Banks snubbing MSMEs; need restructuring & hand-holding

Members of the industry have complained that banks are not helping micro, small and medium enterprises (MSMEs) by restructuring their loans when they go through tough times. Moreover, bankers insist on getting collateral before giving loans to small businessmen due to which entrepreneurship is not getting a boost in the state

| JANUARY 21, 2019, 03:17 AM IST

Karan Sehgal  

Micro, small and medium enterprises (MSMEs) are at the heart of Goa’s economy. Not only do they contribute to the state’s gross domestic product but they are also one of the major providers of employment to people.  

In spite of that, banks are not forthcoming when it comes to lending to small businesses depriving them of much needed finance. A number of small enterprises go through tough times especially when raw material costs increases. Even in such cases, banks are not willing to restructure their loans. Starved of funding, such businesses become sick units.   

Manguirish Pai Raikar, Chairman, MSME National Council of ASSOCHAM, recently met Governor of the Reserve Bank of India (RBI), Shaktikanta Das, and highlighted that bankers are taking short cuts in dealing with sick industrial units by auctions and etc.   

Raikar said, “The industrial units, which can become sick, need hand-holding from bankers, which does not happen. The bankers don’t want to spend time in restructuring loans given to MSMEs, which are having tough time. There is apathy from the bankers side’ and it seems that they are taking short cuts to close the industrial units by attachments and auctions.”  

Industry leaders complained that banks are willing to restructure loans given to large businesses but they ignore MSMEs, which are equally important. The recent example of leading national banks considering a restructuring plan for Jet Airway’s Rs 8,200 crore debt shows that restructuring happens, but only for big borrowers.  

Damodar Kochkar, president, Verna Industries Association, said, “If someone is setting up a small business and he goes to a bank for taking a loan, the bank will ask him to give his house, land, machines as collateral and will also ask for personal guarantee. This is the reason entrepreneurship is not getting a boost in Goa.”  

Kochkar continued, “The Central Government says that banks should give collateral free loans to small industries but that is not happening because banks are insisting on collateral. This is when hardly anyone in Goa defaults on loans.”  

Few years back, the Central Government had launched Pradhan Mantri Mudara Yojana (PMMY) under which collateral free loans are given to small businessmen for upto Rs 10 lakhs. Sources said that PMMY has helped but still there are a lot of needy businessmen, who need finance and are not in position to give collateral. The question arises as to why bankers are not giving loans to small businessmen.  

Sandip Bhandare, president, Goa Chamber of Commerce and Industry (GCCI), said, “After a number of banking scandals in India, a banker is worried when it comes to giving loans to MSMEs. There is a very thin line between a genuine business and a fraud company. Since it is tough to find genuine cases to lend money, bankers are worried that their entire careers will get affected with one mistake.”  

He continued, “Often projections given by a company, especially when it is starting a business, don’t turn out to be true. The industrialist may be genuine but bankers suddenly become averse to lend money to him. When it comes to restructuring loan to a MSME, it is the responsibility of a banker to analyze its viability. The bankers have to ensure that they don’t punish genuine business-people.”  

Raikar gave a number of suggestions to improve the fund flow to MSMEs. He said, “There is an MSME Empowerment Committee of RBI. The bankers should give data to it saying how many sick units they have helped by restructuring their loans and how much is the quantum of restructured loans.”  

Raikar continued, “SIDBI says that they are finding it tough to get Certified Credit Councilors. I told them so many bankers retire every year and some of them may fit the profile to become credit councilors. There is a need to monitor the fund flow from banks, SIDBI and NABARD to MSMEs on a periodic basis.”  

New-age IT companies said that bankers never approach them to offer loans. This is when a number of tech related start-ups have mushroomed in Goa over the last few years.  

Mangirish Salelkar, president, Goa Technology Association (GTA), said, “In my experience, banks have never approached start-ups asking them if they need a loan. If banks indeed want to lend to IT companies, they can approach GTA and inform us what all lending solutions they have for start-ups.”  

 Salelkar continued, “When a tech company goes to a bank, typically a banker requests them to open an account because the company’s business will ensure that money will flow into the account. However, bankers never really tell tech companies that they can even take loan from them.”  

Clearly, there is a lot which banks need to do to extend loans and finance to MSMEs in Goa. The whole industrial ecosystem is going through a change with sectors like IT coming up. Many youngsters are setting up tourism related ventures as well. Such entrepreneurs will get a boost if banks start lending to them proactively.  

MSMEs not getting adequate finance from banks

Banks are not willing to restructure loans given to MSMEs, which are having tough time. Rather than that, bankers take short cuts by closing the account through the way of auction.  

At the national level, bankers have shown more interest in restructuring loans given to big industrialists. But, when it comes to smaller businessmen, banks are reluctant to restructure loans even in Goa.  

If someone is setting up a small business and he goes to a bank for taking a loan, the bank will ask him to give his house, land, machines as collateral and will also ask for personal guarantee.  

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