The resilience of MSMEs, their record of debt servicing are exemplary

Written by Kumud Das | Updated: Jun 30 2009, 04:58am hrs
RM Malla
The current economy slow down has hit the medium, small and micro enterprises (MSME) sector most. Various authorities have taken a number of measures to support the productivity of micro, small and medium enterprises (MSME) RM Malla, chairman & managing director, Small Industries Development Bank Of India, (Sidbi), explains to FEs Kumud Das about the current state of affairs in these segments.

How effective have been the some of the measures of by the Centre and Reserve Bank of India on MSMEs

The government of India (GoI) and the Reserve Bank of India (RBI) have announced several measures and stimulus packages to meet the challenges of economic slowdown and to ensure speedy revival of the economy. Some of the measures announced by GoI were, additional plan expenditure, greater thrust on infrastructure, additional allocation in TUF Scheme, 2% interest subventions for exports and enhancement in ECGC guarantees. Directions were given to PSUs for ensuring prompt payment of bills of MSMEs and sectoral credit by PSBs was closely monitored on a fortnightly basis. A monitoring cell for taking up unresolved issues of MSMEs with banks was also set up jointly by the ministry of finance (MoF) and the ministry of MSME RBI also announced reduction in CRR, SLR as also repo and reverse repo rates. Various refinance and term repo facilities were offered and liquidity was enhanced by nearly Rs 5 lakh crore. Further, banks were advised to consider restructuring of MSME loans.

Extension was allowed in the period of pre-shipment and post-shipment rupee export credit. RBI also permitted second restructuring, reduction in provisioning requirements and extended exceptional and concessional treatment to the CRE exposures. A special refinance facility of Rs 7,000 crore was extended to Sidbi for on-lending to MSMEs through banks, SFCs and also directly.

Sidbi on its part, sanctioned an account of Rs 4,400 crore to public sector banks, with the condition that they would grant credit to the extent of double the amount (Rs 8,800 crore) to micro enterprises with a base date of September 30, 2008. Further, we sanctioned 15% ad-hoc assistance under direct credit and working capital to existing borrowers and additional 15% limit to all existing customers under the Receivables Finance Scheme. Loans for purchase of DG sets, restructuring of loan accounts, PLR reduction by 300 bps to 11%, etc were some of the major initiatives.

The injection of liquidity has resulted in adequate credit being made available to MSMEs and the lowering benchmark interests by RBI rates has resulted in reduction in cost of borrowings and reducing of PLRs by the banks. Further, the exceptional or concessional treatment for restructured cases has helped in reducing the NPA position of the sector.

Which kind of restructuring of NPAs you have done as per the RBIs advice

The RBI, during August 2008, issued prudential guidelines on restructuring of advances. Sidbi, accordingly, during the year-ended March 31, 2009 restructured about 800 loan accounts involving a total outstanding of Rs 755 crore.

What kind of new slippages youre finding in the case of MSMEs

In Sidbis experience, the slippages of MSME accounts into NPA category during the last fiscal as also during the first two months of current fiscal have been very marginal and is definitely not a threat. Considering the difficult phase the MSMEs have been through, their resilience and record of debt servicing to the banks have been exemplary. The net NPA of the bank stood at 0.08% as at March 31, 2009.

How are the MSMEs doing now after a series of packages as announced by the government in past

As on March 31, 2009, the outstanding credit to MSME sector by public sector banks alone is stated to be around Rs 312,000 crore, a growth of about 25% over the previous year. Thus, it may be seen that credit offtake by MSMEs has been fairly strong which may be due to a continued growth in the countrys GDP. Though there are anecdotal evidences of slowdown in capital investment in the short term, the high growth rate expected by most economists meant that investment credit would also pick up over the medium term. The investment outlook continues to be positive.

The industries dependent on exports such as textiles, gems and jewellery, leather, etc. have faced slow down due to decline in exports to the developed markets. Overall, the performance of the MSMEs, which are predominantly dependent on the domestic market, continues to be good.

Do you expect further interest rate cuts in near future

In view of improvement in liquidity and general decline in interest rates which impact the cost of funds of banks, a decline in benchmark PLR of banks and therefore reduction in the interest rates is expected. SBI and Union Bank of India have recently reduced their rates by 50 bps. I may add that Sidbi has also recently reduced its PLR to 11%, the lowest PLR amongst banks.

What kind of credit growth you are targeting for the current fiscal andwhat are your business plans for the current fiscal

We took several innovative measures to enhance the credit flow to the sector. With a view to encourage energy efficiency investments by MSMEs, we introduced schemes for energy saving projects at concessional rates. Structured arrangements with few OEMs were entered into to facilitate MSMEs in procurement of capital equipment. An arrangement with a leading industries association to provide pre-approved limits to well-performing MSME members, to meet their sudden capital expenditures, has been put in place. Sidbi has tied up with Maruti Suzuki India Ltd and the Mumbai Taximen Association to enable the taxi drivers in acquiring fuel-efficient vehicles.

During the year, Sidbi launched a risk capital fund with innovative instruments to meet the equity or risk capital needs of MSMEs . Under this fund, Sidbi has already committed over Rs 380 crore. In the current year, we propose to achieve a growth of 30% in MSME loan portfolio and scale up the new products introduced during 2008-09, focus on underserved states, a 40% growth in micro finance outstanding and partnering with new MFIs, etc.

In May, the World Bank inked a pact with India to lend $ 400 milion to your bank to provide low-cost finance to SMEs How will you be using the fund and what rate of interest will you be financing SMEs

Keeping in view of the banks objective for improving MSME access to finance and business development services and fostering MSME growth, competitiveness and creation of employment, Sidbi had earlier, with the assistance of the Centre, contracted a line of credit of $ 120 million with two components - $.115 million in loans and a $5-million risk sharing facility. I wish to add that the LoC was utilised in about 21 months as against scheduled period of 36 months (April 05 - December 06).

We could assist 927 MSME projects and the average size of loan worked out to Rs 55 lakh. With the assistance of the risk sharing facility, a special scheme was introduced through the Credit Guarantee Fund Trust (CGTMSE) envisaging larger coverage of unsecured loans through MLIs. Considering the excellent performance of Sidbi, the World Bank has signed an agreement with the government of India for extending additional financing of $400 million. The proposed additional LoC has a very attractive rate of interest and would help in scaling up the project.

Through this additional finance, we will be able to increase the geographical coverage, offer innovative loan products including loans to smaller MSMEs (downscaling) - thus bringing down the average loan size from Rs 55 lakh under earlier LoC, expansion of loans through other participating financial institutions to MSMEs; and exploration of the possibility of providing loans for energy efficiency projects, subject to adequate demand.