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Empowering MSMEs Issues & Challenges (Shri S. S. Mundra - April 6 2016 - at the 2nd Bankers Borrowers Business Meet 2016 New Delhi)

News and Press Release - Dated:- 8-4-2016 - Shri Rajkumar Dhoot, Member of Parliament; Shri K.K. Jalan, Secretary, Ministry of MSME, Govt. of India; Shri Ashwani Kumar Chairman, Indian Banks Association & CMD, Dena Bank; Dr. Kshatrapati Shivaji, Chairman & Managing Director, SIDBI; Shri Sunil Kanoria, President, Assocham; dignitaries on the dais; distinguished colleagues from the banking fraternity; members of Assocham; representatives of the print and electronic media; ladies and gentle .....

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continued moderation in economic growth; rising pile of stressed assets in the corporate loan book of banks; need for employment generation; fulfilling entrepreneurial ambitions and so on. 2. I understand that three fundamental issues pertaining to the MSME sector are getting covered during the deliberations here: firstly, enabling better understanding of the sector by the banking community; secondly, ensuring timely financial support to distressed Micro and Small enterprises; thirdly empowerin .....

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n persons. It may not be out of place to mention here that in the face of adverse economic conditions prevalent in the country today, the MSME sector stands as a beacon of hope. Realizing the potential that the sector holds, both Government of India and Reserve Bank of India have been laying substantial emphasis on means to energize the sector. Among the GOI initiatives that have a bearing on the sector are provision for Udyog Aadhaar, Start-up India, Make in India and steps for improving Ease o .....

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for setting up of 10 Small Finance Banks (SFBs). The SFBs are mandated to extend 75 per cent of their Adjusted Net Bank Credit (ANBC) to the sectors eligible for classification as priority sector lending (PSL) by RBI. Further, these banks are also mandated to ensure that at least 50 per cent of their loan portfolio should constitute of loans and advances of up to ₹ 25 lakh. This is intended to ensure that these SFBs have a diversified loan book with exposures to small entrepreneurs. We be .....

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ium enterprises have been brought within the ambit of priority sector, whereby all loans to medium enterprises in the manufacturing sector and those up to ₹ 10 crore in the service sector now qualify for priority sector classification. 6. An extremely important, but relatively much less appreciated aspect of credit delivery system is the availability of trained human capital within the banks. Bankers ought to have a sound understanding of the businesses that they finance. In respect of est .....

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ely inexperienced bottom rung does not possess appropriate skill-sets to lend to the MSME sector, which is perceived to be risky and costlier to service. 7. To overcome this human resource deficit in the banking sector, we at the Reserve Bank of India have embarked upon a fairly ambitious national level skill building programme for the bankers titled National Mission for Capacity Building of Bankers for Financing MSME Sector (NAMCABS) in July 2015. A major facet of the NAMCABS initiative is Trai .....

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nt where an aspiring entrepreneur is more worried about embracing technology, improving productivity and efficiency at his/her unit rather than worrying about the availability, timeliness and adequacy of finance. This would require more enablers in the nature of a more robust and responsive financial infrastructure. There are several initiatives on the anvil towards this objective. Let me give a peek into some of them: 9. Timely availability of credit from the formal financial sector is a very c .....

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ential borrowers continue to face uncertainty over quantum and timelines after making a loan application. To ease the process, bridge information gaps, enable monitoring of processing time and reducing transaction costs, RBI is in active discussions with GOI, IBA, SIDBI and e-governance experts to set up a universal Udyami Portal for access by small entrepreneur. 10. The Committee on Medium Term Path on Financial Inclusion (Chairman: Shri Deepak Mohanty) has recommended exploring a system of pro .....

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terprises with weak credit histories and inadequate expertise in preparing financial statements, credit counsellors can help bridge the information gap and thereby help banks make better credit decisions. The Reserve Bank will hold consultations with all the stakeholders and come out with guidelines for this by September 2016. 11. Another financial infrastructure, which could have a multiplier effect on lending to small businesses, is a Movable Asset Registry. Today CERSAI provides a facility fo .....

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The micro entrepreneurs neither have keen business acumen nor sizeable resources. As opposed to larger businesses, the inability to respond in time to the vagaries of these business cycles can often prove fatal to the Micro enterprise. With timeliness of resource support being such a critical element at different stages during the life cycle of small businesses, let me flag a few initiatives which RBI has taken to address the issue. 13. RBI has recently issued licenses to three entities for oper .....

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MSME sector. The banks have been advised to review their existing lending policies to the MSE sector and fine-tune these policies by incorporating provisions for sanctioning of Standby Credit Facility in case of term loans, Additional Working Capital Limits, Mid Term Review of Regular Working Capital Limits, setting timelines for making credit decisions, etc. I take this opportunity to urge the banks to be sensitive to the requirements of the small entrepreneurs and offer a helping hand in time .....

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to proactively open their banking outlets in and around clusters/agglomerations as it makes prudent business sense. Empowering the entrepreneur 16. Having delved into the supply side issues and focusing mainly on institutional infrastructure, let me now talk about the demand side of things. While it is not difficult to find people with entrepreneurial ambitions, there is a need to imbue the budding entrepreneurs with a keen business sense and awareness about the intricacies of the markets and ba .....

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ually, it is an excellent mechanism, I observe that certain infirmities have come to grip the institution of R-SETIs over time. In my opinion, such institutions require well-defined objectives, a robust process for selection of trainees, constant up-gradation of training methodologies, hand-holding, ensuring credit linkage etc. I feel that there is a need for a fundamental shift in our approach towards operations and management of R-SETIs. It may, perhaps, be ideal to pool the R-SETIs into a sin .....

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nounced Framework for Revival and Rehabilitation of MSMEs. GOI, in consultation with RBI and other stakeholders, has provided an institutionalized framework for rehabilitation of enterprises which are potentially viable, but under temporary duress. From a bank s perspective, the most critical period in the lifecycle of small enterprises is the little time window between the unit operating smoothly and turning sick. The Framework provides for a structured mechanism, which could be triggered eithe .....

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a more differentiated approach towards the Micro sector. The Micro sector itself consists of a diverse set of enterprises. The banking fraternity needs to look at how they can differentiate in their procedures and products by making them more attuned to the unique needs of the Micro sector. 20. While on the institutional mechanism, just as a reassuring thought, I would like to mention that we at RBI are extremely mindful of the trials and tribulations of small enterprises and we have put in plac .....

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