LENDING SUPPORT TO MSME SECTOR
Micro, Small and Medium Enterprises (MSMEs) being the lifeline of the economy, need to be provided all kind of financial support through easy finance options. To strengthen the flow of credit to these enterprises, the Reserve Bank of India is finalising guidelines for co-origination lending mechanism.
While inaugurating the ASSOCHAM Bankers-Borrowers Business Meeting, held on June 16,2017, Mr. S. S. Mundra, RBI Deputy Governor, informed that RBI is working on a paper on co-origination of loans which can become an important way of catering to this sector.
"To my mind, rather than simply going for re-financing or on lending, this co-origination can become an important bridge for catering to the MSME sector," he said. He further said that consultations and discussions have already taken place with the banking industry on this issue. "It is something (guidelines) which is in making. The idea is it can be an alliance of people in lending sector," he said.
He also informed that RBI has been trying to develop a formal co-origination model whereby bank is not financing MFls (Micro Finance Institutions) and NBFCs (Non-Banking Finance Companies) for on-lending to ultimate borrower, rather both of them join at each under- writing and loan level thereby sharing the loan amount in agreed percentage.
"This can bring strength of two sectors together. The MFIs have a better understanding of the ground level, they have the last-mile reach whereas the banks can supplement the resources. Rather than simply going with financing or onlending, this co-origination can become an important way to cater to MSME sector," said Mr. Mundra.
He encouraged the banks to look at MSMEs as one of the important and promising segments. "For bankers, apart from the market dynamics, the restrictions on their ability to finance large corp orates, even the growing competition in the market would make it essential to finance MSMEs and also they should move quickly, relook at their processes and try to become proactive," said Mr. Mundra.
He said that it is very important for the lenders, be it bankers or the NBFC lenders to understand and appreciate the lifecycle needs of the MSMEs. "I think putting MSME in one bracket is a big misnomer, they are as different as chalk and cheese. Probably every lender has to think about micro in one particular fashion and put small and medium sector in another bracket."
Considering that MSME units periodically get in to the cycle of difficulties owing to factors like sudden unexpected demand, he said that it is very important for the banks to design the products to meet the lifecycle of MSMEs.
Noting the need to supportthe faltering MSMEs, he said when we talk about MSMEs we should recognise that failure is the integral part of entrepreneurship. "This should be recognised factored in and they should be supported in difficult times."
He also said that RBI has advised the banks to open more MSME focussed branch offices at MSME clusters which can also act as counselling centers. "Collaborating with SME association in these clusters can be mutually beneficial for banks and smaller firms."
Mr. Mundra said that it is imperative to bridge the information asymmetry as large scale ignorance about banking products and practices together with lack of awareness about unfolding economic environment severely ails the MSME entrepreneurs.
"The borrowers must develop awareness about changing economic dynamics and its impact on their business," he said while adding that MSMEs must not fall in to the lure of quick expansion but should rather look to conserve capital
and strengthen their balance sheet.
The RBI deputy governor also said that Public Sector Banks (PSBs) may require higher capital infusion from the government than budgeted for the current fiscal on account of higher provisioning for bad loans and stressed assets.
Besides, he also said that RBI has no plans to issue second list of additional loan defaulters any time soon for bankers to start bankruptcy proceedings.
On farm loan waiver, he said that RBI's stand has been articulated several times including in the last monetary policy statement. "As far as implementation and other parts are concerned I do not think we need to work as an agency for that."
Earlier, in his speech he said that MSME sector will continue to remain relevant even in a scenario where more automation and artificial intelligence comes into picture as it relates to local production for local consumption and local services for local requirements and needs.
He emphasized on capability of the MSME sector to create huge job opportunities. The policymakers, while deciding on any course of action, should keep this important criteria in mind.
Mr. S. S. Mundra, Deputy Governor, Reserve Bank of India lighting the inaugural lamp. Also seen Mr. D. S. Rawat, Secretary General, ASSOCHAM, Mr. V. Vaidyanathan, Executive Chairman, Capital First Ltd. and Mr. R. N. Dboot, Past President, ASSOCHAM. Mr....