Government should bring provisions under the IBC Act for priority settlement of MSME vendors’ dues

“In the insolvency cases under IBC, dues owed to MSME suppliers is not given priority in the order of set-tlement of creditors’ dues. If MSME vendors do not get their dues settled on time, it is but natural that they will default on their bank loan obligation. Banks are not willing to extend accommodative treatment to MSME vendors who defaulted on their loan obligation because of delay in payment from their corpo-rate buyers. Therefore the government should bring provisions under the IBC Act for priority settlement of MSME vendors’ dues owed by the insolvent company,” said Mr Vijay Kalantri, Chairman, World Trade Center Mumbai at a webinar organised by WTC Mumbai and All India Association of Industries. The webi-nar was organised to mark the International MSMEs.

Mr. Kalantri raised various issues related to poor flow of formal credit to the MSME sector. He said com-mercial bank credit to SME sector has declined from 12.4% of total credit before 2008 to 8.3% in the sub-sequent period. Further, public sector banks are lagging behind the private sector in credit disbursement to MSMEs as the former extended hardly 5% of their credit to MSMEs compared to 40% by the latter. Mr. Kalantri suggested all commercial banks to open dedicated branches for SMEs across the country. He also called for the conversion of SIDBI into full-fledged bank for SMEs with branches across the country. Mr. Kalantri added that even though the government has announced Rs. 3 lakh crore emergency credit Guar-antee Scheme after the outbreak of the pandemic, MSMEs have received hardly 30% of the disbursed credit in hand as banks have adjusted the remaining amount against existing overdue loans of the bor-rowers.

Mr. Kalantri pointed out that MSMEs are not major defaulters of bank loans, except in some stray in-stances of reckless lending. He added that MSMEs do not receive the same soft treatment that banks extend to large borrowers even though the contribution of MSMEs to non performing assets is lower compared to that of the latter. He further suggested, “The government should take urgent actions to ad-dress credit needs, providing preference in government procurement, expediting payment dues to MSME suppliers and easing labour regulations. The central government should revive various MSME committees, such as technology upgradation committee, rules and regulations committee and others that ceased functioning after 1997.”

Mr Kalantri urged the government to adopt a consultative approach with the MSME sector before policy formulation as was done by the central government under former Prime Minister Mr. PV Narasimha Rao. He opined that NITI Aayog should hold stakeholder consultation with MSMEs and their associations be-fore preparing policy framework for the sector.He also suggested the government to conduct per-budget meeting with MSMEs before preparing budget document.

In her remarks, Ms. Preeti Syal, Director, NITI Aayog informed, “NITI Aayog is working on setting up Digital Capability Center to transform India’s manufacturing sector in this age of fourth Industrial Revolution. Al-ready, NITI Aayog has enabled, under its National Strategy on Artificial Intelligence, Centers of Excellence through its various MedTech zones, special technology zones and via AIRAWAT, which is a concept of shared technology resources to facilitate MSMEs access cutting edge technologies such as 3D printing and artificial intelligence. Ms. Syal also informed that various entities across Government of India,including NITI Aayog, Startup India, Invest India and Ministry of Commerce are working diligently to streamline sin-gle window clearances for foreign direct investors in the country.”

Speaking on this occasion, a senior official from Bank of Baroda informed, “We expect 10% overall credit growth in the core SME segment in the current financial year (FY22), compared to 11% growth seen in the previous year which was primarily backed by Emergency Credit Guarantee scheme (ECLGS).” High-lighting the digitisation initiative of Bank of Baroda, the official said, “SMEs can get in principle sanction for their loan application upto Rs 5 crore by uploading their financial statements and other documents on our mobile app and internet banking and corporate web site. Bank of Baroda has introduced end to end digit-isation process for disbursing SME loans under supply and value chain finance. We have introduced au-tomatic approval for MSME loan upto Rs 0.25 crores across India and loans upto Rs. 5.00 crores is in-principally sanctioned digitally and we intend to sanction and disburse digitally loans shortly under co-lending model. Bank of Baroda also runs around eight area specific schemes for lending to SME clusters in different parts of the country, such as Morbi ceramic clusters, Tirupur textile cluster, Rajkot nonferrous metal cluster etc. and more than 20 SME products.” The official further informed that Bank of Baroda has set up a dedicated cell at its corporate office for sanctioning export credit on priority basis. The bank also provides loans for greenfield projects of SMEs on priority basis under its green channel route.

Speaking on this occasion, Mr Jacob Anil Kumar, Director, Timescan Logistics suggested aspiring exporters to access potential overseas buyers’ data from National Resource Centre. He also advised MSMEs to avail of the Authorized Export Operator scheme, deemed export scheme, Direct Port Delivery/Direct Port En-try facilities to optimise their operations and logistics cost. Mr Jacob recommended MSMEs to make use of the free trade warehousing zones to store their exportable goods and get all export benefits from government even before physical shipment of these goods.

The session was moderated by Mr S. Prakash, Founder, SEE Change, India, which provides consulting and turnaround strategies for MSMEs. In his introductory remarks, Mr Prakash said,”The pandemic has wiped out many small enterprises from the business. The working capital and receivable cycle, which was 90-120 days earlier has risen sharply since the pandemic. MSMEs are suffering from poor sales, rising inventory and liquidity stress. Amidst this liquidity condition, they have to procure raw materials and keep the man-ufacturing process going. Although the government has announced several relief measures, there is a huge gap between what is offered and what is needed. This has severely dented the confidence of MSME units.”

Speaking about the need to promote digital literacy among MSMEs, Mr Prakash said,”MSMEs are hesitant to adopt digital tools such as accounting software’s, Google spreadsheets, project management soft-wares and other such programs even though some of them are freely available online. Even many enter-prises with Rs. 5 crore to Rs. 10 crore annual turnover are hesitant to adopt professional management practice as they are run as one-man show. Many small scale entrepreneurs are not aware of how to re-spond to online Request for Proposal (RFP) floated by potential clients. So, government, along with the private sector should train MSMEs in adoption of digital technologies to streamline their operations.”

Ms. Rupa Naik, Executive Director, MVIRDC World Trade Center proposed vote of thanks for the event.

The webinar was attended by representatives of trade and industry, financial institutions, academia and consular corps.