Difference in Intent and Ground scenario for Loans for MSMEs
Hon. FM has said that Banks will give easy and more loans to small businesses (MSMEs), so that they use the funds to tide through these difficult times and then repay the same with interest over a period of time from their earnings. Even government has proposed to give guarantee in some cases.
However, the Ground Reality is different. Our Bankers are so risk averse that they do not want to give increased loans to people who have anything less than A+ grade in business performance. They need good turnover, good profit, interest and EMI repayment record of within 7 days from due date (Even delay of 10-30 days delay is not acceptable) and what not. Basically they want to lend to people who already have sufficient money, or are adequately backed up with black money which they can use anytime to tide over any financial hurdles.
In real business, there are so many variables, in production, sales, dispatches, and most importantly payment realization, that even God cannot predict when a small businessmen will get payment. Even Government and PSUs have to release of loads of payments which are over due, for which Hon. FM has stated in the Corona relief package that they will be released soon.
In my opinion RBI should instruct Banks to auto sanction 25% of existing loan amounts of all small and medium businesses as a new Covid-19 loan with a tenure of 2-3 years for repayment. All existing loans which were not NPA as on 24th Mar 2020 should be included in above.
Consider some of these loans turn bad, then also:
1. In most of the cases banks have property mortgaged to them of 150-200% of the loan amounts.
2. The existing loan customer and guarantors CIBIL will be adversely affected. In India, we already have a robust system for the same.
3, In worst scenario, consider a Covid loan turns bad, then Government should repay part of it. Because the small busniessmen must have used the funds only inside India, thereby helping in increase in GDP, must have paid some GST on items bought, distributed salaries, which would again have helped many families through the difficult times. Its time we STOP thinking Businessmen as CHOR and rather a brave heart. Not everyone will survive, some will always fail.
However, the Ground Reality is different. Our Bankers are so risk averse that they do not want to give increased loans to people who have anything less than A+ grade in business performance. They need good turnover, good profit, interest and EMI repayment record of within 7 days from due date (Even delay of 10-30 days delay is not acceptable) and what not. Basically they want to lend to people who already have sufficient money, or are adequately backed up with black money which they can use anytime to tide over any financial hurdles.
In real business, there are so many variables, in production, sales, dispatches, and most importantly payment realization, that even God cannot predict when a small businessmen will get payment. Even Government and PSUs have to release of loads of payments which are over due, for which Hon. FM has stated in the Corona relief package that they will be released soon.
In my opinion RBI should instruct Banks to auto sanction 25% of existing loan amounts of all small and medium businesses as a new Covid-19 loan with a tenure of 2-3 years for repayment. All existing loans which were not NPA as on 24th Mar 2020 should be included in above.
Consider some of these loans turn bad, then also:
1. In most of the cases banks have property mortgaged to them of 150-200% of the loan amounts.
2. The existing loan customer and guarantors CIBIL will be adversely affected. In India, we already have a robust system for the same.
3, In worst scenario, consider a Covid loan turns bad, then Government should repay part of it. Because the small busniessmen must have used the funds only inside India, thereby helping in increase in GDP, must have paid some GST on items bought, distributed salaries, which would again have helped many families through the difficult times. Its time we STOP thinking Businessmen as CHOR and rather a brave heart. Not everyone will survive, some will always fail.
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Mr. Poddar has presented the perspective very well. From the government announcement it seems that this loan is to be auto granted based on outstanding credit which are not in default as of 29 Feb’20. But it is a fact that banks are still dragging their feet, while they are fully secured for this grant of loan by the guarantee from government. This moreover, is inspite being flush with funds which RBI has released in the system. Firstly, the government seems lacking of ideas & efforts to revive the economy, and if at all they come up with any initiative it fails in implementation. We are reminding our bank and awaiting to hear from them, as they say they still are to formulate policy in this regard.
May 21
You are right Goutam. I understand that the top bosses of the banks have instructed their managers not grant any loan to MSME under present conditions. In that case, it is futile to expect that MSMEs will get any loan during this crisis, although it is required for survival.
May 20
As you said the tail does not follow the rules set by the head. there is no sync between them. I had a bad experience. Even before the recent fanfare announcement by FM, we had approached our banker on seeing the 1st announcement by RBI that you can approach your banker for specific needs on account of Covid 19. We sent our requisition on 10th April 2020 and after so many queries and follow ups the bank sanctioned 9% of our existing limit, when we almost decided to forget about it. Our exposure including the present sanction is covered by collateral security worth more than 200 % . In fact the banks are willing to lend to people who will deliberately become NPA and vanish like thin air. They do not lend to honest businessmen who see to it their priority to pay the loans on time and with no default. Sad state of affairs
May 20
Dear Paddar sir, I think you have misunderstood me. I have mentioned about MANY (NOT ALL AND MAJORITY AS WELL). There is saying that "Ek Machhli pur talab ko ganda kar deti he". I do come from a business family, I did business, I served with various large Industrial houses at very senior positions as well and presently, I am a self employed professional providing my professional services to all type of Industries / Business houses including the banking sector etc. etc. Sir, I have seen many world, may not be like many others but with my practical experiences by occupying the corner room to other side of the table, I have narrated what I felt is the ground reality. Off late, banks have also become Business houses and are competing with each other for very thin margins and banks are also now no more charitable institutions. Every one is Hungary for quality products whether its normal time or otherwise. Darwin's rule has been there and it shall come into play to a very large extent. Sir, I fully agree with you that businessmen never ask for any charity anytime but any person who makes charity MUST look at the beneficiary. Govt. has transferred Cash to the accounts of many so called poor, who also got grain and cooked food from many organisations / NGO but these vary people went to buy the Liquor with the money they got from Govt. I am by no means, equating those people with businessmen but black sheep are available in every herd. Regards
May 20
HEAD doesn't know what the Tail is doing.. because this is like a INDIAN PYTHON long bureaucratic mess which is always knows 'if's or but if or if not' etc they spoil the entire intent.
May 20
