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RBI guidelines effective next month which seek to qualify any business loan restructuring to be classified as NPA could spell disaster for the micro, small, medium enterprises.
The threat is larger than size given that investment limits have been raised in recent times which will bring even more units under MSME ambit, says a top official of State Bank of Travancore (SBT).
JOB CREATOR
As on organised sector, MSME is the biggest employment generator in the country, according to S Adikesavan, Chief General Manager, SBT.
He made these observations during an address to a session on ‘MSME – growth prospects and impediments’ organised here by the Confederation of Indian Industry (CII).
Currently, credit deployment in industry is only about 25 per cent of gross credit; of this, only 10 per cent goes to the MSME sector.
This, Adikesavan said, shows that either the MSME sector is unable to absorb credit, or banks are not able to deploy available credit.
VLUNERABLE SECTOR
It is regrettable here that the medium-scale industries are not classified a priority sector. This needs to be changed, he added.
The MSME sector is vulnerable to even minor policy changes or delay in receipt of payment from major customers.
A detailed discussion on the issue must be initiated with concerned officials, Adikesavan said.
He also doubted the efficacy of the directive to involve a separate external committee for distressed MSMEs with loan of Rs 10 crore and above.
This is best avoided since credit is already taken as a contract between the lender and the borrower and they would be the best judges on what is to be done with it.
REPRIEVE NEEDED
The new directive will only increase the time and cost involved in the whole process and could prove a major disadvantage.
The Make in India programme, he said, can be a success only with the success of the MSME sector. It therefore needs all support it can garner from the government.
The CII may take up this issue with the Union Ministry of MSME and try to get a reprieve for the sector, especially with respect to loan restructuring and NPA call.
Due to many outdated rules and regulations, MSMEs, which play an important role in industrial development, find it hard to grow here.
Those units which have grown to be successful in the state of Kerala are parking their incremental investment outside.
GRADUATION PROCESS
Earlier, P Ganesh, past chairman, CII Kerala, mentioned that the graduation from micro to small, medium and the large seldom happens in Kerala.
The mindset of entrepreneurs needs to change. They also need to be conversant with best practices.
Ganesh also spoke about the paucity of space to develop new units, high cost of finance, transparent accounting and needed focus on high-end value addition in manufacturing.
He expressed concern over the policy that renders loan restructuring impossible from next month wherein irregularities in maintaining a bank account will trigger an NPA call.
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