MSMEs highlight issues in raising capital, seek reforms in Budget 2024

Micro, small & medium enterprises (MSMEs) raised several issues faced by the sector in raising capital and demanded reforms in the bank loan rating and NPA (non-performing assets) classification policy during the pre-Budget discussions held with Union finance minister Nirmala Sitharaman.

Reserve Bank of India’s NPA classification policy is meant to be an early warning of NPAs. According to the policy, banks are required to assign accounts with exposure of Rs 5 crore into three categories - SMA-0, if account showed signs of incipient stress even if principal/ interest not overdue for more than 30 days; SMA-1, if principal/ interest payment overdue for 31-60 days; and SMA-2, if principal/ interest payment overdue for 61-180 days.

“The Special Mention Accounts (SMA) framework should be immediately reviewed and also a liberal restructuring option be given to MSMEs affected by long Covid and geo-political turmoil. Once an account figures in SMA, the account becomes a pariah both inside as well as outside the bank,  bringing even the normal banking operations to a grinding halt. This is creating false alarms and even resulting in forced closure,” Federation of Indian Micro and Small & Medium Enterprises (FISME) chairman Sandeep Jain told Sitharaman on June 21.

He also sought to do away with the third-party rating known as Bank Loan Rating for MSMEs.

“Hardly any MSME scored an investment grade rating which means higher interest rates and demand for additional collateral security. The trouble is that historically these rating agencies were brought in to rate listed companies and assign A, B, C type of ratings to inform the uninformed retail investor. The same agencies were suddenly mandated to rate MSMEs for short term solvency with the same yardstick.

Quality Control Orders (QCO)
The MSMEs also sought revoking of QCO for key steel imports like CRGO (Cold Rolled Grain Oriented) which is critical for transformers.

“India is 100 percent dependent upon imports. The QCO on CRGO led to severe shortage of raw material for transformers sky rocketing its prices. This has resulted in a surge in prices of power equipment,” he said.