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Insight On SME NPA’s

Monday, July 27, 2015

Dr. Visswas Paanse is Founder, NPA Consultant

Small and Medium Enterprises play a vital role for the growth of Indian economy by contributing 45% of the industrial output, 40% of exports, 42 million in employment, create one million jobs every year. For a developing nation like India, where the labor is abundant and capital is scarce, the small sector is a major source of employment for millions of people.

The SMEs play an important role in efficiently allocating the enormous labor supply and scarce capital by implementing labour-intensive production processes. SME triggers private ownership, boosts entrepreneurial skills and their flexibility in responding quickly to changing market demand and supply conditions are noteworthy. Therefore, Banks play a vital role in providing capital to the SME sector.  

Why is the number of SME NPA’s growing alarmingly?

  • External factors like global economy affecting the Indian business, government policies, business trend etc.
  • Defects in the banking system as regards assessment of financial requirement, procedural delays, inability to understand the Entrepreneur or business needs and overall system limitations.
  • Internal factors like inefficient management, inappropriate technology, labour problems etc..
  • Willful defaults.

Some of the specific issues in this regard have to be re-evaluated.

90 Day’s clause-NPA: It is quite natural that an industry may face sickness during its existence and requires to be given proper attention and the right treatment to bring it out of the sickness.

Early symptoms of sickness and timely counseling: Any account does not become sick overnight. It shows early signs of sickness. It is observed that no efforts are initiated in imparting timely counseling to such units which could help them to identify the cause of going towards sickness gradually and ways and means of taking timely corrective steps to come out of it and avoid an NPA situation.

BIFR for SMEs: There is a provision for taking shelter under the umbrella of BIFR to the corporate sector. What about the SMEs? Is there any such protection when they are the ones to be most protected?

Restructuring by an independent body: There is no external agency that would prevail on the bank as far the financial assessments of the SMEs/NPA accounts are concerned. And it is the biased banker who looks into its restructuring which, unfortunately, most of the times unfavorable to the SME borrower. Why not a separate professional body be formed for the restructuring of such SME NPA accounts?

Rehabilitation Funds: Data shows that Rs.225000 crores worth assets is NPA. Banks are able to recover on an average 30% of the total value of NPA assets. The balance amount is written off. If even 50% of the written off amount is allocated as a rehabilitation fund to the SME’s the scenario will be far better for the Indian economy in terms of productivity, GDP, and employment.  

Takeover & Rehabilitation by Corporate: The successful industrial units can take over the management of these sick units for the purpose of revival. And the incentive for such units should be in the form of tax incentives like section 72(a) of Income Tax Act etc.  

The socio-economic and educational system of the country is producing 95% of job seekers. There is no school, no college, and no institution except family tradition which produces businessmen. If this class is also being threatened by the present government policies & the banking systems, the whole country will become a job seeker with a total slavery mentality.

(The author is an Advisor to All India MSME Association)

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