Budget 2021 Expectations: MSMEs seek temporary suspension of Basel norms to ease bank lending

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December 23, 2020 7:18 PM

Union Budget 2021 Expectations for MSMEs: Basel norms are global norms by the Switzerland-based Basel Committee meant to set a common standard for banks across countries. It has 45 members comprising of central banks and bank supervisors from 28 countries.

MSME Budget 2021 Expectations, Budget 2021 Expectations for MSMEsFISME said that all government buying agencies should register on TReDS platforms.

Union Budget 2021-22 Expectations for MSMEs: MSME body Federation of Indian Micro and Small & Medium Enterprises (FISME), which represents 740 MSME associations involving 20 lakh members, in India, has sought a temporary suspension of Basel norms on the banking sector to ease lending. The suspension has been sought to allow the necessary flexibility among banks required to support Covid-hit MSMEs. Basel norms are global norms by the Switzerland-based Basel Committee meant to set a common standard for banks across countries. It has 45 members comprising of central banks and bank supervisors from 28 countries. FISME was part of the recent pre-budget consultation with Finance Minister Nirmala Sitharaman held with key trade and industry bodies.

“In India, MSME loans are linked to corporate loans, unlike in regions like Europe, for which credit rating of units is required. Rating agencies assign the rating based on the market base of a business. A small enterprise, let’s say making cables, will have a negligible market base. As a result, their rating would be poor, most of the time BBB. This leads to higher interest rates and ends bank’s lending flexibility,” Anil Bhardwaj, Secretary-General, FISME told Financial Express Online.

The federation suggested exempting banks from Basel norms for three years including suspending bank loan ratings (BLR) to helping lending in difficult times. “After three years, Covid effect won’t be there and whatever restructuring required, will be done,” added Bhardwaj.

Also read: Budget 2021 Expectations: Will Modi govt open more windows to attract FDI for ‘Make in India’?

Further, FISME said that all government buying agencies should register on TReDS platforms and that banks dedicated to MSMEs may be encouraged by giving sops to attract promoters from within and outside the country. Moreover, to fully leverage public procurement in boosting industrialization, FISME sought an institutional mechanism to address complaints related to PQRs led exclusions of Indian firms. Further, insurance companies to be allowed to offer bank guarantee. Further, it sought a refrain from appealing against the order of the arbitrator to make arbitration effective.

With respect to reducing the compliance burden for MSMEs with respect to the Companies Act, FISME asked for relaxation of stipulations including the appointment of independent directors and women directors, appointment of key management personnel, requirement of cost audit for the companies which are out of licensing. “Further, medium enterprises, unlisted companies should be allowed to accept deposits from relatives of Directors,” said.

Constituting a committee for framing rules for partnership/ proprietorship by Ministry of Corporate Affairs or IBBA, including the payments due to MSMEs from corporate debtors before, and during the Corporate Insolvency Resolution Process within the ambit of ‘insolvency resolution process costs’, treating offline and online sellers at par in GST to enable smaller MSMEs to leverage e-commerce, class-1 government officers earmarking certain hour of the day to hear MSME grievances, and more were among other key suggestions.

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