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Last updated: 22 Mar, 2016  

msme-THMB-2010.jpg MSME rehabilitation

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Bikky Khosla | 22 Mar, 2016
The RBI last week came up with a revised framework for revival and rehabilitation of MSMEs. The new guidelines, which follow a May 2015 notification, are applicable to MSMEs having loan limits up to Rs. 25 crore. The central bank directs PSU banks to look for stressed accounts from an early stage by creating three sub-categories and forward such accounts to a committee — comprising of bankers, MSME loans in-charge and outside experts — that will, in turn, have to come up with a corrective action plan, which shall look at rectification, restructuring, recovery and additional finance if needed. The idea sounds good but will it be workable in practice?

According to a recent media report, less than 5 percent of potentially viable units in the MSME sector were revived during the past decade. This data is shocking, particularly at a time when newspaper headlines have been full of stories of bad loans worth thousands of crores of rupees taken by large corporates. The report adds that banks show reluctance to offer greening or corporate debt restructuring (CDR) facility to MSMEs. No real effort is given to restructure or revive even viable advances only because they are backed by collateral. If things are really going like this, then we will never be able to rehabilitate our sick MSMEs. The central bank must ensure that its efforts trickle down to the branch level.

Meanwhile, the  Insolvency and Bankruptcy Code Bill has been referred to a joint committee of parliament. The proposed legislation seeks to bring down the time required to resolve insolvency cases to 180 days, extendable by another 90 days, from current four years. This is a major pieces of reform legislation, which, I hope, would be passed during the Budget session. There are some other positive developments, which I think are encouraging. First, it was announced that Khadi and Village Industries Commission would soon come out with sops for start-ups in the MSME segment. In addition, it is good to see that Udyog Aadhar registration for MSMEs has been going on in full swing, with nearly 3.8 lakh UAMs registering since introduction of this facility in October last year.

The recent Directorate General of Safeguards (DGS) decision to extend 'safeguard duty' on some steel products up to March 2018 is not welcomed by the sector, however. Many MSMEs have raised their concern over this decision. The duty had been first introduced in September 2015, for 200 days, based on complaints logged by some steel majors, but now its further extension —  MSMEs feel — will severely affect the units in the manufacturing segment. This is a Catch-22 situation — we need to safeguard the domestic steel industry from cheaper imports, but at the same time we must ensure that our MSMEs — which together create millions of jobs — do not suffer. We need to strike the right balance.

I invite your opinions.
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AbhayDosi | Thu Apr 21 18:24:07 2016
This scheme's is use less till excise exemption limit not raised Atalbihari vajpayiji extent from50 lacs to 1.50 cr But after clear asurance of Msme minister Kalrajji Mishra after formation of new government in mitting with Ssi organizations thatit will e raised up to 4 cr but after 2 years no change When i tax audit limit extented from 40 to 2 cr When finance minister in budget statement has no single word for Ssi No any benefit we may avail till the exemption limit not extended

Rehab MSMEs
Keerti Deshpande | Mon Apr 4 12:59:13 2016
I have observed the very same issue since last many years, while practicing as valuer. We evaluate the factories for fixed assets as an engineering firm. I always though of rehab with the help of outer agency who can provide guidance to the unit may be for management of resources, market or saving product cost or any way after studying the loss making factors. And restructuring the finance taking into consideration all above points. One unit was being closed due to this issue. But, the banker refused to take the responsibility for restructuring and the unit shut down with a loss to bankers as well as itself. It was very unfortunate. At present, there are many such non-performing units which need assistance for their growth and restructuring finance. Sir, I have engineering degree, so that I can understand the problems of manufacturing units and I do have MBA Finance degree. SO, please give me a chance to work with you, when ever you are working on this. With these points in mind, I am going to start an asset reconstruction company. We have many sick units in our industrial area. Also, guide me if required to help those units.

