Lack of skilled labour, credit facilities holding down MSMEs: Report

Unsustainable collateral conditions and time-consuming bank procedures act as major hurdles, which stop many MSMEs from even seeking loans

Difficulties in getting adequate financial help in the form of loans from banks and lack of skilled workforce continue to be major stumbling blocks faced by the micro, small and medium enterprises (MSMEs) sector, a report by industry body PHD Chamber of Commerce and Industry (PHDCCI) and Avian Media has shown.

The report is based on an extensive survey of MSMEs in the Okhla and Faridabad industrial belts within NCR, which are strong manufacturing hubs of auto components, light engineering and plastics among others. The report highlighted the fact that MSMEs still have to rely on other sources of finance other than banks such as money lenders.

Last week, the Reserve Bank of India (RBI) revised rules pertaining to revival of advances to small businesses and asked lenders to form district-level committees to resolve stressed loans to MSMEs. The report, however, said unsustainable collateral conditions and time-consuming bank procedures act as major hurdles, which stop many such enterprises from even seeking loans. It says that while respondents unanimously accepted heavy reliance on the banks for credit, a large proportion of them pointed out that it took them almost 45-60 days in securing finance.

Also, banks do not seem to grant loan requests to enterprises, which have been in operation for less than three years, respondents complained. While the government has announced a slew of policies for start-ups in the technological space, the same apparently does not hold true for their manufacturing industry counterparts.

Another major challenge area has been the lack of skills among MSME employees, with almost 40 per cent currently categorised as unskilled at such enterprises. The report said that only 42 per cent of enterprises conducted skill training exercises, of which 69 per cent believed these actually benefited the organisations in the long term.

The cost of such training, along with the difficulties in retaining and managing skilled manpower, who often change jobs with higher pay scale are reasons behind this.

Apart from pointing to corporate social responsibility (CSR) as a potential mass tool to benefit such enterprises, the report brings up the long standing demands of implementing the Goods and Service Tax (GST) amendment and instituting single window clearance procedures across industries.

Also, it stresses on reducing the rate of interest on loans provided to MSMEs, apart from easing of conditions for securing finance from banks, effective policy push to help small entrepreneurs faster adopt new technology and better implementation of current policies.

The RBI has said that restructuring of loan accounts, with exposure of above Rs 25 crore, will continue to be governed by the extant guidelines on corporate debt restructuring (CDR). Under the corrective action plan, banks can grant MSME borrowers additional funding for six months to revive the account, but the promoter has to give personal guarantees. It also said in case of a MSME banking with multiple lenders, the lead bank's panels should deal with the issue.

However, some experts have expressed fears that the move might result in ever-greening of substandard loans to the sector.

Currently, loans to MSMEs form about 12 per cent of all bank loans. Such a huge volume of loans will be large as compared to the corporate debt restructuring (CDR), making it difficult to monitor them. A board-approved policy to operationalise the revised framework will have to be put in place by banks before June 30.