Defaults by small units will add to bank non-performing assets: FISME

The prospect of large-scale defaults by micro, small and medium enterprises (MSMEs) on repayments to banks is unavoidable and the banking sector’s non-performing assets (NPAs) are set to increase, Secretary General of the Federation of Indian Micro, Small & Medium Enterprises (FISME) Anil Bhardwaj has warned.

Despite several measures taken by the government, MSMEs continue to suffer from the effects of the slowdown, Bhardwaj said in an interaction with Business Standard. The two stimulus packages announced by the government and the Reserve Bank of India had eased liquidity in the banking system considerably, but the measures did not percolate down to MSMEs at ground level, he said.

Bhardwaj said, “Supply chains remain clogged with unsold inventories and unpaid dues. The measures to stimulate demand may take another 6-8 months or more to have any appreciable impact. The policy initiatives and reforms that could have immediate impact were somehow not undertaken.”

Access to finance for MSMEs is a big issue. A working group (headed by K C Chakrabarty, chairman and managing director of Punjab National Bank) appointed by the Reserve Bank of India recently stated in its report that hardly 5 per cent of MSMEs are served by the formal banking sector. Ninety-five per cent of them do not have access to any form of institutional credit.

Access to finance is not so much of an issue for larger sized small or medium enterprises; their concern is speed and cost of finance. “Similarly, a new unit is likely to encounter more problems in accessing finance than an established unit,” Bhardwaj said.

Many progressive MSMEs that expanded or started a new unit during the boom period of the last four-to-five years are finding it difficult to service their debts, as market conditions have suddenly reversed. In the current situation, borrowers are able to meet neither top line nor bottom line targets; re-payment plans have gone awry and defaults have become imminent, Bhardwaj noted.