MSME Rehabilitation - 6 key solutions
Rajaa R K, FCA | Fri Mar 25 14:54:29 2016
MSME Rehabilitation is very relevant and very important. Soln 1 : Change RBI provisioning norms : The biggest hindrance to restructuring today are RBI norms where the asset is considered bad even after restructuring for 11 months - which is a disincentive for the banks. RBI needs to understand that the provisioning norm as it stands is unfavourable to the MSME and thereby hurting the economy. Soln 2:Change CIBIL norms for MSMEs: Failure in a few businesses, bounced cheques, reflect undercapitalisation and/or the need for business model change. CIBIL should have points for business continuity and residence continuity. Soln 3:Recognize that repeated business model changes are a must before a business succeeds. Soln4:Correct Undercapitalisation:The main issue with MSMEs is that they are under-capitalised, leading to higher interest costs on market borrowings and therefore profit reduction which causes sickness. Then,entrepreneurs are forced to spend more time on survival funding than on sales,further reducing toplines and bottomlines. Instead of begging for FDI, if we recapitalise MSMEs with bank funds, we will create more entrepreneurs and therefore more jobs. MAKE IN INDIA is better done by locals! Soln 5:Evolve exit options,policies & procedures whereby the business alone can be transferred easily, so that new promoters can come in.Funding is easy if exit options are practical & executable. Soln6: Support & counsel every MSME for growth by a local central body.

Closing Down MSME
Biswanath Bose | Fri Mar 25 10:38:26 2016
People involved from Govt. on MSME are really don't know what it is? What's their? What's their pain? How long needs to establish a brand or company? What support they really need? For Banks, it's a 'deshi murga', you can do whatever you like, humiliate, abuse threaten them, send recovery agent to owner's home to humiliate their family or in front of the worker etc. (Note: I have faced all these with State Bank of India). Today Bank gives you loan and next month MSME needs to pay Interest %Loan. No one can establish a business in one month, they need 3- 5 years. Bank/Govt. don't give you like other countries. Bank & Govt. both wants to kill MSME to help the Corporate. MSME needs to Pay 18%- 20% Interest other charges, MSME cannot make so high profit margin until 5 yrs.MSME are also creating something new like agriculture and why MSME will not get same Int.rate/Insurance as for Agriculture? So, until you become corporate, Bank & Govt. will try to kill MSME EVERYDAY. MSME was hope from Mr. MODI, Now people can forget it, Indian is always Indian. On the name of MSME rehabilitation Govt./Banks are organizing the closing down more & more MSME. It's only a Paper to show.

MSME rehab
Srivathsan. Mysore | Fri Mar 25 03:38:46 2016
In continuation of my earlier posting, It is very important that the present banking ( bankers attitude) is not conducive to growth of SME as they are tuned to working like money lenders and not as partners in progress of India and catalyses for creation of employment. Just like the social trust( govt of India) funds for defense and agriculture a similar platform to be created for funding,nurturing and fattening os SME. They are the backbone of industrial activity at least capital expense and highest productivity.The present bank channel is suited to corporate bodies, PSU,housing loan car loan and gold loan( pawn brooking in real terms) Very little financing for people who take active part in generating tax revenue.

MSME rehab
Srivathsan Mysore | Thu Mar 24 16:17:34 2016
Sir, Recently I saw in news paper that nearly 14000 crores have been earmarked for just 6% Da increase of Central govt employees. This is tax payers fund .If a similar fund from Tax payers money could be be transferred to purely rehabilitate SMEs it would at least make 15000 unit and bring in new revenue and re employment which is much more in need than just putting money into already fat pocket and slitting the throat of SME under the pretext of NPA. Are they different set of citizens not belonging to India.

Statutory dues to MSME
M Gabriel | Wed Mar 23 13:24:58 2016
MSME face a huge issue in collection of C /H forms from the corporate companies. The provisions must be made stringent for non-issue of statutory forms in time. It should be reflected in the balance sheet. Or when MSME is forced to pay the difference of tax to the departments, due to extreme delay for non-receipt of forms, it should be treated as monetary default and should be made punishable.

