MSMEs left in the lurch

Lack of adequate and timely access to finance continues to be the biggest challenge for their growth prospects

By Author B Yerram Raju   |   Published: 29th Sep 2020   12:03 am Updated: 28th Sep 2020   10:23 pm

The first quarter of 2020-21 proved a disaster with a negative growth of around 24%. If MSMEs contribution to this growth was around 30% of the GDP, their contribution to negative growth is 7.2% in simple mathematics. But something beyond is happening to the sector.

A senior civil servant who served the Ministry for nearly five years had this to say: If MSMEs have a GST problem, access to credit, payment of bills by the PSUs and governments for their procurement, guarantee failures, export incentives not reaching them, migratory labour hurting them, and state incentives not reaching them in time, they are referred to the MSME Ministry.

The Ministry should reach out to the related ministries in the Union government – Finance, Labour — and States to resolve them. While this Ministry represents itself in the various committees of such ministries, it can only represent the issues. The real empowerment does not take place. Further, it involves delays in resolution of the issues.

Noticeably, during the last three months, on the MSME Ministry’s persuasion, Rs 6,800 crore was paid by the Central PSUs. But the total dues to MSMEs, according to an estimate, is Rs 5 lakh crore from the State governments, Union government, State and Central PSUs. Still, even the Rs 6,800 crore during the Covid stress is significant.

Eligible Units

There are units which were NPAs on the target dates and were not eligible for either moratorium or the Aatma Nirbhar Bharat Abhiyaan (ANBA) scheme of 20% increase in the working capital accounts. Though the long pending dues from the government undertakings or departments became standard technically but over the next quarter, they remain under stress. They are not being considered eligible for the second scheme of sub-ordinate debt because they are standard on the qualifying date, and the first schemes, they anyway missed.

Several studies indicate that the Covid affected near 70% of the units. The GoI took the stand that they will be supported by a credit of Rs 3 lakh crore under ANBA while those that are stressed will be supported by subordinated debt or equity. This equity product is yet to roll out from banks although Rs 20,000 crore guarantee-backed fund is allocated in the package.

The Finance Minister announced ANBA credit to MSMEs initially — 20% of the working capital is supposed to be additionally provided to all standard assets and are fully guaranteed. Thanks to the powerful lobby of the large industry, the package has been extended to all the industries. On June 5, banks attended the government-convened meetings and committed to sanctioning loans under the scheme.

Number Game

Banks do not throw up data on enterprises financed. More than 1,24,000 accounts in the manufacturing sector in Telangana were on the books of banks as on March 31, 2020. Of them, over 94,000 accounts are reported in the micro-enterprise category while 3,355 are under medium enterprise category. In fact, medium enterprises should be having more than one account per enterprise: funded limits in the account category of term loans, cash credit, overdraft, and SME plus; and unfunded limits like Letters of Credit and guarantees.

Banks in Telangana have categorised 1,82,030 eligible accounts to get the 20% enhancement in working capital limits to an extent of Rs 6,845 crore – an average of Rs 3.7 lakh per account. Against these eligible accounts, they have sanctioned for 1,10,000 accounts Rs 4,567.5 crore – an average of Rs 4.21 lakh per account whereas the disbursed amount was Rs 3,557.26 crore – an average of Rs 6.7 lakh per account, accounting for 52%.

This clearly shows that either banks cherry picked only those accounts that have been good for the amount or the entrepreneurs are not turning up for availing the offer. Even when automatic guarantee is available, the reasons for banks disbursing only 52% are difficult to seek. Further, when there are 1,24,000 manufacturing accounts under the MSME category, 1,82,000 as eligible accounts shows that there is a number game being played by the banks.

When we correlate the data of total manufacturing accounts in the banks’ books, several service sector enterprises also got the benefit. Further, when banks furnish the number of accounts, it is not unlikely that they indulge in number game by mixing up accounts with unfunded limits and funded limits. It is also difficult to assess as to how many enterprises secured the moratorium benefit. They should be able to give the number of enterprises financed under each category, in which case, the government agencies will be able to identify and support the entrepreneurs who are stressed.

Risk Appetite

MSMEs say banks are insisting on documentation afresh for the 20% increase involving their total working capital limits and in the process, the guaranteed amount is also additionally sought to be secured with the existing collateral of the entrepreneurs, which is not the intention of the government. Some entrepreneurs are wary of availing the offer because of uncertainty in demand for their products in the next six months.

According to RBI Annual Report provisional data for 2019-20, at the all-India level, micro enterprise accounts have gone up 38% while the amount outstanding is up only 9% (most of the increase is in MUDRA loan accounts). In the case of small enterprises, there is only 1% increase in the number of accounts with a negative growth of 1% in the amount outstanding. For medium enterprises, the number of accounts has grown 35% over the previous year with a negative growth in the amount outstanding at 1%. A reason why Governor Shaktikanta Das asked banks to increase their risk appetite for lending to MSMEs.

According to RBI data for June, bank credit to MSMEs that are into manufacturing showed a negative growth of 7.6% for the current year and 3.7% the previous year. Even regarding the service sector and large enterprises, the credit growth is either negative or barely 0.4% during the current year. Unless banks increase their risk appetite, the overall growth of the economy will not accelerate.

Lack of adequate and timely access to finance continues to be the biggest challenge for MSMEs and their growth prospect. ‘Make in India’ will come true only with the strengthening of the manufacturing MSMEs through handholding, timely support and presenting stressed assets at affordable costs.

(B Yerram Raju is the author of ‘The Story of Indian MSMEs’)


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