Centre urged to focus on revival of sick units

V. Sajeev Kumar

Insistence on collateral and relatively high interest rates are two of the major credit-related issues faced by the SSI sector.

Kochi, July 16

The Kerala State Small Industries Association has recommended to the Union Government to initiate policy changes so as to improve the credit flow to the SSI sector in the State.

The Association President, Mr Xavier Thomas Kondody, said that the State's performance in SSI advances is not praiseworthy and it entitles special treatment in the credit dispersal areas.

He pointed out that the total SME credit outstanding in the year 2005-06 is Rs 6,780 crore, which is just 8.72 per cent of the total deposits Rs 77,677 crore of commercial banks in the State.

However, there is no considerable growth in disbursement and several districts had shown negative growth in the disbursement to the SSI sector.

SPECIAL FUND MOOTED

He suggested creation of special fund under the auspices of SIDBI to serve the cause of sick units eligible for rehabilitation. It is pointed out that Kerala is among the top in the population of sick units. KSSIA also urged the Centre to extend guidelines and continue with instructions of RBI to the banks to effectively and timely handle the sick units' rehabilitation.

With the opening up of the economy, he said, tiny and medium enterprises sectors are facing huge challenges and competition from the domestic as well as MNCs. Citing the third industry survey held by the Government, Mr Kondody pointed out that inadequate and untimely credit flow at comparably low cost are the important reasons for industrial sickness in these sectors.

MAJOR ISSUES

According to the association, high-risk perception, asymmetry of information, insistence on collateral, moral hazard issues, high transaction costs, relatively high interest rates etc were some of the major credit-related issues faced by the SSI sector.

He pointed out that SSI accounts are charged by the highest rate of interests by commercial banks in the range of 12 to 14 per cent in the average and usual rates. These high rates under normal circumstances put the SSI's into a non-competitive situation in the market.

EXIT OPTIONS

Welcoming the recommendations of C.S. Murthy Internal Group on restructuring of accounts of SME units and also on nursing sick units, KSSIA said that every such case should be brought under the attention of the empowered committee at the State and district levels.

Exit option should be offered to the ailing entrepreneur to dispose his assets at market price and to settle the banks liabilities under the direct vigilant control of the financing institutions concerned.

(This article was published in the Business Line print edition dated July 17, 2006)
XThese are links to The Hindu Business Line suggested by Outbrain, which may or may not be relevant to the other content on this page. You can read Outbrain's privacy and cookie policy here.