CICU appeals for introducing special onetime settlement scheme of declared NPAs affordable to MSME Sector

Ludhiana, March 14, 2015: Avtar Singh President Chamber of Industrial and Commercial Undertakings (CICU), Ludhiana in a statement released today said that the role of MSMEs for employment generation necessary for inclusive and equitable growth and larger economic empowerment is well established. NPAs or bad loans of Public Sector Banks are revealing upward trend during the last 3 years. Gross NPAs had increased from Rs. 1,17,262 crore in 2012 to Rs. 1,64,462 crore in 2013 and Rs. 2,27,264 crore in 2014. Subsequently percentage of gross NPAs to gross advances had increased from 2.97 in 2012 to 3.61 in 2013 to 4.36 in 2014. Thus Public Sector Banks NPAs have piled up enormously.

He further informed that NPAs have emerged as one of the biggest ever challenges facing Public Sector Banks, bulging NPAs affect profitability, liquidity and equity of banks and lead the accumulation of losses in the succeeding years. In fact Public Sector Banks are facing more problems than the Private Sector Banks.

The increase in NPAs is high in large corporate sector as well as across the board in MSME sector. The main reason for high increase in NPAs of MSME sector is substantial exports of cheap quality goods from China specially cycles, hand tools, sports & electrical goods, ball bearing, toys which have adversely affected the domestic MSME units. Therefore MSME units have suffered heavy losses in last 3 years leading to their inability to repay loans.

Upkar Singh Ahuja General Secretary CICU said that the biggest challenge facing Public Sector Banks is recovery of bad loans. As such the need of the hour is to initiate recovery measures especially by One Time Settlement Scheme for faster resolution of NPAs Accounts. This scheme should take into consideration a new approach by factoring realizable value of the assets secured to the bank be it primary, collateral or guarantees as also the age of NPA, age of court cases and time required for fructification of legal cases & interest earned by bank & reason behind, to become the unit Sick/Non-Viable.

This special scheme should reckon in new transparent and scientifically designed modular method of computing the OTS amount including waiver of compounding interest. Leading Private Sector Banks have managed to maintain their gross NPAs to advances at less than 1% levels by incorporating aforesaid initiatives in their respective OTS schemes.  

Both of them have requested Finance Minister of India and Governor Reserve Bank of India to advise all Public Sector Banks to introduce Special One Time Settlement Scheme of declared NPAs affordable to MSME Sector. This measure is the need of the hour to focus on recovery of mounting non-performing assets in Public Sector Banks.

They have further requested that there is urgent need to address credit needs of MSE sector that has been marginalised under the existing institutional mechanism. Credit Guarantee Scheme for Micro and Small Enterprises for collateral /third party guarantee free loans is not customized and aligned with respect to the requirements of MSE Sector. Banks avoid sanctioning loans without collateral / third party guarantee which has created a big hurdle for low coverage of the MSE units under this scheme. They have suggested to setup independent Banking Regulator to monitor and regulate sanction and disbursement of credit under this scheme. The need of the hour is to take maximum use of modern technology by providing Web Enabled Services by Banks where MSEs can lodge their credit requirements and get hassle free loans under this scheme.

They are of the firm view that “A small entrepreneur today will be a big entrepreneur tomorrow and might become multinational enterprise eventually if given the comfort of timely financial and development support”.