- MSMEs called for suspending strict lending norms by banks and mandatory credit rating for loans above Rs 5 crore
- Industry body FISME sought fund infusion from banks in cash-deficient enterprises so that units keep running and people remain employed
- Nearly 6.3 crore small enterprises provide employment to 11 crore people in India; most of them have cut down their operations, workforce following the pandemic
- MSMEs demanded direction to all lenders to ensure no firm folds up due to compliance of the banking rules and procedures related to recognition of NPAs
Battling for survival in the wake of economic crisis, micro, small and medium enterprises (MSMEs) have proposed to suspend strict lending norms by banks and do away with the mandatory credit rating for loans above Rs 5 crore.
Days before the expert committee headed by former CAG Rajiv Mehrishi submits its report to the government on impact of interest waiver on financial stability of banks and economy, Federation of Indian Micro, Small and Medium Enterprises (FISME) has told the panel that banks should not charge interest for the lockdown period.
"The Basel norms prescribed by the BIS ought to be suspended for three years by the sovereign India in its vital socio economic interests. Straight jacketed norms like mandatory BLR ratings above exposure of Rs 5 crore in these times will have devastating consequences," FISME has written to the expert committee.
The written submission has followed a meeting the expert panel had with a clutch of industry bodies on Tuesday.
The Centre had last week tasked the expert panel to assess the impact on the national economy and financial stability of waiving interest and interest on interest during the COVID-19 related moratorium.
Making strong pitch for a slew of relief measures, industry body FISME has said that banks should inject funds in cash-deficient enterprises so that units keep running and people remain employed to the extent possible.
It has said that Centre should capitalise the struggling MSMEs and use banks as channels for the same.
"If the funds have to ultimately flow from GoI (Government of India) coffers then it can as well mandate all government entities and corporate buyers of goods and services to borrow and make payments to MSMEs. This will simplify things to some extent," the chamber has noted.
Nearly 6.3 crore small enterprises provide employment to 11 crore people in the country but following the pandemic most of them cut down their operations and workforce. Loss of employment has emerged as one of the biggest concerns for the government as it will further impact overall demand in the economy.
FISME has stated that more and more businesses are coming to the conclusion that the way forward is to downsize, cut expenses of all nature and let go most of employees. Nationally, it said, the number of unemployed is going to further shoot up.
"The economy may fall into a vicious circle of decreasing demand, rising number of jobless, followed by further drop in consumption. Obviously, this could be the worst possible scenario for a nation," the industry body has said.
With no pick up in aggregate demand, small businesses across all sizes are incurring losses month after month. This is fast drying up their meagre cash reserves for running day-to-day operations.
Given the grim business scenario, MSMEs have demanded that all lenders be mandated to ensure no firm folds up due to compliance of the banking rules and procedures related to recognition of non-performing assets (NPAs).
"The banks have to handhold each MSME borrower, guide it like a senior partner with prudence - be it for capex or for downsizing. The whole idea is that a wave of panic closure of units is averted at any cost," the FISME has suggested.