While the government is making efforts to improve the state of Micro, Small and Medium Enterprises (MSMEs) with 'loan melas' and a slew of other sops, the financial health of the sector has gone from bad to worse.
About 86,228 companies in micro, 94,309 companies (cases) in small scale and 11,590 companies in medium scale industries across the country have been classified under the 'framework for revival and rehabilitation of MSMEs' for the half year between October 2018 and March 2019, says a recent Reserve Bank of India (RBI) data review of institutional credit to the MSME sector.
Payment problems and lack of demand, coupled with market issues are threatening the survival of MSMEs in the country. In a recent development, the RBI had directed state-owned banks not to declare stressed assets of MSMEs as non-performing assets (NPAs) till March 31, 2020, as the current norms stipulate to declare any defaulter as NPA if above 90 days.
"Declaring NPA after 91 days is not practical as our customers are not paying to MSMEs on time and that is causing immense liquidity issues. We brought this to the notice of the RBI requesting an extension upto 180 days and this was agreed upon," said Sandeep Parikh, Vice President of the Chamber of Small Industry Associations (COSIA), an apex umbrella organisation of about 60 various MSME sector industry associations. Developing clusters of indigenous entrepreneurs in the MSME sector in all districts and 'loan melas' to give quick credit to entrepreneurs were some of the other measures initiated by the government recently to boost the MSMEs in the country.
The RBI data says while 94,309 cases have been resolved during the period in the micro industries sector, 43,963 cases were resolved in small scale and 8247 cases in the medium scale; recovery proceedings are on against 32475 companies in micro, 16332 companies in the small scale and 3550 medium scale units. Many other units are also currently undergoing restructuring and rectification.
The data says percentage of non-performing assets (NPAs) with the non-banking financial institutions (NBFCs) have increased from 4.28 per cent to 6.73 per cent in the one year period till March 2019 for medium enterprises. The percentage of NPAs in the MSME sector for public sector banks and scheduled commercial banks have slightly decreased from 13.10 per cent to 12.31 per cent and 9.78 per cent to 8.43 per cent, respectively during the one year period. However, private sector banks' percentage of NPA increased from 2.69 per cent to 2.91 per cent during the one year period up to March 2019.
The data says while credit flow from the public sector banks to the MSMEs has increased from Rs 8.65 lakh crore to Rs 8.80 lakh crore in the one year period upto March, the credit flow from private sector banks grew from Rs 4.11 lakh crore to Rs 5.64 crore during the period. In the case of MSEs, public sector bank credit increased from Rs 7.48 lakh crore to Rs 7.61 crore and the credit from private sector banks increased from Rs 3.63 lakh crore to Rs 4.97 lakh crore. Credit flow from NBFCs to the MSEs increased from Rs 1.12 lakh crore to Rs 1.34 lakh crore and to MSMEs from Rs 1.49 lakh crore to Rs 1.67 lakh crore. However, NBFC credit flow to medium enterprises showed a decline from Rs 0.37 lakh crore in March 2018 to Rs 0.33 lakh crore by March 2019.