less education of the owners. About 5 crore MSMEs give employment to over 12 crore persons. Hence MSMEs are the biggest source of employment. There always has been and always will be Inspector Raj for the MSMEs. The FI's will not pass the loan many times without a bribe. A relative of mine obtained a loan of rupees 8 lac after paying a bribe of one lac against plot of his factory making flexible pipes and not having been able to repay the installments in time had to sell his factory. The banks will sanction loan if the sales and profits for the past three years has been progressive. Why will one require loan if his business is progressing without a loan? Even in case of new companies, collateral security is demanded. Security is the main criterion for consideration rather than the merits of the project. The NDA govt.should have implemented the recommendations from the report of the Task Force on MSME under T.K.A.Nair, former Principal Secretary rather than setting a new committee. Then there is hardly any limit for these companies to submit their report.

MSME credit, attitude of nationalized banks.
C Sunil H, Nagpur. | Sat Aug 1 12:08:23 2015
Banks now a days are only interested in extending consumer loans,they are least bothered about MSMEs,the RBI has very practical and pragmatic norms for Revival of sick or NPA MSME acts but it is very disgusting to note that the Branch managers are not at all conversant with these norms nor the higher officers of AGM and DGM are willing to extend any facilities of rehabilitation to these existing MSMEs. They are merely spectators and working as receipt and dispatch office without going in for ground realities and simply don't interfere with the reports submitted by branch people and they do not take any risk by not taking any decision on their own as they are only worried of their future pensions and PF's and gratuity after retirement and they are not being accounted for this attitude and over and above they are getting their hefty pay checks regularly by signing for 25 days and getting paid for 31 days without fail.The bank officials should be held accountable for MSMEs failure as why the guidelines of RBI are not strictly adhered to in the MSMEs account becoming NPA or sick. The accountability should be linked to their performances and their increment and payments should also be on the basis of their performances. The bank's have adopted policy of safe banking and are only working without field work for MSMEs, like they are easily funding consumer loans with advertising loan on same day and this is only possible with sitting in their chamber only without taking pains.

NIKHIL CHOKSI | Sat Aug 1 03:54:15 2015
Dear Editor, I do agree , but at the same time banks & other financial institutions , have got their norms & procedure for granting loan to MSME , so we have to manage ourselves. It all depends how you manage working capital. Regards,

MSME unit
dilip vidyarthi | Fri Jul 31 13:47:10 2015
MSME unit are run by small and very low profile person in terms of finances and mostly buyers are involved are from trading business and the buyers never have any opportunity to take finances from any financial institution without colatteral security,so lack of in trading business they are not able to purchase goods on cash basis from MSME units and MSME unit also not in a position to give credit to their respective buyers. In my opinion if financial institution provide funds to MSME buyers than the situation of MSME units can be improved.And it also effects the closure and NPA situation.

Santanu Das | Fri Jul 31 05:04:25 2015
Everybody is talking about big things and plans, but nobody is interested in look in to the matter from the perspective of an entrepreneur. For a MSME unit to run in the Indian market, all units supply the material on credit. Is there any notification which ensures payment should be made in time and even it is then is there any initiative to educate the entrepreneurs? Also, Bank managers are not at all co-operative. Does the Government have procedure or, guideline or, Target line for the Banks to facilitate MSME Unit?

fund crunch of MSMES
Surendra B Singh | Thu Jul 30 07:27:33 2015
It is true MSMES are facing fund crunch for workig capital. In a way it is true even for large enterprises. But MSMES who are OEM supplier to large company are comfortable because they get their payments against suplies in time and are assured of orders. But those MSMES who are rely for their input from large organizations and are also competing with them for their output, are hard pressed on fund because they donot get extended credit from their suppliers and large players compete with them on pricing of items which both are supplying. Besides, mismanagment of MSMES are leading to sickness. There is heavy competition in MSMES as entrprenuers rush to start MSMES because of low capital need to become employer. Government /Banks need to be judicious in the matter. I am not sure if stock exchanges will allow MSMES to raise Capitl from stock market. If a way out is found out at a minimum cost probably this wll ease their pressure on fund front. Large corporations have to hand hold MSMES even if they are not their OEM suppliers . Banks are to give them incentive in interest .

