MSME has historically played a pivotal role in building our economy. This crisis has not spared anyone and MSMEs have been crushed under its weight. Drying cash flows, labor migration are some of the many problems that they are facing as we speak.

1. Webinar-Mega MSME Outreach Programme - Bank
Initiatives towards MSME Sector
Resurgent India Knowledge Series Presents
Webinar-“Mega MSME Outreach Programme - Bank Initiatives towards MSME Sector”
Speaker- Mr. Rajkiran Rai G, MD & CEO- United Bank of India
Key Takeaways
General Overview
 MSME has historically played a pivotal role in building our economy. This crisis has
not spared anyone and MSMEs have been crushed under its weight. Drying cash
flows, labor migration are some of the many problems that they are facing as we
speak.
 This is an interim period where we have to rebuild our economic practices. It’s a
vicious circle of survival where companies and financial institutions are
interdependent on each other.

2.  MSME makes ⅓ of the GDP of the country and they are the second-largest employer
in our country after agriculture. It is estimated that more than 11 crore people are
employed through MSMEs and allied activities. In addition, MSME generates
substantial cash flow as compared to agriculture.
 Although even with banks ⅕ of the credit is accounted by the MSMEs, they are yet
not fully part of the formal lending mainly because MSMEs couldn’t provide
information like balance sheets & turnover data that banks require to extend credit.
And this where NBFCs stepped in.
 Webinar-Mega MSME Outreach Programme - Bank Initiatives towards MSME Sector
 The credit issues can be relating to liquidity or solvency. Most of the MSMEs mask
their solvency issue as liquidity issues which solve the problem temporarily.
Solvency issues can be related to old receivables, supply chain & technology.
 RBI in recent times has come out in support of MSME to help them deal with credit
issues. PSB 59 portal is also a great step by the government for informal MSMEs
based on their GST returns to get in-principle approval. The tool has a good
escalation mechanism where the banks are required to make time-bound decisions.
 The government has removed the difference between the manufacturing and
services in MSME, increased the investment cap in plant & machinery, and also
introduced turnover criteria. We are hoping more relaxations will be given by bank
so a large number of companies are eligible for MSME benefits.
 The 3 lakh crore automatic loan to the MSMEs, as announced by the honorable
finance ministry, is given with the view of making credit flow easier for the business
owners so that they can focus on getting their business started.
 The government also is aware of the equity problem of the promoter which it has
addressed via the scheme of subordinate debt. Regulators are also looking at the
deep restructuring of stressed MSMEs. All this put together, banks & governments
are supporting the MSMEs that are required to create the demand push of the
economy and activate the chain.
 Most of the banks’ external rates are linked to the repo rate; hence the transmission
of the lower interest rates is immediate. The repo rates are at an all-time low, and
we foresee further reduction because the balancing act has to be maintained
between the deposit rates and lending rates. The solution is to interest subvention
or brings down credit costs.
 Rating downgrades by rating agencies are inevitable but a lot of suggestions can
deliberations can be built like developing a different rating system for MSME, Using
parallel ratings like internal ratings of banks or CMR ratings instead of external
ratings for MSMEs up to 100 cr, or regulatory forbearances. These are only
suggestions at this point that can be reviewed and recommended by different bodies
of an association like IBA, & ICC and push it to government & regulator.

3.  All the PSU banks uniformly came out with the 10% working capital emergency line
of credit on fund based limit as an immediate response. Many banks (including UBI)
further have taken their own independent decision of converting the non-fund
based to fund based as & when LCs are invoked.
 Earlier the deferment of installments and interest rate for NBFCs was not clarified,
but now banks are sufficiently clear about it and they are providing to those who
have made a request for it.
 There should be a better resolution mechanism developed where the banks can
differentiate between the MSMEs based on their collateralization in order to help
the borrowers who are 100% collateralized and support them at this time. This idea
can be floated in upcoming times.
 Pre-sanction physical documentation can now be done digitally. For disbursal, the
immediate documentation is not very demanding and a period of 60 days is given to
complete full documentation.
 All the measures taken are to address the short term issues. As we come to the end
of the cycle of this pandemic, every issue will have to be reassessed.
►Watch the webinar here: https://www.youtube.com/watch?v=s3GPfsj3Pjg