MSMEs Woes Raised To Parliamentary Standing Committee On Finance

New Delhi, Feb 10 (KNN) The Federation of Indian Micro and Small & Medium Enterprises (FISME) has raised serious concerns over the financial challenges faced by MSMEs and has sought urgent intervention from the Parliamentary Standing Committee on Finance.

In a letter to Committee Chairperson Bhartruhari Mahtab, FISME has outlined critical policy issues leading to the premature closure of many MSMEs despite their recognised role in job creation, equity, and exports.

FISME has pointed out that the SMA framework, introduced under the tenure of Raghuram Rajan, is exacerbating financial distress rather than aiding recovery. The automated, computer-driven system fails to consider qualitative reasons for payment delays.

Once an account is marked under SMA, it becomes a financial liability, restricting banking facilities and accelerating the slide toward Non-Performing Asset (NPA) status. As banks move to recover their money by selling assets, many temporarily stressed MSMEs face closure, resulting in job losses and economic downturns.

FISME has urged Parliament to review the policy, seeking data on SMA accounts and the mechanisms used for their revival. It has also questioned the effectiveness of RBI’s proposal to offer additional 10 per cent loans for struggling businesses.

Another major concern highlighted is the practice of banks requiring MSMEs to obtain third-party Bank Loan Ratings (BLR) from RBI/SEBI-approved agencies.

Originally designed for evaluating large corporations, these rating mechanisms unfairly categorise MSMEs as high-risk, leading to increased interest rates and additional collateral demands.

FISME has called for the removal of BLR requirements for MSMEs and the introduction of an alternative solvency-based rating system.

The industry body has also criticized the absence of a structured grievance redressal system for MSME borrowers. Key issues include excessive prepayment charges, unfair penalties for non-compliance, and anti-competitive banking practices.

FISME has demanded stricter accountability for banks, arguing that current RBI guidelines are often ignored or selectively implemented.

FISME has further raised concerns over wrongful delinquency reporting to CIBIL, which severely impacts the creditworthiness of businesses. They have suggested imposing strict penalties on banks found guilty of false reporting.

The organisation has urged Parliament to form a centralised grievance redressal mechanism and conduct regular audits of the Banking Ombudsman’s decisions. FISME also recommends that Parliamentary groups like ‘Friends of MSMEs in Parliament’ be included in the oversight process.

The letter underscores the pressing need for financial reforms to ensure the survival and growth of MSMEs, which play a vital role in India’s economy.

(KNN Bureau)