Chandan Sarkar | Wed Mar 23 10:00:21 2016
I think a great deal of pain in the MSME sector lies in outstanding payments to be recovered by the MSMEs, from larger corporates and public sector companies, there are no clear estimates about how much money of the MSME sector is stuck in terms of outstanding payments most of which may not be recoverable any more, the greater pain is that most of these debts have generated false profits on the books of accounts of the MSME sector, on which MSMEs have paid sales tax / service tax and income tax, for income that was never made, badly affecting the liquidity of the MSME sector where liquidity is the biggest problem, there are no laws protecting the MSMEs from this, even the MSME act is now more or less a toothless tiger and now even cheque bounce cases are not looked upon as major crimes by the court of law, allowing the larger corporates a free hand in using the money of the MSMEs as their primary source of interest free funding.

MSME rehabilitation
A V Chandran | Wed Mar 23 09:07:56 2016
Collective efforts of MSME sector along with competent authority is a must wherein ways and means including improvement proposal process similar to co-operative culture will have direct impact for its revival plan. Mission MSME Rehabilitation must ensure viable working proposal Report pin pointing facts and figures along with supporting justification and such report is being submitted to Competent Authority for their welcome step and assistance in order to keep up MSME subject to continuous viable working results. Mission MSME Rehabilitation must include application of cooperative culture on micro terms and once it is tested towards improvement, it could be implemented on macro terms.

Restructuring stressed loans
Bhagawath Prasad | Wed Mar 23 08:48:17 2016
I would always argue on a point that , very few MSMEs will have guts to divert funds and willful defaulting , in general it's an emotional start-up and would continue , therefore character of MSME is pure , but the problem lies at delayed payment system from larger companies and public sector tenders , due to lengthy audit processes , ventral bank will not have noticed that , in spite of taking back guarantee ,customers still delay payments at an average of 6 to 9 months , by raising various queries, waiting absent signatories , raising a query to HO or committee, asking clarification how to make payment pertaining to tender ,even a bank tenders are dealt in similar fashion , if these are dealt at policy level , half of sick units will never ever go sick or stressed.

In consonance to the government directions under the Public Procurement Policy for Micro and Small Enterprise (MSEs) Order 2012, to all Central PSUs, Central government ministries and departments procure at least 20 per cent of their requirements of products and services from Micro and Small Enterprises (MS5s) units .Exemption of Earnest Money Deposit, already exists. These are all positive steps for the development of MSMEs If the organizations do not pay for the material supplied -development aside, the very sustainability of these enterprises become difficult. With the foregoing In view it is to state that,we,Piping and Energy Products, Z-18, Okhla Industrial area Phase II New Delhi, registered as MSME (no , FIO/EM/CI/12-13 559, Dt: 25.07.2013),have supplied spring supports in 2012 to Paradip Refinery,a Unit of Indian Oil Corporadon Ltd. ( A Govt of India Enterprise) amounting to Rs. Twenty Lakh through M/S Petron India Ltd. PO No. PECL 101389 Dated : 20/01/2012.M/S Petron has a registered office at ' 6 th Floor Swastik chambers, Sion-Trombay Road, Chembur, Mumbai-400071,and an annual income of Rs.422 crores. Even after a lapse of four years we have not been affected the payment. THE ABOVE IS ONE SUCH EXAMPLE-WHICH NEEDS GOVT.ATTENTION-AN IMPORTANT ACTIVITY-NON ATTENTION OF WHICH MAY MAKE MSMEs SICK--THEREFORE AVOIDANCE OF MSMEs GOING SICK, ACTION IN THIS DIRECTION IS NEEDED. Maj G P Singh

