The Hindu Business Line : `New banking norms harsh on small sector'

THE Madurai District Tiny and Small Scale Industries Association (Maditssia) has called for evolving policy initiatives to redress the grievances of small scale industries and sustain the entrepreneurial spirit in the society.

In a statement here, Mr K. Ramachandran, President, Maditssia, has said that while the introduction of norms for classification of assets as non-performing assets (NPAs) has been done by the Reserve Bank of India to effect speedy recovery, the recent reduction of period of non-payment of instalments to three months along with more stringent clauses is proving harsh on SSI units.

Though it is said that RBI is bringing in these norms to establish the international benchmarks, the disturbing factor is that the SSI sector, is denied of a level playing field.

The rate of interest has been high in the country until recently and even now it is double the international rates. Countries such as China and Japan come to the rescue of small and medium enterprises by accommodating the sick units with fresh loans or revival packages.

The NPA management in China is just window-dressing. They sanction new loans or enhanced limits and cover up old NPA. Under the new liberalised economy and stiff competition from the global players, Indian SSIs are facing a tough market situation. They are unable to compete with the cheap imported goods and the MNCs with muscle power.

In these circumstances, the new norms of 90 days for NPA classification will be a blow to the SSI. It is ironic that many large-scale units including Government undertakings, corporations make payments to SSI only after 120 days to six months, he pointed out.

When payments for the supplies are thus delayed, how can a SSI entrepreneur keep up his repayment obligations within 90 days? Mr Ramachandran asked.

He added that many banks including the nationalised ones are appointing private agencies exclusively for recovery. These private agencies will resort to all types of collecting techniques including coercive steps. This will only worsen the situation. Entrepreneurs will get demoralised and de-motivated.

While failure is bound to occur in any venture and more common with SSI with no stable price for raw materials and assured market for products, all units cannot succeed and 100 per cent success is nowhere assured, he said.

When units fail for reasons beyond their control, they should be allowed to have a honourable exit. Banks should come forward for one time settlement and compromise instead of resorting to pressure techniques, Mr Ramachandran said.