Hyderabad, Feb 6 (KNN) Issuing an SOS call, the Federation of small and medium enterprises of Andhra Pradesh (FSME-AP) has sent a memorandum to the Andhra Bank urging it to come to the rescue of the wilting SME sector in the state.
The Federation has listed various issues that pose an ongoing challenge to MSME sector such general slowdown, power woes, RBI’s stance on Non-performing Assets (NPAs), blatant misuse of SARFAESI by banks and the absence of an exit policy.
“There is a dire need for an exit policy for the MSME sector. Once a unit become an NPA, it is doomed. There is a need for introducing a proper exit policy. With no window to exit, the land mafia is buying the assets in auctions at throwaway prices,” President, FSME-AP, A P K Reddy said in the memorandum.
The document dwelt at length on the blatant misuse of SARFAESI. “The SARFAESI (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests) Act, which enforced banks to seize the assets of any defaulter after serving a 60-day notice period, and sell the assets to recover the dues, is being misused blatantly. Since there is no mechanism to segregate wilful and non-wilful defaulters, bank officials are using it indiscriminately. The objective of SARFAESI is claimed high as it must be a win-win for both the borrower and the lender; but in reality it is inversely right.”
It pointed out that many a time, entrepreneurs are at the receiving end, as the payments from the government lie pending and incentives are also withheld for years together. “But banks are turning a deaf ear to the facts and blindly implementing SARFAESI.”
According to RBI, a wilful defaulter is one which has defaulted in meeting its payment / repayment obligations to the lender even when it has the capacity to honour the said obligations; or has siphoned off the funds; or has disposed of the movable fixed assets or immovable property given as collateral.
“Nearly 99 per cent of SMEs are non-wilful defaulters. But the banks make no such distinction. Painting both with the same brush is tantamount to injustice. There are several industrial units that have been declared NPA but whose credentials are good,” Reddy states in his memorandum.
The document goes on to highlight power woes – shortage and power tariff - that have hit SME production, and competition from Chinese products.
“As you vowed to give ample importance to retail lending, particularly lending to SMEs, the provisions of lending and recovery should be designed in such a way that it will truly help small businesses who struggle with their finance most of the time. The bank interest rates must be low. Loans should be provided at the interest rate, which banks pay to customers,” it said, urging the bank to be proactive in rescuing SMEs from extinction.