Ease of Doing Business for MSMEs: The viability of the accounts should be worked out and their loan commitments should be rescheduled wherever required. Liquidity mismatch issues should also be addressed.
- By Manguirish Pai Raikar
Ease of Doing Business for MSMEs: The revival of businesses and the resultant creation of employment, more particularly, saving jobs is as herculean a task, if not more than saving the country from Covid-19. The economy was already going downhill pre Covid -19 but the situation further deteriorated with the outbreak of Covid 19. With the nearly 11 weeks of lockdown and near standstill of business/economic activity, already-stressed businesses are in a worse state with practically no liquidity. Even the businesses, which were earlier not stressed, are now in financial stress because of the stoppage of the business activity. The alarming situation necessitates for some relief to the businesses so that they do not go into bankruptcy and further deteriorate the situation. To achieve the above, we suggest the following to boost the business and to generate fresh employment opportunities for the economy to grow.
The Reserve Bank of India has already announced certain measures for standard loan accounts –term as well as working capital. State Bank of India and other public sector banks have also announced Emergency Credit Lines to address liquidity mismatches for existing customers by way of additional loan facilities – working capital and so on. Given the unprecedented circumstances, these measures will need to be expanded both for the time period (currently up to June 2020) and scope.
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The viability of the accounts should be worked out and their loan commitments should be rescheduled wherever required. Liquidity mismatch issues should also be addressed. The idea should be to enable viable businesses to run at optimum capacity. The government could think about providing stimulus through interest subvention say, around 4-5 per cent. This would safeguard both financing and financed entities by lowering costs and improving chances of revival. Revival should be the prime objective of all such measures – default treatment should be as going concerns – restore economic value, create/save employment, re-build economy quickly.
Resolution for existing stressed accounts
A large number of businesses, including MSME and large/corporate are already facing financial stress and their loan accounts are already classified as stressed/ NPAs as per RBI norms. While a number of such accounts have been taken up for resolution through the IBC (Insolvency and Bankruptcy Code) process, a large number of accounts are under the process of resolution outside of the IBC process. The IBC process is already loaded with a large number of accounts and delays are taking place. It is also understood that there is a desire that accounts with exposure up to Rs 200 crores may preferably be resolved outside the IBC process. RBI guidelines dated June 7, 2019, for initiating the IBC process are also currently applicable for accounts with exposure above Rs 200 crores.
Resolution processes for a large number of small and large accounts, which have not been referred under the IBC process, are under discussion or at concluding stages – One Time Settlement (OTS), restructuring of loans etc. There are also cases where the resolution plans have already been approved by the lenders and accepted by the borrowers but implementation is now held up because of the current circumstances. A lot of time and effort already has gone into bringing such cases to their current stages. Significant costs have also been incurred in carrying out various supportive studies – due diligence, technical/ financial studies, audits — to establish their viability post-implementation of the resolution plan.
Where the resolution plans (OTS or restructuring) have already been approved by the banks and accepted by the borrower but could not get implemented because of Covid-19, the effort of such resolution should not be wasted. Financing institutions may quickly take stock of such cases as going concerns with necessary modifications in the resolution plans for fast implementation.
In the post-Covid-19 stages, while the fundamentals may not change much, parameters like time period required to complete the plan implementation, moratorium period, rate of interest etc. will require reworking. Most importantly, in OTS approved cases sufficient time may be considered to be allowed to the borrower to arrange funds to pay from internal accruals of the business as the alternate funding line has become stressed during this period. Besides restoring economic values, this will also save a large number of jobs, generate revenue for the government and have a multiplier effect on the economy.
The cases where no legal steps have been initiated in the pre-covid-19 scenario and which are going concerns, a resolution plan may be worked out rather than taking legal steps for recovery. The policy push should be towards not allowing any business to close down as this will give a tremendous boost to the economy in terms of employment and revenue generation.
Manguirish Pai Raikar is the Chairman – MSME at Assocham National Council. Views expressed are the author’s own.