MSME rehabhilitation
Srivathsan | Wed Mar 23 04:55:17 2016
In continuation of my earlier posting on the subject, I wish to put a concreted idea in favor of Small scale industry, opportunity for skilled employment and Bankers and simultaneously generating more entrepreneurs. A successful enterprise will bring in 10 new entrepreneurs to the field.Create a new financial platform having traders, businessman, and venture capitalist to access and asses rehabilitation of SSI whose stake with bankers is less than 50 lakhs to start with then go up to 5 crores. They will kindle the energy sorting out, guiding and also supporting in marketing their produce, financing for working capital and small time issues through banking platform but with financial support form govt or other funded equity. the terms will business like and similar to venturous capital. They work similar to BOOT but in a different sense of upgrading the NPA to NPA( national productivity assets. They work like god father to industries. I remember a words from an experienced successful entrepreneur said without a GOD father do not enter small scale sector.Bankers remove the umbrella when it rains or hot sunshine. They do not promote growth when needed.

George Varghese | Wed Mar 23 03:34:45 2016
As per the circular from the Ministry of MSME, there are 358 items from suffering sectors is exclusively reserved for MSME units in case of public procurement. When the MSME units approached the Government Agencies while inviting tenders they are not caring the circular from MSME. in my opinion Ministry of MSME must strongly advice the public requirement agencies to follow the circulars of MSME. Eg. Surgical Gloves should be purchased from MSME unit only as per the list of 358 reserved item, no state govt purchasing agency is encouraging to take same from SSI units. Even is we asked they are telling that they are not supposed to obey such circular. Please ask tender document from any state Medical Service Corporation whether they included surgical gloves in the reserved list. even there is no such reserved purchase in any public procurement agency. without the help from public procurement agency and bank, MSME unit cannot survive, gov should take effecting interference in this matter

MSME rehabilitation
Srivathsan,Mysore | Wed Mar 23 03:04:39 2016
The article is extremely pertinent.Whatever words are used in Media Nothing percolates to Local branch manager as they are questioned about their decision and their career is at stake. Hence refer hence no branch manager will take any declension. He is comfortable to Hang the MSME at the slightest sign of sneezing or a cough.The best thing is not to do any thing than do something positive and get questioned. Now it is time we have to question bank managers about failure of enterprise. He has to do more proactive work in this field than just sit as money lender and report to sec secuarization.Hence he is comfortable in slitting the throat of a family of entrepreneur.I am sorry I am harsh but that is the reality.The best thing present day bankers can do is to offer home loan car loan and gold loan and consumer loan to salaried persons in govt,corporate and psu etc purely as pawn broker.They are no more working in the interest of creation of National productive assets( NPA) but interested in creating Non performer assets. They put the entrepreneur to wall and recover thru security.The best solution is to create new financing platform for MSME sector . The new finance platform will have traders,businessman, venture capitalist on board and less weight for pawn brokers in banking system.

Rehabilitation of MSME
Hemant | Wed Mar 23 00:42:23 2016
There is a need of sincere effort to make law makers understand what is the difference between large corporate lending and SME lending . These bankers are fooling the govt. by way of showing fear of Public money . At the time of lending they have two sets of rules one for corporates and another for SME . For large corporate collateral doesn't have any role.But at the same time they want 100% collateral (EVEN 200% IN SOME CASE) from SME. According to me a proper law has to be framed for recovery of dues from SME . A proper flow chart needs to be followed before going for any coercive step. I am writing below the flow chart . 1. A proper due -deligence with the help of sector specific experts needs to be made before disbursal of funds . So that no underfinacing is made. A proper study should be made by visiting similar industry . 2. Symptom of stress is very much visible . Once the symptoms appears the matter should be referred to the rehabilitation cell (RC) of the bank. This rehabilation cell should not be attached to the recovery cell. A separate rehabilation cell should be formed specially for SME loans .The function of the RC should focussed to study the reason of stress & immediately come out with the solution in a time bound manber. A time line should be fixed. 3. Barring cases of fraud , willful default & diversion of funds except these in all other cases where there is genuine problem a proper revival solution should be made . A time frame should be fixed.

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