Page 34 - Banking Finance May 2019 N

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entrepreneurs would benefit from this incentive. This move would ease prospects of companies being
Further, if turnover is less than Rs. 2 crore only 6 % of acquired and revived, thus saving jobs, instead of going
the total turnover will be considered as income and not into liquidation. Many more initiatives are expected on
8%at present, provided gross receipts are received the part of the Government and the RBI to ensure more
through digital measures. loan recovery from them in the coming days.
Further in March 2016, the Government in consultation
with RBI, introduced a Framework on Revival and Suggested Approaches for Effective Loan
Rehabilitation of MSMEs, which provides an Recovery
institutionalized framework for rehabilitation of sick
MSME enterprises which are potentially viable, but are To supplement the efforts of the Government and RBI to
under temporary difficulties. The Framework provides reduce the level of NPAs, banks have to undertake effective
for a structured mechanism, which could be triggered recovery measures which are of two types: (A) Non legal
either by the banker or by the entrepreneur at the first measures and (B) Legal. measures.. It is attempted to
signs of stress. The resolution process is scaled up to a discuss unique features and institutional arrangements of
committee bankers and others with a time bound these measures and offer suggestions based on the best
practices adopted by banks.
schedule.
It is hoped that this framework would motivate banks (A) Non-Legal Measures:
to take up rehabilitation process more professionally. Sending a reminder to the borrowers before the loan
More importantly to reduce credit risk associated with instalment falls due is the cheapest mode of recovery.
MSME lending, the government has effected a major Generally, response to the reminder system particularly from
overhaul of its Credit Guarantee scheme to make the honest MSME borrowers is encouraging. But efforts
adequate loans available to micro and small enterprises
need to be strengthened in banks in sending the reminders
easily by increasing its corpus from Rs. 2500 crore to Rs
on timely basis. There are many success stories on loan
8,000 crore and allowing NBFCs, along with banks, to
recovery through reminders in commercial banks
avail of official guarantees to extend credit to such units.
particularly in new private sector banks which are known
The government has also decided to raise its guarantee for sending reminders regularly by outsourcing this function.
cover up to 75 per cent of such loans, against 50 per cent When MSME borrowers do not respond to the reminders
earlier, as it intends to enable smoother credit flow to sent, visits have to be organized.
such units, keeping in minds their financial constraints and
massive employment generation potential, Lastly, the This is a more dependable measure for recovery. In general,
Insolvency and Bankruptcy Code (IBC) review panel has bankers' experience is satisfactory. But during the recent
proposed allowing promoters of MSMEs, who are not past, it is observed that the number of visits to the
wilful defaulters, to bid during the insolvency process . borrowers is going down due to staff shortage. Hence, this
task shall be outsourced to the extent needed but it calls
for close monitoring of activities of such agencies. Besides
regular visits, services of professional agencies shall be
utilized to ascertain the whereabouts of the borrowers and
take the possession of assets charged to the bank upon
serving a legal notice.

Such services when availed, loan recovery from MSME
borrowers would improve. But care should be taken in
appointing professional agencies after examining their
credentials. It is also essential to keep a constant vigil on
their practices and methods adopted for loan recovery.
Among the non-legal measures, debt restructuring of
MSMEs is picking up. Debt restructuring is an exercise to

34 | 2019 | MAY | BANKING FINANCE