Very rarely in recent times have so many steps been taken in so short a time, and at such break-neck speed, for the revival of the beleaguered micro, small and medium enterprises (MSME) sector. The sector contributes about 30 per cent of the GDP, 50 per cent of our exports and employs about 11 crore people across 6.33 crore units.

In banks, the “tone at the top” is a huge plus for MSMEs, with bank chief and their staff directly monitoring MSME lending almost on a daily basis. Of the ₹20-lakh crore Atmanirbhar Bharat package, at least ₹3.9 lakh crore is meant for MSMEs, with the government giving guarantees to banks for their additional loans.

While the ₹3-lakh crore Emergency Guaranteed Credit Limit Scheme supports standard and non-stressed borrowers, the latest in the slew of GOI announcements is a loan of up to 15 per cent of equity or ₹75 lakh to the promoters of MSMEs which are under stress or have turned NPAs after April 1, 2018.

The loan will be in the names of the promoters who can then bring it as subordinated debt. With a moratorium of seven years, this loan will be for 10 years. Banks will get a guarantee cover of 90 per cent for this loan.

The Atmanirbhar package provides for ₹20,000 crore as support for stressed accounts. The RBI had earlier announced that restructuring of MSME units with loans up to ₹25 crore can be done by banks and NBFCs without the loans being classified as NPAs (in normal cases, any restructuring will lead to the loan account being downgraded as an NPA). The window is open till December 31, 2020.

Many banks, including SBI, have announced very soft terms for the restructuring. Both the funded interest term loan (FITL) and working capital term loan (WCTL) carry zero per cent interest during the first year which is also a moratorium period for these loans. Further, the units are eligible for a second WCTL to fund cash losses expected during the first year after restructuring.

With this, the majority of the MSME units with loans up to ₹25 crore should be totally out of the woods as far as finance is concerned. There are other measures like the additional ₹40,000 crore for MNREGA and the 125-day worksheet for labourers in 116 districts which will create demand, once the money flows down.

The key, therefore, is for cash to reach people’s hands. Last-mile delivery is what will make or mar such schemes. Whether it is the emergency limit or the subordinated debt support, implementation should be smooth.

For restructuring, bank branches will require financial statements and projections for the next five-eight years, depending on the industry/service/business. There are a few non-negotiable steps in successfully implementing a restructuring proposal and putting a small unit back on the rails. It should be done as carefully as nursing a sick person back to health.

What is the borrower’s projection for profit and loss for the period of restructuring? The projected balance sheet will also be essential along with assumptions underlying the projections.

Here, irrespective of the size of the loan, all borrowers may need some support from finance professionals, including chartered accountants.

Is the borrower’s business intrinsically viable and are the projections realistic ? Banks have to quickly assess this. If the answer is no, it may be better to discuss closure of the account. But this should be the last resort.

If found viable, banks have to go wholeheartedly for a flexible restructuring so that the borrower gets time for smooth repayment. Too often, tight terms make the remedy worse than the malady.

Banks should be open to tactically useful options like ballooning repayments, low interest rates (with rights of recompense) and adequate additional funding with really useful risk mitigants like capturing of cash flows (The rest of the so-called security is more often a mirage).

Skill-sets needed for restructuring are slightly special. Staff who are overawed even by terms like FITL/WCTL/recompense are better off handling deposits/personal or home loans/wealth management.

Branches/processing centres should go for a quick yes or no.

Banks should remember that a “no” within a week is better than a “yes” six months later because time is indeed fungible money for such units.

The third of the announcements for equity support of up to ₹50,000 crore is in the works, it is understood, and will be announced soon. MSMEs have been indeed taken care of very well. It is hoped that the measures do not flounder at the door of implementation.

The writer is a top public sector bank executive. Views are personal

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