MSME Bank Finance
Dr. Shyam Sunder Tiwari, Nuclear Scientist | Thu Jul 30 05:58:59 2015
Finance to MSME from banks often 20% of the turn over, huge 14% plus interest, bank charges and insurance, every month stock documents, mortgage of 300% property, personal guaranty and third party guaranty, CA fee for unwanted business projections, harassment with threats of loan closure in few days irrespective of clear payment of dues of the bank is very common. I have experienced this from State Bank of India. They have never given me insurance policies for which they collected huge money for many years. Interest was increased from 10.5% to 14%.

Credit Facility to MSMEs
P.S.Biradar | Thu Jul 30 04:30:59 2015
Nothing is new. In our country, 100% Units are started on the basis of Bank Loans only. Even I have surveyed and noticed that the most of the Units have not utilised their Funds properly. While taking loan from Banks, they used to get over rate quotation to cover their 25% share.On the basis of Project Reports, Banks have lent loans to all these Units. Some people have just started their Projects without having sufficient knowledge of the product,market condition etc. Labour problem also plays a very important role in sickness of these Units.Overall, how Govt. will help these units. In my opinion, area-wise, a team of experts to be established and they have to study their failure in the business. If it is genuine, can overcome their losses by enhancing funding, then only Govt.has to finance.

A V Chandran | Thu Jul 30 04:23:41 2015
The only way out is frequent and regular review mechanism with reference to MSMEs continuous maintenance of growth rate. In short where we are where we are to go.

Loopholes in tendering
Dilip Gadge | Thu Jul 30 02:38:50 2015
Government departments do not follow the tendering process as laid down by Ministry. No free tender forms ,imaginary high EMD by which MSME should not participate and top of it conditions like USA FDA product should be quoted. Hoght of foolishness MSME can not go beyond state how can think of USA Ultimately unscrupulous officers and traders form a ring and take work orders MSME on road again easy loan is burning issue Government departments do not follow even NSIC/DGS&D there should be authentic task force of MSME members who can collectively raise their voice. There should be product reservation for MSME there is list which is neither followed nor updated as per growing technology

Financial backup for growth of MSMEs
PRAGNYA KIRAN NATH | Wed Jul 29 22:32:04 2015
My Food Processing Unit(Natures Fresh Food Processing) which comes under MSME started on 2005 could not yet stand on its feet in a span of long 10 years of struggle some efforts just because of the reason discussed above.I am extremely happy today when our govt. is paying attention to the MSME which badly needs financial assistance in correct time at low interest rates to stand on their own feet.As a proprietor of a fruit and vegetable processing unit, I 100% agree that our MSMEs are either getting closed or getting sick due to proper attention not being paid by the govt. so long.Had I been getting minimum assistance from any source it would not have taken me so many years to establish my industry.Thanks to the present govt. for thinking about my and many other similar entrepreneurs' problems.I would remain ever obliged to the present govt. if the efforts taken to solve the problem of MSMEs becomes a reality.

SME industries
R V Subramanian | Wed Jul 29 04:14:40 2015
When the funds crunch physically drain the SME owners , corruptions in the sales tax & other departments mentally drain them . Unless corruption is not routed out, the young upcoming entrepreneurs will be demotivated totally

In dire need for a solution
Balwant Singh | Tue Jul 28 21:22:34 2015
Whatever little funds the MSME sector has that is looted by the creditors. They just don't pay you back after taking the goods,. The laws for recovery must be tough. That's where the chain of events start for the worst.

MSME credit settlement
Gagan Beri | Tue Jul 28 17:31:36 2015
Would suggest a MSME court like a consumer court to settle non payment or delayed payments.

  Re: MSME credit settlement
Balwant Singh | Wed Jul 29 22:17:45 2015
I have sold goods across the state border & didn't receive the payment, the new law says, the case should be filed not in my state but in the defaulters state. That really sucks! Any suggestions !

  Re: Re: MSME credit settlement
Santanu Das | Fri Jul 31 05:13:10 2015
We are also facing the same problem. I have called the helpline. They suggested meeting with Director, MSME,Kolkata. I have an appointment on Monday. If anything positive result comes, I will surely share with you.

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