MSMEs approach Parliamentary Committee to scuttle SMA classification Order of RBI
New Delhi, Apr 11 (KNN) Loosing hope for remedial action by the Government and the RBI, MSME sector has approached the Members of Parliament for saving thousands of MSMEs from imminent closure.
KNN team has learnt that a leading federation of MSMEs has recently presented before a Parliamentary Committee to override the ‘Resolution Framework for Stressed Assets’ notified by RBI sometime back.
They represented before the Committee that in the name of resolution of stress on MSMEs, it will cause closure of a large number of units and concurrent loss of jobs.
The Framework stipulates classification of MSMEs a s SMAs or Special Mention Accounts even on a default of les that 30 days and prepare a corrective action plan.
However, the representatives from the sector represented to the committee that even after default of less than 30 days operation of accounts of MSMEs were severely restricted by Banks which largely resulted in further degradation of the accounts, often to NPAs.
It has also been mentioned that Banks are neither enabled nor interested in resolving stressed MSME assets and data may be compiled on the health and status of MSMEs so far declared as SMAs.
If majority of such SMAs has turned NPA, what is the utility of the Framework, the delegation submitted to the Committee.
Commenting on the situation, V K Agarwal, a leading MSME entrepreneur of Lucknow mentioned, MSMEs (even the “medium” enterprises) are too small to have a wide enough bandwidth of manpower resources and relationship to tap the top management of lenders and get decisions quickly.
The time lines and parameters for declaring an enterprise SMA are so short and strict that the operating bank manager loses any discretion to help the unit tide over even a temporary hump, in effect paralysing the unit, Agarwal lamented.
The crying need is to create a mechanism for going into details of the stress - its nature, severity, root cause - if it is a wilful default or not and options for resolution.
The present system is so faulty and blind that it does not differentiate between the natures of delay and ultimately both the lender and the borrowers have to be at the losing end, opined Agarwal.
MSMEs have also strongly appealed to the Hon’ble members of the Committee to advise RBI to exempt MSMEs from rating by Credit Rating Agencies.
They have mentioned that these CRAs have neither the knowledge base nor the acumen to objectively rate the MSME accounts. They apply the same criteria as followed for large enterprises and make highly subjective rating of MSMEs.
One glaring example cited is that the rating agencies always ask for market share of MSMEs in their product group. While this may be a valid rating criteria for large producers, is not at all applicable for MSMEs.
First of all MSMEs do not know the total market size of a product and secondly, it is a fact that a single MSME can supply a minuscule share of the total demand.
So how an MSME could be assessed based on its market share? Besides, size is not the synonymous with health of an entity, the sector represented. (KNN/ DB)