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The Reserve Bank of India (RBI) is working on a paper on co-origination of loans which can become an important way of catering to the micro, small and medium enterprises (MSMEs), RBI deputy governor, Mr S. S. Mundra said at an ASSOCHAM event.
There had been already consultation and discussion with the banking industry because it is something where essentially banking and non-banking lender have to come together. So those consultations were already on, and it is a paper in making. Not that a final view has been taken, said Mr Mundra.
The idea is it can be an alliance of only the people who are in the formal lending sector, he said.
He also informed that RBI has been trying to develop a formal co-origination model whereby bank is not financing MFIs (micro finance institutions) and NBFCs (non-banking finance companies) for on-lending to ultimate borrower rather both of them join at each under-writing and loan level thereby sharing the loan amount in agreed percentage.
This can bring strength of two sectors together. The MFIs have a better understanding of the ground level, they have the last-mile reach whereas the banks can supplement the resources.
Rather than simply going with financing or on-lending, this co-origination can become an important way to cater to MSME sector, further said Mr Mundra.
He suggested the banks that for them to continue with meaningful lending, the one segment which will be very-very important will be MSMEs.
For bankers, apart from the market dynamics, the restrictions on their ability to finance large corporates, even the growing competition in the market would make it essential to finance MSMEs and also they should move quickly, relook at their processes and try to become proactive, said Mr Mundra.
He said that it is very important for the lenders be it bankers or the NBFC lenders to understand and appreciate the lifecycle needs of the MSMEs. I think putting MSME in one bracket is a big misnomer, they are as different as chalk and cheese. Probably every lender has to think about micro in one particular fashion or may be small and medium there can be another common way of looking at it.
Considering that MSME units periodically get in to the cycle of difficulties owing to factors like sudden unexpected demand, he said that it is very important for the banks that products are designed to meet the lifecycle of MSMEs.
Noting the need to supporting the faltering MSMEs he said when we talk about MSMEs we should recognise that failure is the integral part of entrepreneurship. This should be recognised, they should be supported in such point of time.
He also said that RBI has advised the banks to open more MSME focussed branch offices at MSME clusters which can also act as counselling centers for MSMEs. Collaborating with SME association in these clusters can be mutually beneficial for banks and smaller firms.
Mr Mundra said that it is imperative to bridge the information asymmetry as large scale ignorance about banking products and practices together with lack of awareness about unfolding economic environment severely ails the MSME entrepreneurs.
The borrowers must develop awareness about changing economic dynamics and its impact on their business, he said while adding that MSMEs must not fall in to the lure of quick expansion but should rather look to conserve capital and strengthen their balance sheet.
The RBI deputy governor also said that public sector banks (PSBs) may require capital infusion of over Rs 10,000 from the government than budgeted for the current fiscal on account of higher provisioning for bad loans and haircut on stressed assets.
Besides, he also said that RBI has no plans to issue second list of additional loan defaulters any time soon for bankers to start bankruptcy proceedings.
On farm loan waiver, he said that RBI's stand has been articulated several times including in the last monetary policy statement. As far as implementation and other parts are concerned I do not think we need to work as an agency for that.
In terms of the consolidation plans of the government, Mr Mundra said that nothing has so far has come to the regulator.
Earlier, in his speech he said that MSME sector will continue to remain relevant even in a scenario where more automation and artificial intelligence comes into picture as it involves local production for local consumption and services are generated locally for local requirement.
Highlighting the need to focus on work creation instead of job creation, he said, For all policymakers I would like to mention that whenever any policy is formed, it should be judged on one very important criteria that this policy will be instrumental in creating how many new jobs in the country.
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