With the micro, small and medium enterprises (MSMEs) facing the heat of the global meltdown, various industry associations in Uttarakhand have sought more sops for smooth flow of credit to the sector.
The Confederation of Indian Industry (CII) and Industries Association of Uttarakhand (IAU) in their suggestions to the government have called for taking proactive steps including a special fund to overcome the liquidity crunch faced by the sector.
“There should be a separate fund created for micro and other small units to which all banks should deposit, free of any interest, the amount equivalent to the short fall in achieving target. The banks, which exceed the target, should get the excess amount disbursed from this fund free of cost. This would encourage banks to disburse greater credit to micro and small units,” the CII said.
Supporting the CII’s suggestion, IAU said the government should directly start providing financial support to the sector by creating a revolving fund. “Interest rates are still very high. These need to be brought to below 10 per cent to boost growth rate,” said Pankaj Gupta, president, IAU.
Significantly, all these suggestions came after the Reserve Bank of India (RBI) asked the state level banker committee to assess the impact of the downturn on the MSMEs. The industrialists were of the view that there was an urgent need for taking more proactive steps in the wake of the global downturn that had adversely affected the demand in the market.
The industry associations said the government should do more rather than rely only on the RBI’s latest initiatives and guidelines.
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The RBI’s latest initiatives include restructuring the dues of the MSMEs and disbursement of loans against the sanctioned limit. The associations also agreed to make an assessment of the impact of the downturn on the sector. The associations also sought smooth flow of credit to the industry.
Banks were also advised to closely monitor the operations in the sub-limits, particularly with reference to their corporate borrowers’ dues to small units.
“All efforts that have been initiated by the government have proved insufficient. It is time that government stimulates internal demand. For this it is important that we have effective and proactive price purchase preference policy in place soon,” said IAU.
The IAU also said banks should also consider reducing margins to enable MSMEs to tide over cash crunch and provide ad hoc limits.
The management of non-performing assets (NPAs) would be the biggest challenge for banks in the financial turmoil. The economic downturn has affected the repayment capacity of companies. It is desired that NPA classification norms for a non-performing asset be relaxed from present 90 days to 180 days, the IAU said.