LEND­ING SUP­PORT TO MSME SEC­TOR

Assocham Bulletin - - BANKING -

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. S. S. Mun­dra, Deputy Gov­er­nor, Re­serve Bank of In­dia ad­dress­ing the au­di­ence. Re­lease of Knowl­edge Re­port by Mr. S. S. Mun­dra, Deputy Gov­er­nor, RBI, along with Mr. D. S. Rawat, Sec­re­tary Gen­eral, ASSOCHAM, Mr. P K. Gupta, MD, SBI, Mr. R. N. Dhoot, Past Pres­i­dent, ASSOCHAM, Mr. V. Vaidyanathan, Ex­ec­u­tive Chair­man, Cap­i­tal First ltd., Mr. Ashvin Parekh, Man­ag­ing Part­ner, Ashvin Parekh Ad­vi­sory Ser­vices LLPand Mr. M. Naren­dra, Ad­vi­sor, ASSOCHAM Na­tional Coun­cil for Bank­ing & Fi­nance.

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