NPA is not a Sin, needs hand-holding by Banks, S. S. Mundra, Deputy Governor, RBI
“NPAs are not to be disregarded. The occurrence of the NPAs is largely due to the uncontrollable or unexpected factors in the economy and the willful default by the borrower is only a miniscule. An account becoming an NPA at the discretion of the borrower is a very small percentage. The NPA status only reveals that there are difficulties in the account; so it will not generate the same kind of cash flow which was originally envisaged. What is important is when an account becomes an NPA, the bankers and all agencies concerned should do the hand-holding, as it is not a sin but reflects the constraints faced by the small and medium sector units observed Mr. S.S. Mundra, Deputy Governor, Reserve Bank of India at the release of the 18th India Micro Small and Medium Enterprises at an event organized by World Trade Centre Mumbai and All India Association of Industries (AIAI) in association with Institute of Small & Medium Enterprise and Development, Cochin.
Mr. Mundra added that small and medium enterprises must be encouraged to come on board the soon to be launched Electronics Trade Receivables Discounting System (TReDS) . The trade platform will be an efficient, transparent and real time system to settle receivables.
Referring to the credit guarantee fund trust for micro and small enterprises (CGTMSE) Scheme, Mr. Mundra said that industry bodies and other stakeholders should join the CGTMSE as the government was planning to raise the funding ceiling under the scheme. This could bring in discipline in payment by large corporate to the SMEs. Further, RBI has taken various measures to boost bank credit to the MSME sector and it would continue to take more steps to support the sector, added Mr. Mundra.
The regulations, as they are, have evolved over a long period of time. Some of you will recollect that when we first put the regulation way back in 1993-94, the period started with one year, then it became 180 days, and now we are at 90 days which is matching with most of the global regulation. If regulation can also be come pro-cyclical, than it will not be a regulation, Mr. Mundra added.
Mr. Mundra further said that Reserve Bank of India does not look at any single data point while determining interest rates the latest international data like the US unemployment claims will not have any bearing on RBI’s interest rate, as the overall view is taken while taking such important decisions, and not one individual factor.
Dr. P.M. Mathew, Director at the Institute of Small Enterprise and Development presented the key findings of the India Micro, Small and Medium Enterprise Report 2015. The Report highlights the state of the MSME and start – up sector in India and abroad. The Report outlines policy recommendations for the growth of this sector. Dr. Mathew said the government must introduce, among other things, National MSME Innovation Policy, export capability enhancement fund, restructuring of start – up programmes, introduction of rural services observatory, introduction of development finance network etc. While the government has introduced MUDRA bank to enhance fow of funds to the MSME sector, a lot needs to be done to enhance support system to this sector, Dr. Mathew said.
Earlier in his welcome address, Mr. Vijay Kalantri, President – All India Association of Industries raised concern about the various issues plaguing the MSME sector in India including lack of timely access to bank credit at reasonable interest rate. Mr. Kalantri expressed that MSMEs in India need guidance on sound human resource management, skill development, marketing, finance and other related areas.
Mr. Kalantri urged leaders in RBI, government and other policy making bodies, regulatory institutions, media agencies to take up the cause of the MSMEs and address the issues faced by them. Emphasizing on the importance and diversity of the small and medium enterprises. Mr. Kalantri further informed that units in this sector produce around 8,000 products, 40% of GDP, over 60% of employment and 45% of exports in India, the small scale sector is the only sector that can address regional imbalance, Mr. Kalantri opined.
The event concluded with the vote of thanks proposed by Ms. Rupa Naik, Executive Director, All India Association of Industries (AIAI).
Mr. S. S. Mundra, Deputy Governor, Reserve Bank of India releasing “India Micro, Small and Medium Enterprises Report 2015” on November 26, 2015 at World Trade Centre Mumbai. (L-R) : Ms. Rupa Naik, Executive Director, All India Association of Industries and Director – Projects, World Trade Centre Mumbai, Mr. Vijay Kalantri, President, All India Association of Industries and Vice Chairman, World Trade Centre Mumbai and Dr. P. M. Mathew, Director, Institute of Small Enterprise and Development